financial planning mdc

8/4/2019 Financial Planning MDC

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Financial PlanningS.B. Mainak

Faculty MemberNational Insurance Academy


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INSTRUMENTS OF FINANCIAL PRODUCTS

RBI BONDS GOVERNMENT AGENCIES BONDS

SMALL SAVINGS INSTRUMENTS.

PUBLIC SECTOR BONDS.

BANK DEPOSITS.

BONDS/DEBENTURES OF CORPORATE ENTITIES ANDFINANCIAL INSTITUTIONS.

MUTUAL FUNDSDEBT/EQUITY/HYBRID.

EQUITY.

LIFE INSURANCE.

UNIT LINKED INSURANCE GOLD.

REAL ESTATE

POSTAL SAVINGS SCHEMES

ANNUITIES


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RISKRETURN PROFILERBI bonds Low risk medium return

Government agencies bonds Low risk medium return

Small savings instruments Low risk average return

Public sector bonds Relatively low risk avg.returns

Bank deposits Low risk low returns

Bonds/debentures of corporate entities and financialinstitutions

Medium risk high returns

Mutual funds debt/equity/hybrid Low to higher risk low to higher

Equity Highest risk highest return

Life insurance Lowest risk lower to high returns

Unit linked insurance Low to high risk- average to high returns

Gold Medium risk average returns

Real estate Medium risk- average returns

Postal savings schemes Low risk average return

Annuities Low risk & Average return


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FINANCIAL PLANNING

TRADE OF BETWEEN RISK AND RETURNS.

FINANCIAL POSITION OF THE INDIVIDUAL

AND THE MILESTONES PLANNED

FOR/OBLIGATIONS.

FUNDS MANAGEMENT

TAX PLANNING


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Income from Salary

Salary includes a fixed payment made periodically

by the employer to the employees.

The salary income is taxable in the hands ofemployees.

Salary includes salary received and salary in

arrears and advanced salary.

Salary includes perquisites as per section 17.


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Perquisites

Perquisites are taxable in case of specific

employees (Director).

Salary of Director any benefits given to theDirector

Perquisites are taxable in case of all the

employees


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Perquisites which are not taxable

Cost of medical treatment in a hospital orreimbursement of medical treatment

Reimbursement of medical expenses upto Rs.15,000/- per year on medical treatment of self andhis family.

Health insurance premium / mediclaim

Self promotion including publicity, gift,scholarship, club facility, use of health club andsimilar facilities, use of telephone, maintenance ofaccommodation in nature of guest house,

conference expenses


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Calculation of Gratuity under

payment of Gratuity Acta)Gratuity received

b) Maximum limit Rs. 3, 50,000/-

c) Formula = last salary drawn x 15/26 x

no. of completed years

Salary includes basic + D.A. Gratuity = (a)(c) subject to maximum

limit of Rs. 3, 50,000/-


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Income from House Property

Reasonable Lettable Value (RLV)

a) Fair rent

b) Municipal value

c) Higher of a) and b)

d) Standard rent

e) Lower of c) and d) = RLV\Reasonable Lettable Value (RLV) is called as

Annual Value


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Net Annual Value

Reasonable Lettable Value (RLV) (-)

Municipal taxes = Net Annual Value


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Calculation of House Property

Income Annual value (-) municipal tax = Net

Annual Value (-) 30% of NAV as standard

deduction under Sec. 24(a) (-) Interest onloan for property under sec. 24 (b)

All equal to Net income from house

Property


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Self Occupied Property

Annual value Nil (-) Interests on property

loan subject to maximum limit of Rs.

1,50,000/-


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Capital Gain Tax

Formula for long term capital gain =

Sale proceed (-) Indexed cost of acquisition

= Cost of acquisition x Cost Inflation Index

(CII) of the year of transfer / sale (/) CII of

the year of purchase

Long Term Capital Gain


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ULIP SCHEMES

Gilt Fund Schemes

Bond Fund Schemes

Balance Fund Schemes

Risk fund or Growth Fund Scheme


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Types of Investment

Money Market Instruments

Bond Market Investment

Equity Market Investment


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CONVENTIONAL VERSUS ULIP PRIMARILY LIFE INSURANCE.

LOWEST RISK -LOW TO HIGHRETURN.

RISK OF INVESTMENTMANAGED BY INSURER.

PREDICTABLE AND STABLERETURNS.

LESS TRANSPARENT.

INVESTMENT PATTERNSTATUTORILY PRESCRIBEDAND HENCE LESS FLEXIBLE.

LOWER FLEXIBILITY TOCUSTOMER FORWITHDRAWALS DURING THETERM.

