Amar patel, aged 35, lives with his wife Mona, their 5 year old son Ankit and...

Amar patel, aged 35, lives with his wife Mona, their 5 year old son Ankit and 10 year old daughter Mita. His parents also live with him in a flat in Puna. He had taking a housing loan on a floating interest rate three years ago to purchase the flat. He is a software engineer and he earns around Rs 18 lakhs per annum. His net worth and cash flows are given below.

Net Worth

Particulars	Amount(Rs)
Assets:
Savings A/c & Fixed deposits	5,00,000
National savings certificates and bonds	2,00,000
Life insurance & pension plans	100,00,000
Stocks(at cost)	30,00,000
House (flat)	25,00,000
Car	5,00,000
Liabilities:
Housing loan	20,00,000
Cash flows:
Inflows:
Salary income	18,00,000
Other income	2,00,000
Outflows:
Household exp	3,00,000
Insurance premium	60,000
Taxes	5,00,000
Other lifestyle exp	1,00,000
Travel & holidays	2,00,000
Home loan installment	2,40,000
Surplus	6,00,000

Amar has a term life insurance policy with a sum assured of Rs.70 lakhs, in addition to a Rs. 20 lakhs group life insurance cover from his employer. He also has a family health insurance worth Rs. 5, 00,000. His parents are covered under a government medical scheme as his father retired as a government officer. In the current year, he took an additional 10lakhs cover for his entire family.

Amar is interested in stock markets and in his spare time discusses new IPO’S stock news, and market Scenario. He has an above average risk appetite and is not afraid of risk. He has invested in stock based on tips or advice received from friends and has around 30 stocks in portfolio. The market was on a bull rally during the last four years and he booked profits on sale of some stocks. Suddenly, in January 2008, stock markets started sliding down and this freefall continued. He became frantic and looked for news and tips which would give some sign pf hope. When he reviewed his portfolio, he found that around 50% of his portfolio consisted of ‘dud’ shares of little value. He sold stocks too soon and held on to “dus”. He loves investing in stocks and will continue to do so even if he incurs losses.

As he lacks the skills and time to monitor and adjust his portfolio, Amar seeks your help and advice. Please advise him on the following specific points:

Are Amar and his family adequately insured?

Is the asset allocation of Amar’s portfolio optimal, considering his age and family position? If no what are the changes he should make?

Keeping in view Amar’s risk appetite, how should he go about investing?

Expert Solution

jeff jeffy answered 2 years ago

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