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FINANCIALLITERACYPROGRAMME

Shalibhadra(MasterInvestmentBroker)

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AGENDA

7KeyAreasofFinancialPlanningWealth

Creation

Opportunities

EstablishingGoals

InvestmentAvenues

av ngsvs. nves ng

LifeStagesandFinancialGoals

ValueofMone overTime Im actof

DevisingPortfolios

Insurance

Inflation

PerformanceofvariousAssetClasses

Loans&Debt

TaxPlanning

PowerofCompounding

BenefitsofMutualFundInvestments

throughMFs

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Saving&Investing

WhySave..HUMANLIFECYCLE

Age

25

yrs Starts

off

Career

(100%

dependent

on

Job)

Considerthis Age45yrs PayforchildrenshighereducationAge50yrs ChildrensMarriage

Age60

yrs Retirement

(100%

dependent

on

earning

from

Investment)

Whatarethefactorsunderlyingexpenses?expensesareafactorof:

Inflation

Higherlifeexpectancy

Changeinincomeandconsumptionlevel

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Investmentvs.Consumptionvs.Savings

y Investmentincreasesthevalueofyourmoney

y Youinvest

Rs.

1lac

today

and

earn

Rs.

20000/

.This

1lac

is

an

investment

. , .

{ Carcanbeconsideredtobeaninvestmentsinceithasleadtoanoverallincreaseinyourwealth

{ YouspendRs.20000/ onupholsteryofthecar willbeconsideredtobeaconsumptionsinceithasno

impactinincreasingyourwealth

y Investment onsumpt on are etwos eso t eco n{ Buying

the

stock

of

acompany

manufacturing

upholstery

will

be

an

investment

{ Buyingupholsteryforthecarwillbeconsumption

{ Investmentwillleadtoanoverallincreaseinyourwealth

{ Consumptionwillnotleadtoanyincreaseinyouroverallwealth

y SavingsVsInvestment{ Savingshappensbychancevs.Investmenthappensbychoice

{ Savingsdoes

not

protect

you

against

inflation

vs.

Investment

is

intended

to

beat

inflation

{ Savings=Income Expense

{ Expense=Income Savings

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WhyInvest?

RetirementRetirementEmergencies????Emergencies????

Kid 1sKid 1sMarriageMarriage

MarriageMarriage

????????Decline in

Maintain samelifestyle

Kid 1Kid 1

Kid 1sKid 1sCollegeCollege

Kid 2sKid 2sCollegeCollegeCarCar

es y e

MarriageMarriage

Birth andBirth andEducationEducation

0 25 60Working LifeWorking Life 75 +Retired LifeRetired LifeAgeAge

av ngs nves ngav ngs nves ng

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WhyInvest?

y ToBeatInflation.i.e.PreserveexistingWealth

y

y Tomeetcontingencies

y Tomeetthesamestandardoflivin afterretirement

Earni ngs (Consumpt ion + Savings)

Consumption

Savings

Retirement7

Young MarriedYoung Independent4

Middle Age

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LuxuryorNecessity

Lifehasbecomemuchfastertodayandcertainitemswhichwereluxuryearlierhavebecome

necessityto

cope

with

the

fast

pace

of

life.

MobilePhone

LCD TVLUXURY IN 1990

Telephone/Internet

WashingMachine NECESSITY TODAY

HomeTheatre/Microwave

Twowheeler/Car

Brandedclothes

watches

LifestylechangesandimpactofinflationhaveledtoanincreasetoourbasicexpensesKeep ngt at nm n ,sav ngs ort e uturegoa s ecomesinevitable

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Inflationrobsyourpurchasingpower

Item 1987 1997 2012 2017Colgatetoothpaste(100gmtube)

8(8.91%)

34 104

HamamSoap 3 8 15 52.

MasalaDosa 3 14(14.87%)

75 224

8 25 72 259(12.30%)

LPGCylinder 56 138(9.40%)

430 831

500ZodiacMen sshirt

(8.53%)

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TimeValueofMoney

y Timeisthebiggestenemyofidlemoney

y Rs.100todayisworthmorethanRs.100thatwemaygetafter5years.

E. .Youcanbu 4 astriestoda forRs.100 or2 astriesforRs.100after5 ears.Whichone

wouldyou

prefer?

y Investmoneyinthebestpossibleopportunitywhichwouldfetchyoumaximumreturnsonarisk

Opportunitycostofmoney

y Rs.1lac

invested

today

will

grow

to

Rs.

