T.Y. B.F.M.

PROJECT REPORT

ON

AN ANALYTICAL STUDY OF INDIVIDUAL’S PERSPECTIVE

RELATED TO PERSONAL FINANCE AND RETIREMENT PLANNING

By

CHINMAY VILAS KADAM

Roll No.: 21

Under the guidance of

AMIT ZODGEKAR

S. K. Somaiya Degree College of Arts, Science and Commerce, Vidyavihar

March, 2021
 S. K. Somaiya Degree College of Arts, Science and Commerce,
Vidyavihar

CERTIFICATE

This is to certify that Mr. Chinmay Vilas Kadam has worked and duly completed
his project work for the degree of Bachelors in Commerce (Financial Markets)
under the faculty of commerce in the subject of project report and his project is
entitled, “AN ANALYTICAL STUDY OF INDIVIDUAL’S PERSPECTIVE
RELATED TO PERSONAL FINANCE AND RETIREMENT PLANNING”
under my supervision.

I furtherly certify that the entire work has been done by the learner under my
guidance and that no part of it has been submitted previously for any Degree or
diploma of any university.

It is his own work and facts reported by his personal findings and investigations.

Internal Guide External Examiner

MR. AMIT ZODGEKAR (Signature with Date)

College seal

Principal Course coordinator

DR. MANALI LONDHE MR. PRASHANT PIMPLE

 DECLARATION BY LEARNER

I the undersigned Mr. CHINMAY VILAS KADAM here by, declare that the
work embodied in this project work titled’ “AN ANALYTICAL STUDY OF
INDIVIDUAL’S PERSPECTIVE RELATED TO PERSONAL FINANCE
AND RETIREMENT PLANNING” forms my own contribution to the research
work carried out under the guidance of MR. AMIT ZODGEKAR is a result of
my own research work and has been previously submitted to any other university
of any other Degree/ Diploma to this or any other University.

Wherever reference has been made to previous works of others, it has been clearly
indicated as such and included in the bibliography.

I, here by further declare that all information of this document has been obtained
and presented in accordance with academic rules and ethical conduct.

Certified by Name and signature of the learner

MR. AMIT ZODGEKAR MR. CHINMAY KADAM

 ACKNOWLEDGMENT

To list who all have helped me is difficult because they are so numerous and the
depth is so enormous.

I would like to acknowledge the following as being idealistic channels and fresh
dimensions in the compulsion of this project.

I take this opportunity to thank University of Mumbai for giving me chance to

do this project.

I would like to thank my Principal, DR. MANALI LONDHE for providing the
necessary facilities required for completion of this project.

I take this opportunity to thank our Coordinator MR. PRASHANT PIMPLE,

for the moral support and guidance.

I would also like to express my sincere guidance towards my project guide Mr.
AMIT ZODGEKAR whose guidance and care made the project successful.

I would like to thank my College Library, for having provided various reference
books and magazines related to my project.

Lastly, I would like to thank each and every person who directly or indirectly
helped me in the completion of the project especially my Parents and Peers who
supported me throughout my project.
 TABLE OF CONTENT

Chapter Particulars Page no.

No.
Chapter 1 1.1 Meaning of personal finance 1
1.2 Importance of personal finance 2
1.3 Objectives of personal finance 4
1.4 Instruments for investments 5
1.5 Important steps for personal 8
finance
1.6 Goal based investment 10
1.7 Allocation for investment 11
1.8 Retirement planning 18
1.9 Tax planning 22
1.10 Age wise planning for retirement 25
Chapter 2 Research methodology 27
Chapter 3 Review of literature 29
Chapter 4 Data analysis and interpretation 31
Chapter 5 Conclusion and recommendation 46
Annexure 47
Bibliography 50
 CHAPTER ONE

INTRODUCTION

1.1 Meaning of Personal Finance

Personal finance is managing your own money as well as saving and investing. It includes
budgeting, banking, insurance, mortgages, investments, retirement planning, and tax and
estate planning.

Personal finance is about meeting personal financial goals, whether it’s having enough for
short-term financial needs, planning for retirement, or saving for your child's college
education. It all depends on your income, expenses, living requirements, and individual goals
and desires—and coming up with a plan to fulfil those needs within your financial
constraints.

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1.2 Importance of Personal Finance
Personal finance mainly focuses on an individual’s long-term and short-term financial goals.
It includes all the financials decisions from budgeting your monthly expense to planning your
retirement.

Having a plan for finances will help you meet your short and long-term needs, without going
your income limits.

Most important reason why personal finance is important for individual is that it is not
covered in our education system. As every individual learn these things on their journey from
completing their studies to the retirement phase while working and paying their bills. The
major way used by people to learn personal finance is self-experience. That’s why personal
finance is very important in our day-to-day life.

The most important part in personal finance an individual should learn is ‘Time value of
Money’. Time value of money (TVM) is the concept that money you have now is worth more
than the identical sum in the future due to its potential earning capacity. That means any
amount of money is worth more the sooner it is received.

In personal finance inflation affects individual’s long-term goals in a big way. It is essential
to consider the inflation factor while planning for personal finance.

Personal finance helps to ensure that individual’s meet their money needs. A person should
have plan that establishes how much their income is, what are their expenses, what plans they
have, as well as their financial future goals. This way people will think beyond just working
to earn money.

Another reason why personal finance is essential is that it can help you to increase your cash
flow. When you keep track of your expenditures and your spending patterns, you can easily
be able to increase your cash flows.

Things that help to grow cash flows are tax planning, prudent spending and careful
budgeting.

Personal finance offers financial security to the families. Financial security for you and your
family is something that most people long for. Everyone wants to know that they can cater to
the money needs of their family, whether the economy is failing or not.

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It also helps to keep off unmanageable debts. Having a few debts is not a problem. Being
overly in debt, however, is dangerous to future finances. It’s vital to be able to manage one’s
debts in a way that guarantees no harm is done to your future financial stability. One way to
stay off debts is to avoid overspending or spending more than what you are earning. This is
done with help of personal finance.

Personal finance help to grow financial assets of individuals. It helps to allocate particular
amount of the income for investments to buy assets which will appreciate over the period of
time.

