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Basics of Financial Planning
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Why we need to plan ?
Its risky to die early, but its more riskier to live long.
People change the basic principal
EARN – SAVE = SPEND
and now……
Life is not easy …
EARN – SPEND - EMI = ???
Life is not easy …
Don’t confuse with
“Spending for Life”
Or
“Life for Spending”
Why we need to plan ?
Generation Gap
Changes in Life Style
Increasing Inflation – The new Demon
Absence Social Security System
Generation Gap
Absence of Joint Families and Business
Less Dependency
Parents support us and we support parents
Diminishing value of culture and respect
My dad had one pair of shoes and used it for five years. I have
five pair of shoes and use it for one year.
In today’s wired world people connect less emotionally more
electronically.
High stress level.
Ever changing Lifestyle…
What Come First ?
Plan for Child Education
Plan for Child Higher Education
Buying a new house property
Foreign Tour
Plan for Child Marriage
Retirement Planning
What comes First ?
Inflation
If you have expenses TODAY
Rs. 1,00,000/-
Per month
The value after 35 years…..
(with Inflation of 8%)
Inflation
Rs. 14. 78 LacsPer month
Rs. 1.77 Crore p.a.(Just to maintain the same Life Style)
“Shauk toh maa baap ke paiseo se poore hote hai,
Apne paiseo se toh jarurate poori hoti hai”
Increase in Medical Expenses
Name of Treatment Cost TODAY Cost after 15 years Cost after 30 years
Dr. Fee for Check-up 1,000 3,172 10,063
Heart Surgery 3,00,000 9,51,651 30,18,797
Lever Transplant 33,00,000 104,68,158 332,06,768
Orthopedic Surgery 3,00,000 9,51,651 30,18,797
Catract Surgery 75,000 2,37,913 7,54,699
Open Heart Surgery 5,00,000 15,86,085 50,31,328
Spin Surgery 3,00,000 9,51,651 30,18,797 Inflation 8%
Why Planning is Important
IF YOU DIE EARLY
A good and decent TERM PLAN to cater your needs.
IF YOU DON’T DIE EARLY
Discipline approach towards investment.
Financial Planning
Financial planning is the long-term process of wisely managing one’s finances so one can achieve his financial goals.
It is your roadmap to Financial Health, & Sustainable Wealth creation.
What is the procedure of Financial Planning
Set your Life’s Goals
Analysis Risk Profile, Time and Inflation
Choose Right Asset Class
Review
India has been considered as the Next big
emerging economy due to the changing positive
dynamics within India.
India, with 1,98,000 HNIs is ranked 11th
globally on the number of HNIs.
Source: Karvy Wealth Report 2015
Source: Karvy Wealth Report 2015
Assets Amount (` Cr.)
YoY Change %
Proportion
Direct Equity 34,39,861 29.02 21.4%
Fixed Deposits and bonds 33,26,429 13.10 20.7%
Insurance 23,59,790 16.85 14.7%
Savings Deposits 19,90,249 22.20 12.4%
Cash 14,48,320 11.33 9.0%
Provident Fund 9,24,026 25.53 5.8%
NRI Deposits 7,20,997 15.85 4.5%
Small Savings 5,78,990 0.02 3.6%
Mutual Fund 5,52,325 40.49 3.4%
Current Deposits 3,42,785 11.25 2.1%
Pension Fund 3,15,915 30.96 2.0%
Alternate Assets 41,960 76.85 0.3%
International Assets 14,040 10.91 0.1%
Total Financial Assets 1,60,55,686 19.19 100.0%
Individual Wealth in India on Financial Assets.
Source: Karvy Wealth Report 2015
There has been a significant growth in individual financial assets.
The assets have grown by more than 2 times in the last 6 years
from Rs. 73 Lakh Crore in 2010 to a whooping Rs. 160 Lakh Crore
With the new initiatives of the Central Government on bringing
solid investments to India and attempting to make business
environment more conducive for foreign investors, the picture
hence looks affirmative for the investors to grow their wealth
multifold in the coming decade
Assets Amount (` Cr.)