17.45

lacs

at

the

end

of

30

years

@

10%

per

annum

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CostofFutureGoal

Should

I

be

really

bothered

of

7%

inflation

while

planning

my

daughters

marriage?

Expinyear2020 Expinyear2030owmuc e encew ma e om ecu en eve o expenses

Expinyear2011Rs5.0Lac

Rs9.19

Lac

Rs18.38Lac

Rs

18.08

Lac

Rs36.16Lac .

Rs15.0Lac

Rs25.0

Lac

Rs27.57Lac

Rs36.76

Lac

Rs54.24Lac

Rs72.33

Lac

Source:DSPBlackRockassumes7%inflationrate

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TrendChart Costoffutureeducation

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ValueofMoneyovertime

100,000 ValueofRs.100,000overtimeImpactofinflationonmonthlyexpensesofRs.30,000today

62,368

79,599 78,353

48,102

30,000

38,288 37,689

Today 5 years 15 years 20 years Today 5 years 15 years 20 years

InvestorsneedtobeatinflationAllfiguresinRs.;Atinflationof5%;Hypotheticalnumbersmeantonlyforillustrationpurpose

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7KeyAreasofFinancialPlanning

1. Budgeting

2. EstablishingGoals

3. InvestmentAvenues

4. DevisingPortfolios

5. Insurance

6. Loans&Debt

7. Tax Plannin

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Budgeting

BudgetingIsNothingButDeterminingHowMuchMoneyIs..

1. GatherInformation

2. RecordIncome

3. ListDown

Expenses

4. CategorizeFixed&Variable

5. AdjustExpenses

Budgeting

Is

Not

A

One

Time

Thing..ItNeedsToBeReviewedOnMonthlyBasis

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1. Budgeting

2. EstablishingGoals3. InvestmentAvenues


5. Insurance

6. Loans&Debt

7. Tax Plannin

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DreamsfortheFamily

INCOME

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1. Budgeting


3. InvestmentAvenues4. Devising

Portfolios

5. Insurance

6. Loans&Debt

.

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InvestmentAvenues

ThereAre

Only

Two

Investment

Avenues

1.LendMoney

&

2.Become

Partner

In

Business

TheseAreWidelyKnownAs

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InvestmentAvenues

Adebtisanobligation owedbyoneparty(debtor)toasecondparty,thecreditor.

DebtIncludes

y LendingToBank BankFDs

y Com an FixedDe osits

y SmallSavings

Schemes

PPF,

NSC,

KVP,

PostOfficeSchemes

y Debentures

y CommercialPapers

y MoneyMarket

Instruments

Call

money,

DebtGivesYouGuaranteeButAllGuarantee

ComesAt

A

Price.

Overnightmoney,Repo,CBLOAndPriceIsLowerReturnsMeaningMoreSavings

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InvestmentAvenues

EquityIncludesBuyingSharesofCompaniesDirectly,ThroughMutualFunds,F&Oetc.

ShareMarket

y

EquityRepresents

ownership

y Theownerofequitysharesiseligiblefordistribution

ofprofitsi.e.dividend/bonusshares

EquityIsVolatileButGivesHigherReturns

InLonger

Horizon..

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InvestmentAvenues

ForGoldPhysical

Gold/

Jewellery/

Gold

Coins

ForRealEstateCyclical

in

Nature

GoldEquities

GoldFutures

Nobenchmark

Illiquidinnature

Cannotberedeemedinpart

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1. Budgeting



4. DevisingPortfolios.

6. Loans&Debt

7. TaxPlanning

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Why it is Better

S ys t e m a t ic I n v e s tin g h a s a c o m p o u n d i n g e ffe c ts a n d e a r ly yo u s t a r t c h a n c e s o f

bu i l d i ng

Sita Gita

SIP start Age 25 45

SIP till retirement ( 55) 30 10

Amount Saved 1800000 1800000

Value at 55 17,649,569 3,485,086

** CAGR Assumed is 12%

Difference of Rs. 1,41,64,483 ( More than 1.4 Crs)

24

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Whatallocationisrightforyou?

GOLDENRULE:

{ Allocationacross

asset

classes

(E.g..