IT IS BOTH LIFE INSURANCEPLUS INVESTMENT.

LOW TO HIGH RISK- AVERAGE

TO HIGH RETURNS. RISK OF INVESTMENT BORNE

BY CUSTOMER.

DEPENDING ON THE CHOICE OFFUND PREDICTABLE TO

UNPREDICTABLE RETURNS. MORE TRANSPARENT.

FLEXIBLE INVESTMENTPATTERN.

HIGHLY FLEXIBLE FOR THECUSTOMER TO WITHDRAWDURING THE TERM- PARTIAL

SURRENDER, SWITCHING.


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MUTUAL FUND VERSUS ULIP

ONLY INVESTMENT.

LOW TO HIGHER RISK

LOW TO HIGHERRETURNS.

VIEWED GENERALLYFROM SHORT TERM TOMEDIUM TERM

PERSPECTIVES. ONLY ELSSINVESTMENTQUALIFIES FOR TAXBENEFIT.

SHORT TERM (HELDFOR LESS THAN 12MONTHS) CAPITALGAINS IS TAXABLE.

INVESTMENT PLUSINSURANCE.

LOW TO HIGH RISK-AVERAGE TO HIGHRETURNS.

VIEWED FROM MEDIUMTO LONG TERMPERSPECTIVES

ALL ULIPS QUALIFYFOR TAX INCENTIVE.

AMOUNT RECEVED ONDEATH IS NOT TAXABLEIRRESPECTIVE OF THEPERIOD OF HOLDING.


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MUTUAL FUND VERSUS ULIP

AMOUNT RECEIVED ON

MATURITY UNDER LINKED

LIFE PRODUCTS AND

COMMUTED VALUE

RECEIVED UNDER PENSION

PRODUCT IS ALSO NOT

TAXABLE.

UNDER THE LINKED

PENSION PRODUCT ANNUITY

RECEIVED ONACCUMULATED AMOUNT ON

VESTING IS HOWEVER

TAXABLE.

LONG TERM CAPITAL

GAINS UNDER EQUITYSCHEME IS NOTTAXABLE.

LONG TERM CAPITALGAINS UNDER DEBTSCHEME IS TAXABLE AT

LOWER RATE.INDEXATION BENEFIT ISAVAILABLE.


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What are the Fees charged from ULIP Premium.

1. Administration Fees

2. Risk and Accident Benefit Premium.

3. Recoveries of Direct Expenses, Commission, ServiceTax.

4. Fund Management Fees

5. Switching Fees

6. Surrender Fees

List is illustrative Not Exhaustive.


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Various Money Market Instruments Call Money / Notice Call Money

Collatarised borrowing and Lending (CBLO) REPO

Term Money

Treasury Bills Commercial papers

Certificate of Deposits

Bills Rediscounting

Inter bank participation certificates

MIBOR linked investments

Money market mutual fund schemes


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BRIEF DESCRIPTION OF MONEY

MARKET INSTRUMENTS

CALL MONEY/ NOTICE MONEY:

It is the amount borrowed or lent on

demand for a very short period.

Normally one day. If the period is more than one day up to

30 days it is called as Notice money.

It is an unsecured form of lending.

It helps the banks to even out their day to

days deficit/ surpluses of money.


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CALL MONEY MARKET

Players in the market:

1. All commercial banks , Co-op banks and

Primary dealers are allowed to borrow andlent in the market.

2. Specified All India FI, Mutual funds,

Insurance Companies and certain specifiedentities are allowed only to lend.


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Repo Market

Agreement to repurchase the same securityafter a certain period at a predeterminedprice which is higher than sale price

Salient Features

PeriodNot exceeding 14 days

Collateral securitiesTreasury Bills,Institutional Bonds and G. secs.

SGL A/c and current A/c with RBI

Repo reported in NSE WDM segment


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COMMERCIAL PAPER

CP is a short term unsecured promissorynote with fixed maturity issued by wellrated Corporates to fund their working

Capital requirement. It is a discounted instrument.

Maturity period of 15 days to 1 year.

Interest on CP is determined by marketforces.

Certain guidelines of RBI needs to be

fulfilled for issuance of CP.


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MONEY MARKET MUTUAL

FUNDS These mutual fund invest the money in

liquid instruments as specified in the offer

document. The investor can withdraw money at any

time on notice.

Yield is attractive and better than Callmoney.

NAV market determined.


