Professional Documents
Culture Documents
UNIVERSITY OF MUMBAI
A PROJECT REPORT ON
BY
NITIN SINGH
T.Y.B.F.M.
SEMESTER V
PROF:
CHETANA’S
ECONOMICS
I further declare that information submitted by me is true and original to the best
of my knowledge.
DATE: _______
PLACE:
________________________
SIGNATURE OF STUDENT
(NITIN. I. SINGH)
CERTIFICATE
This to certify that Mr. Nitin I Singh of T.Y.B.F.M. ( Semester V), has
successfully carried out work on the topic of “INVESTMENT ANS
FINANCIAL PLANINING FOR RETAIL INVESTOR” in partial fulfillment
of BACHELOR OF COMMERCE – FINANCIAL MARKETS (BCFM) as
per the curriculum laid down by the University of Mumbai for the Academic
Year 2013-2014.
Date:__________
Apart from the efforts of me, the success of my project depends largely on the
encouragement and guidelines of many others. I take this opportunity to express
my gratitude to the people who have been instrumental in the successful
completion of this project. I would like to show my greatest appreciation to prof.
MADHAVI MULEEK I can’t say thank you enough for this tremendous support
and help. Without her encouragement and guidance this project would not have
materialized.
The guidance and support received from all the professors of Chetana’s who
contributed towards this project is vital for the success of the project. I am grateful
for these constant support and help. Last but not least I wish to avail myself of
this to thank my parent for their manual support, strength and help for everything.
________________
(NITIN SINGH)
TABLE OF CONTENT
They may find this counsel at the nearest bank, it may come over the phone from a securities
dealer, it may be delivered in the home by a life insurance agent or, with increasing frequency
in recent times, and it may come on a home computer. it consider a few of the decisions Indian
face as they mature from being a young adult, to middle age, and then on to old age. Of course,
not every person must make each of these decisions, but most Indians will make some or all of
the following choices.
How much money should be saved and how should savings be held. How survivors should be
protected from the effects of a premature death. How a house should be financed the most
efficient way. How a child’s education should be financed. how should a family be protected
from loss of income caused by accident or illness all this are financial planning are important
.I always had curiosity to know how investment & financial planning creates inorganic growth
in financial market. Thus this research will determine the outcome of success rate takeover on
market.
EXECUTIVE SUMMERY
In this project report there are many facts which say whether an investor should invest in
financial planning in India or not. For the conclusion on this part, we have analyzed economic,
industry as well as company
In the Economic Analysis we can see that economic is booming after 2009 and current position
shows that this is the good time to invest after the recession because GDP growth rate is
increasing. And overall economy is growing. In the market here we can see Growth in the
financial planning, demand & supply is rising fast.
Financial planning is having much profit and on the other side investment growth has increased
very much so investor should invest carefully. In the market but if investor want to invest in
the market for long term than he can have a good profit because financial market is growing
rapidly in terms of returns and this research will help me to know the outcome of success rate
takeover on market.
CHAPTER 1
Introduction to Financial Planning and Investment
Introduction
Financial planning is not just investing. it is a process. It allows you to manage your finances
in such a way that you link it to your goals. Making a standalone investment in a life insurance
product means nothing if you do not know the amount of cover you need, or whether the
maturity proceeds are adequate, or whether you need a life cover.
In India everybody earns money with an objective to fulfill one or many of one’s life goals.
People use money for purposes as simple as funding their daily household expenses to buying
exotic luxuries for a better life. Money can be saved, accumulated and grown to fund various
financial goals of a person. Such as education, marriage, house purchase, retirement and even
passing on as legacy to the next generation. So money earned is either used to fund some of
the immediate expenses or some goal in distant future. When money earned in to fund one of
the future goals, it needs to be invested in an optimum way to give maximum returns taking
into consideration.
The individual’s risk profile and time horizon of the goal and the taxation Aspects related to
personal finance. Financial to investors by way of various products that they offer. Contrary to
popular belief, mutual funds are not an asset class. They are vehicles that allow you to execute
your financial plan. Since in 2012 the financial planning is increasing day by day.
Investing
Stocks, bonds, cash equivalents and mutual funds are the most common form of
investment.
Stocks, bonds, mutual funds and certificate of deposits are commonly termed as
securities.
Investments in each of these securities is possible either through the primary or the
secondary market route through financial intermediaries and distributors such as
investment banks, brokerage house and now banks as well.