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1.3 Objectives of Personal Finance

• Organize loans: Personal finance helps to organize loans and to come up with a plan for
paying off the loans as quickly as possible.
• Putting aside for a rainy day: Financial experts recommend having an emergency
savings account that will cover at least three months’ worth of living expense.
Personal finance helps to plan and allocate that much money for the emergency fund.
• Investments: Personal finance helps to plan and allocate part of your income in
appreciating assets by investing in them for creating income sources for future. This
planning is done by analysing the risk appetite of the individual.
• Retirement planning: Retirement planning is most important part of the individual’s
personal finance. Personal finance help to plan for retirement according to the income
and expenditure preferences of the person

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1.4 Instruments for Investments
1. Equity: Equity which is commonly referred as investing in stocks, is probably the most
potent investment vehicle. When you buy a company’s stock, you buy partial ownership
of that company. You directly invest in the company’s growth and development. You
need to have enough time and possess the market knowledge to benefit from your
investment. If not, then investing in direct equity is as good as speculation.
Stocks are offered publicly listed companies through the recognised stock exchanges and
can be bought by any investor who has Demat account. Stocks are ideal for long-term
investments. You have to actively manage your investments as various economic and
business factors influence stocks. Also, you need to understand that the returns are not
guaranteed and be willing to assume the associated risks.
2. Mutual Funds: A mutual fund pools investment from various individual and
institutional investors who have a common investment objective. The pooled sum is
managed by a finance professional called the fund manager, who invests in securities and
assets to generate optimum returns for investors. Mutual funds are broadly divided into
equity, debt and hybrid funds.
Equity mutual funds invest in stocks and equity-related instruments, while debt mutual
funds invest in bonds and papers. Hybrid funds invest across equity and debt
instruments. Mutual funds are flexible investment vehicles, in which you can begin and
stop investing as per your convenience. Any individual may consider investing in mutual
funds.
Person don’t need to time or knowledge to invest in mutual funds as the fund manager
takes care of portfolio constitution. It is advisable to invest in only those funds whose
risk levels and objectives match yours. The returns are not guaranteed as they are
dependent entirely on the market movements. Note that past performance of a fund does
not indicate future returns.
3. Fixed Deposits: Fixed deposits are an investment option offered by banks and financial
institutions under which you deposit a lump sum for a fixed period and earn a
predetermined rate of interest. Unlike mutual funds and stocks, fixed deposits offer
complete capital protection as well as guaranteed returns. However, you compromise on
the returns as they remain the same.
Fixed deposits are ideal for the conservative investor. The interest offered by fixed
deposits change as per the economic conditions and are decided by the banks depending

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 on the RBI's policy review decisions. Fixed deposits are typically locked-in investments,
but investors are often allowed to avail loans or overdraft facilities against them. There is
also a tax-saving variant of fixed deposit, which comes with a lock-in of 5 years.
4. Recurring Deposits: A recurring deposit (RD) is another fixed tenure investment that
allows investors to invest a fixed amount every month for a pre-defined time and earn a
fixed rate of interest. Banks and post office branches offer RDs. The interest rates are
defined by the institution offering it.
An RD allows investors to invest a small amount every month to build a corpus over a
defined time period. RDs offer complete capital protection as well as guaranteed returns.
Like fixed deposits, RDs are recommended for risk-averse investors.
5. Public Provident Fund: Public Provident Fund (PPF) is a long-term tax-saving
investment vehicle that comes with a lock-in period of 15 years. It is offered by the
Government of India and the sovereign guarantees back your investments. The interest
rate offered by PPF is revised on a quarterly basis by the Government of India.
Public Provident Fund (PPF) is a long-term tax-saving investment vehicle that comes
with a lock-in period of 15 years. It is offered by the Government of India and the
sovereign guarantees back your investments. The interest rate offered by PPF is revised
on a quarterly basis by the Government of India.
6. Employee Provident Fund: Employee Provident Fund (EPF) is another retirement-
oriented investment vehicle that helps salaried individuals get a tax break under the
provisions of Section 80C of the Income Tax Act, 1961. EPF deductions are typically a
percentage of an employee's monthly salary, and the same amount is matched by the
employer as well.
Upon maturity, the withdrawn corpus from EPF is also entirely tax-free. EPF rates are
also decided by the Government of India every quarter, and the sovereign guarantees
back your investments in EPF. You can contribute more than the minimum prescribed
amount under the Voluntary Provident Fund (PPF). However, you need to note that you
can access your EPF investments only on meeting specific criteria and your EPF account
matures only when you retire.
7. National Pension System: The National Pension System (NPS) is a relatively new tax-
saving investment option. Investors subscribing under the NPS scheme will mandatorily
stay locked-in until their retirement and can earn higher returns than PPF or EPF. This is
because the NPS offers plan options that invest in equities as well.

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 The maturity corpus from the NPS is not entirely tax-free, and a part of it has to be used
to purchase an annuity that will give the investor a regular pension. You can withdraw
only up to 40% of the entire corpus accumulated as a lump sum, while the remaining
goes towards an annuity plan. Some government employees are compulsorily required to
subscribe to NPS.
8. Equity-linked savings scheme: An equity-linked savings scheme or ELSS is a tax-
saving investment under Section 80C of the Income Tax Act, 1961. By investing in
ELSS, you can claim a tax rebate of up to Rs 1,50,000 a year and save up to Rs 46,800 a
year in taxes. An ELSS is the only kind of mutual fund eligible for tax benefits under
Section 80C. The portfolio of these funds is dominated by equity-linked instruments such
as shares.
ELSS Funds are a class of mutual funds that are eligible for tax deductions under the
provisions of Section 80C of the Income Tax Act, 1961. These mutual funds are equity-
oriented and invest up to 65% of their portfolio in instruments such as shares. Investing
in ELSS funds is an excellent way of planning your future while saving on taxes. An
ELSS fund gives you the dual benefit of tax deductions and wealth creation over time.
9. Real Estate: The investment in residential real estate generates regular rental income and
appreciation with a modest amount of risk as compared to equity investments. The
growth in residential real estate investments is due to individuals looking for a better
urban housing needs and government housing initiatives. You benefit by owning an
asset, adding diversification to your investment portfolio and even saving on taxes
(exemption benefits through housing loans & depreciation).
10. GOLD: Over the years, investment in gold has given consistent returns of around 10%
beating inflation and providing diversification. A better way to invest in Gold is through
a Gold mutual fund, Gold ETF and Gold bonds. You can also invest in Sovereign Gold
Bond Scheme regulated by the government and RBI. You will own gold in ‘certificate’
format. The value of the bonds is assessed in multiples of the gold gram. The initial
minimum investment is 1 gram of gold.