Equities/

Gold/

Real

Estate/

Debt)

{ Allocationwithinassetclasses(EquityMFs LargeCap/MidCap/Sectoral)

{ Asseta ocat on ec s ontra eo

{ Yourtimeframe

{ Yourrisktolerance

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DevisingaWinningInvestmentPortfolio

{

Start

Early

{ SaveRegularly

{ Useaportfolioapproach spreadyourinvestmentsacrosssectorsandassetclasses

{ Seethatyourport oliocontainsbothshorttermandlongterminvestments

{ Monitoryourinvestmentportfolioperiodically inlightofmarketchangesandchangesinyour

life

{ Staycalm,steadyanddisciplined keepyourgoalsfirmlyinsight donotgetcarriedawayby

emotionsortemporarymarketfluctuations

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1. Budgeting




.

6. Loans&Debt

7. TaxPlanning

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Insurance

Insuranceisthemostcritical&importantpartofFinancialPlannin .

Insurancemeansriskmanagement.

Itisusedtohedgeagainsttheriskofa

contingentuncertainloss

Riskoflife,health,house,liabilities,

, ,

InsuranceisnotaninvestmentInsurance

is

only

a

cover

against

uncertainty.

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1. Budgeting




.

6. Loans&Debt7. TaxPlanning

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1. Budgeting




.

6. Loans&Debt

7. TaxPlanning

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TaxPlanning

y Taxplanningshouldactuallybeconsideredwhilekeepinginmindthe

overallasset

allocation

Section80(C)options:{

Debt

options:

EPF,

PPF,

NSC,

bank

FD,

infrastructure

bonds,

{ Seniorcitizensavingsscheme

{ Equityoptions:ELSSschemes&pensionschemes

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InvestmentDecisions

y InvestmentDecisionsarebasedonthreecriteria{ Wheretoinvest

Optimalappreciationandincomegeneratingassetclass

Equityoveralongerperiodwillgivethebestreturns,whileitwillbesubjecttovolatilityintheshortterm

Debtwillgiveyousteadyreturnsbutappreciationoverthelongtermwillremain

limited{ Howtoinvest

vers ca onacrossasse c asses ea es a e,equ es,go ,s or erm e . ongtermdebt,commodities)

{ Whentoinvest

Investinadisciplinedandsystematicmanner

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SystematicInvestmentPlan

HOWTOMAKEMoneyWorkHarderForyouTheanswertoitis

Simple .Intelligent

ene rom e owero ompoun ngPractical

WithAutoDebitFacility

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SystematicInvestmentPlan

y WhatareSIPs . .

weekly/monthly/quarterly

y WhyshouldonedoaSIP? ,

{ Mostof

us

calculate

our

earnings,

expenses

and

savings

monthly

{ Theeasiestwaytoplanourinvestments,therefore,isonamonthlybasis

y Whatarethebene itso SIPs?{ Thepowerofcompounding

{ Rupeecostaveraging idealwaytodealwithmarketvolatility

{ Convenience/Affordability

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Why SystematicInvestmentPlan?

y Ihaveputmymoneyinthebank.WhyshouldIworryinflation

y Iamyoungrightnow.Ishouldjustspend.Ihaveplentyoftime Delayingyourinvestmentonlyincreasesyourburdenandmakestherealizationofyourgoals

difficult.

y Idonthaveenoughmoneytoinvest YoucanstartaSIPwithaslowasRs.500/ aswesaySmalldropsofwatermaketheocean!

y Idonthavetimeorexpertisetofollowmarketmovementsandmakeinvestmentsattheright MutualFundsandSIPareanidealwaytoinvestwithoutworrying aboutmarketmovements.

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Avey

Famous

Folk

Tale

y Onceapoorfarmerchallengedthekingforagameofchessandhewon.

.

wheatforthefirstsquareanddoublingitoneverysquareandsoonandsoforthfor

all64squares

y Thekingwasveryhappyandreadilygrantedthewishthinkingitastinywish.

y Therealsnagcamewhenhehadtosettletheclaimwhenthecalculationreachedto

64th square.

Wouldyouliketoguessthenumber??