Gambling
It may mean taking a pot-shot that may or not yield result. There is no real basis for
taking such actions except for some sort of hunch or tip and without any kind of in-
depth analysis of the company or its shares. A dart board investment style will fall under
this category.
This is an interesting story to share. A group of people tested this in 1967 through the
Forbes magazine in New York. They threw darts at the stock markets quotations page
and picked in all 28 shares. A notional equal amount was invested in each of the selected
shares. Fifteen years after the experiment, it was found that their notional portfolio had
outperformed the stock market average.
Diversification
Diversified portfolio the return is the weighted average return but the risk of the
portfolio is lower as compared to the risk in the individual securities.
Individual investment should be so chosen that there is not much correlation amongst
investment. It should be remembered that the diversification also reduces the
probability of making higher than expected returns.
Arbitrage
Arbitrage involves taking advantage of price differential in different markets. An
arbitrageur continuously monitors different markets with the help of sophisticated tools
and seeing an opportunity buys and sells in different markets to make large profits.
Such price differentials tend to exist for every short period due to inefficiencies but
equally correct fast. However, such techniques are not as risk free as they may appear
due to timing and settlement differences.
Financial Planning helps you give direction and meaning to your financial decisions. It allows
him to understand how each financial decision affects other areas of finance. For example,
buying a particular investment product may help your client to pay off his mortgage faster or
may buying a particular investment product may help your client to pay off his mortgage faster
or may delay his retirement significantly. By viewing each financial decision as a part of a
whole, you may help your client consider the long term and the short term effects on his life
goals.
Set specific targets of what you want to achieve and when you want to achieve results.
E.g. Instead of saying you want to be "comfortable" when you retire or that you want your
children to attend "good" schools, you need to quantify what "comfortable" and "good"
mean so that you'll know when you've reached your goals.
Each financial decision you make can affect several other areas of your life. E.g. an
investment decision may have tax consequences that are harmful to your estate plans. Or
a decision about your child's education may affect when and how you meet your retirement
goals. Remember that all of your financial decisions are interrelated.
Financial planning is a dynamic process. Your financial goals may change over the years
due to things like an inheritance, marriage, birth, house purchase or change of job status.
Revisit and revise your financial plan to stay on track with your financial goals.
People who save or invest small amounts of money early and often tend to do better than
those who wait until later in life. By developing good financial planning habits such as
saving, budgeting, investing and regularly reviewing your finances early in life, you will
be better prepared to meet life changes and handle emergencies.
Most of us would like to look at life as a continuum from the cradle to the grave where all
phase of life are joyful and well taken care of financially. While most people spend to satisfy
their immediate needs, they would also like to save and invest so as to take care of their future
needs and emergencies. People also desire to have a reasonable return and create a corpus.
However, different people have different perceptions of risk in investing. Some people are
aggressive investors, whereas, other people may be moderate or conservative investors. As the
needs evolve or undergo a change through various phases of life, the financial behavior of
people too undergoes corresponding changes.
1. Goal setting:
Plans are the means to achieve certain ends or objectives. Therefore, establishment of
organizational or overall objectives is the first step in planning. Setting objectives is the
most crucial part of planning. The organizational objectives should be set in key areas
of operations.
They should be verifiable i.e., they should as far as possible be specified in clear and
measurable terms. The objectives are set in the light of the opportunities perceived by
managers. Establishment of goals is influenced by the values and beliefs of executives,
mission of the organization, organizational resources, etc.
The objectives must be clear, specific and informative. Major objectives should be
broken into departmental, sectional and individual objectives. In order to set realistic
objectives, planners must be fully aware of the opportunities and problems that the
enterprise is likely to face.
Before plans are prepared, the assumptions and conditions underlying them must be
clearly defined these assumptions are called planning premises and they can be
identified through accurate forecasting of likely future events.
They are forecast data of a factual nature. Assessment of environment helps to reveal
opportunities and constraints. Analysis of internal (controllable and external
uncontrollable) forces is essential for sound planning premises are the critical factors
which lay down the bounder for planning.
They are vital to the success of planning as they supply per tenant facts about future.
They need revision with changes in the situation. Contingent plans may be prepared for
alternate situations.
3. Reviewing Limitations:
The key areas of Imitations are finance," human resources, materials, power and
machinery. The strong and weak points of the enterprise should be correctly assessed.