YoY Change (%)
Proportion
Gold 57,15,605 -8.60 47.67%
Real Estate 52,85,577 4.89 44.09%
Diamond 7,98,934 2.81 6.66%
Silver 1,84,472 -6.04 1.54%
Platinum 4,698 -17.25 0.04%
Total Physical Assets 1,19,89,287 -2.30 100.00%
Individual Wealth in India in Physical Assets
Some Popular Goals
GOAL PRIORITY TIME TILL GOAL OCCURS
Child’s College Education
High 9 Years
Child’s Marriage Medium 12 Years
Retirement VERY High 25 Years
Foreign Vacation Low 16 Years
ASSET CLASSES TO INVEST
DEBT ASSET CLASS
Fixed deposit
Corporate Deposit
Debt Mutual Fund
Various Govt. Schemes
EQUITY ASSET CLASS
Direct Equity
Equity Mutual Fund
ALTERNATE ASSET CLASS
Gold Investment
Real Estate
Art Investment
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Don’t confuse Saving with Investment?
If you have Rs. 1000 and you don’t want to spend this
money, can put it in piggy bank, burry in the wall, put it
at a secret place, etc. etc. But these all will not give you
anything extra, if you want to earn something extra from
that Rs. 1000, you should invest it in some financial
product.
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WHAT IS DEBT?
In English the meaning of debt is LOAN, the same is the meaning of Debt in investment.
It is a CONTRACT between issuer and investor on pre-determined rate of interest, maturity
and the repayment of the principal amount.
The major investor in this are institutional investor (corporate, Banks, Insurance etc.)
Instrument Features:
Maturity: The period of bonds, it is life spam of bond, after this bond doesn’t exist in
the market.
Interest/Coupon: This is a amount that issuer pays to investor to on
daily/weekly/monthly/quarterly/annually.
Principal Amount: This is a money that an investor invest.
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Debt Market
Organized Debt
Market
Bonds & NCDs
Primary Market
Secondary Market
Fixed Deposits
Primary Market
Non-traded on exchange
Unorganized Debt Market
Money lenders
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Debt Market
Bank FD
• Issuer is a bank• It has a fix tenure• It has fix interest rate• It is perceive safer than Corporate FD• Current Average rate of Interest in 9%• Has insurance of upto Rs. 1 lac of FD
Corporate FD
• Issuer is a Corporate• It has a fix tenure• It has fix interest rate• It is perceive as riskier than Bank FD• Current Average rate of Interest in
10.50%• Has no insurance of investment.
Max. you can file a complaint against the company in SEBI or RBI
FD v/s Bonds & NCDs
• Fixed Deposits
• Issuer is a bank & Corporate
• It has a fix tenure
• It has fix interest rate
• It is non-traded in exchange
• Investor have to hold it till maturity
• Penalty on pre-matural
• Bonds & FDs & NCDs
• Issuer is a Corporate
• It has a fix tenure
• It has fix interest rate
• It is traded in exchange
• Investor can sell in exchange before
Maturity
• No penalty on pr-matural, because
one can trade in the market
Risk AssociatedDefault risk: A company unable to pay back capital or/and interest amount.
To reduce that risk, there are few agencies who tracks the fundamental situation of the
company and give rating the particular company. These agencies are known as Credit
Rating Agency. (Ex. CRISIL)
AAA+, AAA- Most fundamental company safest company to invest, and it gradually reduces
its quality with AA, A, BBB, BB, B CCC, CC, C, and is default company.
Lower the credit rating, higher the interest rate that a company offers to its
client.
Public Provident FundEVERYTHING ABOUT IT
1. The Public Provident Fund Scheme is a statutory scheme of the
Central Government of India.
2. This account can be opened in the name of any individual or
minor under guardianship.
3. Account can be opened by residents only.
4. HUF cannot open PPF account effective 13th May, 2005.
5. No age is prescribed for opening a PPF account.
6. After 15 years, this account can be extended for 1 or more block of 5
years.
7. Rate of Interest on PPF varies from 8% to 9%. This rate every year is decided
by the Govt. and at present is 8.1 % (F.Y. 16-17) (8.7% F.Y. 2015-16)
8. Nomination facility is also available.
9. One deposit with a minimum amount of Rs.500/- is mandatory in each
financial year. Minimum Investment to be done is INR 500 and maximum
permitted investment is INR 1,50,000 in an year effective Aug, 2014. Only
12 deposits can be made in an year. The deposits shall be in multiple of
Rs.100/- subject to minimum amount of Rs.500/-.
10. Tax benefit is available for invested amount u/s 80C.
The balance amount in PPF account
is not subject to attachment under
any order or decree of court in
respect of any debt or liability.
