Investment Planning for Executives

An initiative of SEBI & NISM

Need for financial education

Deterioration of personal finances

Proliferation of new and complex

financial products

Agenda

Introduction to financial

planning

Basics of savings and

investments

Choosing the right

investment options

Asset allocation strategy

Self portrait

Savings and investment

related products

Protection related products

Borrowing related products

Retirement planning

Planning finances to become

an entrepreneur

Understanding Ponzi

schemes

Tax saving options

Purchasing financial

products

Advantages of financial

education

Investor protection and

grievances redressal

mechanism

Financial planning

Basics of Savings and Investment

Savings

◦ Short term

◦ Value remains stable

◦ Lower returns over

long term

Investing

◦ Long term

◦ Value moves up and

down in short term

◦ Potentially higher

returns over long term

Price of procrastination

Twin brothers: Anil and Sunil

Anil saved from the age 25 years till 35

years. He did not withdraw till 60

Sunil started saving at 35 years, but

continued till 60 years

Both saved Rs. 50,000 per year and

earned 10% p.a. on their investments

Price of procrastination

Twin brothers: Anil and Sunil

Amount accumulated at 60 years

Rs. 86 lacs

Rs. 49 lacs

Ask yourself

Can you reduce your spending by 10%

Put that money to work to fund your

future financial goals

BUDGETING

Benefits of budgeting

◦ Checks or balances to prevent overspending

◦ Unexpected need for funds

◦ Discipline

◦ Helps maintain standard of living

Steps for budget planning

◦ Calculate your income

◦ Determine your bill for essentials

◦ Note down your total debts

◦ Determine your bill for non-essentials

◦ Calculate your savings

WHAT IS INFLATION?

Effects of Inflation

Item Price in

2001-02

Price in

2009-10

Sugar (1 kg) Rs. 16 Rs. 40

Cooking oil (5 liters) Rs. 290 Rs. 500

Rice (1 kg) Rs. 14 Rs. 35

Petrol ( 1 liter) Rs. 33.46 Rs. 48.83

Inflation Effects on Investments

Investment

Initial investment Rs. 1,000

Interest on investment 5% p.a.

Value after a year Rs. 1,050

Inflation 6% p.a.

Your expenses after a year Rs. 1,060

RISK AND RETURN

Risk and Return

Risk and investing go hand in hand

Risk increases as the expected potential

return increases

No-risk, what’s that?

Manage the risks

Time Value of Money

The value of the money today is not the

same as it will be in the future

The eighth wonder - compounding

Rs.1 lac invested @ 10%

Year Simple interest

@ 10% p.a.

Compound interest

@ 10% p.a.

1 1,10,000.00 1,10,000.00

2 1,20,000.00 1,21,000.00

3 1,30,000.00 1,33,100.00

4 1,40,000.00 1,46,410.00

5 1,50,000.00 1,61,051.00

20 3,00,000.00 6,72,749.99

25 3,50,000.00 10,83,470.59

30 4,00,000.00 17,44,940.23

THE RULE OF 72

CHOOSING THE RIGHT INVESTMENT OPTIONS

Safety

ReturnsLiquidity

ASSET ALLOCATION STRATEGY

Asset allocation

Time frame

Risk tolerance

Personal circumstances

Self portrait …

Asset allocation

Financial goals

Assets

Estimated future

expenses

Estimated future income

Liabilities

THE PRODUCTS

Savings & investment related products

Bank deposits

Government schemes

Bonds / debentures

Company fixed deposits

Mutual funds

Equity shares

◦ Depository system

Protection Related Products

Insurance

◦ Life insurance

Term life insurance

Endowment policies

Annuities / Pension plans

ULIPs

◦ Health insurance

Comprehensive health insurance

Hospitalisation policy

Critical illness plan

Specific condition coverage

Borrowing Related Products

Personal loans

Home loans

Reverse mortgage

Loan against securities

Credit card debt

Steps to avoid excess debt

Set debt limits

Shop carefully for debts

Don’t give into temptation

Automatically have money go towards

your bills

Retirement Planning

Start early and retire peacefully

Plan wisely

Track and review your plan

Don’t dip into your retirement savings

Investment needed to create

retirement fund

Finances for entrepreneurs

Understand financial needs of self and

business

Save money in job before jumping in self

employment

Borrow from close relatives/ friends on

strict business terms, if required

Start groundwork while still in job

Apply for loans from organisations

designed to fund SMEs

Understanding Ponzi schemes

Ponzi schemes promise high returns and

low risk

Initial investors may get high promised

returns

Money from initial investors is given to

new investors – thus it is only rotation

of funds, not investment of funds

If its too good to be true – its probably

not true. It’s a Ponzi!

Tax Saving Options

Section 80C gives rebate upto Rs.

1,00,000 for select investments like life

insurance premiums, housing loan

principal, PPF, ELSS, etc.

Long Term Capital Gains are not taxable

for equities

80D (medical insurance), 80G

(donations) and 24D (Housing loan

interest repayment) are other

important sections

Investment philosophies Evaluate risk of every investment

Decide the investment based on needs

Do not invest in any scheme that you do not understand

Do not invest on trust. Have everything backed up by

documents

Take into account tax implication of every income

Do not blindly follow market tips and rumours

Anything that appears unnaturally high or low will have

some “catch” disguised

Do not follow schemes where you may protect the interest

but lose the principal

Invest with knowledge after understanding the product well

PURCHASING FINANCIAL

PRODUCTS

Selection of intermediary

Registration with regulator or a body

approved by regulator, e.g. AMFI or stock

exchange

Steps to become securities market investor

Know Your Client (KYC) form and

documents

PAN Card

Personal identification proof

Address proof

Demat accounts & trading accounts

required for equity investing

For investing in MF, demat is optional

Advantages of Financial Education Helps build a secure financial future

Prepared for financial emergencies

Protection from marketing gimmicks

Feeling a sense of accomplishment

Disciplined approach to money

Awareness of questionable practices

Setting a good example for your family

Benefit other aspects of your life

Regulators

Various regulators in Indian financal

markets are:

◦ Securities & Exchange Board of India (SEBI)

◦ Reserve Bank of India (RBI)

◦ Forward Markets Commission (FMC)

◦ Insurance Regulatory & Development

Authority (IRDA)

◦ Ministry of Corporate Affairs (MCA)

◦ Ministry of Finance (MoF)

THANK YOU!