foundations of financial planning_overview&process

8/8/2019 Foundations of Financial Planning_overview&Process

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STC Chennaimetro

Foundations of Financial Planning :Foundations of Financial Planning :

Overview & ProcessOverview & Process


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Financial Planning

It is a plan for future needs, for meetingcontingencies and for regular inflow of

money when we do not have regular income

or require additional income, by savings or

investment during working life.


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Life Cycle Stages

Childhood

Youth

Old age Middle age


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Preparation for entry into the work force (Education)

Productive economic life (Employment)

Post retirement life (Elderly Life)

Stages In Economic Life


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SAVE FIRST SPEND NEXT

Normal way of savings for futureNormal way of savings for future

EarnEarn SpendSpend SaveSave philosophyphilosophy

Best Practice should beBest Practice should be

EarnEarn SaveSave SpendSpend philosophyphilosophy


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Why Save ?

Satisfying Life Cycle Needs.

For Financial Planning.


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Financial Needs1

. Contingency Fund.2. Education of Children.

3. Living Food, Cloth & shelter.

4. Marriage of Children.

5. Recreational Expenses.

6. Purchase of vehicle.

7. Owning a house.

8. Start in life for children

9. Medical Expenses.10. Festival Expenses

11. Wealth Creation for next generation.

12. Gift.

13. Jewelry.

14. Recreational Expenses.

15. World Tour.

16. Pension.

17. Maintaining New Style of Life.18. Clearing Debts.

19. Last rites..

20. Caring of parents

21. Repairs & maintenance

22. Salary to servants

23. Donations

24. --------------


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Financial planning

What is Financial planning?

Financial planning is the process of achieving goals and

objectives through proper management of income.

Steps for Financial Planning.1.Understanding Financial Needs.

2.Determine where you are now.

3.Decide Where you want to reach.

4.Decide your goals and objectives.

5.Develop appropriate Investment Strategy.


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Basics of Financial Planning

Income (Revenue)

Needs (Expense)

Willingness to take risk(Investment)

Capacity to pay (Disposable Income)


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Financial Needs

Financial Needs depend upon

1.Life Cycle Stages.

2.Family Situations.

3.Health.

4.Income and Status. (L

ife Style)5.Emotional Needs. (Unforeseen contingencies)


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Earning & spending years in

life

8

Earning Years & Spending Years in Life

Living Years in Life 80

Earning Years in Life 35

Spending Years in Life 55

Need to Save for Emergencies

Need to Insure Against uncertainties

Need to Invest For Wealth Creation


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PRIORITY OF PEOPLE

People in general have Little

Knowledge of prioritization of their

needs


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Most People Prioritize Investments This

WayLand, Property, Gold

Fixed Deposits, Small Savings

Mutual Funds,

Bonds & Shares

Life

Insurance

Decreasing Priority


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Whereas The Priority Should Be

Protection :

Life Insurance against unpredictable events

Liquidity:

Fixed Deposits, Small Savings

Mutual Funds,

Bonds & Shares

Land,

Property

Gold

Decreasing Priority


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Abraham

Maslow


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Maslows Hierarchy of Needs

Needs:

-Perceived as necessary to survival

-Sell fear Show them how your product will avoid a

loss or reduce their pain

Self-Actualization

Esteem

Social

Safety

Physiological

Key Messages to Use in Advertising Campaigns

Wants:

-Perceived as important tosatisfy ego

-Sell greed Show them

how your product will

enhance their lives, get them

more they require.


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Life Insurance-

It can be used for a number of needs including

family protection,business planning,

supplemental income and

estate and charitable planning.


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L I C

We have plans for allStages of life


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Advantages of life insurance policy.

1.It creates an estate.

2.It encourages thrift.

3.Can be used as a gift to near or dear

4.Can be used as a collateral security for housing loan.

5.Can be assigned as security for loan. Transfer of property through lifeinsurance policy does not attract any stamp duty.

6.The proceeds are not liable for income tax.

7.Settlement of claim under insurance policy is very simple.

8.Safe investment as it is governed by IRDA regulations.

9.Life insurance policies are available from very short to very longduration.

10 .Economically weaker sections can also benefit through GroupInsurance Schemes of the GOVT.

11. Funds generated by insurance companies are utilized forinfrastructure development in the country.


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HUMAN LIFE VALUE

SolomonS. Huebners work was focused on

the advancement of insurance education.

Miles M Dawson states:

There is nothing more uncertain than life and nothing more certain than

LIFE INSURANCE.