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1.5 Important steps for Personal finance

• The Money rule: There is a 50/30/20 rule of money. According to this rule 50% of your
income should be spent towards your needs. Which include your grocery bills, rent, various
EMI, insurance premium, other house expenses. 30% of your income should be spent towards
your wants. This category includes want and expenses which can be avoided. It may include
dining out, clothing etc. 20% should be spent towards saving for future. Here saving maybe for
retirement, achieving your goal, building emergency fund.
• Know your personal net worth: Before you start thinking about investing your money, you
should have a clear idea about where you stand now in terms of your financial position. You
should prepare your Personal net worth statement. which would describe your total assets and
total liability and most important, your net worth.
• Build emergency fund: A person should have an emergency fund. Emergency fund means
money kept aside to deal with the urgent situation. It can finance your urgent need just like short
term loan. Individual should have 3 to 6 months of income as emergency fund. According to the
individual preferences it can be invested in FD or liquid funds from where the money can be
withdrawn within a day. Withdrawing the fund immediately within a day without any extra cost
is important while investing the emergency fund.
• Having adequate insurance: Having term insurance is utmost important in your life. Term
insurance plan is a form of life cover, it provides coverage for a defined period of time, and if
the insured expires during the term of the policy then death benefit is payable to the nominee. It
is better than other insurance policy as it does not involve any investment component in it. All
other policy except medical insurance and whole life insurance will benefit insurance company
and agent.
You should have medical insurance so that in case of any hospitalization your family should not
suffer financially. If you have good medical insurance, it will also compliment your emergency
fund too.
• Stay away from the trap of debt: Debt is not bad; it can be very helpful for tax purpose. Loans
and credit cards can be your best friend but it has become our enemy. Thanks to the education
system who didn’t even teach us the basics of it.
There is a concept called good debt and bad debt

Good debt:

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 It means taking a loan on appreciating asset which will generate the return. If such asset is
purchased then, the loan can be paid with help of return generated. Appreciating assets include
real estate.

Bad debt:
It means taking a loan on depreciating asset. Depreciating asset means an asset which will not
generate a return for you but it will take more cash flow out of your pocket in form of
maintenance exp etc. It includes purchase of a car.
• Start investing as early as possible: Individual should start their investing as early as possible.
Due to compounding the penalty for lower returns by investing late is very huge over longer
period of time. In early-stage individual should make a habit of investing part of their income
which help to create a huge return over longer period of time.
• Goal based investing: Goal-based investing means investing for purpose of achieving some goal
in future. It can consider goals like investing for buying a car, building retirement corpus,
building children education corpus, saving for marriage.
• Learn about income tax: Having basic information about basics of tax and about individual tax
slab can accelerate the financial journey in positive way. As individual can learn an analyse their
tax and invest according to them. They can achieve higher interest with this help.
• Using credit card: A credit card can be best friend if an individual use it wisely. By repaying
credit card bills time to time can result in positive way. It increases your credit score positively
and helps to get loan in future.
• Work on your CIBIL score: Don’t ever do any act, which can impact your CIBIL score
negatively like not paying credit card due amount, delay in payment of EMI. If you have a good
CIBIL score, you can get a loan at a cheaper rate. Work on CIBIL Score at a young age, which
helps you in the future.

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1.6 Goal Based Investment
Goal-based investing is a relatively new approach to wealth management that emphasizes
investing with the objective of attaining specific life goals. Goal-based investing (GBI)
involves a wealth manager or investment firm’s clients measuring their progress towards
specific life goals, such as saving for children’s education or building a retirement nest-egg,
rather than focusing on generating the highest possible portfolio return or beating the market.

Goal-based investing differs from traditional investing, in that its yardstick for success is how
well the investor is able to meet his or her personal life goals, rather than how well his or her
investments perform against the market average in a given period.

Consider an investor who is looking forward to retirement within a year, and who therefore
cannot afford to lose even 10% of his or her portfolio. If the stock market plunges 30% in a
given year and the investor’s portfolio is down “only” 20%, the fact that the portfolio has
outperformed the market by 10 percentage points would offer scant comfort. That investor
needs to focus more on maintaining, rather than growing, wealth in order to reach his or her
personal goal of affording retirement within a year.

Goal-based investing re-frames success, based on clients’ needs and goals. If a client’s main
goals are to save for imminent retirement and fund the college education of young
grandchildren, an investment strategy would be more conservative for the former and
relatively aggressive for the latter.

As an example, the asset allocation for the retirement assets might be 10% equities and 90%
fixed-income, while the asset allocation for the education fund may be 50% equities and 50%
fixed-income. Individual needs and goals, rather than risk tolerance, are what drive investing
decisions made under the goal-based framework.

The advantages of goal-based investing include:

1. Clients’ increased commitment to their life goals by allowing them to observe and
participate in tangible progress
2. A reduction in impulsive decision-making and overreaction, based on market
fluctuations

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1.7 Allocation for Investment

Asset allocation is an investment strategy that aims to balance risk and reward by
apportioning a portfolio's assets according to an individual's goals, risk tolerance,
and investment horizon. The three main asset classes - equities, fixed-income, and cash and
equivalents - have different levels of risk and return, so each will behave differently over
time.

There is no simple formula that can find the right asset allocation for every individual.
However, the consensus among most financial professionals is that asset allocation is one of
the most important decisions that investors make. In other words, the selection of individual
securities is secondary to the way that assets are allocated in stocks, bonds, and cash and
equivalents, which will be the principal determinants of your investment results.

Investors may use different asset allocations for different objectives. Someone who is saving
for a new car in the next year, for example, might invest her car savings fund in a very
conservative mix of cash, certificates of deposits (CDs) and short-term bonds. Another
individual saving for retirement that may be decades away typically invests the majority of
his individual retirement account (IRA) in stocks, since he has a lot of time to ride out the
market's short-term fluctuations. Risk tolerance plays a key factor as well. Someone not
comfortable investing in stocks may put her money in a more conservative allocation despite
a long-time horizon.