This is known as the principle of commitment. The planning period depends on several
factors e.g., future that can be reasonably anticipated, time required to receive capital
investments, expected future availability of raw materials, lead time in development
and commercialization of a new product etc.
After the goals are defined and planning premises are identified, management can
formulate policies and strategies for the accomplishment of desired results. The res-
ponsibility for laying down policies and strategies lies usually with management. But,
the subordinates should be consulted as they are to implement the policies and strategies
After the formulation of overall operating plans, the derivative or supporting plans are
prepared. Several medium range and short-range plans are required to implement
policies and strategies.
These plans consist of procedures, programmers, schedules, budgets and rules. Such
plans are required for the implementation of basic plans. Along with the supporting,
plans, the timing and sequence of activities is determined to ensure continuity in
operations.
7. Integration of plans:
Different plans must be properly balanced so that they support one another. Review and
revision may be necessary before the plan is put into operation. Moreover, the various
plans must be communicated and explained to those responsible for putting them into
practice.
Formulation of Goals
Financial goals are the milestones that the client hopes to reach with the help of his financial
resources.
• Specific.
• Realistic.
Once the client has stated clear, quantifiable goals for financial planning, the next step is to
rank those goals in order of importance. This is necessary because most clients do not have the
resources to fulfill all their goals. The financial planner must make it clear to the client that less
important goals must be sacrificed or postponed to achieve the more important ones. This done,
the financial planner needs to work out the amount of money available for achieving these
goals. To achieve most financial goals, the client would need to start saving and investing
appropriately. Therefore it is important for the financial planner to know where the money to
invest will be coming from.
Qualitative factors have a significant bearing on the financial plan for a client. The client's
Tolerance towards risk, investment preferences, current health status etc. need to be kept in
mind while evaluating alternative Strategies.
A financial planner needs to develop appropriate strategies for the client in the following areas:-
Identifying needs of protection, retirement, health, wealth creation, and preservation. In this
step, growth of the economy and the progress of the society are essential for all round
development of an individual. Individuals invest in various financial instruments, which in turn
reap returns not only from the individual investments but also from the overall economic
growth.
Inflation is one of the major concerns of a central bank while formulating monetary policies of
the country. Among its many adverse influences, inflation can take away gains from any
investment. An investor would like to gain more than the inflation rate to have a real return
from the investment.
Another concern is longevity and after retirement life spans, coupled with small nucleus family
norms. Therefore, any financial plan has to take care of this concern, which is a crucial need.
Of course, a wise financial planner would always first take care of the general and life insurance
needs of an individual before commencing financial planning for other needs and investment.
Saving too little money or investing erratically is a drain on the investor’s financial resources.
A wise investor would introspect before saving or investing. When investors have completed
the initial plan, they should decide on specific goals. For this they should consider if their
investment would pay for their goals.
The more specific are the investors, the more likely they can plan and achieve reasonable goals
Motive of investor both rational and irrational are considered under the behavioral fiancé as
defining the long run price formation in the financial markets. The traditional finance on the
other hand seeks to understand the financial markets by using models based on rational
behavior of the investors.
It is expected from rational investor that they update their beliefs correctly on receiving new
information and make choices in tune with expected utility. A crucial component of any model
of financial markets is a specification of how investors form expectations. Some of these are:
Representativeness:-
People try to determine the probability if an item belongs to a set or a model generates a
data set.
Conservatism:-
People may be reluctant to search for evidence that contradicts their beliefs, they tend to
treat such evidence with excessive scepticism, and they may misinterpret evidence that
goes against their hypothesis.
Belief perseverance:-
People often cling to their beliefs tightly and for too long.
Anchoring:-
People often start with an initial, possibly some arbitrary value or belief and then adjust
away from it.
Availability bias:-
When judging the probability of an event, people often search their own memories for
relevant information.
The planner needs to understand the risk appetite of the investor. Generally, investors are
asked to fill in a form to ascertain their risk appetite. This helps to categories the investor
into aggressive, moderate and conservative investors based on their risk profile.
There is always a correlation between the risk appetites of the investors and the returns
they expect. Higher the risk, higher is the return expected. This is known as risk return
trade off. Concepts such as portfolio, diversification, risk and return and techniques for
reducing and hedging risk are some of the tools for financial planning.