A person has to play many roles and each role entails differentemotions.

When the person is not there, he leaves a vacuum, thisvacuum is both EMOTIONAL as well as ECONOMIC

E.g.. the vacuum of a husband for a wife can not be replaced

similarly the vacuum of a father can not be made good by anotherperson

.

Solomon S.Huebner


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WHAT IS HLV?

Each persons worth can be measured economically as

he is an Estate for the family. ( HLV )

The vacuum of economic needs created by the absence of the

bread winner can be made good through the concept of life

insurance but emotional gap will exist forever.

Human Life Value is that amount which ensures that the

standard of living of a family is not affected even if the earning

member is not there or not able to earn.

With the increase in earnings & Price rise (Inflation) the HLV of

bread-winner goes up and the necessity to review and increase

Life Insurance Cover arises.


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OBJECT OF LIFE

INSURANCE

Bread winner dies, Bread must continue it

can be further expanded to say that familyshould be able to live in the same way as if

bread-winner were alive.


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Steps to calculate HLV

Annual Earning Method

1. Estimate present gross annual earnings

2. Identify deductions3. Arrive at net annual earnings

4. Estimate amount for self maintenance

5. Net contribution to family (3 4)

6. Add to (5) average future increase in annual earnings

over remaining work span


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Calculation of HL

V For Example: If a person is likely to earn Rs.7 Lakhs p.a. for the rest of

his working life and is likely to spend 40% on himself and to pay tax,

to go to work etc.,

The familys financial benefit for the individual is Rs.7,00,000 2, 0,000 = Rs. 4,20,000.

In the event of absence of the bread winner, the family stands to lose

Rs. 4,20,000 and more when inflation rate goes up.

He must make provision which will yield Rs.4.2 Lakhs p.a. at existing

bank rate ie., 7%


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Formula for calculation of HLV

Indispensable Income X100 = HLV

Rate of Interest

4,20,000 x 100 = 60 Lakhs

7


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Fixing Needs with Insurance and Investment

These are a few examples.You may suggest any number of

such packages to your clients based

on their financial needs andamount available for investment.


