Financial planning actual

FINANCIAL PLANNING

‘FINANCIAL HEALTH’ IS WEALTH

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AGENDA Investment Planning Financial Goal setting Tax Planning Retirement Planning Insurance Planning Way ahead: My services

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PROFILE Education : M.Tech from National Institute of

Technology, Warangal

Certified Financial Planner (CFP) & Member of Financial Planning Standards Board, India

& Council of Financial Planners AMFI Certified Mutual Fund Advisor

Current Work : Independent Financial Advisor & Faculty for CFP course

Past Work Exp : L&T for 6.5 years

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WORKING FOR MONEY VS

MONEY WORKING FOR YOU

We put so much of efforts on earning We focus on increments, promotions, change

jobs for growth……all for earning money OVER ALL, WE WORK SO HARD TO EARN

MONEY

DO WE PUT THE SAME EFFORTS IN INVESTING OUR HARD EARNED MONEY?

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INFLATION What is INFLATION? Average inflation: 8.5% p.a Life style inflation: 3% p.a Effect of INFLATION:

Change in expenses2016 2017

Rs. 100 Rs. 111.5

Rs. 100 INVESTED IN FIXED DEPOSIT2016 2017

Rs. 100 Rs. 106.5 (Post-Tax)

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INVESTING IN A FIXED DEPOSIT

Is your money really safe in a Fixed Deposit? Interest earned from a Fixed Deposit is less

than the inflation rate. Money in FD will actually get devalued because

of lower returns and due to inflation

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INVESTING IN AN FD ANY CHANGE IN STANDARD OF LIVING??

EFFECT OF INFLATION ON STANDARD OF LIVING

RATE OF RETURN < INFLATION

RATE OF RETURN > INFLATION

SOL will deteriorate

SOL will improve

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WHERE ISRATE OF RETURN > INFLATION

STOCKS / SHARES OF COMPANIES MUTUAL FUNDS REAL ESTATE

SHARES

MUTUAL FUNDS

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ARE STOCKS RISKY?

Nothing is risky as long as we know what we are doing

Stock Market is risky only in the short-term

In the long-term:

Share price depends on the fundamentals of a Company

If business does well, Stock follows – Warren Buffet

Daily price variations should not bother you as long as the company’s fundamentals are sound & improving.

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MORE ABOUT STOCK MARKET Have a business owner mindset. Think that you are

investing in a business, not in a stock Buy LOW, sell HIGH When everyone is buying, you start selling. When

everyone is selling, you start buying Your returns/gains depend not on the time at

which you enter the market but on the time you stay in the market

Market is run by two forces – Greed & Fear

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MORE ABOUT STOCK MARKET

“Compounding is the 8th wonder of the world. He who understands it, earns it….he who doesn’t, pays it” - Albert Einstein

Don’t switch stocks frequently. Long term investment a.k.a buy & hold doesn’t

mean buy & forget. Buy great businesses at reasonable prices

rather than average businesses at cheap prices

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RISKY VS NOT-RISKY?What is risky What is not risky

Investing for Short-term Investing for long termNot knowing what we are doing

Investing in quality/ fundamentally good companies

Investing based on recommendations, for quick gains

Investing in mutual funds with good long-term track record for long term through SIP

Short-term investing a.k.a trading can go either way

Investing in a disciplines manner regularly instead of lump-sum investment

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WHY DO PEOPLE LOOSE MONEY Not taking advice from proper source

Incase of medical health, Do you take medicines recommended by

friends/colleagues/relatives?OR

Do you consult a DOCTOR?

Incase of financial health, Do you take advise from friends/colleagues/relatives?

OR Do you consult a FINANCIAL ADVISOR?

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FROM THE GREATEST INVESTOR

Two rules Rule no.1: Never lose money in stock

market Rule no.2: Never forget rule no.1

Warren Buffet once remarked “I buy on the assumption that they can close the stock market the next day and not open it for 5 years.”