For example:- equity shares by their nature are riskier as compared to a fixed deposit or
government securities. Higher returns are expected from the equity shares.
Therefore, keeping a portion of the surplus in the form of fixed deposits or government
securities reduces the risk of the portfolio comprising equity share (though it may also
lower returns).
Types of Investors
As the investment option for each of the investor types is different, it becomes essential
to determine the style of investor before they invest.
The various investor types are:
Aggressive investor: is an investor who likes to take risks to earn an extra but of
return.
Moderate investor: is an investor who is content and believes in earning slow and
steady gains and is not interested in making quick money. A long term investor is one
who does not mind taking some occasional risk so as to optimize returns and achieve
continuous growth
Typically, they would be owners of business or top level employees in corporate. They
invest actively and are competitive, demanding and fickle-minded. On the other hand,
they also tend to be receptive to new ideas and schemes.
Wealth preserves: are individual, whose main focus is to protect whatever wealth
they already have. They do not tend to try out new products until they have enough
data on its performance.
Typically, they are at retirement stage or already retired with low current income, they
tend to be risk averse and relatively passive investors. They could also be inheritors of
wealth whose main objective is wealth conservation.
Risk tolerance:-
Investors with distinct investment styles invest in different types of products having
varying risk return relationships. There are various degrees of risk across the investment
spectrum, from government savings bonds, which are the least risky to equities,
commodities and options which are the risk.
The former, carrying only sovereign risk are considered risk free because of the
government guarantees. Although the government of India saving bonds and bank fixed
deposits (FDs) are the safest, the returns offered are not very attractive.
Although stocks have historically increased in the price over the long term investment
in equities however could be volatile and very risky over a shorter-term period.
Investor should remember that they do not lose until they sell what they have invested
in. for example, if an investor in united states did not panic and sell his stocks in October
1987, he would have done quite well because the market rebounded in the subsequent
years.
The same was true in the Indian market. If investors had not have panicked and sold
post the 800 points fall in a single day on may 17, 2004 at the Bombay stock exchange
(BSE) Sensex level of 4227.5, they would have done quite well because the market
rebounded sharply from its bottom to trade at 6000 level by mid November 2004.
Therefore, when investors invest in the stock market, they should think long-term.
Investors should not invest in stocks any money that they would need in the short term.
Time:-
The time the investors want to spend on investing determines how active they can be
as investors for managing their money. If they want to spend 15 minutes a month on
investing, then they should consider using passive strategies.
However, if they plan to set out eight hours a week to devote to investing, then they can
consider researching companies and pouring over financial statements to pick lucrative
individual stocks.
As investors have become well informed about financial markets financial planner
have to be knowledge and skilful, regulatory changes have also lead to higher
competition and service standards. Competition in the financial planning and wealth
management is expected to become more intense in future.
Use of technology for this would enable the financial planner to be more productive
on the job. Most importantly the modern day financial planner needs to understand
his/her customer with respect to their financial position, their risk appetite and their
future financial needs to be able to recommend suitable investments.
CHAPTER 3
FINANCIAL PLAN
Cash flow management is the process of monitoring, analyzing, and adjusting your
business' cash flows for small businesses.
The most important aspect of cash flow management is avoiding extended cash
shortages, caused by having too great a gap between cash inflows and outflows. You
won't be able to stay in business if you can't pay your bills for any extended length of
time.
Insurance is essentially the means to financially compensate for losses that life throws
at people, corporate, and otherwise. Insurance can be used as a tool to shield an
individual against potential risks like travel accidents, death, unemployment, theft,
property destruction by natural calamities, fire mishaps, etc.
Functions of Insurance
Primary Function:
Secondary Function:-
The following are the secondary functions of insurance:
Prevention of losses: Prevention of loss causes lesser payment to the assured by the insurer
by the insurer and this will encourage for more savings by way of premium. Reduced rate
of premiums stimulate for more business and better protection to the insured.
Small capital to cover larger risk: Insurance relieves the businessmen from security
investments by paying small amount of premium against larger risk and uncertainty.
Other Function:-
The following are the other functions of insurance:
Source of earning foreign exchange: The country can earn foreign exchange by way of
issue of marine insurance policies and various other ways.
Risk free trade: Insurance promotes exports insurance, which makes the foreign trade risk
free with help of different types of policies under marine insurance cover.
Characteristics of Insurance:-
Pooling of losses: Spreading of losses incurred by a few over the entire group, so that in
the process, average loss is substituted for actual loss.
