Financial Planning - 101
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This document is an attempt to create financial literacy among salaried professionals who have begun their professional career. The intent of the document is to emphasize financial planning and create awareness about various asset classes. The sample financial plan is also available in excel format for you to experiment your financial needs. If your are interested in the excel based plan, please send an email to me. Should you need any clarification/help, just send an email. Happy learning!
Transcript of Financial Planning - 101
1All trademarks acknowledged.
Financial Planning 101
prepared and presented by –
Paresh Ashara
Email: [email protected]
2All trademarks acknowledged.
Agenda
Financial Planning
Typical Asset Classes
Risk Appetite
Asset Risk Profile
Financial Need Vs. Product
Where to look for Investment Ideas
Disclaimer: This document has been prepared to create awareness about financial planning and the asset classesavailable to achieve one’s financial goals. The views presented are based on reading relevant material from varioussources and personal experience. The numbers and returns presented are based on past performance and for learningpurpose only. Future returns are not guaranteed. Any resemblance to the available content is purely coincidental.
3All trademarks acknowledged.
Financial Planning
Goals & Objectives
Income Tax
Planning
Fringe Benefits Planning
Insurance Planning
Investment Planning
Higher Education Planning
Retirement Planning
How can I reduce my tax outgo?
How will I be able to fund my
Vacations, Car, etc.
How do I protect myself from devastating,
unforeseen events?
How do I save for a rainy day? How can my
money grow?
How can I continue enjoying the same lifestyle post retirement?
Live in my own house?
How will I be able to fund my
own/children higher education?
4All trademarks acknowledged.
Typical Asset Classes
Fixed Deposit
Gold
Bonds/ Debentures
Mutual Funds
Equity
Real Estate
5All trademarks acknowledged.
Asset Classes – DetailsFix
ed D
eposit
Bank FD
Corporate FD (STFC,MFC)
Gold
Physical Gold (Coin, Bar)
Jewellery
Exchange Traded Fund
Mutual Fund Scheme
Fund of Funds
Bond/
Debentu
res
GoI Bond
Tax Free Bond
Fixed Coupon Bond
Non-Convertible Debentures
Convertible Debentures
Mutu
al Funds
Liquid/Cash Fund
Bond/Debt Fund
Balanced Fund
Equity Fund
Thematic Fund
Sectorial Fund
Equity
Direct Equity
Derivatives –F&O
Private Equity
Real Esta
te
Plot of Land
Independent House
Flat/ Apartment
Commercial/ Office Space
6All trademarks acknowledged.
Risk Appetite
How much risk do I need to take to get equivalent return?
– High risk, high return
– Low risk, low return
Retu
rn
Risk
7All trademarks acknowledged.
Asset Classes – Risk Profile
Fixed Deposit
Bonds
Gold
Mutual Fund
Equity
Retu
rn
Risk
Real Estate
8All trademarks acknowledged.
Financial Need Vs. Product
Tax Planning
Life Insurance
Investments in ELSS
Housing Loan – Principal Repayment
Infrastructure Bonds
Health/Medical Insurance
Home Loan – Interest Payment
Fringe Benefits Planning
Direct Equity
Mutual Funds
Exchange Traded Bond/Debentures
Fixed Deposits (Bank, Corporate)
Gold (ETF, Coin, Bar, Jewellery)
Insurance Planning
Term Life Insurance
Medical/Health Insurance
Child's Education Plan (Endowment scheme)
9All trademarks acknowledged.
Financial Need Vs. Product (contd.)
Investment Planning
Real Estate (Plot, House, Flat)
Direct Equity
Mutual Funds
Bond/Debentures
Gold (ETF, Coins, Bars, Jewellery)
Higher Education Planning
Direct Equity
Mutual Funds
Children Education (Endowment) Plan
Exchange Traded Bond/Debentures
Gold (ETF)
Retirement Planning
Real Estate (House/Flat)
Fixed Deposits (Bank, Corporate)
Mutual Funds
Direct Equity
Gold (ETF)
10All trademarks acknowledged.
