Vivek Barve, 40, is a high-flying VP in a fast-growing technology firm. He has a BTech in Comp Science from IIT Bombay and an MS from Ohio State University. He has just the right qualifications, leadership skills, and work ethic for the job. Vivek has been a consistent high performer in his organization and has risen rapidly in the last few years. His fixed CTC today (pre-tax) is Rs 45 lacs p.a. In addition, as a recognition of his performance and his contribution to the growth of the organization, he has been rewarded with a bonus of 50% of his fixed salary; and also Employee Stock Options (ESO) of Rs 10 lacs.
Based on his past track record, he expects his total package (incl bonus and ESO) to increase every year by 8-10% for the next 10 years. His wife Geetanjali, an MA and MPhil in English, earlier had a job as a college lecturer. She quit that job and is now engaged full-time in bringing up their children. Besides, she teaches and counsels less-privileged children in a nearby slum area as a social service. Geetanjali is also close to obtaining a Ph.D. in English Literature from Mumbai University. They have twins, one daughter and one son, aged 10 years.
The Barve family lives in a 3-bedroom rented apartment in an upmarket condominium in Powai, Mumbai, for which he pays a monthly rent + maintenance of Rs 55,000. His parents live in their ancestral home in his hometown. Kolhapur is a mid-sized town about 450 km south of Mumbai. His father is a retired Army officer, earns a decent pension and excellent healthcare coverage for himself and his wife. Vivek is a workaholic and has been focusing just on his career and office work. So he has had very little time so far to pay attention to his personal financial and investment affairs. His total savings so far of Rs 1.85 crores are just carelessly parked in bank FDs (Rs 1.65 crores), and EPF (Rs 20 lacs). He has no insurance of any kind. He has now asked you to take a look at his portfolio, and suggest a financial plan. You have conducted a detailed interview with him on his future plans/ goals, expenses, etc.
The results are the following: The Barve family's average monthly household expenses (other than rent) is approx. Rs 85,000. Children's school expenses are Rs 2.25 lacs per child per annum. Being US-educated himself, Vivek is keen to send both his children abroad for studies after their XII standard, which is expected to cost approx. Rs 80 lacs per child. Vivek would now like to take some time off, and go for regular foreign vacations with his family, once in 2 years, for the next few years. The cost of each foreign vacation is approx. Rs 6 lacs. On all the costs above, the Expected inflation level is 5% p.a. His friend Paresh Shah, a real estate agent, has shown him a large well-done-up flat for sale in the neighborhood.
This is a distress sale, and hence it is available for the surprisingly low price of Rs 3.5 crores. Vivek and Geetanjali have liked the flat a lot, but have to act immediately to buy it, else it will get sold to another buyer. The interest rate on housing loans is around 10%; for a repayment period of 15 years, the EMI comes to approx. Rs 1,075 per lac of loan per month. His old Honda City has served him well for 8 years and is still performing well. Vivek is a Honda loyalist and has now set his eyes on the Honda CRV that costs around Rs 23 lacs.

 Analyze all the above data and answer the following questions:

a) What is the Life cycle stage and Wealth Cycle stage of Vivek Barve?

b) Prioritize and classify his goals

c) Suggest a detailed financial plan to meet future goals (incl. reallocation of the existing portfolio), give reasons for your asset allocation

Answer rating: 100% (QA)

a We will try to understand the Life Cycle Stage of Vivek Barve first 1Childhood Phase In his childhood days he has done Btech in Computer Science fro... View the full answer