In general, stocks are recommended for holding periods of five years or longer. Cash
and money market accounts are appropriate for objectives less than a year away. bonds fall
somewhere in between. In the past, financial advisors have recommended subtracting an
investor's age from 100 to determine how much should be invested in stocks. For example, a
40-year-old would be 60% invested in stocks. Variations of the rule recommend subtracting
age from 110 or 120 given that the average life expectancy continues to grow. As individuals
approach retirement age, portfolios should generally move to a more conservative asset
allocation so as to help protect assets that have already been accumulated.

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All weather portfolio strategy

All Weather is an investment strategy pioneered by Bridgewater Associates. The objective of

this strategy is to weather any market storm from Demonetization, recession, etc.
Let’s look at basic assumption considered by Ray to come up with this strategy.
I. Price of the securities changes only due to change in the expectations of future
II. Irrational behaviour in markets only happens for short period of time
According to Ray Dalio there are only four things that move the price of assets:
1. inflation,
2. deflation,
3. rising economic growth
4. declining economic growth

Ray’s view boils it down to only four different possible environments, or economic seasons,
that will ultimately affect whether investments (asset prices) go up or down. (Except unlike
nature, there is not a predetermined order in which the seasons will arrive.)
They are:
1. higher than expected inflation (rising prices),
2. lower than expected inflation (or deflation),
3. higher than expected economic growth, and

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4. lower than expected economic growth.

Each asset which will perform well in particular season is given in below chart:

In this process allocation is the most important part. According to Ray Dalio Stocks or
equities should be 30% of the portfolio. As stocks are three times more volatile than bonds.
15% of the portfolio will go to the short-term bonds and 40% of the portfolio will be
consisting of Long-term bonds. Ray Dalio rounded the remaining 15% with investing
commodities. We should invest in gold as a commodity because it gives excellent hedge for
the stock market as gold works on negative Beta.

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As this strategy is based on American context, it necessary to convert few allocations as
compare to Indian context because it should be related to the risk of the country we are going
to invest.
Hence, the allocation of the portfolio will change according to the country or the market. But
the concept will be the same as the result should be related to the returns, we are going to
gain have to be storm proof as compare to all the seasons we are considering.

We will use the allocation as given in below diagram:

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Study of all-weather strategy:
In this study we will use mutual funds as our investing vehicles. As most of the retail
investors invests through the mutual funds as they provide expert services throughout the
investment period.
We will use below funds for given allocation in different instruments:

1. Stocks: Will use top mutual fund from Multicap category in Equities (ICICI Value
Discovery)
2. Long Term Bonds: Will use debt mutual fund with highest maturity (HDFC Gilt Fund
– Long Term Plan)
3. Intermediate Bonds/ TIPS: Will use top floating-rate debt mutual fund (Kotak Floater
Fund)
4. Commodities: Almost non-existent in India, so we are assuming that hedge also
being provided by gold
5. Gold: Top gold fund (SBI Gold Fund)

Performance of all weather portfolio vs traditional 65/35 portfolio:

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Above numbers are calculated based on the last 10 years data using annualized returns. From
1993-2006 the annual return of this portfolio was 12% and the worst loss was -3% without
any alpha from mutual funds. If we assume 2% alpha, it held up fairly well during earlier
downturn as well. Balanced mutual funds are also not bad but worst loss for them was much
steeper at -12% compared to -0.5% of all weather portfolio. And that 12% reflects in CAGR
also.
Balanced mutual funds are also not bad but worst loss for them was much steeper at -12%
compared to -0.5% of all weather portfolio. And that 12% reflects in CAGR also.
Let’s break out the asset classes individually and look at their performance for last 10 years.
Now you can clearly see that “All weather portfolio” is able to beat the returns of most of
them while keeping risk minimum at the same time.

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On CAGR basis my all-weather portfolio has generated same returns as equity from 1994-
2016 with ⅓ the risk.

Conclusion:
Bonds and Gold act as portfolio stabilizers during economic downturns and stock market
crashes. The all-weather portfolio isn’t reinventing the wheel. It’s a fairly simple, broadly
diversified portfolio.
If a person without financial knowledge and without investing time want to invest the money
with low risk then All Weather Portfolio is for them.

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1.8 Retirement planning
Retirement planning is the process of determining retirement income goals, and the actions
and decisions necessary to achieve those goals. Retirement planning includes identifying
sources of income, sizing up expenses, implementing a savings program, and managing
assets and risk. Future cash flows are estimated to gauge whether the retirement income goal
will be achieved.
Retirement planning is ideally a life-long process. You can start at any time, but it works best
if you factor it into your financial planning from the beginning. That's the best way to ensure
a safe, secure—and fun—retirement. The fun part is why it makes sense to pay attention to
the serious and perhaps boring part: planning how you'll get there.

Understanding retirement planning:

In the simplest sense, retirement planning is the planning one does to be prepared for life
after paid work ends, not just financially but in all aspects of life. The non-financial aspects
include lifestyle choices such as how to spend time in retirement, where to live, when to
completely quit working, etc. A holistic approach to retirement planning considers all these
areas.
The emphasis one puts on retirement planning changes throughout different life stages. Early
in a person's working life, retirement planning is about setting aside enough money for
retirement. During the middle of your career, it might also include setting specific income or
asset targets and taking the steps to achieve them.
Once you reach retirement age, you go from accumulating assets to what planners call the
distribution phase. You’re no longer paying in; instead, your decades of saving are paying
out.

4% Rule
At the cusp of retirement, or earlier, we must have a general idea of our income needs after
retirement. As a rule, it’s better to be cautious and plan for more than we may need. It is
important to start with an estimate of all the expenses. Generally, people feel that they may
only need about 70% of their last drawn income. However, it is prudent to assume that they
may need more.

