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Submitted by : Prashant Maharshi
FINANCIAL PLANNING
 Financial planning is the long-term process of wisely managing one’s
  finances so one can achieve his financial goals.



 It is your roadmap to Financial Health, & Sustainable Wealth creation.
WHY FINANCIAL PLANNING IS
NEEDED?
 Life without Financial planning is like Unplanned Vacation.


 Manage one’s finances for the achievement of goals.


 Emergency cash requirement.


 Determining capital structure.


 To maximize Return on Investment at minimum level of risk.


 To minimize and defer income taxes and other government levies.
WHAT ARE COMMON EXCUSES FOR
NOT PLANNING FINANCES?
 Lack of money.


 No need of life insurance.


 Too young to think about retirement planning.


 Child’s education is more important then retirement planning.


 Only rich person can make will.
WHAT IS THE PROCEDURE OF
FINANCIALPLANNING?
 Measure financial health


 Financial goal setting


 Risk Profile


 Decide Investment areas
HOW TO MEASURE FINANCIAL
HEALTH?
 Before person start financial planning he/she has to determine their financial
     health. Three simple personal finance rule with which a person can start
     with:


a)     Calculate debt to income ratio.

     Debt to Income Ratio= Total monthly outgoing on liabilities(EMIs)
                          Total monthly income from fixed resources


     Debt to Income ratio should not be higher then 30%.
Cont…
b) Calculate Savings to Income Ratio

    Savings to Income Ratio= Total monthly savings
                             Total monthly income


    One should save atleast 20% of their monthly income.
Cont…
3) Contingency Reserve

  One should set aside 6 to 24 months of living expenses Contingency fund to
  be used only at the time of emergencies.
FINANCIAL GOAL SETTING
 Mandatory Goals
  Purchase of home

  Child’s Education

  Purchase of car

  Retirement

  Child’s Marriage
FINANCIAL GOAL SETTING CONT…
 Optional Goals
   Up gradation of Residence.

   Luxury Car.

   Purchase of Luxury items at Home.

   Vacation Abroad.

   Wealth creation

   Charity

   Inheritance – Estate planning.

   Early Retirement
Table showing some of the financial goals
according to their priority

       GOAL           PRIORITY   TIME TILL GOAL
                                    OCCURS

   Child’s College      High         9 Years
     Education

   Child’s Marriage    Medium        12 Years


     Retirement         High         15 Years


   Foreign Vacation     Low          16 Years
RISK PROFILE
                          Inflation risk       Loss of purchasing power
Primary long-term risk

Primary short-term risk   Volatility risk      Instability of investment
                          Business risk        Inherent risks of a
                                               particular business
                          Market risk          Likelihood that the market
                                               as a whole will fall
                          Liquidity risk       Risk of not being able to
                                               access money when needed
Other risks
                          Interest rate risk   Loss of principal on fixed-
                                               rate investments due to
                                               rising interest rates
                          Currency risk        Investment’s value will be
                                               affected by changes in
                                               exchange rates
HOW ARE THESE RISKS MANAGED?
                          Inflation risk       Invest in stocks
Primary long-term risk
                          Volatility risk      Hold investments for the
Primary short-term risk                        long-term
                          Business risk        Diversify within an asset
                                               class
                          Market risk
                                               Diversify among asset
                          Liquidity risk       classes
                                               Diversify among asset
Other risks               Interest rate risk   classes
                          Currency risk        Have an emergency fund
                                               “Ladder” portfolios
                                               Diversify among
                                               countries or hedge
ASSET CLASSES TO INVEST
                            Equity




        Insurance                               Debt

                           Financial
                           Planning




                                        Real
                    Gold
                                       Estate
EQUITY
 Equity Mutual Fund


 Equity Shares



  Investment in equity is risky person should invest in equity depending
  upon their Risk appetite and risk tolerance.
DEBT
 Public Provident Fund (PPF)
   Gives 8% tax free return.
   Minimum investment of Rs.500.
   Lock in period 15 years.
   No risk involved.


 Recurring Deposit
   High in safety.
   Not allowed to withdraw before certain period.
   They are taxable.
   Expected return between 6-7% depending on term.
DEBT

 Post Office Schemes
   Offer 8% of savings
   Returns are taxable and most schemes have a lock in.



 Debt-Based Mutual Fund
   Investment through Systematic Investment Planning
   Dividends are tax free.
   Capital gain tax applies at the time of selling of units.
REAL ESTATE
 Real estate is profitable option to invest one’s money in but it is not risk
  free.


 Risk involved in real estate investment are

    Getting bad tenant.

