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Personalfinancewealthmanagementprojectreport 160405030610
Personalfinancewealthmanagementprojectreport 160405030610
.SUBMITTED BY:
Mohammad Ikram
GUIDE:
1
ACKNOWLEDGEMENT 2
I wish to express my gratitude to Northern Institute for Integrated Learning
in Management Centre for Management Studies (NIILM-CMS), Greater
Noida Delhi NCR for giving me an opportunity to be a part of it and enhance
my knowledge by granting permission to do this project.
I’m grateful to Puneet sir senior faculty finance NIILM-CMS Greater Noida
for his invaluable guidance and cooperation during the course of the project. He
provided me assistance and support whenever I needed that has been
instrumental in completion of this project.
The learning during the project was immense & invaluable. My work includes
study of “FORMING CASELET OF A FAMILY & ANALYSING THE
PERSONAL FINANCIAL PLAN FOR THE SAME.”
MOHAMMAD IKRAM
2010080
PGDM BATCH-2010-2012
PREFACE 3
This is to certify that Mr. Mohammad Ikram a student of Post Graduate
Diploma in Management, NIILM-Centre for Management studies, Greater
Noida has worked under the able guidance and supervision of Mr. Puneet
Dublish, Professor in finance Northern Institute of Integrated Learning In
Management Greater Noida.
This Project report has the requisite standard for the partial fulfilment of the
Post Graduate Diploma in Management. To the best of our knowledge no part
of this report has been reproduced from any other report and the contents are
based on original research.
ACKNOWLEDGEMENT 2
PREFACE 3
1.
TITLE OF CASE – PERSONAL FINANCE CASELET 14
2.
ABOUT THE CASE 15-23
A- INCOME INFLOW STATEMENT
B- EXPENSE OUTFLOW STATEMENT
C-PERSONAL BALANCE SHEET
D- FINANCIAL GOAL INTERMEDIATE & LONG TERM GOAL
E- RISK APPETITE & FINANCIAL CONDITION
3.
CASE SOLVE 24-26
VARIOUS RATIOS CALCULATION
4.
BIBLOGRAPHY 27
5.
QUESTIONNAIRE 28
INTRODUCTION 5
PERSONAL FINANCE
“Personal finance is the application of the principles of finance to the
monetary decisions of an individual or family unit. It addresses the ways in
which individuals or families obtain, budget, save, and spend monetary
resources over time, taking into account various financial risks and future life
events. Components of personal finance might include checking and savings
accounts, credit cards and consumer loans, investments in the stock
market, retirement plans, social security benefits, insurance policies,
and income tax management. ”
PERSONAL FINANCE PLANNING
A key component of personal finance is financial planning, which is a dynamic
process that requires regular monitoring and revaluation. In general, it has five
steps:
1. ASSESSMENT:
One's personal financial situation can be assessed by compiling
simplified versions of financial balance sheets and income statements. A
personal balance sheet lists the values of personal assets (e.g., car, house,
clothes, stocks, bank account), along with personal liabilities (e.g., credit
card debt, bank loan, mortgage). A personal income statement lists
personal income and expenses.
2. SETTING GOALS:
Two examples are "1. Retire at age 65 with a personal net worth of $1,
000, 000," and, "2. Buy a house in 3 years while paying a monthly
mortgage servicing cost that is no more than 25% of my gross income."
Having multiple goals is common, including a mix of short term and long
term goals. Setting financial goals helps to direct financial planning. Goal
setting is done with an objective to meet certain financial requirements.
3. CREATING A PLAN:
The financial plan details how to accomplish your goals. It could include,
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for example, reducing unnecessary expenses, increasing one's
employment income, or investing in the stock market.
4. EXECUTION:
Execution of one's personal financial plan often requires discipline and
perseverance. Many people obtain assistance from professionals such as
accountants, financial planners, investment advisers, and lawyers.
2. ADEQUATE PROTECTION:
The analysis of how to protect a household from unforeseen risks. These
risks can be divided into liability, property, death, disability, health and
long term care. Some of these risks may be self-insurable, while most
will require the purchase of an insurance contract. Determining how
much insurance to get, at the most cost effective terms requires
knowledge of the market for personal insurance. Business owners,
professionals, athletes and entertainers require specialized insurance
professionals to adequately protect themselves. Since insurance also
enjoys some tax benefits, utilizing insurance investment products may be
a critical piece of the overall investment planning.
3. TAX PLANNING:
Typically the income tax is the single largest expense in a household.
Managing taxes is not a question of if you will pay taxes, but when and
how much. Government gives many incentives in the form of tax
deductions and credits, which can be used to reduce the lifetime tax
burden. Most modern governments use a progressive tax. Typically, as
your income grows, you pay a higher marginal rate of tax. Understanding
how to take advantage of the myriad tax breaks when planning your
personal finances can make a significant impact upon your success.