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Avey

Famous

Folk

Tale

Power

of

Compounding

y Thekingrequired1,84,46,77,40,73,70,96,00,000grainsofwheat forallthe64squares!!y If

there

are

apprx 25000

grains

in

1kg

of

wheat,

the

king

required

7,37,870milliontons ofwheatto

settlethisclaim.

y Ifthekingwantedtosettlethisforcashassumingsuperwholesalerate ofRs.3.5perkg,hewould

requireRs.25,82,54,417Crores tosettlethisclaim!!y Whatexactlyhappenedhere?

y Farmerusedpowerofcompoundingtohisadvantage

y Thin s were fine till the first few s uares it was onl b the 10th s uare or so that it went out of control.

y Wecouldcallcompoundingtheeightwonderoftheworld

y Butitworksonlyifusedoverthelongterm

y

Welcome

to

the

world

of

systematic

investing

and

power

of

compounding

to

meet

your

long

term

financialgoals

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SIP:ThePowerOfCompounding

SIPofRs.1000investedpermonth@8%patilltheageof60.

StartingAge TotalAmountSaved Valueattheageof60

25 4,20,000 23,09,175

30 3,60,000 15,00,29535 3,00,000 9,57,367

40 2,40,000 5,92,947

,

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WhySIPisbetterthanothers?

SystematicInvestinghasacompoundingeffectsandearlyyoustartchancesofbuilding

hugecorpus

is

better.

Sita Gita

SIPstartAge 25 45MonthlyAmount 5000 15000SIPtillretirement(55) 30 10AmountSaved 1800000 1800000Valueat55 1,76,49,569 34,85,086**CAGRAssumedis12%

DifferenceofRs.1,41,64,483(Morethan1.4Crs)

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Thecostofdelay.

y Sunita,AnilandSunil begintheircareerstogetherattheageof25buthavedifferentattitudestowards.

.

careersaheadofthemitdoesnotreallymatterwhentheystartsaving.

y Sunita.Sunita getsintothehabitofsavingregularlyfromdayone.ShesuccessfullysavesRs.10,000in

thefirst ear.Shecontinuessavin Rs.10 000 er earfor35 earstillherretirement.y Anil. Anil

gets

married

at

the

age

of

27.

With

new

responsibilities

ahead

of

him,

he

gets

into

the

habit

of

savingRs.10,000everyyearandcontinuessavingRs.10,000peryearfor33yearstillhisretirement.y Sunil. Sunilisthelastonetostartsaving.Hegetsmarriedandbecomesa atherattheageo 30.He,

too,realises thathecannotdelayhissavingsdecisionanymore.HegetsintothehabitofsavingRs.10,000everyyearandcontinueswiththisfor30yearstillhisretirement.

y un ta eganatage an save s. , ; n eganatage an save s. , an un beganatage30andsavedRs.300,000.

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Itdoesmatterwhenyoustartsaving

y Sunitabeganatage25andsavedRs.350,000;Anilbeganatage27andsaved

Rs.330,000and

Sunil

began

at

age

30

and

saved

Rs.300,000.

Ifeachofthemgotacompoundedreturn

of15%

per

year

on

their

savings,

SunitawouldhaveoverRs.1Crore,AnilapproximatelyRs.75lacsand

SunilapproximatelyRs.49lacs.

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Differentassetclassreturns Indiancontext

20yearsand10yearsreturnsofdifferentassetclassesasonMarch2011

EquitythebestAssetclassinlast20yearsdespiteseveralCrisis!20yr

returns

of

different

asset

classes

as

on

March

2011

EquitythebestAssetclassinlast10yearsdespiteseveralCrisis!10yr

returns

of

different

asset

classes

as

on

March

2011

Source:RBI&BSE Source:RBI&BSE

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Tenstepstoajourneyforabrighterfuture

y Investearlytogetmore Experiencethemagicalpowerofcompounding

,

y ThinkSmart,ThinkAhead Keepfutureinsight

y MakeSavin s ourEx ense Ever ru eesavedisaru eeearned

y Plannow

for

aHappy

Future

y ProtectyourmoneyfromTaxAttack Taxefficientinvestments

y Havesomenow.Havesomeforthefuture Setabudget

y ProvideforyourFuturetoday Medical&Contingentrequirements

y Expertsmakeeverythingeasy Seektheadviceofaprofessionalqualifiedexpert

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Wordsofwisdom

y Buywhenmostpeople,includingexpertsarepessimisticandsellwhenthey

Benjaman Graham,PioneerofStockAnalysisy Be ear u w enot ersaregree yan gree yw enot ersare ear u

WarrenBuffetty Tobuywhenothersaredespondentlysellingandtosellwhenothersare

vividlybuyingrequiresthegreatestfortitudeandpaysthegreatestultimate

rewards SirJohnTempleton

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Documents

FL Course