Unit 1

MBA/BBA/B.com /M.com/UGC Net

By
Dr. Anand Vyas
 Financial Planning : Definition ,
Financial Planning is the process of estimating the capital required and determining
it’s competition. It is the process of framing financial policies in relation to
procurement, investment and administration of funds of an enterprise.
Financial planning, also called budgeting, is the process of setting performance goals
and organizing systems to achieve these goals in the future. In other words, planning is
the process of developing business strategies and visions for the future. It’s big picture
stuff.
The Financial Planning activity following tasks:
1. Confirm the business vision and objectives.
2. Assess the business environment.
3. Identify the types of resources needed to achieve these objectives.
4. Calculate the total cost of each type of resource.
5. Quantify the amount of resource (labor, equipment, materials).
6. Identify any risks and issues with the budget set.
7. Summarize the costs to create a budget.
 Need of financial Planning
Efficiently Managing Debt
Invest In the Right Financial Products
Set SMART Financial Goals
A Blueprint of long-term Goals
Managing Cash Flows or Budgeting
Streamlining Investments
Set The Right Asset Allocation
Calculating The Right Insurance Cover
Inculcating A Regular Savings Habit
 Process of Financial Planning,
Step 1: Defining and agreeing your financial objectives and
goals
Step 2: Gathering your financial and personal information
Step 3: Analyzing your financial and personal information
Step 4: Development and presentation of the financial
plan
Step 5: Implementation and review of the financial plan
 Role of Financial Planner
A financial planner is a qualified investment professional who helps individuals and
corporations meet their long-term financial objectives. Financial planners do their
work by consulting with clients to analyze their goals, risk tolerance, and life or
corporate stages, then identify a suitable class of investments for them. From there
they may set up a program to help the client meet those goals by distributing their
available savings into a diversified collection of investments designed to grow or
provide income, as desired.

A financial planner’s primary role is to assist clients with creating personal budgets;
establishing objectives for saving; minimizing, controlling, and/or managing expenses;
and implementing the necessary steps for creating and accumulating wealth. Financial
planners work with investment managers, mutual funds, and/or financial advisers to
meet their respective clients’ investment needs.
 Types of financial advisors
1. Investment representatives
2. Investment advisors
3. Mutual fund advisor
4. Personal banker
5. Financial planner
6. Insurance advisor
7. Customer Service representative
 Myths about Financial Planning,
1. Financial planning is all about retirement planning
2. A financial advisor will talk in terms beyond my
understanding
3. Too young for financial planning
4. Financial Planning is only for rich
5. Doesn’t need a financial plan
6. Very Busy, no time for this
7. Financial planning is a one-time exercise
 Factors that influence that influence
the personal financial planning
1. Solvency and Liquidity
2. Economy
3. Age
4. Responsibilities
5. Provision for emergencies
6. Financial Potential
7. Financial Goals
Investors life cycle,
Accumulation Phase
Investor early or middle to their career tries to accumulate fund so that individual can have money to
spend in the later phase of their life. Some people accumulate the fund to buy house, car or other
important assets and some people accumulate for their children’s education cost, life peaceful life
after retirement. Funds invested in the early phase of life gives an investor a huge amount of fund
which is compounding over the years
Consolidation Phase
Consolidation phase is the midpoint of their career, in this phase, they earn more, spends more and
pay off all their debts. In this phase moderately high risk taken by the investor but for capital
reservation some investor prefer lower risk investor. Individual invest in the capital market and
investment securities.
Spending Phase
This phase starts when an individual retires from the job. Their overall portfolio is to be less risky
than the consolidation phase; they prefer low risky investment or risk-free investment. People prefer
fixed income securities like a bond, debenture, treasury bills etc. In this phase, they need some risky
investor if they have extra money so that future inflation can be adjusted.
Gifting Phase
If individuals believe that they have enough extra funds to meet their current and future expenses
then they go for gifting money to their friends, family members or establish charitable trusts. These
can reduce their income taxes and they also keep some fun for future uncertainties.
 Financial goals of investors
1. Long-term goals refer to projects or financial goals that need
funding five or more years from now.
2. Intermediate-term goals refer to financial goals that need funding
two to five years from now.
3. Short-term goals need funding less than two years from now.

• Invest to achieve income.

• Invest to maintain capital.
• Invest to achieve income and growth.
• Invest to achieve high growth.
• Invest to achieve growth.
 Systematic approach to investing: SIP,SWP,STP,
SIP
A systematic investment plan (SIP) is a plan in which investors make regular, equal payments
into a mutual fund, trading account, or retirement account. SIPs allow investors to save
regularly with a smaller amount of money while benefiting from the long-term advantages
of rupee-cost averaging (RCA). By using a RCA strategy, an investor buys an investment using
periodic equal transfers of funds to build wealth or a portfolio over time slowly.
SWP
A Systematic Withdrawal Plan (SWP) allows an investor to withdraw. an amount from their
investments periodically.An SWP allows you to withdraw a specific sum of money from a
fund at regular intervals. Such a system is particularly suited to retirees, who are typically
looking for a fixed flow of income. SWPs provide the investor with a certain level of
protection from market instability and help avoid timing the market.
STP
Systematic Transfer Plan (STP) is a strategy where an investor transfers a fixed amount of
money from Source scheme to Target scheme (usually from a debt fund to an equity
fund).Generally, one opts for an STP when there is a lump sum to invest. Like a SIP, an STP
helps spread out investments over a period of time to average the purchase cost and rule
out the risk of getting into the market at its peak. However, with an STP, you invest a lump
sum in one scheme (mostly a debt scheme) and transfer a fixed amount from this scheme
regularly to another scheme (mostly an equity scheme).
 Financial Plan and Goal based
Financial Plan; ;
Financial planning is a step-by-step approach to meet one’s life
goals. A financial plan acts as a guide as you go through life’s
journey. Essentially, it helps you be in control of your income,
expenses and investments such that you can manage your
money and achieve your goals.

• Enjoy a better standard of living

• Increase your savings
• Attain peace of mind
• Be prepared for emergencies
 Comprehensive Financial Plan;
• Tax Planning
• Reaching Your Goals
• Your Assets
A comprehensive financial plan involves:
• A discussion and understanding of your long term, financial
goals
• A thorough review of your current financial situation.
• The development of a plan including all financial products
needed to take you from where you are today to where you
need to be in the future.
 Financial Blood Test Report

In accounting, a financial condition report (FCR) is a report on the solvency condition of an insurance
company that takes into account both the current financial status, as reflected in the balance sheet, and an
assessment of the ability of the company to survive future risk scenarios. Risk assessment in an FCR involves
dynamic solvency testing, a type of dynamic financial analysis that simulates management response to risk
scenarios, to test whether a company could remain solvent in the face of deteriorating economic conditions
or major disasters. Dynamic solvency testing may involve both deterministic projections, based on known
risks, and stochastic projections that include random risk events.

CIBIL Score is a three-digit numeric summary of your credit history. The score is derived using the credit
history found in the CIBIL Report (also known as CIR i.e Credit Information Report). A CIR is an individual's
credit payment history across loan types and credit institutions over a period of time.