One person One PPF account
Best for long term investment.
The best time for deposit in the PPF a/c is between
1st to 5th of the month.
(Interest is calculated on the balance between 5th and
last day of the month)
One can avail loan from 3rd Financial Year to 5th Financial Year.
Interest rate charged is 2% more than the prevailing interest year.
Loan is to be repaid within 36 months.
Maximum 2 times loans can be availed.
Withdrawal can be from the end of 6th Financial Year.
Maximum amount which can be withdrawn is limited to 50%.
After 15 year, full amount can be withdrawn if the same is not
carried forward to another block of 5 years.
One withdrawal can be made every year starting from the 7th
Financial Year.
Debt-Based Mutual Fund
Investment through Systematic Investment Planning
Dividends are tax free in the hand of Investor.
Capital gain tax applies at the time of selling of units (sub. To
Indexation).
BETTER THEN BANK FDRs
National Pension System
EQUITY ASSET CLASS
Equity Mutual Fund
Equity Shares
Investment in equity is risky person should invest in equity depending upon their Risk appetite and risk tolerance.
Equity Market
This is an investment asset, which gives the part ownership to investor in a particular company. In layman
terms we also known as “share market”.
The investment in equity means, investment in shares of listed companies.
The investor of equity, is a part owner of the company.
The risk involved in this is capital loss. Because the returns of the investment will be purely base on the
performance of the company.
There is no guaranteed return in equity.
Investor gets the dividend. (Ideally when company earns profit, it distribute among its shareholder
through dividend).
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Points to remember
5. Stock Exchange: It is a market where buying and selling of shares take place in secondary market. The
major exchange in India is
• Bombay Stock Exchange (BSE)
• National Stock Exchange (NSE)
6. Index: Now there are more than 15,000 stocks listed in exchange, to know the performance of each and
every stock is difficult, so market has filter bunch of stocks and by seeing the performance of these stocks
we can gauge the performance of entire market. Like;
• SENSEX- top 30 stocks of BSE
• NIFTY- top 50 stocks of NSE
How secondary markets are classified:Once a company get listed in stock exchange and its prices move according to its demand and supply. This describe the size of the
company.
As per the size of a company is divided into three category:
1. Large Cap Stocks: A company whose market cap is above 10,000cr example: Infosys, Tata, SBI etc.
2. Mid Cap Stocks: A company whose market cap is 2,000 Cr. to 10,000cr example: Crompton Greaves, Pedilite, Bank of
India etc.
3. Small Cap Stocks: A company whose market cap is less than 2,000cr example: Nippo Batteries etc.
M a r k e t C a p i t a l i z a ti o n = N o . o f l i s t e d s h a r e s X C u r r e n t m a r k e t p r i c e
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Mutual Funds
Gold
Equity
Debt
One stop shop for investment products.
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What is Mutual Fund?
As a renowned statement once said, “higher the risk higher the
profit…”
Equity Funds: High risk, high return
Debt & Bonds Funds: Lower risk, lower return
Liquid Funds: Lowest risk, lowest return.
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Diversification
Mutual Fund
Equity
AutoMaruti
Tata
FMCGITC
HULIT Sector
BondsBonds
NCDs
Systematic Transaction Facility:In Mutual Fund, investor has an option to do the transaction on a regular basis i.e. Monthly/weekly/quarterly etc.
Systematic Investment Plan (SIP): In this an investor can invest regularly in systematic manner. This is best for a
young investor and who like to save some money regularly.
Systematic Withdrawal Plan (SWP): In this investor can withdraw (redeem) his investment in instalment. This is best
for the investor who wants regular income.
Systematic Transfer Plan (STP): In this investor can transfer his fun from scheme A to scheme B regularly. It is a good
strategy, if someone wants to book profit, and the same time want to invest in a safe fund where he can earn some
risk free returns.
For example STP from a equity scheme to debt scheme
Systematic Investment Plan (SIP)
SIP is investment of a fixed sum at periodic intervals for a particular period .
Advantages of SIP
• Eliminating the need of timing the markets
• Rupee cost averaging
• Benefits of power of compounding
• Inculcates disciplined habit of saving
Need of SIP
• To maintain discipline investments.
• To facilitate planning for accumulation of a corpus.