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It is important to know how much income we could draw down from our investments. The 4
per cent rule was derived by financial planner William Bengen. According to him, a retiree
with an investment portfolio of 50% equity and 50% bonds should be able to outlive the
funds if they draw down only 4% of the investment every year, adjusted for inflation. In
effect this rule also means that the investments must be long term and last for 30 years. The
4% rule guides us but is not necessarily perfect since it relies on past data and not on current
market estimates or future risks.
If we use the 4% rule as a guideline, and wish to drawdown Rs 1 lakh per month after our
retirement, it means that our investment corpus must be at least Rs 3 crore. As with any
investment, the earlier that we start our investments, the better the yields. As a rule, we
should definitely start retirement planning and creating a retirement investment portfolio as
early as in our 20s. Compound interest on our early investments add up to significant
multiples. However, if we haven’t started investing from an early age, we must invest
significantly more to achieve the Rs 3 crore target.
The 4% rule is an old rule which helps to assume for the steady flow of income over the
period of retirement life. But it sometimes doesn’t consider the inflation factor in the
retirement planning process.
The Bucket strategy
A bucket strategy ensures some money is protected for short-term use while other money is
allowed to grow for long-term use. While the details can vary depending on a person's needs
and life expectancy, a typical strategy might use three buckets.
The first bucket places money needed within the next three years in cash or bond funds.
There, the money won't see significant gains, but the stability of these funds should insulate it
against losses. Money that will be needed in three to 10 years may be put into a mix of stocks
and bond funds where it may see more moderate growth. Funds not needed for 10 years or
more may be invested more aggressively in growth funds.
Using a bucket strategy helps ensure retirees won't have to pull money from stocks in a down
market. With a recession on the horizon, it may make sense to put even more money in cash
and bond funds.
For finding the retirement goal we should multiply our early expenses with 20. The reason
behind multiplying the number with 20 is that an individual will get minimum 5% on the
investment amount per year for withdrawing the money for retirement life expenses.

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Retirement instruments
Mutual Funds
Mutual funds are the best investment option available for fulfilling all financial goals. If
planned properly, one can take complete advantage of them. Mutual funds are capable of
offering significant returns that beat the benchmark. Investing in mutual funds for a long-term
goal like retirement can help unleash the power of compounding. Also, if this is combined
with SIP, then the benefits will multiply. Investing in equities for retirement is worth the risk.
They aid in accumulating the needed corpus. If one is planning to invest in mutual funds for
retirement, investing in equity funds is better. And while nearing the retirement age, one can
switch to debt funds. Also, mutual funds shave no lock-in period making it desirable for all
investors.

National pension scheme (NPS)

National Pension Scheme is the government of India’s initiative to provide retirement
benefits to all the citizens of India. The scheme encourages investors to invest all through
their employment years. They can redeem 60% of their corpus during retirement, and the rest
40% is utilized to purchase an annuity. It ensures a pension for the rest of their life post-
retirement. The returns from NPS are market linked as a portion of NPS goes to equities.
Investing in NPS is qualified for a tax deduction up to INR 1.5 lakhs under section 80C and
additionally INR 50,000 under section 80CCD(1B).

Public Provident Fund (PPF)

Public Provident Fund is a long-term investment option. It offers guaranteed returns that are
regulated by the Finance Ministry. The interest rate is 7.1% p.a. (for the quarter 1 April 2020
to 30 June 2020). The interest is paid every year on 31st March. Also, the investment in PPF
qualifies for a tax deduction under section 80C. Furthermore, the interest and accumulated
amount are tax-free at the time of maturity. The minimum investment is INR 500, and the
maximum is INR 1.5 lakhs, which can be made at regular intervals or lumpsum. Once
invested in PPF, the money is locked in for 15 years.

Employees Provident Fund (EPF)

EPF is maintained and overseen by the Employees Provident Fund Organization of India
(EPFO). It is a retirement benefits scheme for salaried employees. Around 12% of the basic

20
salary is invested in this account. This monthly saving can be used when one is unable to earn
or upon retirement.

Bank Deposits (FDs)

Fixed deposits are the safest investment option available in the market. The investment in tax
saving FDs qualifies for a tax deduction under section 80C up to INR 1.5 lakh. Also, returns
from these are fixed and are around 5.5-7.5%. FDs have a lock-in period of 5 or 10 years.

Real Estate

Investing in real estate is another option people look at for regular sources of income post-
retirement. Though the rental yields aren’t that high, they provide diversification to one’s
portfolio.

21
1.9 Tax planning
Tax planning is the logical analysis of a financial position from a tax perspective. Tax
planning allows a taxpayer to make the best use of the different tax exemptions, deductions
and benefits to minimize his tax liability each financial year. The use of tax payers is to
guarantee tax effective.

Investments are the best way to reduce tax liability substantially and tax payers consider it to
be a good way to save tax. There are many options available to save more and reduce taxes.
If an individual has done proper financial & tax planning then deductions would be
subtracted from the gross total income and income tax would be levied on the balance income
as per the income tax slabs.

What is tax planning?

Individuals, businesses and organizations do tax planning to assess their financial profile and
save on the taxes paid on their annual income and profits earned.

‘Govt. data as per the assessment year 2014-2015 reveals that only 1.5 per cent of Indians
actually pays their taxes’. Therefore, proper tax planning is required for both first-timers and
veteran tax-payers. So that an appropriate tax amount is paid to the government to promote
economic activity and personal savings are also managed.

As per the Income Tax Act, 1961 a number of legal tax saving options are available under
section 80C&80D and beyond 80Csuch as 80 EE, including other rebates and reliefs.

You can actually start the fiscal year on a secure footing if you timely review your financial
portfolio and then make tax-related investments.

Types of tax planning in India

The different methods of tax planning in India are described below –

• Short-term Income Tax Planning- It implies planning closer to the end of the
financial year and choosing the best investment option to save tax. However, you
might end up making hasty decisions to file your ITR in the nick of time.
• Long-term Income Tax Planning-As the saying goes, well begun is half done. So,
when you start planning your tax saving investments at the beginning of the financial

22
 year it is long-term tax planning. And a well chalked out plan always helps in the
long-run.
• Purposive Income Tax Planning- Purposive tax planning means specifically
planning the taxes to avail maximum benefits by taking right investment decisions,
changing the residential status, through correct selection of investment, replacing the
assets, business expansion programme, income etc.
• Permissive Income Tax Planning-It means making tax saving investments to avail
different tax concessions, different deductions and incentives, and other exemptions
that are permissible under the law.