Risk transfer: Pure risk is transferred from insured to insurer, who typically is in a stronger
financial position to pay the loss than the insured.
Definition:-
The placing of funds into the proper investment vehicles based on the investor's future goals,
time horizon, and priorities. This also takes into account the safety of the investments as well
as liquidity and level of return. Ideally, proper investment planning will allow the investor's
funds to produce financial rewards over time.
Investment Plans: - Investment plans help beat inflation and build a large corpus. We at
Policybazaar.com help you compare investment plans offered by all life insurance
companies in India and select the best suited investment plan for you. An investment plan
should be selected keeping in mind 3 main goals:
Risk Profile:-if you are a young customer and are willing to take financial risks, a ULIP is
better suited for you while if you’re a conservative investor, then a traditional endowment
or money-back plan will suite your needs.
Final Goal:-you want to build the corpus for retirement or child’s education.
Unit Linked Insurance Plans:-the easiest way for a consumer to enter the stock market
with an added advantage of life cover. As these products provide tax benefits and market
linked returns, they are very good for long-term investment. ULIPs offer many investment
funds to choose from which allow you flexibility to shift between equity and debt, based
on the market conditions and risk profile.
Traditional Endowment plans:-regular saving plans which help build a corpus and give
guaranteed maturity benefits along with bonuses. These products give you returns
equivalent to a fixed yield/deposit but also combine insurance risk cover and add-on riders
to primarily build the safety cushion in case something goes wrong.
Money back Plans:-type of endowment plans which give periodic cash payouts to
investors. As they help build regular large capsules of fund; they are very useful for salaried
class who wish to save for buying large assets every 3-5years
Child Plans are saving instruments which help parents build a protected asset for their
child’s future. They also provide many insurance features which protect the intent or
reason for corpus building; primarily for child’s future education and expenses.
Key things to remember while investing:-
Investments should be both liquid and fixed-This enables you to use them in
emergencies as well as avoiding overspending.
Start small and gradually increase invested amount- Choose premium payment options
ranging from monthly to annual to single premium.
Research a lot before investing- use help of financial planner if need be.
Ask questions - Resolve all your doubts before investing. Use investment calculator to
calculate exact premium before buying.
Investments in Gold:- The value of gold has been appreciating steadily. Looking at the
last few years, there has been more than 22% annualized returns; this makes gold a very
good investment option. For people interested in investing in gold, there are various
methods which include physical gold, e-gold and gold ETF.
Bank Fixed Deposits and Postal Schemes:- These 3 options are most suitable for
making safe investments. The interest rate on PPF account is presently at 8.8% per
annum and keeps changing every year; different banks offer different interest rates.
There are also many postal investment schemes which can be bought.
The main goal of a successful retirement planning is ensuring that one will have sufficient
financial resources to maintain or improve one’s lifestyle during his/her retirement years.
According to some financial experts, to do so, one will need to save enough.
One popular approach to retirement planning starts by determining how much finance
one will need for their retirement.
This is usually based on projected increase in cost of living, the no. of years one is likely
to spend in retirement.
The years one spends in retirement may be more or less than one projected. The same
may go for the increase in cost of living.
However a comprehensive outlook and some thought will help to provide realistic
projections.
The longest of journeys start with single step. We are not sure who said that, but being
in the financial planning space, we think it most aptly describes what retirement planning
is all about.
Planning for retirement is one long journey but a resolute and systematic step by step
approach makes it a lot less laborious.
Start early:-
A well prepared approach towards any goal is usually the result of an early start.
Retirement planning is no different. We hear financial planners say that it’s never too
early to start saving for retirement and they are right.
Make no mistake that an early start helps and one will surprised at just how much it helps.
A friend or colleagues, who started saving for retirement even five year earlier than
another with the same quantum of investment
Even if one doesn’t have the requisite amount of money required to start, the key lies in
starting with whatever is available and making up for the deficit at a later stage.
The most important reference point for the investment plan is the objective to invest in
avenues that lower risk and maximize returns and do so in line with one’s risk profile.
This is where the investment advisor’s expert advice will play a crucial role. Typically a
retirement portfolio should be well diversified across pension plans, mutual funds,
equities, EPF/PPF and fixed deposit.
One of the important considerations in making any investment choice across asset classes
is tax implication of investment decision. Tax planning plays an important role in portfolio
management especially in the current scenario of complex tax structure.
