Financial Wellness Enhancement Program
Financial Wellness Enhancement Program
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Financial Products MapPayments and Transactions
1. Savings A/c2. NEFT3. IMPS4. E-Wallet5. Mobile Wallet
Investment Products
1. Recurring Deposits2. Fixed Deposits3. PPF4. Mutual Funds5. Stocks6. Real Estate7. Gold
Insurance Products
1. Life Insurance2. Accident Insurance3. Motor Insurance4. Health Insurance5. Theft Insurance6. Critical Insurance7. Travel Insurance
Loan Products
1. Home Loan2. Education Loan3. Credit Card4. Car Loan5. Personal Loan
All Products have a purpose
Payments and Transactions – Money TransfersInvestment Products – Wealth CreationInsurance Products – Compensate Financial LossLoan Products – To meet emergency or short fall
First, Let’s Look at Investment Products
• Recurring Deposits
• Fixed Deposits
• Debt Mutual Funds
• PPF/Sukanya Smridhi Yojana
• National Pension System (NPS)
• Stock Market or Mutual Funds
• Stock
• ELSS (Equity Linked Savings Scheme) From Mutual Funds
• Gold
• Real Estate
Fixed Deposits and PPF/SSY
Fixed DepositsInterest Rate 8.75%Tax on Interest
30%
Tax Paid 2.63%Inflation 6.3%Real Return -0.18%
PPF/SSYInterest Rate 8.7% (9.1% for
SSY)
Tax on Interest
0%
Tax Paid 0%Inflation 6.3%Real Return +2.4% (2.8%
for SSY)
Investment Fundamentals• If higher returns promised It will have higher risk
• Higher Return with Lower Risk Not possible
• But at the same time – Taking higher risk does not automatically guarantee
higher return
• Investment Risk if ignored – Capital Loss - Gambling
• Investment Risk if avoided - No Return – For e.g Fixed Deposit – No Risk
Product
• Investment Risk if Managed – Positive Returns
Why PPF or SSY gives higher return?
• PPF/SSY has Higher Return It must have Higher Risk
• Is it Riskier than FD ?
• If so, what are the Risks ?
• Blocked for 15 years or even higher in case of SSY
• Interest Rate not guaranteed during tenure
• Liquidity Risk, Interest Rate Risk
• Higher Return Higher Risk (It is not possible to get higher return
without taking more risk)
• Higher Risk ≠ Higher Return
How to measure return?
•A = P(1+r)n
•There is no other formula in Money Management•Why it is important?
If money is doubling – Apply Rule of 72
72
---------------------- = r where n= No. of years taken to double money
n
National Savings certificate doubles in 8 years and 9 months, What is the interest rate offered ?
Why Returns are important?
2015 1000002023 200000
2031 400000
2039 800000
2015 1000002021 200000
2027 400000
2033 800000
2039 1600000
Return on Investment – 9%
Years taken to double – 8 years
What happens to Rs.1 lakh investment In 24 years
Return on Investment – 12%
Years taken to double – 6 years
What happens to Rs 1 lakh investment In 24 years
Or
Every 3% decrease in Returns makes one poorer by halfPPF Rates have come down from 12% to 8.7%
Every 3% improvement in Return doubles wealth
1-Jan-00
1-Jan-01
1-Jan-02
1-Jan-03
1-Jan-04
1-Jan-05
1-Jan-06
1-Jan-07
1-Jan-08
1-Jan-09
1-Jan-10
1-Jan-11
1-Jan-12
1-Jan-13
1-Jan-14
0
2000000
4000000
6000000
8000000
10000000
12000000
28280002778056
10214897
How Financial Products have delivered between 2000-2015?
InsurancePPFELSS
Why such a huge difference between PPF-ELSS?
Difference is because ELSS has given 6% more returns than PPF or Endowment Schemes
Investment Fundamental - High Return cannot happen with out High Risk ?
What is the risk in ELSS ?