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COMPONENTS OF DEBT

MARKETS

Debt Market

Bonds issued by

Govt. Agencies

Electricity boards

Municipalities

Irrigation Authorities

State Road Transport

Corporation

National HighwayAuthority

Issued by

Corporates

Issued by Financial

Institution

Issued by PSU

Bond &

Debentures

Central Govt.Securities

Govt. Securities

State Govt.

Securities


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GOVT. SECURITIES

Features:

Fixed or Floating coupon payable semi

annually.

Zero coupon also issued

Bullet Repayment

Risk free investment- no default risk

Subject to interest risk/ price risk.


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GOVT. SECURITIES

Primary Market- Issuance Techniques:

---Auction: Price/ Yield Based

---- Private Placement with RBI

--- On tap issue

--- Conversion of Adhoc T- Bills/SpecialSecurities into Dated securities


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GOVT. SECURITIES

Secondary Market:

Trading by Participants

Open Market Operation By RBI


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Some Statistics on Debt Market

Outstanding Govt. Debt

Rs. In Crore

Central Govt. Deb. 1306201

State Govt. Debt 270726

Total 1576927

* Corporate Bonds Market 3,50,000


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BONDS & DEBENTURES

Issued By:

Govt. Agencies

PSU(Taxable & Non Taxable)

Public Financial Institutions

Private Corporate Sector


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EQUITY INVESTMENTS

Equity Investment would provide superiorreturns in the longer term.

Equity is high risk high return investment.

Equity Research allows the fund manager totake informed decisions.


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EQUITY MARKET

Total 5600 listed companies

Market Capitalisation of Rs. 6000000cr (approx.)

Sensex touched all time high of 21235 & low of7,660 during the year 2008.FII investment about 80000 CR till 31st December

2007 and Rs. (-) 65000 cr till 31.12.2008 and Rs.72000 cr during 2009


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OUTLOOK FOR EQUITY

MARKETS

Factors Affecting the Equity Markets:

Positive impact

Improved corporate earnings

Consistent Growth in GDP Stable Government

Negative impact

Global slowdown in growth Tightening in credit and equity market

following subprime crises in US

Moved towards deflation


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ECONOMY AT A GLANCE

FY06 FY07FY08

FY 09

REAL GDP (% CHG) 9.0 9.3 9.0 5.8

AGRICULTURE(% CHG) -3.6 6 4.5 2.6

INDUSTRIAL PRODUCTION

(%CHG) 8.4 8.2 9.0 5.0

SERVICE SECTOR(%CHG) 10 11 11.5 10.5

GDP Sectoral Trends


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GDP-Sectoral TrendsQ1 Q2 Q3 Q4

Agriculture & allied activities 3.2 2.8 -0.4 2.6

Agriculture 3 2.7 -0.8 2.7

Mining 4.6 3.7 4.9 1.6

Industry 6.1 6.3 2.1 1.4

Manufacture 5.5 5.1 0.9 -1.4Electricity, Gas & Water Supply 2.7 3.8 3.5 3.6

Construction 8.4 9.6 4.2 6.8

Services 10.2 9.8 10.2 8.6

Trade, hotels, transport & comm 13 12.1 5.9 6.3

Finance, insurance, realty 6.9 6.4 8.3 9.5

Community, social & persnl.serv. 8.2 9 22.5 12.5

GDP at factor cost 7.8 7.7 5.8 5.8


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ECONOMY AT A GLANCE(Contd)

FY06 FY07 FY08

INFLATION (%) 6.4 5.4 7.4

EXPORTS (%CHG) 30.7 23 25

IMPORTS (%CHG) 26.1 23.5 26

FDI INFLOWS ($BLN) 5.9 4.7 12

FII INFLOWS ($BLN) 9.3 12.5 75

FOREIGN EXCHANGERESERVE($BLN) 135.5 145.2 282

GDP GROWTH (% CHANGE)


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GDP GROWTH (% CHANGE)

Country Latest 2009

(E)

2010

(F)