Tax Planning has been described as a form of arrangement of a taxpayer’s financial affairs
in such a way that the tax liability is reduced. This is achieved by taking full advantage
of all the tax exemptions, deductions, concessions, rebates, relief, allowances and any
other benefits granted by the tax laws.
Every person, whose total income of the previous year exceeds the maximum amount
that is not chargeable to income tax, is an assessed.
An income can be taxed under the head “Salaries” where there exists an Employers-
Employee relationship between the payer and the payee.
The annual value of property consisting of any buildings or lands appurtenant thereto of
which the assessed is the owner shall be chargeable to income-tax under the head “Income
from house property”.
The gain on sale of a capital asset is called capital gain. The following are various types
of capital gains:
Estate planning refers to the process by which an individual or his/her family arranges the
transfer of assets to the legal heirs in the event of death or disability of the individual.
It includes the distribution of the real and personal property of an individual to his/her heirs.
An estate plan aims to preserve the maximum amount of wealth possible for beneficiaries and
flexibility for the individual prior to his death.
Time of distribution can be pre-decided: Individuals having minor children may wish
to transfer the assets only after the children attain a certain age, to avoid misuse that may
happen due to lack of maturity and discretion.
- Ensuring all the benefits due to the deceased, such as life insurance, pension, and
other benefits are received.
Power of
Trust Gift Partition
Attorney
Trust: A trust is an entity created to hold assets for the benefits of certain person or
entities.
Power of Attorney: It is a formal arrangement by which one person gives another person
authority to act on his/her behalf and in his/her name.
Gift: It is a relinquishment without consideration of one’s own right in property and the
creation of the right of another.
Partition: It is the process by which the property held in undivided shares by joint tenants
or coparceners is divided among them. A partition does not involve transfer in law; hence
partition does not attract liability to tax on capital gains.
Post-death
Life
Will Succession
Insurance
Will: it is a legal document through which, one can allocate one’s assets and property to
the loved ones after death.
Intestate Succession: The Indian Succession Act states that any attempt to set out the exact
share of each such person and its fluctuation depends on various factors. The share taken
by each sharer will fluctuate in different circumstances.
Life Insurance: It is a good estate planning tool. The main reason for a life insurance is
that when the insured name his beneficiaries, the money passes to them directly, without
probate.
CHAPTER 4
FINANCIAL AND INVESTMENT PLANNING
The common products which are offered by life insurance companies can be categorized
as:
Term Insurance: It is provides for life insurance coverage for a specified term of years for a
specified premium. The sum assured is payable only if the death of the life assured occurs
within a specified period of time. There is normally no cash value or surrender value at any
time.
Some of the term insurance products available in India are given below:
Permanent Life Insurance: Permanent Life Insurance is life insurance that remains in force
until the policy matures, unless of course the owner fails to pay the premium when due and the
policy expires.
It is permanent in the sense that the policy cannot be cancelled by the insurer for any reason
except fraud in the applications. Also the cancellation must occur within a period of time
defined by law which is usually two years. It builds a cash value that reduces the amount at
risk to the insurance company and thus the insurance expenses over time.
Whole Life Insurance: It is designed to cover the life assured for his whole lifetime the
individual generally pay the same premium amount throughout the lifetime.
Universal Life Insurance: It is a relatively new insurance product offering low cost
protection of term insurance and a savings element like whole life insurance. It is intended to
provide permanent insurance coverage with greater flexibility in premium payment, altering
savings element, and even death benefits.
Endowment Assurance: It is a life insurance policy that provides a sum of money either at
the end of the term of the plan or on the earlier death of the life assured.
It can be seen that an endowment combines protection with savings. It is paid out whether
the insured lives or dies, after a specific period or a specific age.
The whole life policy also guarantees payment of the sum assured but only at the time of
insured’s death as and when it occurs.
Some of the ULIP products available in the market today are given below:
• Riders: Riders are additional add-on benefits that an individual can include in his policy over
and above what the policy may provide.
- Critical Illness Cover (CIC): It provides lump sum payment on the diagnosis of
one of the specified range of illnesses or medical conditions.
• Pensions and Annuities: These are investment products that help to build a nest age for
retirement. Under annuities you pay premium for a given number of years till your vesting age.