PPF has Liquidity Risk and Interest Rate Risk
Let’s understand risk in ELSS by looking at how Gold or Stock Market have performed in last 20
years
GOLD Performance
94-0
4
95-0
5
96-0
6
97-0
7
98-0
8
99-0
9
00-1
0
01-1
1
02-1
2
03-1
3
04-1
4
0
5000
10000
15000
20000
25000
30000
35000
4598 4680 5160 4725 4045 4234 4400 4300 4990 5600 58505850 7000 840010800
1250014500
18500
26400
3179930221
28650
Year
GOLD
Per
10
Uni
ts
Stock Market (SENSEX) Performance
94-0
4
95-0
5
96-0
6
97-0
7
98-0
8
99-0
9
00-1
0
01-1
1
02-1
2
03-1
3
04-1
4
05-1
5
0
5000
10000
15000
20000
25000
30000
3436 3910 3114 3096 3658 30645209 3990 3262 3383
5872 66265872 66269422
13827
20325
9720
1747320621
15534
1951321222
27485
Year
SEN
SEX
The risk is “Market Risk”. We don’t know when market can go up or
down,
But what we can see is that whenever investment was done, 10 years later Stock Market and Gold
Prices was always higher
Stock Market goes up and down, but always higher after 10th year
Let’s assume price is varying like this
Year 1 – 10
Year 2 - 8
Year 3 - 5
Year 4 – 2
Year 5 – 1
Year 6 – 2
Year 7 – 5
Year 8 – 8
Year 9 – 10
Year 10 - 12
I buy Stock Market for Rs 100000 in Year 1
How many units will I get ?
10000
Stock Market becomes 12 after 10 years, my 10000 units will become
Rs 1,20,000
Stock Market goes up and down, but always higher after 10th year
Let’s assume price is varying like this
Year 1 – 10
Year 2 - 8
Year 3 - 5
Year 4 – 2
Year 5 – 1
Year 6 – 2
Year 7 – 5
Year 8 – 8
Year 9 – 10
Year 10 - 12
Suppose I buy stock market for Rs 100000, but I buy only Rs 10000 every year, then what will happen
Year 1 - For Rs 10000 – I will get : 1000 Units
Year 2 – For Rs 10000 – I will get : 1250 Units
Year 3 – For Rs 10000 – I will get : 2000 Units
Year 4 – For Rs 10000 – I will get : 5000 Units
Year 5 – For Rs 10000 – I will get : 10000 Units
Year 6 – For Rs 10000 – I will get : 5000 Units
Year 7 – For Rs 10000 – I will get : 2000 Units
Year 8 – For Rs 10000 – I will get : 1250 Units
Year 9 – For Rs 10000 – I will get : 1000 Units
Year 10 – For Rs 10000 – I will get 830 Units
In ten years I will get 29330 Units – Value of each gram is Rs 12 –
Total Value : Rs 3,51,960
Investment in Stocks
Investment in Stocks ≠ Investment in Stock Market
Stock Market = Mutual Funds
How to plan and invest?
Invest with Purpose
Purpose is more important than product. So, Start with Purpose
Investing with PurposePurpose in the order of Priority
When Funds are required?
How much Risk can be taken?
Which products are ideal?
Where to invest monthly?
Emergency Any Time No Risk Fixed Deposits 10% of monthly income after tax
Tax Saving and/or Retirement
Mostly After 15 years
High ELSS Mutual Funds, NPS
10% of salary after tax or Rs 16000 p.m. whichever is higher
Family Functions, Vacations, Down Payment of home, Car, Home renovation etc.
Expected with in 5 years
Expected after 5 Years
Medium
High
Fixed Deposits
Equity Mutual Funds- Preferably ELSS
10% of Monthly Income after tax
Any Questions on Investment Products ?Payments and Transactions
1. Savings A/c2. NEFT3. IMPS4. E-Wallet5. Mobile Wallet
Investment Products
1. Recurring Deposits2. Fixed Deposits3. PPF4. Debt Mutual Funds5. ELSS Mutual Funds6. NPS7. Stocks8. Real Estate9. Gold
Insurance Products
1. Life Insurance2. Accident Insurance3. Motor Insurance4. Health Insurance5. Theft Insurance6. Critical Insurance7. Travel Insurance
Loan Products
1. Home Loan2. Education Loan3. Credit Card4. Car Loan5. Personal Loan
Do we need Loan Products ?
What makes you richer – Home or Home Loan?
Cost of Home Rs 50 LakhsOwn Investment Rs 10 LakhsBorrowed @ 10% Home Loan Rs 40 LakhsIncrease in Home prices per year 12%Cost of Home at the end of Year Rs 56 LakhsSold home and Received Rs 56 LakhsRepay Interest of Rs 4 Lakhs and Principal of Rs 40 Lakhs : Total Repaid
Rs 44 Lakhs
Balance Left Rs 12 LakhsInvested Rs 10 Lakhs Received Rs 12 LakhsReturn on Investment 20% (and not 12%)Tax Benefits Received – Rs 1.2 Lakhs on (30% of Rs 4 Lakhs)
Actual Earned : 3.2 LakhsHence Return : 32%
What happens when take we take Car loan and buy Car?