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AGE 25Sl No Plan &

T

er

m

BENEFITS

Name of the plan Premium Risk SA Maturity SA Bonus F A B Remarks

1 Whole Life 5-15 7,075 2,00,000 2,00,000 5,51,100 6,40,000

2 Jeevan Tarang 17 -20 10,044 2,00,000 2,00,000 1,92,000 30,000 (LA)

3 Market Plus- I 191-20 5,000 1,00,000 4,00,000 *

4 Jeevan Chaya 103-20 4,42 1,00,000 1,00,000

5 Jeevan Anand 149-21 10,370 2,00,000 2,00,000

6 Amulya Jeevan 190-35 7,350 25,00,000 NIL

7 Jeevan Mitra 133-30 7,60 6,00,000 2,00,000

Health Protection + 902 6,000

69,135 41,00,000 12,25,000


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AGE 30 YEARS

Sl No Plan &Term

Name of the plan Premium Risk SA BENEFITS Remarks

Maturity SA Bonus F A B

1 WholeL

ife 5-15 7, 99 2,00,000 2,00,0005,55,600 6,40,000 277 + 3200

2 Jeevan Tarang 17 -20 10,044 2,00,000 2,00,000 1,92,000 32,000 4

3 Market Plus- I 191-20 5,000 1,00,000 1,00,000 NAV 13.5 EXPC GR30

4 Jeevan Chaya 103-20 5,490 2,00,000 2,00,000 LA 150

5 Jeevan Anand 149-21 10,690 2,00,000 2,00,000 45

6 Amulya Jeevan 190-30 ,400 25,00,000 NIL --

7 Jeevan Mitra 133-30 ,627 6,00,000 2,00,000 50


69,135 41,00,000 12,25,000


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AGE 35Sl No Plan &

Ter

mName of the plan Premium Risk SA BENE FITS Remarks


1 Whole Life 5-15 , 9 2,00,000 2,00,000 5,39,300 6,40,000 2696.50 + 3200

2 Jeevan Tarang 17 -20 10,044 2,00,000 2,00,000 1,92,000 30,000 4

3 Market Plus- I 191-20 5,000 1,00,000 1,00,000 NAV 13.5 EXPC GR30

4 Jeevan Chaya 103-20 11,372 2,00,000 2,00,000 LA 150

5 Jeevan Anand 149-21 10,370 2,00,000 2,00,000 45

6 Amulya Jeevan 190-25 9,925 25,00,000 NIL --

7 Jeevan Mitra 133-30 10,266 6,00,000 2,00,000 50


69,135 41,00,000 12,25,000


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AGE 40Sl No Plan &

T

e

r

m

Name of the plan Premiu

m

Risk SA BENEFITS Remarks


1 Whole Life 5-15 10,0 2 2,00,000 2,00,000 5,16,500 6,40,000 25 2.50 + 3200

2 Jeevan Tarang 17 -20 10,044 2,00,000 2,00,000 1,92,000 30,000 4

3 Market Plus- I 191-20 5,000 1,00,000 Fund Value NAV 13.5 EXPC GR30

4 Jeevan Chaya 103-20 11,372 2,00,000 2,00,000 LA 150

5 Jeevan Anand 149-21 10,370 2,00,000 2,00,000 45

6 Amulya Jeevan 190-25 9,925 25,00,000 NIL --

7 Jeevan Mitra 133-30 10,266 6,00,000 2,00,000 50

Health Protection

+

902 6,000

69,135 41,00,000 12,25,000


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10% OF THE GROSS ANNUAL INCOME =

7,00,000X 10% = Rs.70,000.

20% OF THE INVESTIBLE FUND =

7,00,000X20%= Rs1,40,000.

10% 70,000 20% 1,40,000

Allocation of funds for Insurance and

Investment


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Need forFinancial Planner

low appetite for career and finance riskslow appetite for career and finance risks

Capital preservation was major concern.Capital preservation was major concern.

Only 10 % of Indians are covered by any form ofOnly 10 % of Indians are covered by any form ofpension scheme .pension scheme .

Less number of professional advisory planner orLess number of professional advisory planner orinvestment advisorinvestment advisor


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Need forFinancial Planner

There is less effort to raise public awareness of theThere is less effort to raise public awareness of the

importance of financial planning early on life and howimportance of financial planning early on life and how

financial professional add value to protection of financialfinancial professional add value to protection of financial

protection.protection.


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How much surplus does an averagehouse hold generate ?

20% of Income goes to Tax Department

50% of Income goes to Banks as EMI (Car which is now replacedevery 5 years, 20 year housing loans, Other Consumer electronicslike Television, microwave, Mobilephone, washing machine, A/c,Personal Computers, Vacuum cleaners all these have to bereplaced every 3-5 years)

30% (This could also be higher which may lead to deficit) Household expenses (House maintenance, Electricity, Water, Gas, Fuel,Grocery, Servant Maid, Telephone Bill, Cable Bill, Broad Band

Bill, Mobile bills) Credit Card Bills (For eating out, apparels, entertainment,

holidays ) - Rolled over and debts get accumulated

So where is the surplus left forLife Insurance, Medical Insurance,Investments ?


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Generate Surplus

If you want your client to buy insurancepolices or investment products, you nowneed to generate surplus for them

- First step in financial planning


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How can you generate surplus ?

Look at every financial decisions made byyour client Should be having so much loan?

Is he paying the right amount of EMI for the loan? Is there a way reduce EMI burden ?

How many of the financial decisions are rational

Is he paying the right amount of tax ? Can the tax liability

be reduced further ? Is there a scope to reduce house hold expenses ?

Where is the opportunity to reduce expenses withoutcompromising the quality of lifestyle?


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Surplus Generation

There is no single solution Each one of your

client will need a different solution to generatesurplus

- This where you can show your creativity andbuild relationship with client.

..\..\My Documents\DispIncome.xls


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Attempt to Generate Surplus

How many of you have attempted to generatesurplus for your client ?

How many of you have succeeded ?


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Let us now understand financial literacyLet us now understand financial literacyFinancial Literacy means :Financial Literacy means :

the ability to makethe ability to make informed and rationalinformed and rational(not emotional) decisions(not emotional) decisions

taketake effective actionseffective actions regarding the currentregarding the currentand future use and management of money.and future use and management of money.

Invest according to aInvest according to a goal measured ingoal measured interms of moneyterms of money such as saving forsuch as saving for

retirement, fund for marriage etc.retirement, fund for marriage etc.