Therefore, it is the duty of every citizen to carry out proper tax planning. There are various
benefits that you can avail with tax saving schemes based on your tax slab, social liabilities,
and personal preferences.
A good tax planning is done by using the right mix of investments in order to minimize the
tax liabilities.

Tips to help you save tax on income:

1. Save via interest payments on loan: If you have a loan such as education loan, home
loan, car or personal loan then tax saving becomes easy. The government allows tax benefits
for individuals who are repaying loans. Some investments that you many consider under
Section 80C are: Life insurance premium paid towards self, spouse or child, contribution
towards statutory provident fund or superannuation fund, contribution towards public
provident fund scheme, subscription to units of mutual fund equity linked saving scheme
notified by the central government, etc. It can be a better tax saving option if tax planning by
payment of loan is done wisely.
2. Buy a health insurance policy: Premium paid on health insurance policies is allowed as
deduction from your total income, according to Section 80D of the Income Tax Act.
Deduction up to Rs 15,000 is available for insurance of self, spouse and dependent children.
This is one of the best options and can be part of tax planning.
3. Make a donation: Making a donation is a good way to save tax on your income. Section
80G of the Income Tax Act allows an individual to claim deductions up to a specified limit
for contributions made to charitable organizations or NGOs. This option will save taxes as
well as bring some virtue.

23
4. Equity mutual funds: Investment in equity mutual funds is a great way to make your
profits 100% non-taxable. However, it is advisable not to sell your equity shares before a
period of one year as anything less than 12 months may incur tax on profits.
5. Amount received as gifts: Any gifts received on your marriage in the form of cash or
cheque are totally tax free. You can receive cash gifts from your relatives or friends for which
you don’t have to pay any tax.
6. House rent allowance: You can claim House Rent Allowance (HRA) to save tax on your
house rent. However, this is applicable only when you are staying in a rented accommodation.
7. Medical bills: You can keep all the medical receipts of your medical expenses to use them
for tax saving at the end of the year. An amount up to Rs 15000 is non-taxable on medical
expenses for yourself and your dependent family members.
8. Telephone/Internet expenses: You can check with your employer if they have a tax
saving policy on telephone or internet expenses. You can either get telephone/internet
expenses reimbursed or claim tax benefits for the same. Income tax planning for small
amounts has impact on total taxes.
9. Daily travel allowance: You can avail tax benefits up to Rs 1600 per month from your
company for conveyance. This will allow you to save tax on Rs 19,200 annually on
conveyance allowance. Also, you do not have to submit any invoices or proof to avail the
same.
10. Meal coupons: Meal vouchers or any gift vouchers including Sodexo are not taxable up to
Rs 2600 per month. You can ask your employer to either issue you meal coupons every
month to claim tax benefits or reimburse the same.
11. Leave travel allowance: Leave Travel Allowance (LTA) can be utilized by you for
domestic vacations. You will not be taxed on travel expenses for yourself and your
dependents.

24
1.10 Age wise planning for retirement
Saving or investing for the purpose of retirement should start right from the time one starts
working. But one need not worry if they haven’t started that early in life. Different age
groups see life differently. People in their 20s are more inclined to spending or saving for
short-term goals rather than long-term ones. In the 30s, people tend to be busy with loan
repayments and kids. It’s in their 40s that people start investing/saving for their retirement.
Even though they have 15 odd years in their hand until retirement, most of their savings have
to be channelized towards their retirement. But it's never too late to start investing for
retirement.

In the 20s

If starting in the 20s, investing or saving 5% of one’s salary towards retirement is enough.
They can gradually increase it to 10% in their 30’s. It is because the investment horizon is
around 30 plus years, and compounding will do its magic in the long-term. The success of
compounding lies not with starting early but sticking to it till the age of 60. It doesn’t matter
if one starts investing at the age of 20 if he discontinues the investment soon. In the 20s, one
has to look at investing more in equity than in any other asset class. Close to 90% of the
investments can be in equity.

In the 30s

If starting in the 30s, investing or saving 10% of one’s salary towards retirement is enough,
and slowly this can be increased to 40-50%. It is the age where the financial responsibilities
will be at its peak with loan repayments, EMIs, and kids. Hence investing 10% is sufficient
for now. Later the investments can be increased. Equities still should be a significant part of
the investment (close to 80%). Debt, gold, and any other asset can take up the leftover part.

In the 40s

It’s not too late to start in the 40s. Saving 15% of one’s salary towards retirement is
sufficient, which can be increased gradually later. Investing close to 70% in equities is
suggested for people in their 40s. Debt can be close to 20-25% of the portfolio.

In the 50s

If starting in the 50s, 20% of salary should be invested in retirement. One will still have ten
years until retirement, and this saving should be enough for reasonable living standards. Try

25
increasing the investments at a faster pace as one has fewer financial responsibilities during
this age. The kids will be done with college, and they will start working too, so the expenses
are fewer. Hence start saving more. Investing close to 60-65% of assets in equity is
suggested. Investment in debt securities will start increasing in assets at a faster pace.

In the 60s

A handful of them will be having regular income from employment. It’s time to relax and
enjoy a lifetime’s worth of hard work and use the saved-up money. Liquidating all the
investments at once is not suggested. Opting for monthly income plans or redeeming
investments calculatedly so that one can meet their monthly expenses is something one
should concentrate on. Investments can still be made with 30% assets in equity and 70%
assets in debt.

26
 CHAPTER TWO

RESEARCH METHODOLOGY

1. Meaning of research methodology:

Research Methodology is the systematic, theoretical analysis of the methods applied to a area
of study. It consists of the theoretical evaluation of the body of methods and principles
associated with a branch of knowledge.

2. Objective of Study:

• To make an analysis on Personal finance and retirement planning of people.

• To analyse the individual’s point of you on personal finance and retirement.
• To help people for their personal finance and investment strategy for retirement.

2. Research Design:

The research employed a descriptive survey research design. Descriptive research involves
gathering data that describe events and then organizes, tabulates, depicts, and describe the
data collection (Glass & Hopkins, 1984.). It often uses visual aids such as graphs and charts
to aid the reader in understanding the data distribution and therefore offered a better
clarification on personal finance and retirement and how people are doing their personal
finance.

