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1. Personal Financial Planning
2. Why invest? Most of us in private job with no job security
Inflation rate doesnt match the increment rate To have regular
income after retirement Taking care of childrens needs Investments
must, hence, be foremost in the order of priority barring any
financial emergency
3. Understanding cash flow Preparing a Cash Flow statement of
income and expenses Helps to focus or curtail unwanted expenses The
secret to getting rich is to pay yourself first (i.e., invest for
your future), before you pay others (utilities, shops, etc)
Kiyosaki (author of Rich Dad Poor Dad)
4. Example of a cash flow statement Total (savings) +Rs
10,000.00
5. Where to Invest? Different avenues of investment Stocks,
mutual funds, government bonds, post office schemes, bank fixed
deposits, commodities, gold, real estate, art, etc.
6. Inflation Inflation is the rate at which the cost of goods
and services rises As inflation goes up, purchasing power decreases
Three years ago, you could have bought a three bedroom apartment in
a premium suburb of Mumbai for Rs 75 lakh; today, the same amount
will probably get you a one bedroom apartment in the same locality
Inflation reduces the value of money
7. Impact of Inflation on financial goals Over the years, you
have to spend more in order to maintain your standard of living A
management course that costs Rs 15 lakh today will cost around Rs
41 lakh (at 7 per cent inflation), 15 years hence when your child
is ready for it!
8. Real return To fight inflation, invest in a product which
gives not just a higher rate of interest than inflation, but also
leaves with a substantial amount that enables to meet the goals
Real return = stated return Inflation Investing in an investment
product provides 10% return then actual return is 3% (10 7) If we
consider 30% tax on return then the return is almost nil Consider
investing in equities, real estate and commodities which are
insulated from inflation
9. Accelerate earnings: The concept of reinvestment Are you
investing the interest earned? The simple act of reinvesting the
interest earned means you earn interest on the interest and make
more money Suppose you invested a sum of Rs 2 lakh in the Post
Office Monthly Income Scheme (MIS) @ 8 per cent per annum. Every
month, a sum of Rs 1,333 will be deposited into your savings
account, for a period of 6 years. Where should i invest such a
small amount?, you may ask. Well, the Department of Posts has a
Recurring Deposit (RD) scheme, where you can invest as little as Rs
10 each month @ 8 per cent per annum. Your MIS interest over 5
years would be Rs 80,000. Reinvesting would, hence, earn you an
additional interest of 8 per cent on the Rs 80,000, without much
effort.
10. Accelerate earnings: The concept of reinvestment The
following table demonstrates the value of Rs 10,000 invested at 7
per cent over a period of 35 years, assuming that the interest is
reinvested.
11. Compounding Compounding the greatest mathematical discovery
ever Albert Einstein Reinvest your income from interest on
investments, your capital or principal that is invested goes up
Another factor that influences compounding is the frequency of
compounding Compounding is such a powerful financial tool that if
you invest and reinvest your savings and profits regularly, your
investment portfolio will steadily outgrow your salary!
12. Financial Planning Financial planning is the process of
developing a personal roadmap for your financial well being The
output of the financial planning process is a personal financial
plan that tells you how to use your money to achieve your goals,
keeping in mind inflation, real returns, and taxes Process of
systematically planning your finances towards achieving your
short-term and long-term life goals
13. Benefits Helps monitor cash flows and reduces unnecessary
expenditure Enables maintenance of an optimum balance between
income and expenses Helps boost savings and create wealth Helps
reduce tax liability Maximizes returns from investments Creates
wealth and ensures better wealth management to achieve life goals
Financially secures retirement life Reviews insurance needs and
therefore also ensures that dependents are financially secure in
the unfortunate event of death or disability Lastly, it also
ensures that a will is made
14. Financial Planning Process Identify your current financial
situation Identify your goals Identify financial gaps Prepare your
personal financial plan Implement your financial plan Periodically
review your plan
15. Tips for Financial Planning Start now. Even if you are in
your mid thirties or forties, its better to start now than dawdle
for another five years. Every day counts Be honest with yourself.
Seek help when needed. Set sensible, measurable goals for yourself.
Be realistic in your expectations of the results of financial
planning Review your plan and financial situation periodically and
adjust as needed Always review the performance of your investments;
pull out if needed and reinvest the money elsewhere. Be hands-on.
Its your money and no one else will do your work for you
16. Types of Investment Stocks Mutual funds Government bonds
Post office schemes Public Provident Fund Bank fixed deposits
Company fixed deposits Commodities Gold Real estate Art Why
Insurance is not categorized as Investment?
17. Stocks Risk High Returns High Tax impact Capital gains tax
will be calculated based on your gain Requirements Demat account to
be opened
18. Mutual Funds Risk High to Low based on the type of funds
chosen Returns Medium Tax impact Requirements KYC process to be
followed Investment type Fixed amount more than Rs. 1000 or
SIP
19. Government Bonds Risk Low Returns Low Tax impact Tax free
based on type of bonds Requirements Demat account or buy in paper
form Investment type Fixed amount more than Rs. 5000 as one time
investment with specific period
20. Post Office Savings Scheme (POSS) Risk Nil Returns Low Tax
impact Interest is taxable Requirements None Investment type
National Savings Certificates (NSC), National Savings Scheme (NSS),
Kisan Vikas Patra, Monthly Income Scheme and Recurring Deposit
Scheme
21. Public Provident Fund (PPF) Risk Nil but poor liquidity
Returns Medium Tax impact Tax free Requirements Should be opened on
individuals name Maximum savings cant exceed 70000 per year Can
remit in a single installment or in max of 12 installments Can
avail loan Can liquidate only after 15 years
22. Bank FDs Risk Low Returns Medium Tax impact Interest is
taxable Interest rate will vary based on RBIs monetary policy
23. Company FDs Risk Medium Returns Medium Tax impact Interest
is taxable Interest rate is high when compared with Banks but risk
is high Fixed term
24. Insurance Provides financial protection to dependants
Doesnt make sense if there are no dependants Finalizing Life Cover
Life cover should be 10 times your annual income Consider other
debts, pre-existing medical complication, etc. Fund performance In
case of ULIP, evaluate the performance of the company in the past
years Types of Insurance Products Term Insurance Endowment
Insurance Plans ULIP Pension Plans Money-Back Plan
25. Best Practices in investing Diversify your portfolio
Constantly monitor your investment and try to correct bad
performing assets Use online portfolio tools to have consolidated
view of your investments Dont save what is left after spending but
spend what is left after saving Add nominee in all your investments
Constantly review your financial goals with the investments you
have made