Get prepared for adverse eventsGet prepared for adverse events like salarylike salarycut or job loss (current scenario)cut or job loss (current scenario)


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Our future financial security lies in ourOur future financial security lies in our

handhandDifferent financial decisions are:Different financial decisions are:

BudgetingBudgeting

Tax planningTax planning

Insurance planningInsurance planning

Managing credit wiselyManaging credit wisely

EMI and debt ManagementEMI and debt Management

Savings for retirementSavings for retirement

Planning our own resources for short andPlanning our own resources for short andlong term goalslong term goals


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The real differentiator ofThe real differentiator of

customercustomer centricity in a commoditised worldcentricity in a commoditised world

of financial productsof financial products --

providing advise and helping clients to makeproviding advise and helping clients to make

right financial decisionright financial decision

So What Next, who is going to win theSo What Next, who is going to win the

trust of the customer ?trust of the customer ?


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Confidential

Financial MathematicsFinancial Mathematics


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lets understand how money

works better

So that we dont get into debt trap


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Learning OutcomesLearning Outcomes

This session covers concepts related to Time Value of Money using

MS-Excel. By the end of the course the participant should be able to:

draw a timeline andplot cash flows on the same.

understandthe cash flow sign convention.

identify the correct financial formula and input values into the same in

order to solve Time Value of Money (TVM) problems requiring

calculation of Present Value (PV), Future Value (FV), Rate (i), Number

of Compounding Periods (nper), Internal Rate of Return (IRR), Net

Present Value (NPV).


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Introduction to TVM CalculationsIntroduction to TVM Calculations

Using MSUsing MS --ExcelExcel

TVMTerminology & Notations in MS Excel:

FV: Future Value

PV: Present Value

Rate: Rate of Return

PMT: Annuity payments or constant periodic cash flow.

NPER: Compounding Periods

NPV: Net Present Value

IRR:I

nternal Rate of ReturnType: Identifies timing of the payment. 0 or omitted if at the end and 1 ifat the beginning.


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Option 1 Option 2

TimeValueof Money(TVM)TimeValueof Money(TVM) The concept of Time Value of money is basedon the premise that

money available in the present time is worth more than the same

amount in the future primarily due to its earning capacity in the future.

Some key assumptions in TVM: Money earns positive rate of return

Any amount of money is worth more the sooner it is received

Interest on Interest

So What Makes You Happy?

Rs. 1000TODAY

Rs. 1000TOMORROW


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For money to have Time Value it must be possible to invest it at a positive

rate of return.

Compound Interest Deeply embedded into TVM.

Concept of Interest on Interest. TVM concepts most commonly used to calculate Present Value (PV) and

Future Value (FV) of an investments cash flows.

TVM allows us to compare investment alternatives by measuring their cash

flows at some common point in time:

At the end of the investment horizon FV is computed using a method called

Compounding.

At the start of the investment horizon PV is computed using a method called

Discounting.

TimeValueof Money(TVM)TimeValueof Money(TVM)Contd.Contd.


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Confidential

Introduction to TimelineIntroduction to Timeline What is a Timeline?

A timeline is a graphical depiction of th e cash flow s in a time value of money

situation.

0 3 4 521

300 400 500200100

PresentValue (PV) FutureValue (FV)

Payment (PMT)

0 3 4 521

300 400 500200100

0 3 4 521

300 400 500200100

PresentValue (PV) FutureValue (FV)

Payment (PMT)

Keep these in mind:

Draw timeline fora TVM problem to identify the correct cash flow timing.

Endofone period is the beginningofanotherperiod.

Use Discounting methodto calculate PVand Compounding methodforFV.

Cashoutflows (payments)are assignedanegative (-) signwhile cash inflows are

assigned positive sign (+).


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Cash Flow Sign ConventionCash Flow Sign Convention

The Cash Flow Sign Convention signifies

the direction of the cash flow in a TVM

problem.

It uses positive and negative numbers for

cash inflows and outflows, respectively. Failure to adhere to the convention will

result in incorrect answers from the

spreadsheet.

0 3 4 521

300 400 500200100

PresentValue (PV)

FutureValue (FV)

Payment (PMT)

0 3 4 521

300 400 500200100

0 3 4 521

300 400 500200100

PresentValue (PV)

FutureValue (FV)

Payment (PMT) Always use a Positive (+) sign for all

cash Inflows and use a Negative (-)

sign for all cash Outflows regardless of

their timing (PV or FV).

++/-- --/++

Excel Example:A bond pays a coupon of 20% annually withinterest paid quarterly. The bonds durationis five years. The Yield is 25%. Find itscurrent price assuming Face Value of 1000.

++/--


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Present Value (PV)Present Value (PV)

The current worth of future sum of money or stream of cash flows

given a specifiedrate of return.

