1. Sumitha’s Household

2. Sumitha (Name changed) – Case Facts Sumitha: 40 years old. Good Health, illiterate. Owns a house Owns and manages a Grocery Shop and a tea Shop in her village in Narendrapur Son: 21 years old. Good Health, Illiterate. Works as a daily wage labourer in Surat and is employed for 250 days a year. Daughter: 18 years old. Good Health. Unemployed. Illiterate. Lives with her mother. Her marriage has been fixed in the near future. Husband: Died from consumption of illicit liquor 18 years ago Daughter’s Fiancé: Earns about Rs.7,500 per month in Hyderabad and wants to settle down there.

3. Case facts House: Value Rs 2,00,000. – Rental potential 5% (Opportunity cost) – Appreciation in asset value in past at 3% Grocery shop – Value – Rs 50,000 | Working capital – Rs 20,000 – Net monthly income Rs 3,000 – If has to hire someone to run business, expected income Rs 18,250 Tea stall – Value – Rs 20,000 – Net daily income Rs 50 Son – Net daily income from labor – Rs 150 – Works for 20 days a month Cash – Rs 80,000 Gold, Cattle, Land – Nil JLG loan at 16% p.a. – Rs 8,000 Loan from moneylender at 36% - 13,000 Expenditure in near future: – Daughter’s marriage – Rs 1,40,000 – Son’s marriage – Rs 10,000 – Daughter’s first child – Rs 10,000

4. Sumitha’s Grocery Shop

5. Sumitha’s Dreams Daughter’s marriage – wants to get her married off well and wants her to lead a good life unlike the fate she herself suffered Grand-children’s education – wants her grand-children to get good education and become ‘officers’ Son’s future – wants her son to get married to a local bride, settle down in their village; wants her son to help her build her business and live close to her during her old age

6. Sumitha’s Fears Sumitha’s old age - what if her son desserts her during old age Own health – What if she falls ill, how will she manage her expenses, who will manage the business Daughter’s Fiancé – What if the choice is not a good one and her husband desserts her Son’s future – What if her son becomes an alcoholic and does not take care of the family Money with relatives – What if the relatives do not return her money when she needs them

7. Life Wealth Envelope (LIWE) A visual tool that simulates the household wealth path over a hundred years incorporating the various risk reward tradeoffs as a real household would face. The tool is analogous to the flight simulator which allows pilots to practice and get an experience of flying in different situations without risking real life. The LIWE shows the best and the worst possible wealth paths that the household could follow in the absence of financial strategies. Allows plug and play, change in assumptions about the household, Suggest suitable strategies to see the effect of these actions on the wealth path of the household.

8. LIWE of Sumitha The first five years are very critical especially with the marriage of the daughter coming in. In the worst case scenario (health shock + disability of earning members), the family might have to run down the assets (shops and savings) to manage the situation. Looking ten years hence in the chart when the both of Sumitha’s children would have got married and some corpus built, the chart looks better. Hence it is critical to ride through the first five years safely * This LIWE of the household (without any financial strategies) assumes that she would continue to run the businesses up to the age of 60, while her son will work upto the age of 50.

9. Customer diagnostic report Grocery shop: Contributes around 40% to the net annual income of the household – Theft & fire insurance for the shops as large part of assets and future income is concentrated in these two shops. Son: 40% of the net annual income comes from his labor – A personal accident cover equivalent to NPV of labor income is recommended – Life insurance – not required, since he has no dependents. Sumitha: Life insurance is not required as there is enough financial savings and no dependency in the family on any other person’s income. Requires a very high accident and disability insurance to manage expenses in case of any unfortunate event. —In case of disablility, either will have to deploy labor or will recall her son from Pune to run the business. Both the events will lead to loss of income.

10. Customer diagnostic report Current asset allocation – Longevity risk Savings of around 10% of net annual income (around Rs 10,000 per annum), with a conservative 50-50 allocation in index funds and MMMF can help Sumitha construct a decent corpus of Rs 1,75,000 in ten years frame Since the historical return on investment on house has been 8%, Sumitha should consider to sell her house to finance business expansion rather than taking a business loan at 18% or invest the same amount in combination of index funds and MMMF.

11. Diagnosis & Prescription Expansion of Business – Borrow as much as possible and invest in Working Capital & Capital improvements of grocery store which has a very high return on investment. – Sell house to finance business (Emotional attachment with house?) Health Risks – Needs to ensure about Rs.5,000 (average health expense) as health savings for every member of the family and then a Catastrophic Health Cover upto Rs.2,00,000 for expenses beyond the savings Longevity Risks – Optimal allocation to risk-free instruments (90 day T-bill, 10 year G-Sec) and Index funds (NIFTY) (What is the optimal allocation) – Investment in Gold (as hedge against inflation?) Money with relatives for safe keeping – Needs to be moved to Money Market Mutual Fund (MMMF) to ensure high safety and liquidity with some returns Son coming back home – If the son returns home, he can develop the business and also take care of Sumitha during her old age – But this can be high concentration of local economy risk - if the rainfall fails, entire income of the family could be at risk

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