Cost of Car Rs 5 LakhsOwn Investment Rs 1 LakhsBorrowed @ 12% Car Loan Rs 4 LakhsCar Depreciation at the end of year 20%Cost of Car at the end of Year Rs 4 LakhsSold Car and Received Rs 4 LakhsRepay Interest of Rs 48,000 and Principal of Rs 4 Lakhs : Total Repaid
Rs 4.48 Lakhs
Additional Amount to be paid from Pocket Rs 48,000Loss -48,000If bought with own money, then at least interest can be saved and Loss
Rs 0
Borrowing is good for Appreciating Assets
Same Case for Education LoanTax BenefitsIf, Bank is not willing to give loan, then college may not be goodBrings in DisciplineBUT – Most important : KEEP EMI to 25% of monthly family income
Any Questions on Loan Products ?Payments and Transactions
1. Savings A/c2. NEFT3. IMPS4. E-Wallet5. Mobile Wallet
Investment Products
1. Recurring Deposits2. Fixed Deposits3. PPF4. Debt Mutual funds5. ELSS Mutual Funds6. NPS7. Stocks8. Real Estate9. Gold
Insurance Products
1. Life Insurance2. Accident Insurance3. Motor Insurance4. Health Insurance5. Theft Insurance6. Critical Insurance7. Travel Insurance
Loan Products
1. Home Loan2. Education Loan3. Credit Card4. Car Loan5. Personal Loan
Insurance Products
Why should we buy these products ?
What are they ?
Investment ? or Expense?
Insurance - Most Important Expense
Protect your family from unexpected Financial Losses like
Loss of Income
Hospitalization Expenses
Accident
Critical Illness
2 New Schemes – Suraksha Bhima Yojana and Jeevan Jyoti Bhima Yojana – Protects from Accident and Life – for Rs 2 Lakh each at cost of Rs 377 per year
But is Rs 2 Lakh cover enough ?
Need at least 12 times annual income as Life cover – for e.g., if you are earning a monthly salary of Rs 40000, Annual salary is Rs 5 Lakh, cover Required is Rs 60 Lakh. Rs 2 Lakh cover is available for Rs 365/= Rs 60 Lakh will be maximum Rs 10000 per year (or even lower)
Any case Insurance expenses to be kept under 5% of income. If annual income is Rs 5 Lakh spend less than Rs 25,000 in year for all insurance – Life, Accident, Mediclaim
Any Questions on Financial Products?Payments and Transactions
1. Savings A/c2. NEFT3. IMPS4. E-Wallet5. Mobile Wallet
Investment Products
1. Recurring Deposits2. Fixed Deposits3. PPF4. Debt Mutual funds5. ELSS Mutual Funds6. NPS7. Stocks8. Real Estate9. Gold
Insurance Products
1. Life Insurance2. Accident Insurance3. Motor Insurance4. Health Insurance5. Theft Insurance6. Critical Insurance7. Travel Insurance
Loan Products
1. Home Loan2. Education Loan3. Credit Card4. Car Loan5. Personal Loan
How happy are you with your monthly Savings?
More than 80% of us are not happy with our monthly savings ?
Why ? Where is our money going ?
Marshmallow Test
Marshmallow
No end to discretionary spending
Earning – Spending will be close to 0
EARNInvest = 0
SPEND (1 Marshmallow)
Choice is ours
Income – Spending = Saving 1 Marshmallow todayIncome – Saving = Expenses 2 Marshmallows tomorrow
Escaping Discretionary Expenses
EARN SAVE 30%
SPEND - 5% on Insurance and 40% on Regular
ExpensesPAY 25% EMI
for HOME
Simplified Money ManagementEarn More
1.Income from Investments
2.Save Tax
Invest Monthly
1. Emergency – 10%2. Tax Savings or Retirement
– 10% or Rs 16000p.m which ever is higher in ELSS
3. Down payment for home, Car, Vacation Abroad, Big Family Functions - 10% in ELSS or Debt Funds
Spend Less1. Insurance Premium (Less than 5% of Net
Income)1. Life Insurance (6 times Net Income)2. Accident Insurance (6 times Net Income)3. Health Insurance (Upto Rs 5 Lakh Sum
Assured)4. Critical Insurance (Age > 35, 20 Lakhs,
Sum Assured)5. Motor Insurance (depending on vehicle)
2. EMI or Rent3. Food & Clothing4. Bills5. Unplanned Expenses
Borrow Rightly (EMI to be Max 25% of Net Income)
1.Home2.Education
If no borrowing, Invest in ELSS
What Next ?
