You are on page 1of 56

Project Report Presentation on the Topic-

Financial Planning for the Investors


planning is the process of successfully meeting financial needs of life through the proper management of finances.

is your roadmap to Financial Health, & Sustainable Wealth creation.


Planning is a process of framing objectives, policies, procedures, programmes and budgets regarding the financial activities of a concern. Therefore this project ensures effective and adequate financial and investment policies

Life without Financial planning is like Unplanned Vacation. If you wish to achieve your financial goals successfully & peacefully you must plan your financial life.

Whatever may be level of your income or assets , you need financial planning. It is myth that only rich people need financial planning


scientific Asset Allocation. Basic aim of Financial planning is to get sufficient fund at specific time for defined financial goal, not to get Super high return.

It will help you to obtain funding if you need it. It will set out clearly the money that you need to put together to start the business and then to run it for a period. It will help prevent you from going into a business that will not be successful. It will highlight periods where your business may need extra financial help.

It can take a lot of time. It can be a costly process because you will need the assistance of your accountant or financial adviser.

financial plan is a path to help you achieve your lifes financial goals. Helps in learning money management decisions. A financial plan helps people: live within their income. identify financial priorities. allocate funds to meet expenses. meet financial emergencies and reduce credit use. reduce uncertainty and conflict about financial affairs. gain a sense of financial independence and control. save and invest to reach financial goals.

Step 1. Establish Your Financial Goals

Types of goals Car, home, college, wealth, charity Set realistic goals Stronger likelihood of reaching goals Timing of goals Short term (within one year) Intermediate (between 15 years) Long term (beyond five years)

Step 2. Consider Your Current Financial Position

How your future financial position is tied to your education? Consider your skills, interests, and career paths How your future financial position is tied to your career choice? Choose a career that will be enjoyable and suit your skills.

Step 3. Identify and Evaluate Alternative Plans That Could Achieve Your Goals

Plans could be conservative or aggressive

Step 4. Select and Implement the Best Plan for Achieving Your Goals

The Internet has valuable financial planning information

Focus on Ethics: Personal Financial Advice

Your objective is to get the best advice appropriate to your needs

Be wary of unethical behavior Be alert, ask questions, carefully consider advice

Step 5. Evaluate Your Financial Plan

Keep plan in an accessible place and monitor your progress

Step 6. Revise Your Financial Plan

Change plan as financial condition and financial goals change

Budgeting and tax planning

Managing your liquidity

Financing your large purchases Protecting your assets and income (insurance) Investing your money Planning your retirement and estate


planning: The process of forecasting future expenses and savings. Evaluate your current financial position-

Assets: what you own? Liabilities: what you owe? Net worth: the value of what you own minus the value of what you owe?


access to funds to cover any short-term cash deficiencies. Money management: decisions regarding how much money to retain in a liquid form and how to allocate the funds among short-term investment instruments.


management: decisions regarding how much credit to obtain to support your spending and which sources of credit to use.


often needed for large expenditures loans

College tuition, car, house


How much can you afford to borrow?

Determining maturity of the loan?

Selecting a loan with a competitive interest rate.


not needed for liquidity can be invested

Stocks, bonds, mutual funds, real estate


investments have some level of risk


uncertainty surrounding the potential return on an investment


includes insurance planning, retirement planning, and estate planning

Retirement planning: determining how much money should be set aside each year for retirement and how those funds should be invested

Estate planning: determining how your wealth will be distributed before or upon your death

Determine current financial situation. 2. Develop financial goals. 3. Identify alternative courses of action. 4. Evaluate alternatives. 5. Create and implement financial plan. 6. Re-evaluate and revise the financial plan.

Personal financial planning is the process of managing your money to achieve personal economic satisfaction. Maintain and improve our standard of living - the necessities, comforts and luxuries that we have or desire. Control consumption patterns to live well today and tomorrow! Average propensity to consume - % of each dollar of income that is spent rather than saved.


3. 4.


Life situation and personal values. Economic factors Market forces Financial institutions Global influences Economic conditions

Personal opportunity costs Financial opportunity costs Interest calculations Future value of a single amount Future value of a series of deposits Present value of a single amount Present value of a series of deposits

Wrong selection flavor of the month. Wrong timing mostly near top.

Short term investment.

Inadequate investment.


Planning Current Asset Allocation Proposed Asset Allocation Protection Planning Insurance Health Insurance, etc Planning for Goals Education Marriage House Others

Investing predefined percentage of your savings in different Asset classes

Diversification. Thumb rule No. 1 Never put all your eggs in one basket.

Different asset classes give better return for specific time duration. 94% of portfolio return will depend on Asset allocation only.


3. 4. 5. 6.

