MBA Case Study assignment with solution

MBA Case study based question and answers

Amit Chopra, (age 31 years) works with a pharmaceutical company and has not yet started to invest for his retirement. Amit is married to Neelam (age 28 years) and they have one son aged 2 years. Amit wants you to prepare a plan for him to retire by age 60. (You can make any assumptions to further build up your case).

To help Amit Chopra prepare a retirement plan, let's consider the following assumptions:

Retirement Age: Amit aims to retire at the age of 60, providing him with a retirement period of 29 years.

Life Expectancy: We'll assume a life expectancy of 85 years for Amit and Neelam, considering they might need funds to sustain themselves for a potential 25 years in retirement.

Risk Profile: Considering Amit's age and the long-term nature of his retirement goal, we'll assume a moderate to high-risk tolerance, allowing for a diversified investment portfolio with potentially higher returns.

Inflation: We'll consider an average inflation rate of 4% per year, which is the historical average in India. This ensures that the retirement corpus is adjusted for the rising cost of living over time.

Existing Assets and Liabilities: We'll assume that Amit has no significant existing assets or liabilities that would directly impact his retirement planning.

Now, let's outline a retirement plan for Amit:

Determine Retirement Corpus:

To estimate the retirement corpus, we'll consider Amit's desired annual post-retirement income. Assuming he wishes to maintain a comfortable lifestyle, we'll consider 70% of his current income, adjusted for inflation. Additionally, we'll consider the number of years left until retirement and the expected inflation rate. Based on these factors, we can estimate the required retirement corpus.

Assess Monthly Savings Capacity:

Considering Amit's current income and expenses, we'll evaluate his monthly savings capacity. It is essential to strike a balance between saving for retirement and managing present financial obligations. We'll aim to allocate a reasonable portion of his income towards retirement savings while ensuring his current lifestyle is sustainable.

Investment Strategy:

To accumulate the retirement corpus, Amit should consider investing in a diversified portfolio that aligns with his risk tolerance and retirement timeframe. A combination of equity mutual funds, debt instruments, and other suitable investment vehicles can be selected to achieve his long-term financial goals. It's advisable to consult a financial advisor to determine the optimal asset allocation and investment strategy based on Amit's risk profile.

Systematic Investment Plan (SIP):

Amit can consider starting a Systematic Investment Plan (SIP) in mutual funds, which allows him to invest a fixed amount at regular intervals. SIPs offer the benefit of rupee-cost averaging and can help him accumulate wealth over time. The investment amount can be adjusted periodically based on his increasing income and changing circumstances.

Periodic Review and Adjustment:

It is essential for Amit to periodically review his retirement plan, taking into account changes in income, expenses, and investment performance. Adjustments can be made in the investment strategy and contribution amounts as needed to stay on track toward his retirement goal.

Risk Management:

Amit should also consider mitigating risks by securing appropriate life and health insurance coverage for himself and his family. This step ensures that unexpected events do not derail his retirement plan.

Professional Advice:

Amit should consult with a certified financial planner or investment advisor to develop a comprehensive retirement plan tailored to his specific financial situation and goals. An expert can provide personalized guidance, recommend suitable investment options, and help monitor the progress of the retirement plan.

Remember, this retirement plan is based on the assumptions provided. It's important for Amit to regularly assess and adapt the plan as his circumstances evolve. Regular monitoring and adjustments will help ensure he stays on track to retire comfortably by age 60.

Is retirement planning a part of investment planning?

Yes, retirement planning is a crucial component of overall investment planning. Retirement planning involves setting goals, estimating the required retirement corpus, and creating a strategy to accumulate sufficient funds to support one's desired lifestyle during retirement.

Investment planning, on the other hand, encompasses a broader scope and involves developing a strategy to grow and manage wealth over time. It includes various financial goals such as buying a house, saving for education, creating an emergency fund, and retirement planning.

Retirement planning is a subset of investment planning, specifically focusing on setting aside funds and investing them in appropriate vehicles to build a retirement corpus. It involves considerations such as determining the desired retirement age, estimating the post-retirement income needs, assessing risk tolerance, selecting suitable investment options, and periodically reviewing and adjusting the plan to stay on track.

By incorporating retirement planning into their investment strategy, individuals can ensure that they allocate sufficient resources and make appropriate investment choices to meet their retirement goals. It helps in providing financial security and a comfortable lifestyle during the post-employment phase of life.