3. Population of the study:

The target population for the research consists of the people who are in the age group of 18 to
75. This group of population was targeted because everybody during their working life and in
retirement life have to their personal finance and retirement planning.

4. Data collection:

The research made use of primary data, which was collected using structured questionnaire
distributed to the 100 respondents who are in the age group of 18 to 75. The administered
questionnaires were collected after completion by the respondents on the same day and their

27
responses used for analysis. The questionnaire had both close & open-ended questions to
enable guide the respondent through filing of the questionnaire as well as probe them for
more information.

5. Questions:

1. Name of respondent
2. Age of respondent
3. Gender of respondent
4. What is your employment status?
5. How will you describe your knowledge about personal finances?
6. Where do you get guidance for personal finance?
7. Have you set any financial goals?
8. Do you have 3 to 6 months of emergency fund for rainy days?
9. Do you spend some part of your income for investment towards financial goals?
10. Do u have life insurance and medical insurance for emergencies?
11. In your opinion having a credit card is….
12. Which instruments for investment do you prefer?
13. About what percentage of your portfolio would you like to invest in stocks?
14. Do you know about ‘All weather portfolio strategy’?
15. Have you started planning for retirement?
16. In which instrument would you like to invest your retirement corpus?

28
 CHAPTER THREE

REVIEW OF LITERATURE

Meaning of review of literature:

A literature review often forms part of a larger research project, such as within a thesis (or
major research paper., or it may be an independent written work, such as a synthesis paper.

1. Provides an overview and a critical evaluation of a body of literature relating to a research

topic or a research problem.

2. Analyzes a body of literature in order to classify it by themes or categories, rather than

simply discussing individual works one after another.

3. Presents the research and ideas of the field rather than each individual work or author by
itself.

Relationship between a literature review and a research project:

Academic research at the graduate level is always part of a dialogue among researchers. As a
graduate student, you must therefore indicate that you know where your topic is positioned
within your field of study.

Therefore, a literature review is a key part of most research projects at the graduate level.
There is often a reciprocal relationship between a literature review and the research project
for which it is written:

• A research project is often undertaken in response to a literature review. Doing the literature
review for a topic often reveals areas requiring further research. In this way, writing the
literature review helps to formulate the research question.

• A literature review helps to establish the validity of a research project by revealing gaps in
the existing literature on a topic that offer opportunities for new research.

Review of literature on Personal finance of individual:

Shubham Tandan (2016)

29
The saving behaviour has been changed considerably over last couple of years. The saving
rate in India is comparatively higher than various other countries. Earlier the trend of saving
was in terms of physical assets but it has started to shift now to financial instruments. This
trend partially reflects the relentless expansion of the various branch networks of the financial
institutions into the country’s rural areas and partially holds the increasing trend of the easy
accessibility of the alternative investment opportunities. Today corporate securities have
become part of household savings wherein retail individuals prefer to invest his saving in
security market. The reason sited for this growth seen in the stock market and a low interest
rate and return offered by traditional instruments. Also, the growing income of working class
has also contributed largely to the changing pattern of saving in India.

The major portion of financial saving goes into pension funds and life insurance and life
insurance. It has found recently that the traditional instrument of savings like special tax
incentives or higher interest rates are not able to increase the rate of private saving rate in the
long run. It is also found that the response of saving for the interest rate changes in India was
amongst the lowest in the developing countries.

Over the past 30 years, the prime two instruments for household long-term saving like
pension savings and life insurance have come to an idle state. On the other hand, the mutual
funds started to become more successful in the early years of 1990s. Considering these two
factors, we can conclude two weaknesses of the saving market in India. First, public sector
denominates the markets. Second, the allocation of portfolio is under control that makes the
low returns from the market developments.

30
 CHAPTER FOUR

DATA ANALYSIS AND INTERPRETATION

In this chapter the research presents the analysis, presentation and interpretation of the data
collected during the study.

1. Age of respondent

Total

31% 31% 21-40

40-60
Above 60
Below 21

1% 37%

Interpretation:

According to the survey 37% people are between the age of 40-60 years. Both age group of
21-40 and below 21 contribute to the survey in same amount with weightage of 31%. Only
1% are over 60 years age group.

31
2. Gender of respondent

Total

43% Female

57% Male

Interpretation:

From the total no. of respondents in the survey there are 57% male and 43% female
participants.

32
3. What is your employment status?

Total

Business
22%
1% House wife
44% Network Marketing
1%
Professional
7% Salaried
25% Student

Interpretation:

As shown above in the chart there are total 44% of total no. of respondents are student, next
biggest share is of salaries people which 25% of total respondents. 22% of people are doing
business. Also, there are 7% of total people are professionals. House wives and network
marketing consists of 1% each of the total.

33
4. How will you describe your knowledge about personal finances?

Total

7%
14%

Advanced
30% Basic
Intermediate
Novice
49%

Interpretation:

From the point of view of personal knowledge regarding finance 49% of people think they
have basic knowledge. 7% of people think they have novice knowledge. There are 30% of
people who think they have intermediate knowledge and 14% of people think they have
advanced knowledge about finance.

34
5. Where do you get guidance for personal finance?

Interpretation:

According to above chart respondents were allowed to choose more than one channel for
guidance. Newspaper which is one of the most important channels was selected 19 times, Tv
channels were close to newspaper with 12 times selection. 30 people were comfortable with
counselling with their investment consultant. Recommendation by close ones was selected 32
times by respondents. One of the most important part for survey is people are comfortable
with analysing by their own and not depend upon external factor. Self-analysis was selected
48 times.

35
6. Have you set any financial goals?

Total

21%

No
Yes

79%

Interpretation:
According to the above question of the survey 79% of the people have set their financial
goals. Remaining 21% have not selected their goals.

36
7. Do you have 3 to 6 months of emergency fund for rainy days?

Total

42% No

58% Yes

Interpretation:

As per above chart it shows that 58% of the total respondents have made 3 to 6 months of
emergency fund for rainy days. Remaining 47% have not made any emergency fund.

37
8. Do you spend some part of your income for investment towards
financial goals?

Total

21%

No
Yes

79%

Interpretation:

From the total number of respondents, 79% people invest their part of income for achieving
their future financial goals. 21% do not invest their part of income for future financial goals.

38
9. Do u have life insurance and medical insurance for emergencies?

