financial planniing

8/12/2019 Financial Planniing

1/14

0


2/14

What is Financial Planning?

A comprehensive evaluation of an investors current and future financial state by currently

known variables to predict future cash flows, asset values and withdrawal plans.

A good financial plan can alert an investor to changes that must be made to ensure a smooth

transition through lifes financial phases, such as decreasing spending or changing asset

allocation. Financial plans also are fluid, with occasional updates when financial changes

occur. Financial planning may mean different things to different people. It can be undertaken

by anyone with a clear assessment of ones inflow of funds and the goals that needs to be

achieved from time to time.

Financial Planning is a process consisting of the following activities

Assessing present assets and resources to understand the current situation Setting objectives-Both in terms of returns and risks Determining constraints and financial planning areas like Taxes, Legalities, time

horizon, liquidity, unique circumstances

Determining appropriate plan and strategy to achieve financial goals. Evaluating the plan in a timely manner. Adjusting and modifying the plan with changing times.

Why Financial Planning

For a person who has just joined an organization or has just received a job offer from an

organization, the first thing on their mind is to buy a car, or bike or a fancy gadget. Savings or

tax planning is not in their mind. For them retirement is a distant object and it is something

which can be postponed for a later date.

A simple example would suffice to get them out of their dream.If your monthly expense is

Rs 30,000, and you retire 30 years from now, you will need Rs 1.80 lakh every month,

assuming that the annual inflation rate is 6%. Even if you can manage with 80% of your

present expenses, that is, Rs 24,000, you will need Rs 1.44 lakh every month.There's more. If

you live till 85-with rising living standards and progress in medical science, this is a

conservative estimate-that is, for 25 years after after retirement (assuming you retire at the

age of 60 years), the value of the nest egg you need to build is a staggering Rs 4.5-5 crore.

This if we assume 6% annual inflation and 12% return on investment before retirement. If we

assume 8% inflation, the corpus required is a mammoth Rs 12 crore.


3/14

Now if we calculate for someone who starts at the age of 25 his per month contribution is Rs

9700. Whereas someone who has starts at 30 will have to pay Rs 19000 per month, if they

wish to achieve Rs 4.5 crore. Now retirement is not the only expenditure in horizon ,marriage

education for children ,Medical policy and life insurance are few of them. If someone wishes

to acquire a car or house there is no money left. So the planning needs to be such that aperson can avail all benefits at old age without compromising on present time.

1. Establish and define the client-planner relationship2. Gather client data, including goals3. Analyse and evaluate your financial status4. Develop and present financial planning recommendations and alternatives5. Implement the financial planning recommendations6. Monitor the financial planning recommendation

1. Establish and define the client-planner relationship

The financial planner should clearly explain and document the services that he or she will

provide to you and define both his/her and your responsibilities during the financial planning

engagement. The financial planner should explain fully how he or she will be paid and by

whom. You and the planner should agree on how long the professional relationship should

last and how long the professional relationship should last and how decisions will be made.

2. Gather client data, including goals.

The financial planner should ask for information about your financial situation. You and the

planner mutually define your personal and financial goals, understand your time frame for

results and discuss, if relevant how you feel about risk. The financial planner should gather

all the necessary documents before giving you the advice you need.

3. Analyse and evaluate your financial status.

The financial planner should analyse your information to assess your current situation and

determine what you must do to meet your goals. Depending on what services you have asked

for, this could include analysing your assets, liabilities and cash flow, current insurance

coverage, investments or tax strategies.


4/14

4. Develop and present financial planning recommendations and/or alternatives.

The financial planner should offer financial planning recommendations that address your

goals, based on the information you provide. The planner should go over the

recommendations with you to help you understand them so that you can make informed

decisions. The planner should also listen to your concerns and revise the recommendations as

appropriate.

5. Implement the financial planning recommendations

You and the financial planner should agree on how the recommendations will be carried out.

The planner may carry out the recommendations or serve as your coach, coordinating the

process with you and other professionals such as attorneys, accountants or stockbrokers.

6. Monitor the financial planning recommendations

You and the financial planner should agree on who will monitor your progress towards your

goals. If the planner is in charge of the process, he or she should report to you periodically to

review your situation and adjust the recommendations, if needed, as your life changes.

