Build a portfolio with adequate debt-equity allocation

Build a portfolio with adequate debt-equity allocation -...

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Reliance Communications to charge 20 paise per minute for calls within its network | Tata Motors settles Singur payment issue with vendors | Tata Motors ask vendors to take back loan of 80-85% of Singur Loss | 80% vendors sign compensation pact with Tata; other 20% to sign deal with Tata Motors in Jan | Tata Motors to pay principal interest on vendor's loan
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Build a portfolio with adequate debt-equity allocation 23 Dec 2009, 0359 hrs IST, ET Bureau Print EMail Share Comment Text: Praveen Shetty, 32, who lives in Mumbai, earns Rs 14 lakh a year, while his wife’s annual income amounts to Rs 7 lakh. They have purchased two houses and have availed of home loans for the same. The total EMI outgo stands at Rs 40,000. Other expenses amount to Rs 17,000 per month. Investments are primarily in insurance policies, which entail a total annual premium of Rs 82,000. Mr Shetty’s goals include repaying the two home loans within five years and saving for the education of his one-year- old son. RECOMMENDATION With the increase in options for the type of education systems available today, the cost of children’s education is escalating, especially in metros. One may have to plan for higher costs right from early education years unlike only for higher education from the 18th year, which has been an accepted practice until now. We feel a general inflation rate of 6% may sometimes fall short, keeping in mind the spiralling education costs, extra curricular activities, creche facilities, etc. The Shettys’ goal of building a corpus of at least Rs 25,00,000 for their son in his 18th year, would cost around Rs 67 lakh then, considering a 6% inflation rate. We suggest creation of an emergency fund for any unseen events which may disturb cash inflows in the short term. In such a case, to provide for fixed cash outflows for a period of say, six months, they need to set aside Rs 3,50,000. With the current savings bank balance being Rs 1,00,000, the remaining amount could be built up over a period of a year by putting aside Rs 22,500 per month in a higher yielding liquid debt fund. The Shettys also need to look at health and life insurance plans to ensure risk coverage for dependents.
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This note was uploaded on 03/21/2010 for the course KNOWLEDGE 5654 taught by Professor Mr.david during the Spring '10 term at IESE Business School.

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Build a portfolio with adequate debt-equity allocation -...

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