This document discusses personal finance planning and management. It provides general rules for investing, such as that money makes money so it's important to start small savings. It then discusses various investment options in India like fixed deposits, stocks, mutual funds, insurance, real estate, and gold. Specific average returns for these options from 1979-2012 are presented. The concepts of risk and return are discussed, showing higher risk investments provide higher potential returns but more uncertainty. Overall guidelines provided include starting early, diversifying investments, reviewing portfolios periodically, and understanding that while money can enable opportunities and security, it does not directly buy happiness.
(Vedika) Low Rate Call Girls in Pune Call Now 8250077686 Pune Escorts 24x7
2013 managing personal finance
1. Personal Finance
Is it possible to pre-plan and manage it efficiently ?
RAM KUMAR KAKANI
LBSNAA MUSSOORIE
2. Why are personal finances important?
Absence/ shortage of money can lead to an acute sense of
insecurity
It can be a tremendous distraction from our normal work
Realization normally comes quite late
Thus, Clarity helps
9/23/2013RKK/LBSNAA
2
3. General Rules
Money makes money
When you have got a little, it is often easy to get more.
The great difficulty is to get that little – Adam Smith
from the Wealth of Nations
Therefore, what is important for us?
9/23/2013RKK/LBSNAA
3
6. A “Rs. 1” Investment in different types of portfolios: 1926-2011
(Year end 1925 = Rs. 1)
9/23/2013RKK/LBSNAA
7. Annual Average Returns in India:
1979-2012
Returns on Investment in …
Bank Savings 3%
Insurance 5%
Inflation 8%
Fixed Deposits/Bonds 12%
Shares of Large firms 17%
Shares of Small firms 22%
9/23/2013RKK/LBSNAA
7
8. Annual Average Returns in India:
1979-2012
Shares of Large Companies: 1 145 (33 years, 1979-2012)
Fixed Deposits (of private companies): 1 34 (33 years, 1979-2012)
Fixed Deposits of Banks: 1 17 (33 years, 1979-2012)
But, try looking at the yearly rates of return in each of the cases
The most fluctuating will be stocks i.e., stock returns vary widely over
time.
9/23/2013RKK/LBSNAA
8
9. Ratan Tata, Ram Kakani, Rickshawalla …
Expectedreturn
Risk
Ratan
Ram
Rickshawalla
Please note that
(a)“Risk” here is “Perceived Risk”
(b) “Expected Return” is NOT “Actual Return”
(c) “Investment Decisions” are made based on the “Expected Return”
10. Risk and Return ….
Expectedreturn
Risk
Insurance
PPF, FDs
Lottery Ticket
Please note that
(a) As Risk Increases “Actual Returns” significantly differ from “Expected
Returns”
(b) Thus, it is important to not get carried away by High Risk Instruments
Large Stocks
Inflation
Small Shares
11. Principles of Saving
Have just the right amount in liquid investment + Rest in long term
deposits/ investments
Do not let money be idle
Decide your saving goals and an apt asset allocation:
♦ risk profile (risk averse, balanced, aggressive) ♦ return expectation
♦ investment horizon ♦ financial goals
Avoid Asset-Liability mismatch
Retirement_Planning.xlsx
9/23/2013RKK/LBSNAA
11
12. Marketing by Financial Services Industry
– A Note of Caution
Flattery is praise insincerely given for an interested purpose HW
Beecher
Example 1: Ponzi Scheme
Example 2: Lottery Ticket
9/23/2013RKK/LBSNAA
12
13. What Multiplies MONEY?
The Power of Compounding
Money attracts money - strong brotherhood
Earn interest & interest on interest
The Early Bird Gets the Worm
Those who save early benefit more from compounding
9/23/2013RKK/LBSNAA
13
15. Investment Options
Fixed / Term Deposits and PPFs
Equity
Debt
Insurance
Mutual Funds (Equity / Balanced)
Real Estate
Precious Metals – Gold / Silver
9/23/2013RKK/LBSNAA
15
16. Insurance
Avoid investing in ‘investment’ type of insurance schemes …
in other words, prefer – pure risk instruments
Protection for the family
Compulsory regular savings
Tax Benefits
9/23/2013RKK/LBSNAA
16
17. Equity Markets – Getting Started
Start early and invest regularly
Stick to shares matching your risk profile (for example, if you are okay
with taking risk … then go for small/medium sized companies)
Liquidity is the single most important factor especially during volatile
periods
When there are gains, separate out money for taxes
There is no substitute to experience
Whenever you lose money, take stock of the reasons
9/23/2013RKK/LBSNAA
17
18. Equity Markets – Some Thumb Rules
Never invest in businesses you don’t understand
Avoid investments in companies with a shady management record
Understand a company’s financials and corporate characteristics
before investing
Invest when others are exiting / avoiding (bear sentiment)
Exit when others are investing (bull sentiment)
Be patient
9/23/2013RKK/LBSNAA
18
19. Advantages of Equity Investment
Capital appreciation
Annual Dividends
Loans against equity shares
Marketability of equity shares
Long term capital gains abolished
Shareholding in demat form
9/23/2013RKK/LBSNAA
19
20. Investing in Mutual Funds
Mutual Funds are investment conduits which pool the savings of many
individual investors and combine them into a fairly large and well
diversified portfolio of investments. Many types:
Equity
Balanced
Index
9/23/2013RKK/LBSNAA
20
21. Advantages of Mutual Funds
Expertise of professional management
Spread of risk
Freedom from emotional involvement
Automatic re-investment of dividends and capital gains
Liquidity
Freedom from housekeeping
Income tax exempt
9/23/2013RKK/LBSNAA
21
22. Public Provident Fund
Maturity for 15 years, 5 year extensions, up to a maximum of 30
years
Min. Rs. 500 p.a.; max Rs. 100,000 p.a.
8.8% interest rate (compounded annually)
Loan facility
Tax benefits - Maximum
9/23/2013RKK/LBSNAA
22
23. Real Estate
Plan in the next 4 to 9 years to have your own house or apartment
Investments in real estate are not liquid
Facilitates diversification of portfolio besides sense of security; may also
bring in rental income
Do not make investment on the basis of hype… time your entry
correctly
Avail loan from Govt. on easy terms
9/23/2013RKK/LBSNAA
23
24. Gold
The Annual Return (compounded) since 2000 works out to
16%
Has outperformed other asset classes in the last one
decade …
However, past need not reflect the future
Provides an excellent hedge against inflation
9/23/2013RKK/LBSNAA
24
26. Take homes
Every time you invest, clearly write down the reasons for the same
Cash (and to some extent precious metals) are the best (unwritten)
insurance products
Do not roll over your credit card bills
Never extend your investment portfolio beyond 10-15 products
(including Shares, Mutual Funds, Insurance, Real Estate etc.)
Review your portfolio – every quarter (not every day)
9/23/2013RKK/LBSNAA
26
27. Take homes
Never Put off financial planning
Appreciate the power of compounding
Never Live beyond your own means
Never invest (or blow up money) by borrowing
Do not rely too much on tips i.e., investment advisory services
Do not have unrealistic expectations
9/23/2013RKK/LBSNAA
27
28. Take homes
Never put more than one-fourth of your money in one investment
product
Never invest in avenues where you’re either not sure of the
business model or it’s too complicated
Never be a part of Ponzi Schemes, Pyramid Schemes, Lottery
Tickets etc.
Do you think money can buy you happiness?
My take … impossible
9/23/2013RKK/LBSNAA
28