25 Years

What is the Average Age when one starts Earning?

What is the Average Retirement Age?

60 Years

Rs.15,000/- p.m.

What is an Average Income of anMiddle-Class House-hold?

Rs.5,000/- p.m.

How much can a personsave on a regular basis?

If a person can save Rs.5,000/- per monthWhat will be his wealth when he retires?

Assuming: He increases his investments by 5% every year

Invests in an Asset class that gives returns of 20%

At Age 60 his wealth would have been

Rs.27 CroresRs.27 Crores

4.90 Crores*

27 Crores*

40 years25 years 60 years

  Ram Shyam

Savings Starting Age 25 40

Savings - Monthly SIP Rs.5,000/- Rs.15,000/-

Saving Years till age 60 35 years 20 years

Total Amount Saved (appx.) Rs.57 lacs Rs.62 lacs

Give time to your investments rather than timing

Assumptions: (a) Savings grows at 5% annually (b) Returns assumed at 20% CAGR

Give time to your investments rather than timing

START EARLY

INVEST REGULARLY Builds wealth over the long term

Just Rs. 1500 per month invested for 17 years @10% would grow to approx Rs. 8 lakhs…could be used for your daughter’s marriage

Take advantage of market volatility Buy more when the markets are down

Rs. 10,000 worth of Gold bought every month

56005400

61005900

6650

6070

5700

6000

5000

5800

5400

6100

4000

4500

5000

5500

6000

6500

7000

J an Feb Mar Apr May J un J ul Aug Sep Oct Nov Dec

Pri

ce p

er

10 g

ram

s

Highest priceLowest

quantity

Lowest priceHighest quantity

20 grams 15

grams

It is the small drops that make an ocean!!

Relieves you of the last minute pressure

Slow and steady wins the race

o E.g. Split your Sec 80C investments into smaller amounts and invest every month

Reduces the risk of investing at the wrong time

o Difficult to predict the market and know when is the right time

We earn regularly; We spend regularly

Shouldn’t we also invest regularly?

INVEST REGULARLY

A small amount invested regularly can grow to substantial lumpsum

A=P*{(1+i)**n-1}/i*(1+i)

…….It all adds up!

0

5

10

15

20

25

1 5 9 13 17 21 25 29

No. years

Rs.

Lak

hs

Rs. 22.6 lakhs

30

Rs.1000 invested every month for 30 years @10%

INVEST REGULARLY

One time investment of Rs.1 lakh invested for 30 yrs

@ 6%

5.7 lakhs

@ 10% @ 15%

17.45 lakhs

66.2 lakhs

Earn more…it can make a big difference

A= P(1+r)**n

EARN MORE

POWER OF COMPOUNDING - QUIZ

Rs. 10,000 invested every month for a period of 30 years

At 8% -

At 15% -

At 20% -

1.5 crores

5.6 crores

15.5 crores

EARN MORE

Create Wealth

Start Early

Invest Regularly

Make your money work hard for you

0

1,000

2,000

3,000

4,000

5,000

6,000

1990-

91

1991-

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1992-

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Earn More

The Formula for Creating Wealth

NEED FOR FINANCIAL PLANNING

One of the most common reasons cited for not doing proper

financial planning is “if I continue to earn as much as I do now, what

is the big problem? And always my salary will only increase with

experience and hence I will always have enough money at hand for

unexpected expenses and regular living expenses.”

The objective of financial planning is to ensure that the right money

is available to the investor at the right time to enable him to meet

the different goals in his life.

NEED FOR FINANCIAL PLANNING (contd..)

Examples:

Saving to buy a car costing around Rs 3,50,000 after 3 years. Investing for higher education of children where money is

required after 10 and 12 years. Planning for retirement to meet expenses for 25 years after

retirement. Investing to save taxes in an efficient manner. Passing on wealth to the next generation (estate planning) etc

Medical CareExpenses

Unemployment

Property Losses

Protection against

Personal Losses

Long Term Care Expenses

Emergency Funding

OBJECTIVES

OBJECTIVES OF PERSONAL FINANCIAL PLANNING

THE MILLION DOLLAR QUESTION

I am convinced that I should save and invest regularly,

but the million dollar question is…

Where should I invest?

A PERSONAL PLAN FOR INVESTING

1. Establish realistic goals

2. Determine the amount of money needed to meet your goals

3. Specify the amount of money available to fund your investments

4. List different investments you want to evaluate

5. Evaluate risk and potential return for each

6. Reduce possible investments to a reasonable number

7. Choose at least two different investments

8. Continue to evaluate your investment program

INVESTMENT AVENUES

Investment Avenues

Equity Shares

Money Market Instruments

Life Insurance Policies

Precious Objects

Non-marketable Financial

Assets

Bonds

Mutual Fund Schemes

Real Estate

Financial Derivatives

RISK-RETURN TRADEOFF OF VARIOUS INVESTMENT AVENUES

SAFETY AND RISKThe Risk-Return Trade-Off

Choosing higher risk investments, investors expect higher returns

When Diversification Works

Must combine stocks that are not perfectly positively correlated with

each other to reduce variance.

The greater the negative correlation between two stocks, the greater the

reduction in risk achieved by investing in both stocks

The combination of these stocks reduces the range of potential outcomes

compared to 100% investment in a single stock.

It may be possible to reduce risk without reducing potential return.

Adding More Stocks to the Portfolio: Systematic and Unsystematic Risk

Total risk is made up of two parts:

1. Unsystematic or Diversifiable risk and

2. Systematic or Non-diversifiable risk.

Unsystematic risk, Company specific risk, Diversifiable Risk

– product or labor problems.

Systematic risk, Market risk, Non-diversifiable Risk

– recession or inflation

Well-diversified portfolio -- one whose unsystematic risk has been completely eliminated.

– Large mutual fund companies.

Adding More Stocks To The Portfolio: Systematic And Unsystematic Risk

As the number of stocks in a portfolio approaches around 25, almost all of the unsystematic risk is eliminated, leaving behind only systematic risk.

Portfolio Management Process

Specification of investment objective and constraints

Choice of asset mix

Formulation of portfolio strategy

Selection of securities

Portfolio execution

Portfolio revision

Portfolio evaluation

Area of Knowledge required by Financial Planner

Developing personal financial statements and budgeting

Investment decisions and strategies

Retirement Planning

Insurance

Taxes and their implications on personal financial decision

Estate Planning

Knowledge of Law, Standards & Code of Ethics

Warren Buffett Investment Principles

Look for the absence of change. Look for the business whose only change

in the future will be doing more business.

Its far better to buy a wonderful company at a fair price rather than buying

a fair company at a wonderful price.

Be fearful when others are greedy and greedy only when others are

fearful.

If someone tells you they have a “foolproof” method to get rich in the

stock market, run, don’t walk, for the nearest exit.

Warren Buffett Investment Principles (contd..)

View stocks as businesses, not pieces of paper.

There are times when doing nothing is a sign of investing brilliance.

Take a close look at management.

Read, Read some more and then Think.

A few good investments are all that is needed.

Know the value of something rather than the price of everything.

We can direct our savings in such a manner that we create wealth,

the way we wish

DISCIPLINED SAVINGS +

SUFFICIENT TIME+

RIGHT ASSET CLASS=

Smart Investor’s Preference

DISCIPLINED SAVINGS +

SUFFICIENT TIME+

RIGHT ASSET CLASS=

Smart Investor’s Preference

Using The Wisdom