4. INVESTMENT AND ACCUMULATION GOALS:
Planning how to accumulate enough money to acquire items with a high
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price is what most people consider to be financial planning. The major
reasons to accumulate assets are for the following:
1. purchasing a house
2. purchasing a car
3. starting a business
4. paying for education expenses
5. Accumulating money for retirement, to generate a stream of
income to cover lifestyle expenses.
Achieving these goals requires projecting what they will cost, and when
you need to withdraw funds. A major risk to the household in achieving
their accumulation goal is the rate of price increases over time, or
inflation. Using net present value calculators, the financial planner will
suggest a combination of asset earmarking and regular savings to be
invested in a variety of investments. In order to overcome the rate of
inflation, the investment portfolio has to get a higher rate of return, which
typically will subject the portfolio to a number of risks. Managing these
portfolio risks is most often accomplished using asset allocation, which
seeks to diversify investment risk and opportunity. This asset allocation
will prescribe a percentage allocation to be invested in stocks, bonds,
cash and alternative investments. The allocation should also take into
consideration the personal risk profile of every investor, since risk
attitudes vary from person to person.
5. RETIREMENT PLANNING:
Retirement planning is the process of understanding how much it costs
to live at retirement and coming up with a plan to distribute assets to
meet any income shortfall.
6. ESTATE PLANNING:
Involves planning for the disposition of your asset when you die.
Typically, there is a tax due to the state or federal government at your
death. Avoiding these taxes means that more of your assets will be
distributed to your heirs. You can leave your assets to family, friends or
charitable groups.
WEATH MANAGEMENT
Wealth management is an investment advisory discipline that
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incorporates financial planning, investment portfolio management and a
number of aggregated financial services.
5. Try to understand what inflation, interest rates and returns on assets mean. You
don't need to know how to calculate it as today you have access to the internet
where you can find tools to calculate them for you or provide you with the
required information.
8. Finally, don't make your plan and forget about it. Remember, there are external
factors like inflation and interest rates that can change and impact your plan. A
review once in 3 months is recommended. Review need not mean a complete
planning. You can check if the plan you have is on track to help you meet your
goals.
A good financial plan will help you make you meet your goals and sleep
peacefully at night.
[1]. Title of case
PERSONAL FINANCIAL PLAN CASELET
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Following below is a caselet of the personal financial plan as on 31st march
2011 of a family comprises of three people in whom there is one earning
member Mr. khan and the other dependents. I.e. Mrs. Khan and their 15 years
old child name Salman. The earning member is working from the past 15 years
and presently he is of 36 years.
Mr. Khan is working in a Dubai based Bank Of Bahrain & Kuwait and earning
٨٨,٤ ٨٨ .٦٤ ر.[ س88,458.64 Saudi Riyal (SAR)] Per Annum which is equal to
1,200,000.00 P.A Indian National Rupee (INR) [1INR=0.0737155 SAR
SAR=13.5657 INR] . Whereas Mrs. Khan is also working in Gulf Lubricants
with gross salary of ٤٤,٢٣ ٠ ٠ ٨ ر.[ س44,230.08 SAR] Per Annum which is
equal to Rs. 6, 00,000 per annum INR. They have various sorts of expenses.
They purchased a flat from their own money & have insurance for the same of
Rs. 30,000 annually. They owe a car for which they pay Rs. 10,000 as
insurance annually. The value of their car at present is Rs. 8 lakhs .They have
one more car whose present value is Rs. 3 lakh for which they pay insurance of
Rs. 20,000 annually. They have purchased a plot of investment for Rs. 2 lakhs.
Mr. Khan invested in Capital market worth Rs. 1 lakh of various company
shares. They got an annual dividend of Rs. 2,000 from shares. And rent from
their plot Rs. 50,000 annually. They have taken an educational loan for their
child which is secured over their assets of Rs. 4 lakhs for their child from a bank
for which they pay interest of Rs. 1,000 per month. They have other unsecured
loan of Rs. 2 lakhs. The current assets of the family such as cash in hand are Rs.
1 lakhs and Rs. 5 lakhs as a bank account in their savings. Other fixed assets
include furniture of Rs. 3 lakhs and jewellery of Rs. 3 lakhs. The furniture
which they have purchased have not fully paid amount for which Rs. 50,000
are still remaining as outstanding. Mr. Khan is a member of a city club of which
his expense comes out to be Rs. 15,000 per annum. And the present value of
their house comes out to be Rs. 30 lakhs and their total expenses come out to be
Rs. 40,000 per month which includes their petrol expenses, electricity expense,
water, car expense, and other household expense. And other miscellaneous
expenses came out to be Rs. 3 lakhs P.a.Mr. Khan has to pay tax also as a liable
citizen of the country. The tax will be calculated according to the tax slab
introduced by the govt.
