investment planning for executives - sushil alewa
TRANSCRIPT
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Investment Planning for Executives
An initiative of SEBI & NISM
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Need for financial education
Deterioration of personal finances
Proliferation of new and complex
financial products
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Agenda
Introduction to financial
planning
Basics of savings and
investments
Choosing the rightinvestment options
Asset allocation strategy
Self portrait
Savings and investmentrelated products
Protection related
products
Borrowing related
products
Retirement planning
Planning finances to
become an entrepreneur
Understanding Ponzi
schemes Tax saving options
Purchasing financial
products
Advantages of financialeducation
Investor protection and
grievances redressal
mechanism
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Financial planning
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Basics of Savings and
Investment Savings
Short term
Value remains stable
Lower returns overlong term
Investing Long term
Value moves up and
down in short term
Potentially higher
returns over long
term
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Price of procrastination
Twin brothers: Anil and Sunil
Anil saved from the age 25 years till
35 years. He did not withdraw till 60
Sunil started saving at 35 years, but
continued till 60 years
Both saved Rs. 50,000 per year and
earned 10% p.a. on theirinvestments
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Price of procrastination
Twin brothers: Anil and Sunil
Amount accumulated at 60 years
Rs. 86 lacs
Rs. 49 lacs
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Ask yourself
Can you reduce your spending by10%
Put that money to work to fund your
future financial goals
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BUDGETING
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Benefits of budgeting Checks or balances to prevent
overspending
Unexpected need for funds
Discipline
Helps maintain standard of living
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Steps for budget planning Calculate your income
Determine your bill for essentials
Note down your total debts Determine your bill for non-essentials
Calculate your savings
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WHAT IS INFLATION?
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Effects of Inflation
Item Price in
2001-02
Price in
2009-10
Sugar (1 kg) Rs. 16 Rs. 40
Cooking oil (5 liters) Rs. 290 Rs. 500
Rice (1 kg) Rs. 14 Rs. 35
Petrol ( 1 liter) Rs. 33.46 Rs. 48.83
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Inflation Effects on Investments
InvestmentInitial investment Rs. 1,000
Interest on investment 5% p.a.
Value after a year Rs. 1,050
Inflation 6% p.a.
Your expenses after a year Rs. 1,060
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RISK AND RETURN
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Risk and Return
Risk and investing go hand in hand
Risk increases as the expected
potential return increases
No-risk, whats that?
Manage the risks
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Time Value of Money
The value of the money today is not thesame as it will be in the future
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The eighth wonder -
compounding Rs.1 lac invested @ 10%
Year Simple interest
@ 10% p.a.
Compound interest
@ 10% p.a.
1 1,10,000.00 1,10,000.002 1,20,000.00 1,21,000.00
3 1,30,000.00 1,33,100.00
4 1,40,000.00 1,46,410.00
5 1,50,000.00 1,61,051.00
20 3,00,000.00 6,72,749.99
25 3,50,000.00 10,83,470.59
30 4,00,000.00 17,44,940.23
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THE RULE OF 72
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CHOOSING THE RIGHTINVESTMENT OPTIONS
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Safety
ReturnsLiquidity
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ASSET ALLOCATIONSTRATEGY
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Assetallocation
Time frame
Risk tolerance
Personalcircumstances
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Self portrait
Assetallocation
Financialgoals
Assets
Estimatedfuture
expenses
Estimatedfuture
income
Liabilities
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THE PRODUCTS
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Savings & investment related
products Bank deposits Government schemes
Bonds / debentures
Company fixed deposits Mutual funds
Equity shares
Depository system
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Protection Related Products
Insurance Life insurance
Term life insurance
Endowment policies
Annuities / Pension plans
ULIPs
Health insurance
Comprehensive health insurance
Hospitalisation policy Critical illness plan
Specific condition coverage
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Borrowing Related Products
Personal loans Home loans
Reverse mortgage
Loan against securities
Credit card debt
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Steps to avoid excess debt
Set debt limits
Shop carefully for debts
Dont give into temptation
Automatically have money go towards
your bills
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Retirement Planning
Start early and retire peacefully Plan wisely
Track and review your plan
Dont dip into your retirementsavings
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Investment needed to create
retirement fund
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Finances for entrepreneurs
Understand financial needs of selfand business
Save money in job before jumping in
self employment Borrow from close relatives/ friends
on strict business terms, if required
Start groundwork while still in jobApply for loans from organisations
designed to fund SMEs
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Understanding Ponzi schemes
Ponzi schemes promise high returnsand low risk
Initial investors may get high
promised returns Money from initial investors is given
to new investors thus it is only
rotation of funds, not investment offunds
If its too good to be true its
probably not true. Its a Ponzi!
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Tax Saving Options
Section 80C gives rebate upto Rs.1,00,000 for select investments like
life insurance premiums, housing
loan principal, PPF, ELSS, etc. Long Term Capital Gains are not
taxable for equities
80D (medical insurance), 80G(donations) and 24D (Housing loan
interest repayment) are other
important sections
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Investment philosophies
Evaluate risk of every investment Decide the investment based on needs
Do not invest in any scheme that you do not
understand
Do not invest on trust. Have everything backed up bydocuments
Take into account tax implication of every income
Do not blindly follow market tips and rumours
Anything that appears unnaturally high or low will have
some catch disguised
Do not follow schemes where you may protect the
interest but lose the principal
Invest with knowledge after understanding the product
well
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PURCHASING FINANCIAL
PRODUCTS
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Selection of intermediary
Registration with regulator or a body
approved by regulator, e.g. AMFI or
stock exchange
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Steps to become securities market investor
Know Your Client (KYC) form anddocuments
PAN Card
Personal identification proofAddress proof
Demat accounts & trading accounts
required for equity investing
For investing in MF, demat is
optional
Ad t f Fi i l
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Advantages of Financial
Education
Helps build a secure financial future Prepared for financial emergencies
Protection from marketing gimmicks
Feeling a sense of accomplishment Disciplined approach to money
Awareness of questionable practices
Setting a good example for your family Benefit other aspects of your life
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Regulators
Various regulators in Indian financalmarkets are:
Securities & Exchange Board of India
(SEBI) Reserve Bank of India (RBI)
Forward Markets Commission (FMC)
Insurance Regulatory & Development
Authority (IRDA)
Ministry of Corporate Affairs (MCA)
Ministry of Finance (MoF)
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THANK YOU!