    Market decline.
GOLD
 Physical gold


 Gold ETFs


 Gold FUND OF FUND (FOF)


 E-Gold
GOLD

 Gold is risky as gold price can fluctuate sharply.


 Therefore only 10-15% of the portfolio should be allocated in gold.


 Physical gold is more risky then gold ETFs, E-Gold and Gold FOF.


 Unlike other type of gold investment physical gold is not price transparent.


 Buy back of physical gold is not on market prices but after deducting high
  making charges.
INSURANCE
 Aim of insurance is to cover the risk and provide financial
  compensation for any unexpected losses. Such as:

    Personal Risks-Loss of income.

    Property Risks- Damage to property.

    Liability Risks- Losses due to damage to others.
INCOME SCHEMES
                 P.P.F.          N.S.C.           BANK          Floating rate
                                                   F.D.            Funds
 Return %         8%               8%              6-8%            5-6%

  Tax-free        Yes              NO               NO              Yes

  Rebate on       Yes              Yes         Yes if >5 year        No
 Investment


 Liquidity        50%         6 year lock in   Lock in as per    No lock in
              withdrawal                        term of F.D.
              after 5 years
WHAT ARE HURDLES IN FINANCIAL
PLANNING?
 Lack of funds.


 Lack of knowledge regarding financial assets.


 Misguiding Schemes.


 Difficulty in finding appropriate financial planner.
5 DO’s OF FINANCIAL PLANNING

  Emergency Cash


  Medical Insurance & Life Insurance


  Child Education Fund


  Retirement Fund


  Make a Will
HOW TO RAISE EMERGENCY CASH?
  Credit Card


  Loan Against Securities


  Selling Assets


  Personal Loan


  Advance Against Salary


  Borrowed From Friends & Relatives
8 DON’T’s OF FINANCIAL PLANNING
  Don’t think credit

  Don’t delay investment

  Don’t ignore inflation

  Don’t be careless in the market

  Don’t dip into that retirement fund

  Don’t cash your Employees Provident Fund

  Don’t ignore tax saving tools

  Don’t economize on insurance
HOW TO CHOOSE FINANCIALPLANNER?

  Understands Your Planner’s Personality


  A Planner helps you to make planned investment


  Understand the Expertise of your planner


  Is your planner proactive?


  Is he well-versed with tax laws?
CONCLUSION
 Keep investment simple.

 Start investing early.

 Invest regularly.

 Monitor investment every 3-6 months.

 Stay invested for long time.

 Take experts help.
Thank You…

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Basis Of Finanacial Planning