USA - 2.6 - 2.9 1.4

Japan - 9.7 - 6.4 0.6

Britain - 4.1 - 3.7 0.3EuroArea - 4.6 - 3.7 0.3

Germany - 6.9 - 5.2 0.3

Brazil 1.3 - 1.5 2.7China 6.1 6.5 7.3

India 5.3 6.0 7.4

Source : The Economist , World Bank , BIS


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INDIAS EXPORTS

Year Value ($bn.) Growth (%)2001-02 43.82 - 1.66

2002-03 52.71 20.28

2003-04 63.84 21.11

2004-05 83.53 30.84

2005-06 103.09 23.30

2006-07 126.26 22.47

2007-08 163.12 28.35

2008-09 168.70 3.4

Source : RBI and Commerce Ministry


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FISCAL INDICATORS

2003-04 2008-9=09

Budget

Estimate

Revenue

Estimate

Budget

Estimate

Revenue

Estimate

Revenue Deficit* 4.10% 3.60 1.00 4.40

Fiscal Deficit* 5.60% 4.80 2.50 6.00

Primary Deficit* 1.10% 0.30 - 1.10 2.50

Subsidies** 44,907 44,323 71,431 1,29,243

Revenue

Expenditure**

3,66,227 3,62,074 6,58,119 8,03,446

*% to GDP **Rs. Crore


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STOCK EXCHANGE

1. Bombay Stock Exchange (BSE)

a) Daily average turn over of Rs 10000 cr

b) Sensex stocks contribute around 30% of marketcapitalisation

c) Sensex consisting of 30 stocks from 17 sectors

d) The index is calculated online at every 15seconds


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STOCK EXCHANGE

2. National Stock Exchange (NSE)

a) Daily average turn over Rs 20000 cr

b) Nifty stocks contribute around 40% of marketcapitalisation

c) Nifty consisting of 50 stocks from 22 sectors

d)The index is calculated online at every 15seconds


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Trading strategyLong term purchase

Short term purchase

Intraday trading

International trading


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Category of StocksSENSEX

NIFTY

A Group(BSE 200)

B1 stocks

B2 stocks

T stocksTrade to trade stock

S stocks


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Contd.,BSE-500

CNX500

Sectoral indices

Mid cap

Small cap

Illiquid stocks

Unlisted stocks


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Market Operation

Regular trading in cash market

Regular trading in derivative market

Futures

Options (Call and put)


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Inflow of Money

Bill discounting and rediscounting

Participatory Notes (P notes)

Stock mortgage

Stock lending


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Positively Performing Stock

Stocks 01/01/09 31/03/09 % change 30/9/2009Maruti 525 766 46% 1642

Sterlite 278 374 42% 740

M&M 279 385 38% 864Hero Honda 800 1085 36% 1675

SAIL 78 103 32% 168

GRASIM 1223 1607 31% 2775RIL 1240 1548 25% 2166

NALCO 190 239 25% 347

ACC 480 580 21% 814

Positively Performing Stock


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Positively Performing StockStocks 01/01/09 31/03/09 % change 30/09/09

CIPLA 183 219 20% 280

Tata Motr 158 189 20% 590

ONGC 675 808 20% 1186

Infosys 1125 1346 20% 2287

TCS 485 575 18% 613

GAIL 208 240 18% 361

Powergrid 83 95 15% 110

BHEL 1372 1551 13% 2272

CAIRN 175 194 11% 261

Sensex 9720 10048 3.50% 16852

Nift 2963 3108 4.90% 5006


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Negatively Performing Stock

Stocks 01/01/09 31/03/09 % change 30/09/09DLF 284 182 (-)36.00 426

Ranbaxy 253 164 (-)35.18 417

Rel Capitl 545 371 (-)31.80 906Suzlon 63 45 (-)28.00 96

Zee 140 106 (-)24.30 -

Rel Comm 228 183 (-)19.40 299PNB 534 441 (-)17.65 782

ICICI Bnk 455 385 (-)15.40 858

SBI 1294 1125 (-)13.08 2090


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Negatively Performing Stock

Stocks 01/01/09 31/03/09 % change 30/09/09HCL Tech 117 105 (-)11.00 322

L&T 777 680 (-)12.50 1647

Siemens 290 250 (-)13.80 551Unitech 41 36 (-)12.12 107

Bharti

Airtel

720 622 (-)13.62 419

Neutral Stock


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Neutral StockStocks 01/01/09 31/03/09 % change 30/09/09

Rel Petro 88 96 8.60 -

ITC 172 186 8.20 234

Wipro 236 253 7.20 582

HDFC 1495 1590 6.28 2764

Hindalco 5.2 55 5.76 126

Tata power 751 781 4.10 1307

Tata steel 218 223 2.33 504

Ambuja C 7050 71.50 1.42 99

Sun pharm 1070 1080 0.93 1390

NTPC 182 182 - 212

Idea 52.75 52.45 - 76

Neutral Stock


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Neutral Stock

Stocks 01/01/09 31/03/09 % change 30/09/09

HDFC Bnk 1007 996 -1.00 1609Rel Infra 585 567 -3.08 1204

HLL 251 240 -4.44 262

BPCL 377 365 -3.45 567ABB 456 420 -8.00 776

Rel Power 120 110 -8.35 167


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