Pensions are a form of life assurance. However, whilst basic life assurance business includes
an amount of mortality risk for the insurer, for pensions there is a longevity risk.
An annuity is a contract with an insurance company whereby the purchase pays an initial
premium or premiums into a tax-deferred account, which pays out a sum at pre-determined
intervals.
Investment in Equity:
Equity is nothing but the stock of company, which represents ownership in the company to the
extent of the amount of stock that you own. Investors typically tend to invest into equity to gain
from the potential upside it has to offer. The returns can be earned in two ways:
Identify winning stocks: Although there is no formula to identity winning stocks, there are
certain parameters that define the health of any company and therefore its ability to perform
better than its peers. Look for consistency in a company’s earnings. This gets reflected in the
stock price of a company. A stock with extreme volatility in its earnings will have huge
variations in its share price. There are certain basic ratios that can help you identify winning
stocks.
Price to Earnings Ratio: Popularly known as the P/E ratio of a company, it is a measure of
the price paid for a share relative to the annual net income earned by the firm per share. The
ratio is primarily used for the purpose of share price valuation a higher P/E ratio means that
investors are paying more for each unit of net earnings. Similarly, a stock with a lower P/E
ratio means it is probably undervalued. This ratio should ideally be used to compare companies
within the same industry.
Price/Earnings To Growth (PEG) Ratio: The PEG is calculated by dividing the P/E by the
forecasted growth rate in the EPS (earning per share) of the company. A lower PEG means that
the stock is undervalued relative to the growth it offers and may be an attractive buy.
Dividend Yield: Dividend yield is calculated by dividing the annual dividend paid on each
share by the current price of a share. This tells you what percentage of earnings a company
pays out to shareholders in the form of dividends. Older, well-established companies tend to
pay a higher percentage than the newer companies.
Return on Equity: Return on Equity (ROE) is one of the important indicators used to ascertain
whether a company has been able to generate worth for its shareholders. It measures net profit
as a percentage of the total equity capital of a company. A higher Roe reflects the company’s
efficiency in utilizing investor money.
Tradable securities: It means they have a secondary market where they can be sold or
tradable securities. An example of tradable securities is debentures. The various types of
tradable securities are:
- Government securities
- Corporate bonds
Non-tradable securities: The securities cannot be traded and have to be held by the
investor until the maturity. An example of non-tradable securities is bank deposits. Non-
tradable securities are of the following types:
- N.S.C.
- P.P.F.
- Company deposits
• Income Expectation: With the exception of Floating Rate Securities, the coupon is set at
issuance and remains the same until maturity.
• Choice: The different fixed-income instruments in the market allow you to choose from a
range of credit ratings and maturity periods.
• Accessibility: Fixed-income securities provide the flexibility and liquidity needed to structure
a portfolio tailored to specific investment objectives.
• Risk Profile: The prices of debt securities display a lower average volatility as compared to
the prices of other financial securities. This does give fixed income securities a low risk
profile.
CHAPTER 5
RESEARCH METHODOLOGY
To have the investor’s current financial strengths and weaknesses and implication of
financial plan.
To also give comprehensive economic overview of the investor’s financial plan, supported
by financial statements.
Personal financial planners are not just for wealthy people. Every individual can benefit from
objective help to create, grow, accumulate and utilize wealth to fulfill one’s personal goals,
family goals and other lifestyle objective systematically without any anxiety. Financial
planners can guide individuals to achieve their ultimate aim of spending retired life peacefully
without compromising living standards. A qualified financial planner will provide advice on
Systematic saving
Debt management
Limitation of investor in investing in particular kind of asset based on his / her age.
Time limitation.
Secondary Data: The secondary data includes information obtained from various sources
which includes Books, Magazines, Newspapers, websites etc.
5.5 ANNEXURE
Questionnaire
Questionnaire followed by Planner to identify investor’s investment objectives and risk profile
an important aspect of investment planning and analysis is to ensure that investor. Money is
invested in a manner that reflects the individual attitudes and personal circumstances. In order
to achieve this we need a clear understanding of what your “risk profile” is. When we refer to
risk, we mean how much an investment is likely to go up or down in the short-term. To achieve
higher long-term returns, you have to be prepared to accept that the value of your investment
may fall significantly in the short-term. This is because investments that provide higher returns
are usually more volatile than those producing low returns. There is a trade-off between risk
and return.