[2]. ABOUT THE CASE 15
The income and expenses of the family can better be determined with the help
of a cash flow statement, also called a personal income and expenditure
statement. It summarizes the cash receipts and payments for a given period such
as a month etc. Their income & expenses are mentioned as below. The data on
the income and spending patterns are-
PARTICULARS IN INR( )
Rent 50,000
PARTICULARS IN INR ( )
Insurance 60,000*
Interest on loan 12,000**
Membership fees 15,000
Other household expenses 4,80,000
Miscellaneous 3,00,000
FIXED ASSETS
Car ( 1st ) 8,00,000
Car ( 2nd ) 3,00,000
House 30,00,000
Furniture 3,00,000
Jewellery 3,00,000
TOTAL OF
FIXED ASSETS 47,00,000
CURRENT LIABILITY
TOTAL OF
CURRENT
LIABILITY 50,000
TOTAL LIABILITY 6,50,000
[D]. INTERMEDIATE AND LONG-TERM GOALS OF
MR.KHAN & MRS. KHAN
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Financial planning is done to achieve the future financial goals. The factors that
have to be considered by an investor while developing the personal financial
goals are:
Goals for different needs - Identifying goals for different financial needs
like the consumable product goals and the durable product goals is
essential. The consumable product goals occur on periodic basis such as
food, clothing, and entertainment. The durable product goals may be
expensive items such as car, appliances and so on which do not occur that
frequently.
Identify goals.
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Classify goals.
Set deadlines.
Monitor progress.
After listing all the goals, classify and prioritise them. The classification can be
done as short-term goals, intermediate goals, and long-term goals.
Short-term goals - Short-term goals are the goals that are to be achieved
in a year or two such as saving for vacation or paying off small debts.
Intermediate goals - Intermediate goals are the goals that have a time
frame of two to five years such as buying a bike or a car, paying off debts
like credit cards, getting a certification and so on.
Long-term goals - Long-term goals are the goals that have a time frame
of more than five years. They involve financial plans such as money for
children’s education, retirement savings, purchase of home, children’s
marriage and so on.
22
A fund for Mr. khan’s Retirement Days
Generate interest income out of this fund and enjoy retired life
Possible, plan again
Goal is to be achieved on 31-Oct-2030. It is planned for self.
Current Value is Rs. 10,000,000, a Lump sum amount.
[E]. RISK APPETITE AND FINANCIAL CONDITION
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After knowing about their balance sheet and about their income statement we
can say that the family financial condition is very sound.
As their total income is more than 18 lakhs [12 lakhs + 6 lakhs] and after
deducting all the expenses it is again more than 9 lakhs which is quite very
good for a family where there are two earning members with a child or we can
say that there are 3 members in a family total.
As part of their risk appetite as we can say that Mr. Khan has interest in
the share market and he had purchased the equity of more than Rs. 1 lakh.
So accordingly we can say that Mr. khan is less risk averse and more
Risk taker as dealing in equities is riskier for a person because dividend is
unknown moreover share market is less predictable.
[3]. SOLVE THE CASE 24
= 7, 00,000 / 50,000 = 14
o CURRENT LIABILITIES TO NET WORTH RATIO=
= 1 - 0.468 = 0.532.
= 0.870
BIBLIOGRAPHY
27
Personal finance by Reynolds.
The complete idiot’s guide to retiring early by Dee Lee, CFP, Jim
Flewlling.
Course Manual.
Questionnaire
PERSONAL FINANCE PROJECT
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NOTE: This mail is addressed to those students who have opted for
Personal Finance & Wealth Management. Those who haven't opted
may ignore this mail.
Dear Students
As announced in the class for internal assessment in PF&WM you
will develop a situation in the form of a caselet and also solve that
case. The relevant information and guidelines for the above are given
below:
1. Title of the Case = Personal Financial Plan
2. About the Case = Think of a family in which one or two are
earning members with mentioned income, expenses, assets and
liabilities (Short-term and Long-term). Write about their intermediate
and long-term goals. Analyze their financial condition and risk
appetite.
3. Solve the Case = Calculate their net worth, liquidity ratio, housing
payment ratio, solvency ratio, savings ratio, debt to income ratio.
Finally draft a financial plan based on the analysis of the financial
condition so as to enable your client to achieve specified goals.
The case project will be evaluated out of 50 marks. There will be no
other criteria for internal assessment. This project is compulsory for
all students (including ones who are not attending classes due to their
early joining) and hence non submission will result in zero marks.
The project should be send in soft copy and mailed at
pdublish@niilm.com latest by March 31, 2012.
With best wishes
Dr.Puneet Dublish
Professor-Finance
29