Total

21%

No
Yes

79%

Interpretation:

As compared to last questions we can see the respondents who plan and invest some part of
their income and have emergency fund also have insurances for emergencies. From the total
number of respondents 79% have life and medical insurance. While remaining 21% do not
have insurances for emergencies.

39
10. In your opinion having a credit card is…

Total

29% 32%
Bad
Good
Not sure

39%

Interpretation:

From the above chart is shows that 32% of people thinks credit card are bad for finance
planning and in day-to-day life. 39% of people think they are good as they provide great
credit scores and credit facility. 29% of total respondents are not sure about this decision.

40
11. Which instruments for investment do you prefer?

Interpretation:

According to the above question from the survey people were allowed to select more than
one instrument preference for their investments. From the total no. of respondents 52.6%
selected stocks, 55.1% thought mutual funds are best vehicle for their investment which is the
greatest percentage for any instrument in our survey. 34.6% people selected fixed deposits as
their investment vehicle. Real estate and gold were selected by almost half of the
respondents. They were selected 50% and 47.7 percent respectively. 2 people were
comfortable with investing in SIP which is mutual fund and Company FDs each.

41
12. About what percentage of your portfolio would you like to invest in
stocks?

3% Total

18%
10-50%
50-90%

57% Less than 10%

22%
More than 90%

Interpretation:

According to the risk appetite of each respondent, 57% of respondents thinks that they are
comfortable with investing 10-50% of the portfolio in stocks. 22% are comfortable with
investing 50-90% of their total portfolio in stocks. There are 18% people comfortable with
investing less than 10% of their portfolio in stocks. Only 3% of respondents are ready to
invest more than 90% of their portfolio in stocks.

42
13. Do you know about ‘All weather portfolio strategy’?

Total

21%

No
Yes

79%

Interpretation:

79% of total respondents don’t know about ‘all weather portfolio strategy’. Remaining 21%
know about ‘all weather portfolio strategy’ by Ray dalio.

43
14. Have you started planning for retirement?

Total

47% No
53% Yes

Interpretation:

According to the given chart 53% of total respondents have planned for their retirement.
Remaining 47% have not planned for retirement.

44
15. In which instrument would you like to invest your retirement corpus?

Interpretation:

For retirement corpus 30 people are considering stocks as their part of their portfolio. 44
people are considering mutual funds and 32 people are considering FDs for retirement
planning. 36 people are comfortable with investing in real estate. 2 people are going to invest
in insurance and their 1 person each going to invest in gold, long term and derivatives.

45
 CHAPTER FIVE

CONCLUSION

The main objective of the study was to analyse the personal finance and retirement planning
of an individual and also understand their point of view over this topic and help people in
their planning for personal finance and retirement planning. As we can see in this study there
are still people needing knowledge about finance for improving their day-to-day lifestyle
which is covered by lot of financial decisions. There are lot places where people can improve
by controlling their urges and giving optimistic way to their future financial goals by saving a
part of their monthly income and investing it. People need to follow some strict financial
guidelines in their life which include saving for 3-6 months of emergency fund, having habit
of investing part of their income for their future. They should analyse their risk appetite and
invest in instruments which will give them major returns. From our study we understand that
most of the people are still connected to the traditional ways of investing which is keeping
money in bank’s FDs, Gold and real estate. People need to understand that developed
countries are developed because people living in those countries invested in their capital
markets for new development, and for creating jobs for themselves. Our market has given
highest returns comparing any other financial instruments in long term. Stock and mutual
should be the major part of any person’s portfolio for getting maximum return for their future
financial goals. People also need to understand the habit of not buying things they don’t need.
And the difference between good loan and bad loan. Buying a loan on appreciating asset is
always a wise idea for personal finance of any individual.

Recommendation:

• Build emergency fund. Have at least 3 to 6 months of your expense in your bank account to
face urgent situation.
• Buy term insurance and medical insurance.
• Once you have emergency fund, define your long-term and short-term goal and start
investing.
• If you have any type of loan or credit card, automate its payments so you don’t have to
worry about it and your CIBIL score can be improved.
• Plan your taxes and learn how to save tax legally.

46
Annexure
1. Name
2. Age
3. Gender

A. a. Male

b. Female

4. What is your employment status?

A. a. Student

b. Salaried

c. Professional

d. Business

e. Other

5. How will you describe your knowledge about personal finances?

A. a. Basic

b. Novice

c. Intermediate

d. Advanced

e. Expert

6. Where do you get guidance for personal finance?

A. a. Newspaper

b. TV channels

c. Investment consultant

d. Recommended by close ones

e. Self-analysis

7. Have you set any financial goals?

47
A. a. Yes

b. no

8. Do you have 3 to 6 months of emergency fund for rainy days?

A. a. Yes

b. No

9. Do you spend some part of your income for investment towards financial goals?

A. a. Yes

b. No

10. Do u have life insurance and medical insurance for emergencies?

A. a. Yes

b. No

11. In your opinion having a credit card is…

A. a. Good

b. bad

c. Not sure

12. Which instruments for investment do you prefer?

A. a. Stocks

b. mutual funds

c. Fixed deposits

d. Real estate

e. Gold

f. Insurance

g. other

13. About what percentage of your portfolio would you like to invest in stocks?

48
A. a. More than 90%

b. 50-90%

c. 10-50%

d. Less than 10%

14. Do you know about ‘All weather portfolio strategy’?

A. a. Yes

b. No

15. Have you started planning for retirement?

A. a. Yes

b. No

16. In which instrument would you like to invest your retirement corpus?

A. a. Stocks

b. Mutual funds (including Debt funds)

c. Fixed deposits

d. Real estate

e. Other:

49
 BIBLIOGRAPHY

• MONEY: Master the game by Tony Robbins

• www.investopedia.com
• www.cleartax.in
• www.financiallypro.com
• www.financialwolves.com
• www.groww.in
• Primary data: The research made use of primary data, which was collected using
structured questionnaire distributed to the 100 respondents who are in the age group
of 18 to 75. The administered questionnaires were collected after completion by the
respondents on the same day and their responses used for analysis. The questionnaire
had both close & open-ended questions to enable guide the respondent through filing
of the questionnaire as well as probe them for more information.

50