Investment experience
Time-frame
Professional management
Tax effectiveness
Income requirements
Completing the following questions will help us understand the individual attitude to investing.
This will enable us to recommend investments appropriate to your specific needs
1. Which best describes how you keep up with financial and investment matters.
1. I don’t.
2. I take notice of the financial report in the news or on television shows.
3. I read the investment section in the newspaper
4. I read the WSJ more than three days a week.
5. I subscribe to several financial journals/investment magazines and read the financial
press each day
2. How familiar are you with the capital and investment markets.
3. Which one of the following best describes how well you feel you are able to manage
your way through the complexities of investments?
4. For how long would you expect most of your money to be invested before you would
need to access it?
5. What is your current income requirement (dividends plus interest) from your
investments?
7. Other than your own home, how do you feel about borrowing to invest?
8. Considering the annual returns of the six hypothetical investment plans below over the
last ten years. Based on the range of possible outcomes shown, which plan would be most
acceptable to you or best suit your investment philosophy.
1. Average annualized return: 4%, Best case: 5%, Worst case: 2%.
2. Average annualized return: 6%, Best case: 9%, Worst case: -2%.
3. Average annualized return: 8%, Best case: 12%, Worst case: -5%.
4. Average annualized return: 10%, Best case: 15%, Worst case: -8%.
5. Average annualized return: 12%, Best case: 18%, Worst case: -10%.
6. Average annualized return: 14%, Best case: 24%, Worst case: -12%.
9. A typical investment portfolio consists of both investments with high expected returns
and high risk (i.e., stock, options, derivatives, property) and those with low expected
returns and low risk (i.e., cash, money market, fixed income). Which of the following
spread of investments would you feels comfortable investing it.
Conservative – A very low risk taker (30% High Risk, 70% Low Risk)
You are a conservative investor. Risk must be very low and you are prepared to accept lower
returns to protect capital. The negative effects of tax and inflation w ill not concern you,
provided your initial investment is protected. The expected average return is 6.5% and the
likelihood of a negative return is once every 9 years.
Moderately Conservative – A low risk taker (50% High Risk, 50% Low Risk)
You are a moderately conservative investor seeking better than basic returns, but risk must be
low. Typically an older investor seeking to protect the wealth which you have accumulated,
you may be prepared to consider less aggressive growth investments. The expected average
return is 8% and the likelihood of a negative return is once every 6 years
You are a balanced investor who wants a diversified portfolio to work towards medium to long-
term financial goals. You require an investment strategy, which will cope with the effects of
tax and inflation. Calculated risks will be acceptable to you to achieve good returns. The
expected average return is 9% and the likelihood of a negative return is once every 5 years.
Moderately Aggressive – A high risk taker (80% High Risk, 20% Low Risk)
You are a moderately aggressive investor, probably earning sufficient income to invest most
funds for capital growth. Moderately aggressive investors are aiming to receive a significantly
higher return than cash over time and are therefore prepared to accept a reasonably high level
of volatility. The expected average return is 11.5% and the likelihood of a negative return is
once every 4 years. A minimum investment period of 5 years is advisable.
Aggressive – A very high risk taker (100% High Risk, 0% Low Risk)
You are an aggressive investor prepared to compromise portfolio balance to pursue potentially
greater long-term returns. Your investment choices are diverse, but carry with them a higher
level of risk. Security of capital is secondary to the potential for wealth accumulation. The
expected average return is 14% and the likelihood of a negative return is once every 4 years.
CONCLUSION
The overall study about each and every aspect of this topic shows that Financial Planning is a
dynamic and flexible concept which involves regular and systematic analysis, proper
management, judgment, and actions.
It can also be concluded that client or Investors should start planning soon, set measurable
goals, Look at the bigger picture and should not expect unrealistic returns on the investments
and value of the plan lies in its implementation and it accurately reflects what you are
personally trying to accomplish.
It can also be concluded that with the combination of different stocks we can reduce the risk
and increase the returns of a portfolio. By constructing portfolio we can only minimize the un-
systematic risk we cannot reduce systematic risk.
A proper Fundamental & Technical Analysis should be done before selecting any particular
stock for the portfolio. It minimizes the risk involved.
Financial Planning Service which was not so popular earlier as other services has gained lot of
importance and popularity & will gain more importance in future as people are now
understanding the importance of it.
Financial planning service is very important and effective investment tool for meeting your life
goals through the proper management of your finances.