Now if we look at the spending pattern of the subjects interviewed we get to see that person

who is below the age 27 has erratic spending pattern and mainly uses credit cards. This

increases more of liability. So financial planning for each age group is different. Where as a

person who is in the age group of 24 to 27 has fewer dependents on them, so has better scope

of saving.

3 2025

3 2025

2


5/14

Spending Pattern

From the above chart we can

have surveyed.

Now if we concentrate on the

is depicted below.

Type of Savings

20%

10

2730 3

2427 1

2124 1

00.5

1

1.5

2

2.5

3

3.5

get an idea of the expenditure pattern of the

saving pattern from the above diagram we

15%

5%

20%

/

30%

1 0 1

0 1 1

0 0 1

subjects whom we

get the chart which


6/14

Persons in age group of 24-30 of the persons surveyed have shown concern about retirement.

Whereas none of them under the age of 24 are concerned. Similarly who are in the age group

of 27-30 have already has houses so purchasing a property is least in their mind. 24-27 haveimmediate priority of purchasing a property.

From the above tables we are able to draw a picture of how the surveyed individuals manage

their cash.

2730 2427 2124

5 2 0

1 3 2

4 3 1

3 3 2

0

1

2

3

4

5

6

45%

20%

35%


7/14

So keeping the analysis in mind things to be kept in mind for the planning are

1> Retirement Plan2> Life Insurance3> Achieve Investments4> Reduce Taxes5> Provision for housing and Car loan.As most of them are yet to properly invest in a proper scheme, we will go with one plan

each

1> Retirement plans :-The plans available are compared in the table below

From the above table we can see most retirement plans are providing a life cover as well.

Depending on the needs a person can further go for more sum assured in the life cover but it

will increase the premium rates.

2> Investment PurposesFor investment purposes there are options where he/she can invest in equity M.F or

F.D. Looking at M.F we have options like.

Edelweiss

Tokio

Reliance

life

Insurance

HDFC

Life pro

Growth

Plus

HDFC

Life

Super

Income

India

First

smart

Save

Plan

LIC new

Endowment

Plan

LIC new

jeevan

Anand

Plan

Premium in

thousands per year25.5 25 25 25 25 24.5 24.2

Sum Assured 4.4lakhs 4.5lakhs 5.9lakhs 7.9lakhs 4.4lakhs 5.3lakhs 5.1lakhs

Pay back

Lump

sum In 15

y

Regularinterval

from 11yr

to 15 yr

Lump

sum In

15 y

Regular

interval

from

15yr to

25 yr

Lump

sum In

15 y

Lump sum

In 15 y

Lump

sum In

15 y

Life Cover 4.4lakhs 4.4lakhs 2.5lakhs 2.5lakhs 3.5lakhs 5.1lakhs 3.5lakhs

Guaranteed Money Back Plan SL ProGrowth Super II

New Endowment

Plan New Jeevan Anand

25 25 24.4 23.2 24

6.4 11.7 8.1 6.7 8.4

4 2.5 8.1 6.7 6


8/14

Now comparing the Fixed deposit schemes and performance of stock markets we can

safely assume that an investor should select fixed deposits or mutual funds as per their

risk preferences.

Stock markets since last 5 years have given an average return of 6% per annum where

as M.F are supposed to grow at an average of 8% per annum. Fixed deposits are thesafest options as they provide as they provide a steady interest of 9% P.A. But fixed

deposits mean that the funds are locked in for a long period of time.

Mutual funds are a better options for a person who has just started his professional

career.

A>As there is a fixed sum to be paid annually and through a longer period of time.B>Plus a person who has just started working would not have the lump sum amount

so that they can go for a fixed deposits.

C>Mutual Funds provide Life cover as wellD> Tax saving is covered by M.F under the sections of 80c &80CC.

1>Interviewed population has got high component of variable expenditure to theextent of 45% of their annual expenditure. If some part of this could be curtailed,

savings would increase.

2>As there is no particular set of goals (in terms of higher education or marriage) isstated no plan of action has been suggested. But it is strongly recommended that

some amount should be invested in short term deposits.

3>As all the plans suggested are for a term of 11 years to 15 years with only oneexception of 27 years. It is strongly suggested that the matured amount should be

reinvested.

