Financial planning

What is Financial Planning?It’s the process of achieving your life goals by using :- Different investment options With your current resources Through proper and disciplined money

management

Financial Planning : CR+IO=FG

Rewards of Sound Financial Planning Maintain and improve standard of living Control spending in order to live well today

and tomorrow Accumulate wealth

Steps for setting Financial Goals1. Write your goals (Should be specific and

realistic)

2. Identify your time-specific goals Short Term ( within 2 year) Medium Term (within 5 years) Long term (after 5 years)

Priorities your goals

Analysis of present financial situation1. Total Assets2. Total Liabilities3. Net Worth : (Assets – Liabilities)4. Present Cash Flow statement (income and

expenditure)

Budgeting Income (from all sources) Expenses (Controllable + Uncontrollable) Present net saving Proposed net saving after reducing

controllable expenses.

Categories your financial goals Protection Medical Emergency Fund Investment / Wealth Creation Tax Saving Retirement Estate

Protection / Medical Life Insurance Critical Illness Insurance Hospitalization Insurance Personal Accident Insurance Disability Insurance Non-Life Insurance

How much insurance I need ?Which policy should I take ?

Emergency Fund How much fund I require ? At what time I might require the funds ? Where to keep my emergency fund ?

Investment Planning Where to invest ? How to invest ? What is my risk appetite ? How much risk should I take ? Time frame for my investment ? Churning of Investment ?

Investment planning – Asset Class Fixed Deposit /Cash Provident Fund PPF / APF /NPS Equity- Mutual Fund / Stock Market Debt instrument /Bonds / Gold Commodity Real Estate Art Money Market ULIP

Guaranteed return / Non Guaranteed returnGuaranteed Return Non Guaranteed ReturnFixed Deposit (Bank/Post office / Govt Scheme)

Equity

Provident Fund / Additional PF GoldPPF Commodity

Real EstateUlip

Guaranteed Return : Low risk & Low return

Non Guaranteed Return : High risk & High return

Asset Allocation Risk Appetite Time Horizon Different Life Stages Past Experience Net worth

Impact of Inflation Real return = Return – Inflation

Scheme AmountInterest rate Return

Tax Rate Tax

Post tax return

Post tax value

Inflation

Inflation erosion

Net value

SB A/c 100000 4% 4000 30% 0 4000 104000 7% 7280 96720FD A/c 500000 9% 45000 30% 13500 31500 531500 7% 37205 494295

Impact of Inflation-Cont

Purpose Current cost / Estimate Inflation Term Future CostHigher Eduction for kids 1000000 9% 20 2800000Child Marriage 1500000 8% 25 4500000Medical Exp 500000 7% 30 1550000Retirement Saving 5000000 8% 30 17000000

Liquidity / Contingency fund : Option to withdraw the money as per my

wish / need

Investment products Bank deposit / Fixed Deposit / NSC Mutual funds

Strategy should be : Low risk- Low to Medium gain

Tax saving + Investment planningSection 80C, 80 CCC, 80 CCD : Rs 1,50,000/- Repayment of principal amount on Housing Loan Stamp duty / Registration fees and other expenses for the

purpose of transfer of such house property to the assesse PPF Accounts 5 Year tax saving fixed deposit/ 5 Year RD with post office NSC / Notified Bonds /Senior citizen saving scheme Equity Oriented Mutual funds Contribution to Employees Provident Fund Life Insurance Policy Pension Plans Sukanya Samridhi Account Children Education

Tax saving + Investment planning- ContSection 80CCD : Additional Saving of Rs 50000/-

For investment in National Pension Scheme (NPS)

Tax saving + Investment planning-ContSection 80D, 80DD, 80 DDB

Section 80D : Medical Insurance premium of self or spouse or children – Rs 25000-30000/-

Section 80DD : Medical Treatment of Handicapped Dependents

Section 80DDB : Treatment of Specified Diseases

Tax saving + Investment planning-ContSection 24: Interest on Housing Loan

Self-occupied property: Rs 2 Lakh Not Self-occupied property : No maximum limit (Rental

income to be subtracted)

Condition : The house should be constructed within 5 years.

If not : the eligibility will reduce to Rs 30,000/-

Rs 30000/- if loan is for repair and maintenance of self occupied house.

Tax saving + Investment planning-ContSection 80EE : Interest on Home Loan (First time buyers)

Additional deduction of Rs 50,000/- for interest.

Conditions Value of property <50lakhs and Loan < 35

lakhs

Tax saving + Investment planning-ContSection 80 E : Education Loan

For higher education of himself or spouse or children :

Only allowed for repayment of interest and not for principal repayment

No maximum limit

Tax saving + Investment planning-ContSection 80CCG : RGESS

Annual income < Rs 12 Lakhs P.A. Investment in specified companies and mutual

funds Only for first time investors Investment upto Rs 50000/- 50% deduction of the amount invested during

the year. Benefit can be availed for 3 consecutive years

Tax saving + Investment planning-ContSection 54, 54EC, 54 F : Capital Gains

Asset Min Holding period for Long term

Taxation

Equity 1 Year 0%Debt 1 Year Whichever is beneficial- 10 % without

indexation or 20% with indexation benefitReal Estate

3 Year 20% with indexation benefit

Gold 3 Year physical gold

20% with indexation benefit

1 Year Gold ETF /MF

Same as for debt

Bonds/ NCDS

1 Year 10% without indexation

Long term vs Short term capital gains

Tax saving + Investment planning-ContSection 80 G: Donations

Contribution to National Relief Fund Donation for charity, social purpose.

In some cases 100% of donation can be deducted while in certain cases the deduction is restricted upto 50%

Cash donation : Rs 10000/-

Retirement Planning Corpus required Identify the assets for investment Diversification Risk taking capacity Portfolio churning as per the change in age

profile / performance of portfolio etc Pension plan Annuity scheme

Estate PlanningWhom I would like to give the property after my life:

Preparation of will Amendment of will Allocation of resources as per my wish.

Estate Planning -ContWill is a legal document in which a person gives instruction about the distribution of his/her assets and the legal guardian (if require).

Parties in a will Executor Beneficiary Power of Attorney

https://sbicaptrustee.in : My will services online

Financial planning is an on-going process

Pre work

Asset allocation

MonitoringAnalysis of

current situation

Risk profiling

Implementation

Goal Setting

Rebalancing

Section 80 D: Medical Insurance Insurance of Self, Spouse and dependent

children: Rs 25000 If senior citizen : Rs30000 Health insurance premium for parents : Rs

30000

Section 80 DD: Medical Expenditure for a Handicapped Relative Expenditure incurred on medical treatment,

training and rehabilitation of handicapped dependent relative

Payment or deposit to specified scheme for maintenance of dependent handicapped relative

Where disability is 40%-80% - 75000/-Disability > 80% -125000/-

Section 80DDB : Deduction for medical expenditure on self or dependent relative For treatment of specified disease or ailment –

Rs 40000/- For senior citizen – Rs 80000/-

Insurance Term Plan : Only risk cover, no survival benefit Endowment Plan : Risk cover + survival

benefit

Types of Insurance products Term Plan Endowment Annuity Whole life insurance

Risk Systematic risk : Movement in market / economy Non Systematic risk : Unique to particular investment

Other risks are Liquidity risk Exchange rate risk Political risk Interest rate risk Management risk Financial risk Business risk Re-investment risk Purchasing power risk

Risk profile of an individual Age Income level Time horizon of investment Dependents Market knowledge / investment products Capacity to absorb loss