Vikram Singh (Age 30) was born and brought up in Coimbatore. His father was an employee with Indian Railways and the family chose Coimbatore as the base to avoid frequent movement in a transferrable job. Vikram graduated in commerce and completed his CA at the age of 23 in the first attempt. He married Sapna Tiwari (age 28) during his articleship. Although Sapna is a CA, she had to leave work after arrival of their first child Manoj three years ago. The couple are expecting another member into their family this year. Vikram and Sapna want to talk to their advisor if they need to take any children’s plan for their two children or any other policy.

Vikram is currently with the finance department with a MNC tooling company. He has a salary of 1.6 lakhs per month and receives limited bonus in the year. The company has provided a medical insurance cover of 5 lakhs family floater cover, 1 crore sum assured group term cover for death and additional 1 crore accidental death cover. After the birth of their first child, Vikram had taken a term insurance cover from AG Insurance for Rs. 1 crore and pays an annual premium of Rs. 11500. His debit card with HDFC Bank also offers 10 lakhs of accidental insurance cover.

You are required to review the potential risk faced by Vikram’s family and advise. Consider the following cases :

  • Human Capital as a risk free asset
  • Human Capital as a risky asset
    • Risk is correlated to other risky assets
    • Risk is not correlated with stock markets

What is the share of human capital and financial capital in the total wealth with age. What is your recommendation of allocation to risky asset and risk free asset with age.


You may take necessary assumptions. Some of the assumptions suggested are:

  • Annual income can grow with inflation (approx. 4%). No uncertainty regarding income.
  • He saves 10 or 15 percent annually.
  • His current financial wealth is Rs. 500000. Invested in equity and debt at a ratio of 50:50.
  • Consider retirement age of 60 years.
  • Capital Market assumptions:
    • Inflation=4>#/span###
    • Risk free rate=5>#/span###
    • Risky growth rate=9% and SD=20>#/span###