1. Financial planning

2. What is financial planning? It is the process of advising investors on how to manage their finances and investments so as to help them achieve their financial goals. An excellent financial advisor can do good to people like any doctor.

3. Common questions What is my income? What is my life expectancy? How many dependents do I have? How much risk can I take i.e. what is my risk appetite? What is risk and return trade off? Who am I?

4. Savings Earnings Expenditure The money you earn

5. 38 yrs 22 yrs 22 yrs Phase I Phase II Income Phase III Children’s Marriage Child Education Housing Children Marriage Over 25 - 30 yrs Earning Years Retirement Age Birth & Education 60 yrs Financial planning for the future

6. Who am I?

7. Planning for your child’s education Savings needed per month Cost of engineering degree at IIT Age of child return of 20% p.a. return of 15% p.a. At the age of 17 (Rs.)* Today (Rs.) 719 1,199 1,010,894 2,00,000 0 1,196 1,671 627,687 2,00,000 5 2,275 2,719 3,89,743 2,00,000 10 8,293 8,689 242,000 2,00,000 15 * assuming inflation @ 10%p.a.

8. Risk The chance that an investment’s actual return will be different than expected. The chance or possibility of loss. The greater the amount of risk that an investor is willing to take on, the greater the potential return.

9. Need based investment strategy

10. High Art Derivative Products Direct Equity Portfolio Schemes Real Estate Equity Funds Balanced Funds Small Savings Debt Funds Insurance RBI Bonds Bank Deposits Gold Low High RETURN RISK Investment options

11. Risk hierarchy of mutual funds Equity Funds Balanced Funds Risk level Debt Funds Gilt Funds Money Market Funds Returns

12. Simple interest Simple interest= PNR P= Invested amount N= Period for which money is invested R= Rate of return

13. Example Miss Kareena invested Rs. 10,000/- which earns a simple interest of 10% p.a. Calculate the total amount received after 2 years. Total amount received = amount invested + interest earned = 10000 + 2000 = 12000 = PNR = 10000 x 2 x 0.10 = 2000 Simple interest

14. Compound interest Interest earned not only on the principal amount but also on the interest Formula for compound interest : FV = PV (1+R)n Compound interest = FV - PV FV= Future value PV= Present value R= Rate of return n= Number of compounding periods

15. Example Miss Kareena invested Rs. 10,000/- which earns a compound interest of 10% p.a. Calculate the total amount received after 2 years and the amount of compound interest earned FV = PV (1+R)n = 10000(1+0.10)2 = 12100 Hence compound interest = FV – PV = 12100- 10000 = 2100

16. Rs. 808 Re. 1 invested for 30 years Rs. 237 Rs. 66 Rs. 17 Rs. 4 25% 5% 10% 15% 20% Effect of compounding

17. Why long term investing? The power of compounding Einstein called it the eighth wonder in the world Over a long period of time it makes your money grow exponentially Lets look at three investors each investing Rs. 25,000 till they turn 60 at 12% p.a. One invests at the age of 35 Second invests at the age of 40 Third invests at the age of 45

18. Rs. 425,002 The Power of Compounding at work Rs. 241,157 Rs. 136,839 35 40 45 Power of compounding

19. But, aren’t investments in equity markets risky?

20. 20.16% 14.47% 9.74% 9.19% 7.62% Inflation Bank FD Co. FD Gold Equities Over a 20 year Tenure Investment performance

21. It is not possible to spot every trend It is impossible to know when to exit There is a trend born every minute Money made in one trend is likely to be lost in another “Patience is the companion of wisdom” -- Anonymous Success and consistency are not the same

22. Consistent success in equity requires Being invested Being focused on the long term The ability to understand that companies grow over a long period of time. However all companies face tough times, squeezed margins, lower profits and crises Resisting greed and overcoming fear

23. Online mutual funds

24. Thank You