financial awareness presentation ahmedabad meet

bui ld ing ca ree rs

PersonalFinancial Planning

The Need of the Day

Prashant V. Shah CFP PROGRAM HEAD

Anagram Knowledge Academy

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Where you are on the driver’s sit of your life

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Expectations of the Participants

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Financial Planning

A continuous process through which a planner helps his client to achieve his life goalsThese goals may be:• Retirement Planning• Retirement Planning• Children Education• Recreational Goals etc.

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Transact-ion

LoanInvestment

Money DeficitSurplus

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Income Expense Savings

Investment

Short TermLong Term

Revenue from Investment

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Retirement Planning?

It is the process of ensuring sufficient

financial resources to the financial resources to the retired person so that he/she can enjoy the

desired lifestyle during the retirement years

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Why Retirement Planning

• People are living longer

• Change in demographic profile

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Questions People Face for RP

• When to start

• How much to be saved

• Estimating retirement income and expenseexpense

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Wealth Creation

Involves the building of assets by

means of careful investment into

asset based investments, usually

over a long period of time so as toover a long period of time so as to

achieve an income stream that will

ensure a continuation of a high

quality lifestyle in the years beyond

retirement

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Principles of Building WealthStart investing early

1.33

5.71Crore*Mr. E Mr. L

Investment Starting Age 25 40

Investment - Monthly SIP Rs.5,000/- Rs.10,000/-

Saving Years till age 60 35 years 20 years

1.33 Crore*

40 years25 years 60 years

Total Investment Made Rs.21 lacs Rs.24 lacs

*Expected rate of return 15%

Investment requires time to growInvestment requires time to grow

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Principles of Building Wealth

• Investment does not requiretiming but it requires time togrow

• Reap the benefit of compounding

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The Simplified Maze..

• All debt is a bad debt

• Have written budget andtry to adhere

• Set the SMART goals• Set the SMART goals

• Let your money work foryou

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Challenges

• Longevity Risk

• So when such plans aremade the nest should behigher than the required forthe expected life…

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Inflation Risk the Biggest Chellange

• Too much money chasing fewgoods

• Increases the future cost ofgoods

• Reduces the purchasing power

• While planning for retirementinflation estimates plays thevital role

• Average inflation can beassumed between 5% to 6%based on the past average

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Case study - Inflation

• Suppose Mr. Chauhan aged 45 spends

Rs. 3,00,000 p.a.

Expected increase in standard of living 3%

Standard of living during retirement 80%

• Imagine the amount that he will

require at the age of 60 years for one

year

Its 9,51,650 approximately

Standard of living during retirement 80%

Inflation 5%

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FP and Investment Planning

• Through investment one can achieve life goals

• It is a path to retirement

Must consider

• Asset allocation• Asset allocation

• Risk

• Time

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Asset Classes

• Equity • Debt • Money Market• Gold • Gold • Real Estate

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FP and Insurance Planning

• Loss of earning can destroy the plans

• Simultaneously it is not possible to cover all the risks possible to cover all the risks because of the cost

• Life insurance

• Disability income insurance

• Medical insurance

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Human Life Value

Mr. Mohan is an assistant manager in a private firm• Present age is 45 years and retires at age 60

Present salary Rs. 2,40,000 pa

Total life insurance premium Rs.15,000 pa

• Medical expenses are being reimbursed by thecompany.

• Assume discount rate to be 8% p.a.

Income tax and professional tax Rs.35,000

Self-maintenance expense Rs.30,000

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Calculation

Gross total income 240000

Less:

Self maintenance expenses 30000

Taxes payable 35000

Life insurance premium 15000

By discounting the annuity of Rs.160000 for 15 years @8% His insurance need for today is 14,80,000

Life insurance premium 15000

Surplus income generated for the family 160000

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Types of Plans

• Term Plan• Pure Endowment Plan• Pure Endowment Plan• Non Traditional Plan

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Tax Planning and FP

• The biggest enemy of FP is taxes

• Taxes eat up lots of wealth of theinvestor

• Efficient tax planning can help aninvestor to generate better wealthinvestor to generate better wealth

• Taking higher risk and payinghigher tax is not a wise strategy

• Focus more on tax reduction

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I want to Buy a Car

• Let say, you are buying a car of Rs.5 lakh and Rs.1lakh you have paid as down payment. Rs.4 lakh isloan for 5 years.

Rate interest on loan 12% pa

No of EMIs 60

EMI 8900 approximately

Decline in value of car per year 20%

Loss of interest on downpayment

8%

KM run per year 10,000

Mileage 15 km per liter

Price of fuel (petrol) 55

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Cost of Ownership

Fuel cost per km 3.67

Interest burden of loan per km 2.68

Loss of value per km 10Loss of value per km 10

Loss of interest on downpayment per km

0.8

Total cost of running car per km 17.15 for the first year

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Force Theory of Money

If I get Rs.10 lakh today, my all the financial problems will get over and I can start with planning.

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What is Better

• Shall I buy a house or take it on rent• Shall I buy a smaller house or bigger house

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Retire at 60W

ealth

Accumulation Years Retirement Years

Wea

lth

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Retire at 50!W

ealth

Accumulation Years Retirement Years

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Retire at 65W

ealth

Accumulation Years Retirement Years

Wea

lth

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Retire from WORK…. Retire from WORK…. Retire from WORK…. Retire from WORK…. Not from LIFE!!!!Not from LIFE!!!!Not from LIFE!!!!Not from LIFE!!!!

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Websites to Visit

For Financial Awareness• www.jagoinvestor.com• www.valueresearchonline.com• www.moneycontrol.com• www.moneycontrol.com• www.moneylife.comFor CFP• www.prashantvshah.wordpress.com

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Sharings of Participants