Returns by Asset Class
8%
8.50%
11%
13%
15%
17%
Fixed Deposit
Bonds/Debentures
Gold
Mutual Funds
Real Estate
Equity
Historical Mean Return
Investment in Sensex 1980-2014
1980-2014 period in Delhi
Equity+Debt+Liquid ~10 yr period
1980-2014 period
Yield on 10yr GoI bond over 10 yrs
A 5-yr FD for 1980-2014 period
Mean Return data based on publicly available information over internet.
11All trademarks acknowledged.
Products for Various Life Stages
Young & Single
•Investment allocation: 80% Equity, 10% fixed income, 10% in cash; Buy a Term Life Insurance Cover (5x Salary)
•Buy health insurance cover for yourself and parents; Start saving and investing towards specific goals like marriage, purchase of house, etc.
Newly Married
•Build adequate emergency fund by investing in Liquid Mutual Fund schemes; Ideal allocation could be: 80% Equity, 10% fixed income, 10% in cash; Increase Term Life Insurance Cover proportionate to income
•Start investing in retirement plans (VPF or other schemes); Family floater health cover (include wife)
Starting a family
•Start saving for children’s education and marriage; Include children in health insurance cover
•Ideal allocation could be: 70% Equity, 20% fixed income, 10% in cash; Increase Term Life Insurance Cover proportionate to income
Grown-up Children
•Buy critical illness cover for self and wife;
•Ideal allocation could be: 60% Equity, 30% fixed income, 10% in cash
Retired
•Ensure adequate health insurance; Ideal allocation could be: 20% Equity, 70% fixed income, 10% in cash
•Enhance protection with a fund allocated for emergency requirements; focus on safety, however you can’t avoid equity
12All trademarks acknowledged.
Goal Planning – Sample Exercise
GoalsGoing on a
VacationBuying a Car
Child's Higher
Education
Buying a
House
Child's
MarriageRetirement
Time horizon (years) 1.5 3 5 7 20 25
Corpus Required (FV) 2,00,000Rs. 5,00,000Rs. 10,00,000Rs. 20,00,000Rs. 25,00,000Rs. 50,00,000Rs.
Assumed Returns (%) 9.50% 9.50% 10% 13% 15% 15%
Annual Investment (PV) Rs. 1,30,286 Rs. 1,51,790 Rs. 1,63,797 Rs. 1,92,222 Rs. 24,404 Rs. 23,497
Monthly Investment (PV) Rs. 10,382 Rs. 12,058 Rs. 12,914 Rs. 14,717 Rs. 1,670 Rs. 1,542
Liquid MF Bank/Corp FDBond Fund/
Debentures
Bond/Balanced
FundEquity Fund Equity Fund
Liquid MF Balanced Fund Equity Fund Direct Equity Direct Equity
Debt MF Equity Fund Direct Equity Gold ETF Gold ETF
Equity Fund Direct Equity Gold ETF
Proposed Allocatioin60% Debt
40% Equity
40% Debt
60% Equity
80% Equity
20% Gold
90% Equity
10% Gold
Medium-term Long-termShort-term
90% Debt
10% Equity
Where to Invest
13All trademarks acknowledged.
Where to look for investment ideas?
http://economictimes.indiatimes.com/wealth
http://www.morningstar.in/default.aspx
http://www.moneycontrol.com/
http://content.icicidirect.com/newsiteContent/Research/Overview.asp
http://www.livemint.com/Query/B5rH9IkIyAjA13Jf0DVWTO/mint-50.html
Disclosure: I’m a registered user at economictimes.com, moneycontrol.com and icicidirect.com. These links havebeen shared to create general awareness on the financial planning subject. There is no intention to promote thesewebsites sites, whatsoever.
14All trademarks acknowledged.
First Step to Financial Planning: Safeguard your family…
Buy a Term Insurance plan for yourself– Life cover worth minimum 5x your annual gross salary
Revisit the Term Insurance Cover every 5 years, or
When your Salary doubles from last cover
Whichever is earlier
Applicable till age of 40 years; assuming 65 years of
working life
15All trademarks acknowledged.
Thank You!
16All trademarks acknowledged.
Appendix – Gold Price Movement 1980-2013 (per 10gm)
Source: http://zeenews.india.com/business/bullion/bullion-news/gold-price-india-in-last-88-years_74354.html
1330
28,450
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Appendix – BSE Sensex Movement 1980-2013
Source: http://www.tradingeconomics.com
113
21,170
