an overview of financial goal planning

An overview of Financial Goal Planning By Sourabh Sharma & Binay Raina

Contents

1 Introduction

2 Steps of Financial Goal Planning

3 Typical Financial Goals

4 Analysis of few Financial Instruments

5 Q&A

Introduction

Income – Expenses = SavingIncome – Saving =

ExpensesSaving ≠ Investing

Time Value of Money

If you had Rs.1 Lakh in 1978 and had :

Bought Gold

:

Current* worth would be Rs. 37.17 lakhs

Left as cash :Current* worth would be Rs. 7k in terms of PPP

Invested in

Sensex:

Current* worth would be Rs. 1.88 crores

* - As of March 31st 2012

Goal Planning – Step 1

Identify and prioritize specific life goals

Calculate what you need to achieve

each goal

Determine your risk tolerance

1.Establish Your Goals and Expectations

Typical Goals

Kid’s Marriage

A goal without a plan is just a

Wish

Goal Planning– Step 2

Allocate resources to each goals

Choose instruments aligning with the risk

appetite

Invest regularly and systematically

2. Make Investments

Best time to start saving for retirement is the day you start earning

Save at least 10% of income for retirement

At the peak of earnings save 40-50% of income

Retirement

Graph source : Internet -

Prepare for the costliest education (Medical, Graduation/Masters Overseas etc.)

MBA that costs 10L today would cost 67L in 20 years at 10% education cost inflation

Diversify your investments across geographies to factor in overseas education

Education


Above cost is derived by factoring in 10% marriage cost inflation

Above cost is excluding the gold cost

Buy gold regularly via ETF , GSBs ( a gram/month or quarterly)

Kid’s Marriage

Kid’s Marriage


Time not timing is the key to investment success

The best time to invest is whenever you have money

Wealth Creation


Goal Planning – Step 3

Establish benchmarks

Compare performance to expectations

Be vigilant and update your

expectations/strategies

3. Monitor and Maintain Your Portfolio

Sample Instruments

Survey 1 - Indian Household Assets Breakup

Survey 2- Retirement Products held by Indians

Employee Provident Fund

Real return has been calculated after adjusting for retail inflation

Defined Contribution Pension system open for all citizens of India

Tax exemption of upto 2 lacs + 10% of basic salary

Mandatory annuity purchase of atleast 40% of accumulated pension wealth

National Pension System

Mutual Funds

Professionally managed investment fund with Products for all risk appetite

No tax on long term capital gain

ELSS is a very good tax saving instrument

Franklin India Smaller Companies Fund

CAGR Return since Inception : 17.89%

Small Cap Fund

ICICI Prudential FMCG Fund


Sectorial Fund

Axis Long term Equity Fund


ELSS

Birla Sun Life Tax Plan


ELSS

EPF vs. Large Cap Fund

1. Establish Your Goals and Expectations

Short Term • Emergency fund• School/College fees• Premium payments

Medium Term• New Car• Downpayment for

House• Foreign Vacation

Long Term• Child’s Education• Child’s Marriage• Retirements

Goals Years to Achieve

Risk Appetite

<< 1 Year

1 Year – 5 Year

5 Year – 25 Years

No Risk

Low Risk

Medium to High Risk

2. Making Your Investments

Short Term • Emergency fund• School/College fees• Premium payments

Medium Term• New Car• Booking Amount for

House• Foreign Vacation

Long Term• Child’s Education• Child’s Marriage• Retirements

Goals Investment Options

Expected Rate of Return

Recurring DepositsLiquid Funds

8%8-10%

9-12%9-15%

11%12-20%>>16%

Debt FundsBalanced Funds

GoldEquity FundsStocks

3. Monitor and Maintain Your Portfolio

Equity• Stocks• Mutual Funds

Debt• FD/ RD• Liquid Funds• Debt Funds

Real Estate• Residential• Commercial

Portfolio Mix

Age Percentage of Total

20 - 4545 - 5555 - 60>> 60

50 - 80%40 - 50%10-30%0 - 10%

Gold• Physical• ETF/Gold Funds

20 - 4545 - 5555 - 60>> 60

20 - 4545 - 5555 - 60>> 60

20 - 4545 - 5555 - 60>> 60

10 - 20%20 - 40%40 - 60%

60 - 100%

20%

10%

Thanks

an overview of financial goal planning

Economy & Finance