We can see this
But, Can we see this ?
Yes, It happens to all of usCommon Leakages, that impacts us
1. Higher Interest outflow on Loans2. Impulse Expenses3. High Brokerages on Products bought4. Hidden Commissions and Charges5. Tax outflow6. Delayed payments and penalties7. Unprotected Financial Losses8. Confusing Calculations showing big
Returns, but actual returns much less than expected
9. Decisions taken either in Hurry or Delayed Decisions
10. Inflation11. Idling Money12. Unclaimed or Maturity not redeemed13. High Insurance premium expenses
And many more
Stop Leakage
Increase Monthly Savings
Improve Returns on Existing investments
Reduce brokerages and commissions from financial products
Minimize Tax
Correct Life Cover
Correct Accident Cover
Correct Health Insurance Cover
Correct Critical Insurance cover
Right Loan
Reduce unnecessary interest charges on loans taken on depreciating assets
Invest for getting adequate pension
Invest for Family Functions and other big expense
Invest for your next vehicle
Stop penalties
Address any pending clarification from Income Tax department
Utilize all assets to maximum capacity
Demat your life insurance policies
Update Nominations/ WILL
Redeem matured FD/LIC/NSC and reinvest properly
Safeguard gold ornaments by transferring them to locker
Assess..Prioritize..Act
1. Assess yourselves
1. Level 0 – No Assets Start Saving Habit Invest only in RD
2. Level 1 – Low Savings or Having High Risk Assets Consider more investments in Liquid Funds
3. Level 2 - Average Savings, Average Income Take maximum benefits of 80C through ELSS
4. Level 3 - High Savings, High Income Consider 25% of Income for EMI towards home
5. Level 4 - High Networth – Manage Risk and get 15% Investment
6. Level 5 – Ultra High Net worth
2. Based on your Level – Priorities are presented
3. Choose 3 priorities to act immediately
Assess.. Prioritize.. ActDownload our Free Mobile App (Android)
What you can do with app?
1. Find out returns on your existing investments – Real Estate, Insurance, Gold Schemes – Take action on investments which are not performing
2. Use the app to compare investments before you taken decisions
3. Calculate Income Tax and find out ways to save more tax
4. Calculate your insurance need
5. Check your Financial Wellness
6. Identify Priorities
7. Act on priorities which can give maximum impact
And many more
Enhance Financial Wellness Status every 30 days
Options for Enhancing your Wellness
1. Download app and do it yourself (today or it will not happen)
2. Attend “Saturday Financial Wellness Meets” atleast once in 30 days
•Disclaimer The information provided here is intended to provide helpful and informative material on the subject matter covered. It is given with the understanding that owner/author/publishers of this material are not engaged in rendering professional services through this material. If the reader requires personal assistance or advice a competent professional should be consulted. The owners/authors/publishers specifically disclaim any responsibility for any Loss, Liability, or Risk, personal or otherwise, which is incurred as a consequence, directly or indirectly, of the use and application of any of the contents. The contents are general information that is intended, but not guaranteed, to be correct or updated. The information is not presented as a source of Investment, Tax, Insurance or Legal Advice. You should not rely on statements or representations made here or by any externally referenced sources. If you need investment or tax advice upon which you intend to rely in the course of your financial or business affairs, consult a competent, independent financial adviser. The contents should not be taken as financial advice or as an offer to buy or sell securities/insurance/fund or any financial product. It should not be taken as endorsement or recommendation of any particular company or individual and no responsibility can be taken for inaccuracies, omissions or errors. The Information presented is not to be considered as investment advice. The owners/authors/publishers do not assume any responsibility for actions or non-actions taken by people who have read the content and no one shall be entitled to claim for detrimental reliance based upon any information provided or expressed herein. Your use of any information provided herein does not constitute any type of contractual relationship between yourself and the providers of this information. The owners/authors/publishers hereby disclaim all responsibility and liability for all use of any information in this material.
•Contact
www.dyotasolutions.in
+91 22 25298454
An Investor Education Initiative