  • 1. SUBMITTED TO: Mr. Himal Parikh Submitted by : Prashant Maharshi
  • 2. FINANCIAL PLANNING  Financial planning is the long-term process of wisely managing one’s finances so one can achieve his financial goals.  It is your roadmap to Financial Health, & Sustainable Wealth creation.
  • 3. WHY FINANCIAL PLANNING IS NEEDED?  Life without Financial planning is like Unplanned Vacation.  Manage one’s finances for the achievement of goals.  Emergency cash requirement.  Determining capital structure.  To maximize Return on Investment at minimum level of risk.  To minimize and defer income taxes and other government levies.
  • 4. WHAT ARE COMMON EXCUSES FOR NOT PLANNING FINANCES?  Lack of money.  No need of life insurance.  Too young to think about retirement planning.  Child’s education is more important then retirement planning.  Only rich person can make will.
  • 5. WHAT IS THE PROCEDURE OF FINANCIALPLANNING?  Measure financial health  Financial goal setting  Risk Profile  Decide Investment areas
  • 6. HOW TO MEASURE FINANCIAL HEALTH?  Before person start financial planning he/she has to determine their financial health. Three simple personal finance rule with which a person can start with: a) Calculate debt to income ratio. Debt to Income Ratio= Total monthly outgoing on liabilities(EMIs) Total monthly income from fixed resources Debt to Income ratio should not be higher then 30%.
  • 7. Cont… b) Calculate Savings to Income Ratio Savings to Income Ratio= Total monthly savings Total monthly income One should save atleast 20% of their monthly income.
  • 8. Cont… 3) Contingency Reserve One should set aside 6 to 24 months of living expenses Contingency fund to be used only at the time of emergencies.
  • 9. FINANCIAL GOAL SETTING  Mandatory Goals  Purchase of home  Child’s Education  Purchase of car  Retirement  Child’s Marriage
  • 10. FINANCIAL GOAL SETTING CONT…  Optional Goals  Up gradation of Residence.  Luxury Car.  Purchase of Luxury items at Home.  Vacation Abroad.  Wealth creation  Charity  Inheritance – Estate planning.  Early Retirement
  • 11. Table showing some of the financial goals according to their priority GOAL PRIORITY TIME TILL GOAL OCCURS Child’s College High 9 Years Education Child’s Marriage Medium 12 Years Retirement High 15 Years Foreign Vacation Low 16 Years
  • 12. RISK PROFILE Inflation risk Loss of purchasing power Primary long-term risk Primary short-term risk Volatility risk Instability of investment Business risk Inherent risks of a particular business Market risk Likelihood that the market as a whole will fall Liquidity risk Risk of not being able to access money when needed Other risks Interest rate risk Loss of principal on fixed- rate investments due to rising interest rates Currency risk Investment’s value will be affected by changes in exchange rates
  • 13. HOW ARE THESE RISKS MANAGED? Inflation risk Invest in stocks Primary long-term risk Volatility risk Hold investments for the Primary short-term risk long-term Business risk Diversify within an asset class Market risk Diversify among asset Liquidity risk classes Diversify among asset Other risks Interest rate risk classes Currency risk Have an emergency fund “Ladder” portfolios Diversify among countries or hedge
  • 14. ASSET CLASSES TO INVEST Equity Insurance Debt Financial Planning Real Gold Estate
  • 15. EQUITY  Equity Mutual Fund  Equity Shares Investment in equity is risky person should invest in equity depending upon their Risk appetite and risk tolerance.
  • 16. DEBT  Public Provident Fund (PPF)  Gives 8% tax free return.  Minimum investment of Rs.500.  Lock in period 15 years.  No risk involved.  Recurring Deposit  High in safety.  Not allowed to withdraw before certain period.  They are taxable.  Expected return between 6-7% depending on term.
  • 17. DEBT  Post Office Schemes  Offer 8% of savings  Returns are taxable and most schemes have a lock in.  Debt-Based Mutual Fund  Investment through Systematic Investment Planning  Dividends are tax free.  Capital gain tax applies at the time of selling of units.
  • 18. REAL ESTATE  Real estate is profitable option to invest one’s money in but it is not risk free.  Risk involved in real estate investment are  Getting bad tenant.  Market decline.
  • 19. GOLD  Physical gold  Gold ETFs  Gold FUND OF FUND (FOF)  E-Gold
  • 20. GOLD  Gold is risky as gold price can fluctuate sharply.  Therefore only 10-15% of the portfolio should be allocated in gold.  Physical gold is more risky then gold ETFs, E-Gold and Gold FOF.  Unlike other type of gold investment physical gold is not price transparent.  Buy back of physical gold is not on market prices but after deducting high making charges.
  • 21. INSURANCE  Aim of insurance is to cover the risk and provide financial compensation for any unexpected losses. Such as:  Personal Risks-Loss of income.  Property Risks- Damage to property.  Liability Risks- Losses due to damage to others.
  • 22. INCOME SCHEMES P.P.F. N.S.C. BANK Floating rate F.D. Funds Return % 8% 8% 6-8% 5-6% Tax-free Yes NO NO Yes Rebate on Yes Yes Yes if >5 year No Investment Liquidity 50% 6 year lock in Lock in as per No lock in withdrawal term of F.D. after 5 years
  • 23. WHAT ARE HURDLES IN FINANCIAL PLANNING?  Lack of funds.  Lack of knowledge regarding financial assets.  Misguiding Schemes.  Difficulty in finding appropriate financial planner.
  • 24. 5 DO’s OF FINANCIAL PLANNING  Emergency Cash  Medical Insurance & Life Insurance  Child Education Fund  Retirement Fund  Make a Will
  • 25. HOW TO RAISE EMERGENCY CASH?  Credit Card  Loan Against Securities  Selling Assets  Personal Loan  Advance Against Salary  Borrowed From Friends & Relatives
  • 26. 8 DON’T’s OF FINANCIAL PLANNING  Don’t think credit  Don’t delay investment  Don’t ignore inflation  Don’t be careless in the market  Don’t dip into that retirement fund  Don’t cash your Employees Provident Fund  Don’t ignore tax saving tools  Don’t economize on insurance
  • 27. HOW TO CHOOSE FINANCIALPLANNER?  Understands Your Planner’s Personality  A Planner helps you to make planned investment  Understand the Expertise of your planner  Is your planner proactive?  Is he well-versed with tax laws?
  • 28. CONCLUSION  Keep investment simple.  Start investing early.  Invest regularly.  Monitor investment every 3-6 months.  Stay invested for long time.  Take experts help.