CalculatingPV in MS Excel:

PV =(1+RATE/N)NPER

FV

=PV(rate, nper, pmt, [fv], [type])


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ConfidentialPV = ? 100

What is the present value (PV) of Rs.100 due in 3

years, if interest rate = 10%?

Finding the PV of a cash flow or series of

cash flows when compound interest is applied

is called discounting (the reverse ofcompounding).

The PV shows the value of cash flows in

terms of todays purchasing power.

0 1 2 3

10%


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Future Value (FV)Future Value (FV) The value of an asset or cash at a specifieddate in the future that

is equivalent in value to a specifiedsum today

Calculating FV in MS Excel:

FV = PV x (1+RATE/N)NPER

=FV(rate, nper, pmt, [pv], [type])


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Solving forFV:

The Concept After 1 year:

FV1 = PV ( 1 + i )

After 2 years: FV2 = PV ( 1 + i )

2

After 3 years:

F

V3 = PV ( 1 + i )

3

After n years (general case):

FVn = PV ( 1 + i )n


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Illustration

Geeta invests Rs. 2000 at the end

of each month for 4 months. Her

rate of return is % p.a. Theinvestments value at the end of

the said period will amount to

___________.


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Always remember rule of 72!Helps you to approximately calculate number years it takes

to double your money given the rate of interest..

OrHelps you to calculate the interest rate required to double

your money given the number of years

Answer:

If interest rate is r then it will require 72/r years to doublethe money

Check out this few examples


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Confidential

How many years will it take for

sum of Rs.10,000/= to become

Rs. 40,000/= assuming that theamount is invested in a Bank

deposit paying 9% interest


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Apply rule of 72!

Number of years to double the money

72/r where r is the rate of interest Hence

It will take 72/9 = years for the money tobecome 20,000

And another years for 20,000 to become40,000

So a total of 16 years @ 9% for Rs 10,000 tobecome Rs 40,000


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What is the rate of interest offered

by National Savings certificate

which promises to offer double the

money in .5 years?


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Applying the rule of 72!

Rate of Interest for doubling the money

72/n where n is number of years

Hence rate of interest offered by NSC

72/ .5 = .47%


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If Ashish has been regularly investingRs.10,000 at the beginning of every year

for the past 10 years, into an investment

earning 10 % rate of return, what is thevalue of the investment now?

These are the real life situations thatwe face every day


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What you should really know

Be comfortable with following functions in

Spread Sheet orFinancial Calculator

PV, FV, PMT, NPV, Power, NPER, RATE

Understand when to apply which function

The mathematical concept behind these

function


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TheF

irst Thing you should do

Draw a time line


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Time lines

Show the timing of cash flows.

Tick marks occur at the end of periods, so Time0 is today; Time 1 is the end of the first period

(year, month, etc.) or the beginning of the

second period.

CF0 CF1 CF3CF2

0 1 2 3

i%


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Drawing time lines: Example

-10000 ?-10000

0 1 9 10i% =10%

Length of the period = 1 year

10,000 at the beginning of every year for 10 yearscan be represented as

100

0 1 2

i%

Going back to the example

-10000


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Components of Time line chart

Beginning of period (mostly 0 marked by a tick)

End of Period (10 years in this case)

Rate of interest i=10% Length of the each period = 1 year

Most important note: the interest rate first has to be normalised to the

duration of the period, for e.g if the length of period is semi-annual

then interest = (10/2) or 5% else if duration of the period is monthly

then interest rate has to be 10/12 or 0. 33%

Equal payments (out flow must be marked with -, and inflow must me

marked with +), in this case (-10,000)


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After drawing the timeline Understand what is to be computed

Is it FV (Future Value)? (Value at the end of the last tick)

Is it PV (Present Value) (Value at the beginning of the first tick)

Is it PMT (equated payments) (value happening at every tick)

Is it NPER (Periods required to create certain sum of money or

repay loan? (number of gaps between ticks)

Is it rate (to find the rate of interest you are paying or receiving)?

(the interest rate normalised based on the length of the period)


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What is to be calculated?

-10000 ?-10000

0 1 9 10i% =10%

Length of the period = 1 year

10,000 at the beginning of every year for 10 yearscan be represented as


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What is the future value (FV) of yearly investment of

Rs 10000 after 10 years invested at the beginning ofevery year, if interest rate is = 10%?