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TATA MOTORS SHARE PRICE

Investment grew by 133 times in 14.5 years

Compounded annualized return 40%

Share price on 17-Jun-15 Rs. 446

Stock split in Sep-11 1:5

Share price on 01-Jan-01 Rs. 16.71

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TATA MOTORS SHARE PRICE

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HDFC BANK SHARE PRICE

Investment grew by 147 times in 15.5 years

Compounded Annualized return 38%

Share price on 17-Jun-15 Rs. 1004

Stock split in Jul-11 1:5

Share price on 01-Jan-2000 Rs. 34

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HDFC BANK SHARE PRICE

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L&T SHARE PRICE

Investment grew by 487 times in 15 years

Compounded Annualized return 51%

Share price on 25-Aug-15 Rs. 1625

Bonus shares – 3 times (1:1, 1:1, 1:2)

Share price on 01-Jan-2001 Rs. 40

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L&T SHARE PRICE

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HOW TO SELECT A STOCK Select companies with the following characteristics:

Competitive advantage Brand value – Brand recognition is invaluable Product differentiator High Profit margin Low Cost production Good management Consistent long term record – Profit & Revenue growth Good future prospects Little or no debt – Highly leveraged companies are vulnerable

during economic slowdowns Don’t select companies where most of promoter shareholding is

pledged

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HOW TO SELECT A STOCK

ARE YOU AN EXPERT??

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WHAT IS THE WAY OUT?DEPEND ON THE EXPERT: MUTUAL FUND

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WHY MUTUAL FUNDS? Investment houses which invest investor’s money in

stocks

Professional management

Inflation beating returns

Tax free returns (No tax on long-term capital gains)

Tax saving schemes – ELSS for section 80(C)

SIP – Systematic Investment plan: Monthly investment option

Portfolio diversification

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In wealth creation - "We don't have to be smarter than the rest. We have to be more disciplined than the rest."

- Warren Buffet

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LONG-TERM SCHEMES RETURNS

Scheme name 3 yr returns

5 yr returns

10 yr returns

Since inception

ICICI Prudential value discovery fund

36% 19% 19% 23% (Aug-04)

UTI Mid-Cap Fund 43% 22% 18% 20% (Apr-04)

Invesco India Mid N Small Cap Fund

35% 20% - 18% (Mar-08)

Birla Sun Life MNC Fund

35% 23% 20% 19% (Apr-94)

HDCF Mid-Cap opportunities fund

37% 20% - 17% (Jun-07)

Franklin India Prima Fund

37% 23% 17% 20% (Dec-93)

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STARTING EARLY

Age Vijay AjayDifference in

wealth

Investment start age 23 30

Amount invested p.m 10000 10000

Expected rate of return 15% 15%

Investment value @ 35 35 ₹40,35,846 ₹8,96,817 ₹31,39,029

Investment value @ 40 40 ₹94,01,076 ₹27,86,573 ₹66,14,504

Investment value @ 45 45 ₹2,07,06,590 ₹67,68,631 ₹1,39,37,959

Investment value @ 50 50 ₹4,45,29,356 ₹1,51,59,550 ₹2,93,69,807



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REAL-LIFE EXAMPLEPOWER OF COMPOUNDING IN SIP

Name of investor I Ganesh KumarSIP amount Rs. 12000 p.m

SIP start date July, 2012Amount invested till date Rs. 6,00,000

Current value of investment

Rs. 9,18,812

Rate of return (XIRR) 18% p.aExpected wealth after 4

yrs if he continues his SIPsRs. 27,56,437

Expected wealth after 8 yrs if he continues his SIPs

Rs. 64,31,686


Rs. 1,37,82,185


Rs. 2,84,83,183


Rs. 5,78,85,178

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TYPES OF MUTUAL FUNDS Equity Mutual Funds – 85% in equity & 15% in Debt

Large-Cap FundsMulti-Cap FundsMid N Small Cap FundsSmall Cap Funds

Balanced Mutual Funds – 65% in equity & 35% in debt

Debt Mutual Funds – 20% in equity & 80% in debt Equity Linked Saving Schemes (ELSS) – Tax saving

Mutual Funds for 80(C) Monthly Income Plans – for retired people

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TYPES OF MUTUAL FUNDS Liquid Funds

To invest money for short-term Returns of ~ 8 – 9% p.a Money can be withdrawn with in 1 day Emergency fund can be maintained in Liquid Funds Highly liquid

SWP – Systematic Withdrawal Plan Fixed amount of money can be withdrawn every month / quarter

from a Mutual Fund scheme Good option for retired people to get regular income / cash-flow

STP – Systematic Transfer Plan Fixed amount of money can be transferred from one type of Mutual

Fund scheme to another type of Mutual Fund scheme

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ADVANTAGES OF MUTUAL FUND SIP