Gold Debt Equity Real Estate Commodities Insurance




Determine the Current financial situation. What you wish to achieve? Your Financial Goals. How much risk you wish to take? Your Risk Profile

Current Status is the first step in the Asset Allocation Process under which we have two steps:

Find out Net saving available for Investment? Wealth accumulated till today?


Goal Setting is the second step in Asset Allocation Process.. Under which we have another few steps as follows: 1. What is your intention of investment? 2. Simply put, How much money you need? & When you need the money? (Time horizon) 3. Specific financial goals are vital to financial planning.

(1) (2) (3) (4) (5) (6) (7) (8)

Up gradation of Residence. Luxury Car. Purchase of Luxury items at Home. Vacation Abroad. Wealth creation Crorepati, Billionaire. Charity Religious or Social. Inheritance Estate planning. Early Retirement - Financial freedom

(1) (2) (3) (4)

Specify amount required & approximate time period when money required. Types of goals. Short term Goals 1-2 years. Medium term goals 3-5 years. Long term goals 5-10 years. Distant goals > 15-20 years

Two types of Risk in any investment.

(1) (2)

Risk of Purchasing power loss. Risk of Capital loss.

Note:- Strong correlation between risk & reward. Aim of financial planning is to get maximum return with minimum risk.

Financial Capacity (1) Income status, more important Net Saving status. (2) Age:- Younger the age higher is risk taking capacity. (3) Dependents in family. (4) Liabilities, Loans taken

Mental capacity Temperament. How will you react to temporary fall in value of your investment? (1) Risk averse , Conservative. (2) Moderate risk taking personality. (3) Aggressive investor

Technical Knowledge. Even if financial & mental capacity strong, technical knowledge required to invest in Shares, Art Painting, Real Estate. Note:- Either take professional help or take Mutual Fund route.

Dont buy on tips, impulse or under influence of left behind feeling. Dont chase last year topper Stick to your asset allocation. Basic aim of Financial planning is to get sufficient fund at specific time for defined financial goal, not to get Super high return




Liquid Assets Cash, Savings a\c, Floating rate mutual fund. Ideal for short term goals. Income generating Assets Bank F.D.,PPF, NSC, Bonds. Ideal for medium term goal. Capital appreciation Assets Equity- Shares, Real Estate, Gold, Art. Ideal for long term goal.


rule 2 100-Age in years = Maximum % allocation to Equity. Equity will give highest return in long run but Equity is very risky product for < 2 years horizon. Risk of capital loss in Equity investment almost zero if invested for > 5 years but as high as 30% in 3 months.

Before planning new investment, it is very important to prepare emergency kit to Protect your Current financial status. Insurance is first & vital step in any financial planning.



Investment in Income generating assets. Investment in Expense generating assets (Liabilities).

Income Business Expense = Take home cash. Take Home Cash Home expense Taxation Interest & Installment payments on loan taken = Saving ( cash available for investment)

1. 2.


5. 6.

Tax planning is legal. Purchasing power of Unaccounted money will slowly go down. No cash transaction possible in Mutual fund.PAN card copy required. Make maximum use of tax free income limit. Create multiple heads of income tax payer. ELSS investment can be used for income tax planning & wealth creation





Home loan- Principle payment eligible for 80C rebate, Interest deducted from income up to 1.5 lac per year per head. Real estate buy cheap , sell at highest possible price after 3 years. Capital gain- tax can be saved by investing in Capital gain bonds up to 50 lacs. Up to 1 kg gold per married women & 500 gram gold per unmarried women in family, will be allowed during income tax search.


2. 3.



Retirement doesn't mean stoppage of work, it means freedom from compulsion to work for money Financial freedom. Why to maintain same life style even after retirement? Life expectancy is increasing. 80+ age not unusual. Female spouse will live 5 years more then male. Inflation will make difficult to maintain same level of living standard. You & your spouse may not like to remain dependent on children. We dont have govt. social security scheme.

Increasing life expectancy Protection for Spouse/Dependents Falling Interest Rate Scenario Breakdown of traditional support systems Protect Post-Retirement Lifestyle Retirement Plan An essential need

Compounding Rule of 72

is called eighth wonder of world.

72/ Interest rate = No. of years required to double money. 72/ No. of years required to double money = % interest return. If you earn 24% compounded return your money double in 3 years, multiplies 10 times in 10 years, 100 times in 20 years & 1000 times in 30 years. Average return of diversified mutual fund is >24% in last 14 years.

Investing is not Rocket Science. Keep it simple. Start investing early in life. Save & invest regularly, systematically. Stay invested for long term till your goal achieved. Stick to asset allocation. Monitor 3-6 monthly. If necessary take expert help. You have worked hard to earn money, now make the money work hard for you.