So, what we need to find is FV

What we have is PV = which is payment at the beginning of the period 0

NPER = 10 (10 years)

Rate = 10%

PMT = -10000 (equal payments going out of pocket at every

tick)

Note: here we need to understand Type which is nothing but

if the outflow or inflow is happening at beginning of the period

is 1 and inflow or out flow happening at end of the period is

0


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Solving forFV

Using the XL Spread Sheet

Use FV function

rate = 10% nper = 10

Pmt = -1000

PV = 0

Type = 1 (since it is in the beginning of the period) Ans: Rs 175,310


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Lets solve

Steps involved

Draw the time line

How many ticks ?

49 ticks 0 to 4 (This is nothing but NPER)

Value at the beginning of the tick 0 (PV)

Value at the beginning of the every tick till 4 th tick (-2000), this isnothing but PMT

What is the interest rate normalized to length of the period? RATE= %/12 =0.0067%

What is type ? Type = 0 since payment is at the end of the period Lets find out FV using spread sheet

Answer: 1,12,700


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What is the PV of this uneven

cash flow stream?

0

100

1

300

2

300

310%

-50

4

90.91

247.93

225.39-34.15530.08 = PV


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Net Present Value (NPV)Net Present Value (NPV)

Net Present Value or NPV is the difference between the present

value of the cash inflows and the present value of the cash outflows.

Calculating NPV in MS Excel:

=NPV lu 1 lu 2


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Use NPV

Rate: 10%

Value 1: 100 Value 2: 300

Value 3: 300

Value 4: -50


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The Power of Compound Interest

A 20-year-old student wants to start saving forretirement. She plans to save Rs 10 a day. Every

day, she puts Rs 10 in her drawer. At the end ofthe year, she invests the accumulated savings (Rs3650) in an online stock account. The stockaccount has an expected annual return of 15%.

How much money will she have when she is 65years old?


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Using FV function

Rs 1,09, ,41

More than 1Cr..

Rs 3000 a year getting you morethan Rs 1Cr!!!


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Frequency of Compounding

Annually, Quarterly, Monthly, daily

etc


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Effective Interest Rate

10% compounded annually is 10%

If compounded half-yearly is 10.25%(how?)

If compounded quarterly is 10.3 %

If compounded monthly is 10.47% If compounded daily is 10.52%


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PMT -F

unction

Used for calculating equal instalments

Or reverselyFor calculating monthly savings required to

build corpus of amount


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Ravi Sharma has lent his brother

40,000. The loan is to be paid in

annual equal instalments over the

next five years at an annualinterest rate %. What is the

amount that Ravi Sharma will

receive at the end of each year?


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L

ets solve

Steps Draw time line

How many ticks ? 0,1,2,3,4,5 What is the duration of each tick ? yearly

What is the value occurring at the beginning of tick0: Rs 40,000

What is the value occurring at tick 5 : 0

What is the normalized interest rate: %

What is the payment occurring at every tick ? Dontknow and this is what we need to find..


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EMI Calculation Use PMT

Rate: %

Nper: 5

PV : 40000

FV: 0

Type:0 Answer: 10,01


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Summary Rule of 72 Understanding of PV, FV, NPER, RATE, PMT

Power of compounding

Solving for money problems Draw time line

Find out no. of ticks (NPER = no.of ticks-1)

Payment happening at beginning of the tick, at each

tick, at the end of each tick (at the beginning PV, ateach tick PMT, at the end of the tickFV)

Type

Interest rate normalized to duration of each period


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When to use which formula

Present Value To calculate the lump sum amount you need to invest today to meet some goal

in the future

To calculate the loan outstanding as of today for which you are paying a

monthly installment

Future Value To calculate the total amount that you will receive after some time

The amount can be invested either lump sum or equal amount every month

To calculate cost of your living or maintenance expenses at a future date

adjusting for inflation

Net Present Value

Todays Value of uneven cash flows which will be received every year in the

future

PMT

Equated monthly instalments for loans taken

Equated monthly investments required to meet a financial goal


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CAPITAL NEED ANALYSIS

Capital Need Analysis is truly a modern

process of measuring financial needs and

presenting sound solution. It provides anorganized base of high level professional

counseling.

CNA System addresses to the problem ofIncome erosion due to inflation.


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HOW MUCH IS THE NEED

People at work: While we are working, we

can hope that our income increases to

keep pace with inflation. Money at work: When we are no longer

working, adequate capital must be

available and invested in such a way thatthe income which it produces will keep

pace with inflation.


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HOW CAN INCOME KEEP PACE

Allow for reinvestment of part of the

income produced. The portion reinvested

should equal the expected annual inflationrate.

The remaining flow of income must be

adequate for the surviving familys needs.


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