The Advantage of starting early. And investing regularly
25 Years 30 Years 35 Years 40 Years 45 Years 50 Years 55 Years
Rs. 6,430,959
Rs. 3,494,964
Rs. 1,878,847
Rs. 989,255 Rs. 499,580 Rs. 230,039 Rs. 81,670
Wealth Accumulated at 60 Years of Age, By just saving 1000 Rupees per month.
Age of starting the investment
Assuming returns of 12% p.a. for illustration purpose only
SIP of Rs 10,000 - Frequency - monthly , Return assumed – 12%
Term Maturity Value Cost of Delay 20 Years 91,98,574
Delayed by one year 80,99,026 10,99,548
Delayed by three years 62,40,733 29,57,841
Delayed by five years 47,59,314 44,39,260
SIP of Rs 10,000 - Frequency - monthly , Return assumed – 15%
Term Maturity Value Cost of Delay 20 Years 1,32,70,734 Delayed by one year 1,14,27,124 18,43,610 Delayed by three years 84,29,950 48,40,784 Delayed by five years 61,63,656 71,07,078
REAL ESTATE
Real estate is profitable option to invest one’s money in but it is not risk free.
Risk involved in real estate investment are
Getting bad tenant.
Market decline.
CHARACTERISTICS OF REITs
REITs are closed-ended or open-ended companies or trusts that hold, manage, lease, develop and/or maintain real estate for investment purposes.
REITs receive special tax consideration and are characterized by low transaction costs.
REITs can only be used to invest in completed properties and not under-construction projects.
The income source for REITS mainly comprises regular lease rentals and asset sale proceeds.
REITs has a time horizon of five to seven years
REITs are mandatorily required to distribute 90% of their net income to investors every year.
REITs in India The Real Estate Investment Trust (REIT) is an investment instrument that
will allow investments in rent-yielding completed real estate properties
who has the potential to transform the Indian real estate sector
A REIT has two unique features. The primary function is to manage
income-producing properties and to distribute most of the profits as
dividends
REITs and its positive effects have made it a very popular instrument
worldwide for both investors and for the industry as well. It is considered
beneficial for its transparency, liquidity and smooth operations
GOLD
Physical gold
Gold ETFs
Gold Monetarization Scheme
GOLD
Gold is risky as gold price can fluctuate sharply.
Therefore only 10-15% of the portfolio should be allocated in gold.
Physical gold is more risky then gold ETFs, E-Gold and Gold FOF.
Unlike other type of gold investment physical gold is not price transparent.
Buy back of physical gold is not on market prices but after deducting high making charges.
Gold Monetization Scheme
The Minerals and Metals Trading Corporation (the
government agency that deals in all metals) has
estimated that there is about 25,000 tonnes of un-
utilized gold available in India. Even then, every year 95%
of the annual demand for gold is fulfilled by imports.
This has resulted in reducing the Current Account Deficit
(CAD) which is the difference in the inflow and outflow of
Foreign Currency in a country. The CAD is now at 1.3% of
the Gross Domestic Product (GDP) as compared to 4.3%
in 2013.
PM’s 3 New Schemes
PRADHAN MANTRI SURAKSHA BIMA YOJANA Renewable one year accidental death cum disability Cover Age group between 18 to 70. Rs. 12 per year for 2 lacs
PRADHAN MANTRI JEEVAN JYOTI BIMA YOJANA Renewable one year Life Cover Age group between 18 to 50 Rs. 330 p.a. for 2 lacs
THE ATAL PENSION YOJANA Guaranteed Pension At the age of 60 Rs. 1000,2000, 3000, 4000 and 5000 depending on the corpus.
Donate and Educate..
“Lets make INDIA free from poverty and illiteracy”
Final Note…
Plan Today for Better Tomorrow.
The best age to start for your retirement is
either 20 or NOW
Stick to basic, basic is always beautiful.
Always educate your kids about our
inheritance values, cultures and roots.
Don’t forget to prepare your WILL.
Guru mantra
Earn – Save- Spend
Don’t create wrong Assets
Wealth don’t work for money
Ensure your lifestyle isn’t your biggest liability.
Saving and splurging gives you same pleasure only the order changes.
Donate generously.
Just for you….
“Investment is a boring activity . It is better to get bored and be wealthy than to get excited and end poorly. “
Manish P.
“it makes you more beautiful…”
Ask questions or your queries on ask.Financialhospital.in
