FinancialPlanning & MutualFunds
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Transcript of FinancialPlanning & MutualFunds
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Financial Planning and Mutual Funds
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Life is a roller coaster ride- full of ups and downs. We all know we have to save for many responsibilities life brings along with it.But no matter how much you save- Its Never Enough!
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Why Does One Need To Invest?
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Why Invest?
Retirement
Daughters Marriage
Childrens Education
BuyHouse
Buy Automobile
Marriage
StartCareer
AGE 25 28 30 35 40 50 60
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Why Are Investment Decisions Difficult?
Selection of appropriate investments
What if I need the money before the targeted date?
What paper work is needed?
How often do I monitor these investments?
How do I ensure safety?
Who will inform me on the progress regularly?
What are the tax implications - Can I keep the return or will the tax-man keep it?
What if I lose the proof of investments?
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What Investment Is Appropriate?
Debt: PPF, Post Office Scheme, Fixed Deposits, Debentures, Bonds, Income Funds, Liquid Funds
Equity: Individual Stocks, Growth Funds, Sectoral Funds
Banks: Bank Deposits
Or a mix of the above!
A good investment is one that helps you maximise your total returns, net of taxes and inflation over the time period you invest for!
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When I was young, I used to think
that money is everything in life
Now that Im old, I know it is.
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Why financial planning?
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Did You Know ?
If your current monthly expenses are Rs. 30,000/- per month, then after 20 years you will require Rs. 80,000/- a month to
just maintain the same lifestyle!
An education degree for your child which currently costs Rs. 20 lakh could cost over Rs. 34 lakh after 11 years!
At inflation of 5%
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Individual Investor Needs: Investment Goals
All individuals need to save for Retirement
Childs education / marriage
Medical emergency
Other family obligations
Every individual has one or more of the above goals
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Individual Investor: Life Stages
Earnings (Consumption + Savings)
Consumption
Savings
22 27 40 60Young Independent Young Married Middle Age Retirement
All individuals have a finite period to save for their investment goals
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Performance Of Various Asset Classes
Cumulative annualised returns: 1982 to 2011
8.96%
6.75%
2.08%
16.75%
9.37%
WPI Inflation Bank FDs* BSE Sensex*
Growth Real Growth
Equities outperform other asset classes over the long term
*Individual real growths for bank FDs & BSE Sensex have been calculated for each year from 1982 -2011. Post this calculation a CAGR has been calculated for the same. Hence the real growth of both Bank FDs & Sensex is not equal to the growth minus the WPI Inflation.Source: IIFL, Internal; *1-3 year deposit rate; ^excluding dividends; data as at end FY2011
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Individual Investors Are Scared Of
The Downside Risk in Equities The Risk of Market Volatility The Risk of Market Timing
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What else makes a material impact on investments in equity?
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Investing in the BSE Sensex
Returns* are from Jan 1980- Mar 2011
17.39% 16.71%
16.00%
Fixed investment at Fixed investment atlowest sensex value highest sensex value
every year every year Fixed investment on 1 st day of every month
Market timing does not matter over the long term
Source: Internal; *XIRR, time period considered Jan 2, 1980 to Mar 31, 2011
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The Power of Compounding
Saving a small sum of money regularly in equity mutual funds can make your money work with greater power and can have a significant impact on wealth accumulation.
BSE Sensex BSE SensexScenario A Scenario B
Number of years 15 20
Monthly investment Rs 5000 Rs 5000
Total investment Rs 9 lakh Rs 12 lakh
Assumed annualised return 18% 18%
Final corpus Rs. 45.96 lakh Rs. 1.17 crore
The above illustration is merely indicative in nature and does not in any manner indicate the performance of any of the schemes of DSP BlackRock Mutual Fund. Please read the Scheme Information Document and Statement of Additional Information carefully before investing.
Even a seemingly small 5 year delay can cost you the CROREPATI tag
Time Period of 25 years; Hypothetical numbers meant only for illustration purpose
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Summary
Investors needs to save regularly
and invest those savings in higher return assets to create wealth
Long Term Systematic Monthly Investment In equity schemes
is ideal for this !
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How Do You Achieve Your Financial Goals?
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Retirement Planning
Monthly Household Expenses
Rs 30,000
Inflation 5%21 Yrs
Today
Corpus required
per month
Rs 83,579
Retirement corpus required to meet post retirement expenses (if invested at 7%) : Rs 1.4 cr
Monthly investment needed to achieve this corpus in 21 years
at 12% Rs 12,583
at 15% Rs 8,083
at 18% Rs 5,090
At the time of retirement
The above illustration is merely indicative in nature and does not in any manner indicate the performance of any of the schemes of DSP BlackRock Mutual Fund. Please read the Scheme Information Document and Statement of Additional Information carefully before investing.
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Retirement Planning
Educational Degreefor Child
Corpus required
Rs 34,20,000
Rs 20,00,000
Inflation 5% Monthly investment needed to achieve this corpus in 11 years11 Yrs at 12% Rs 12,456
at 15% Rs 10,166
at 18% Rs 8,237
Present When your Child actuallygoes for this degree
The above illustration is merely indicative in nature and does not in any manner indicate the performance of any of the schemes of DSP BlackRock Mutual Fund. Please read the Scheme Information Document and Statement of Additional Information carefully before investing.
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Retirement Planning
Childs Marriage
Corpus required
Rs 43,70,000
Rs 20,00,000
Inflation 5% Monthly investment needed to achieve this corpus in 16 years
16 Yrs at 12% Rs 7,509at 15% Rs 5,466
at 18% Rs 3,925
Present When your Child actuallygets married
The above illustration is merely indicative in nature and does not in any manner indicate the performance of any of the schemes of DSP BlackRock Mutual Fund. Please read the Scheme Information Document and Statement of Additional Information carefully before investing.
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Introduction to Mutual Funds
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What Is A Mutual Fund?
A pool of money, collected from investors, invested according to certain investment objectives
Ownership in hands of investors whove pooled in their funds.
Managed by a team of investment professionals
The pool of funds invested in portfolio of marketable investments.
Investors share denominated by Units that have a Net Asset Value ( NAV) which changes everyday
The portfolio is created according to stated investment objectives
Investors make money through Capital appreciation and Income distribution
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What Are The Advantages Of Mutual Funds?
Portfolio diversification
Professional Management
Reduction in Risk
Service
Affordability
Reduction in Transaction costs
Liquidity
Convenience and Flexibility
Tax Efficiency
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Three Basic Types
Mutual funds come in three basic types
Equity or stock funds
Bond or income funds and
Money market or cash funds.
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Other Classifications
Growth/ Value/ Income
Options- Growth / Dividend /Reinvestment
Sectoral Funds
Specialty Funds
Offshore Funds
Open ended/ Close ended
Diversified Equity
ELSS Funds
Index Funds
Hybrid/ Balanced Funds
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How To Choose The Right Scheme?
Determine your financial goals and your time horizon
Determine your tolerance for risk
Study the objectives of the funds available and match them with your need
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Fund Suitability - Risk Versus Return
Sector
Diversified
Returns
Balanced
Income
Liquid
Risk
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March is a particularly risky month to invest in the stock market, the others are.
July, February, January, April, September, August, May, June,
December, October & November.
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When they say time is money, they must mean Systematic Investment Planning
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Disclaimer
This presentation shall not constitute any offer to sell or solicitation of an offer to buy units of any of the Schemes of the DSP BlackRock Mutual Fund .
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
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