4>Medical expenditure is total of 5% of the annual expenditure. Most of thecompanies give a medical cover to their employees. So it is recommended to

increase the coverage to cover dependents

5>Maintain a contingency fund in terms of savings account. Where one month salaryshould be there at all time. This would go a long way in solving liquidity problem

in case of exigency.


9/14

QUESTIONNAIRE

NAME-

GENDER-

ADDRESS-

Q1. WHAT IS YOUR AGE GROUP?

a. 20-23b. 24-27c. 27-30d. 30 & above

Q2. WHAT IS YOUR ANNUAL SALARY PACK?

a. 250000-350000b. 350000-450000c. 450000-550000d. 550000-650000e. 650000 Above _____________(Please Specify)

Q3. HAVE YOU TAKEN ANY EDUCATION LOAN?

YES (-------------------PLEASE STATE THE AMOUNT) NO

Q4. NUMBER OF DEPENDENT.

1 2 3 4 More Specify

Q5. PROFILE OF DEPENDENTS.

RELATIONSHIP AGE

FATHER

MOTHER

BROTHER

SISTER

Q6. ANY FINANACIAL ASSET OWNED?

a. FIXED DEPOSITb. BONDc. EQUITY


10/14

d. MUTUAL FUNDe. OTHERS

Q7. WHAT ARE MY FINANCIAL OBJECTIVE IN NEXT 20 YEARS

PLEASE INDICATE PRIORITY FROM 1 TO 5, 1 BEING LOWEST, 5 BEING

HIGHEST

Ensure a comfortable

Retirement

1 2 3 4 5

Provide for childs/childrens

Education costs

1 2 3 4 5

Buy a House 1 2 3 4 5

Provide for child/rensMarriage

1 2 3 4 5

Buy a Car 1 2 3 4 5

Achieve growth in investments 1 2 3 4 5

Protect income in the event of

death/disability

1 2 3 4 5

Reduce Housing/Other Loans 1 2 3 4 5

Reduce Credit Card liability

and other Personal Expenses

1 2 3 4 5

Ensure Assets are passed on

smoothly to dependents

1 2 3 4 5

Reduce Income-tax 1 2 3 4 5

Q8. WHO DO YOU CONSULT WHILE TAKING FINANCIAL DECESION?

a. ON MY OWNb.

MY PARENTS/ FAMILY

c. MY FRIENDSd. MY RELATIVEe. OTHERS( PLEASE SPECIFY-------------------------)

Q9. WHAT PERCENTAGE OF MONTHLY SALARY DO YOU SAVE?

a. LESS THAN 20%b. 20% TO 25%c. 26% TO 30%d. 31% TO 35%e. ABOVE 35%


11/14

Q10. How do you save from your regular income?

a) Save as per planned schedule

b) Save something every month

c) Save whatever is left after meeting expenses

d) Do not save regularly as expenses generally exceed income

Q11. How do you spend?

a) I have a definite spending pattern for regular monthly expenses

b) I carefully plan my big purchases in advance

c) I do not spend in a planned manner

Q12. My mode of spending is:

a) Always in cash

b) Cash as well as credit card

c) Mostly on credit card

Q13. I like to invest in instruments which _____________.

a) offer fixed guaranteed return

b) offer slightly higher returns and largely protect capital

c) offer substantially higher returns while there is risk of capital erosion


12/14

Q14. What percentage of your monthly salary is used to repay loans?

a) Nil

b) Less than 20%

c) Between 20% - 35%

d) Between 35% - 50%

e) Over 50%

Q15. While taking Life Insurance policy, my objective is to ____________.

a) get at least the premium amount back if I survive the Plan period

b) get some return on the premium if I survive the Plan period

c) get market linked return on the amount of premium and some life cover or pension

d) cover pure risk without any consideration of return (even of premium paid)

Q16. Up to what age would you like to work?

a) Upto 45

b) Upto 50

c) Upto 55

d) Upto 60

e) Upto 65

Q17. How do you approach Tax Planning during the year?

a) Estimate all income during the year, plan investments availing maximum tax

benefits


13/14


14/14

.

1 2730 2730 2427 2730 2730 2730 2023 2730 2427 2427

2 450000550000 650000 450000550000 350000450000 350000450000 650000 50000550000 650000 350000450000 3500004500003

4 4 3 3 4 3 2 3 2 1 3

5 55,47, 22,27 58,54 55 49 49 56 48

6

7

8

9 2025 2025

financial planniing

Documents