Investment can be done every month whether small or large

Disciplined approach to create wealth

Long-term wealth creation

Takes care of market fluctuations

NIL Tax on Long Term Capital Gains

Tax saving u/s 80(C)

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FINANCIAL GOAL SETTING Determine goals – Short-term & Long-term

Buying a car after 3 years Down payment for House after 5 years Foreign tour after 4 years Children’s marriage expenses after 15 years

Calculate future cost of the goals Calculate the amount to be invested per month

depending on the returns expected from the financial product

Start investing & regularly track the investment to ensure it is on track

Financial planning.xlsx

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TAX PLANNING

Income slabsBelow 60 yrs

Senior citizen

60 – 79 yrs

Very senior citizen

> 79 yrsUpto Rs. 2.5 L NIL NIL NIL

Rs. 250001 – Rs. 300000 10% NIL NILRs. 300001 - 500000 10% 10% NIL

Rs. 500001 - 1000000 20% 20% 20%Above Rs. 1000000 30% 30% 30%

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TAX PLANNING Save more and pay less Tax to IT department Plan in advance at the start of the Financial Year and

invest to save Tax Total deduction limit: Rs. 4,44,200/-

Amount80C PPF, ELSS, Life Insurance

premium, Principal of Housing loan

Rs. 1,50,000

80CCC Pension plans80CCD NPS - EET80CCD NPS - EET Rs. 50,00080D Health insurance premium General - Rs.

25000Senior citizen - Rs. 30000

Sec 24 Interest on Housing loan Rs. 2,00,000Transportation allowance Rs. 19,200

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TAX PLANNING What is the best option for 80(C)? PPF rate – 8.1% ELSS – Equity Linked Savings Scheme

Annualised returns of ELSS

Difference in returns: PPF Vs ELSS


Scheme name 3 yr 5 yr Since inceptionAxis Tax Plan 31.5% 21% 20% (Dec-09)Birla Sun Life Tax plan 28% 16.5% 21% (Feb-99)Invesco India Tax Plan 28% 16% 15% (Dec-06)

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TAX PLANNING – LOST 1.5 CR?

Difference in returns b/w PPF & ELSS

Final amount after 16

yearsPPF 35 Lakh

Franklin India Tax Shield 1.9 CroreDifference 1.5 Crore

Amount invested per annum for section 80(C)

Rs.1,00,000

Investment period 16 yearsAverage PPF return 8.7%Franklin India Tax Shield return (since 1999) – an ELSS scheme

26%

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TAX PLANNING ELSS advantages:

Save Tax+Build wealthHigh returns – Inflation beating returnsLess lock-in period (3 yrs)SIP – Systematic Investment Plan (Monthly

investment plan)Disciplined investment approachProfessional Fund Manager backed by a

dedicated research team

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RETIREMENT PLANNING Very important goal but neglected until

few years before retirement Corpus required to survive post-

retirement life is much higher than what you think, if actually calculated

Medical expenses post-retirement Extended life expectancy due to

advances in Health care Retirement corpus calculation:Financial

planning.xlsx

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INSURANCE Is required to protect your dependents Is required if you have dependents &

liabilities How much insurance is required?

It should be equal to the amount of money required by your dependents in your absence

It should also cover your loans and other liabilities etc.,


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INSURANCE Life insurance policy

Take a Term insurance policy from reputed insurer

Select company (insurer) with better claim settlement ratio and reasonable premium

Health insurance policyTake a Health insurance policy from a

reputed insurer for required amount. Take a family floater plan, if required

Take Health insurance policy for your parents

Better option is to take a family floater policy, which covers all your family members

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INSURANCE – DON’TS Don’t mix investment & insurance Don’t take an endowment plan.

Example: LIC endowment plans / money back plans

Don’t take an ULIPs policy for your insurance

Endowment plans & ULIPs mixes investment & insurance, which neither serves insurance goal nor investment goal

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STAGES IN LIFE Accumulation phase Consolidation phase Preservation phase Spending phase Gifting/Distribution phase

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MY SERVICES Mutual Fund Advisor Investment Planning Comprehensive Financial Planning Financial Goal Setting Evaluation of Current Financial Situation Insurance Planning Tax Planning Retirement planning Financial Planning faculty

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CONTACT DETAILS

Email : [email protected] Mobile : 91-9538539049

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HAPPY INVESTING FRIENDS!!

THAN ‘Q’

Financial planning actual

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