Industrial training on Finance for Non Finance Executives

1. By:
Dr.GopalKrishnaRathore
AssociateProfessor,
SchoolofManagement,
OPJindalUniversity,Raigarh(C.G.)
Training on Financefor Non-
FinanceExecutives

2. Contents of discussion
Personal Finance
• Income Planning
• Goal Setting
• Emergency Fund Building
• Income Tax Planning
• Loan Management
• Retirement Planning
Corporate Finance
• Financial Management
• Basics of GST
• Indian Financial system
• Financial Statement Analysis
of the company.

4. Personal Finance
In general, it tells
people how to
achieve one’s
financial goals
through better
management of
income, expenses,
and savings is
known as
Personal Finance.

5. Personal Finance
Sources
• Income Planning
• Loan management
• Emergency Fund
management
Uses
• Expense budgeting and
its tracking
• Setting up goals
• Income Tax Planning
• Investment planning
• Retirement Planning

6. 1. Income planning

7. Will you Invest the money for
Monthly income?
Or
Invest for Growth ?
Question ?

8. Income Vs Growth

9. Benefits of Income Investing
• Alternative Income
• Consistent Returns
• Real Returns
• Short Term Income
How to get monthly income
from investments?
Ans- By accumulating such
assets which can yield
frequent & consistent returns
like SIP etc.

10. Systematic Investment Plan (SIP)
SIP is an investment strategy
offered by. It is a convenient
process of investment wherein
the investors can invest a fixed
sum of money regularly in their
mutual funds.

11. Example
An investor wants to accumulate a corpus of INR 25 lakhs in 10 years. He has an option to invest in
a regular SIP and in a top-up SIP. Let’s see the returns and SIP amount needed in the case of a
regular SIP and a step-up SIP. Let us assume he tops up his SIP by 10% each year.
Regular SIP
Investment: INR 5,000 a month
Tenure: 10 years or 120 months
Total investment: INR 6,00,000
Expected return: 12% per annum
Expected maturity corpus: INR 11,61,695
Return: INR 5,61,695
Step-up SIP or Top up SIP
Investment: INR 5,000 a month
Tenure: 10 years or 120 months
Total investment: INR 9,56,148
Expected return: 12% per annum
Expected maturity corpus: INR 16,87,163
Return: INR 7,31,015

12. Combining Growth & Income Investing
Instead of directly buying ‘income assets’, buy ‘growth assets’ first. See
the typical representation shown above.

13. What is represented in the above flow chart is this:
#1. Start: First start building a growth portfolio. Buy equity regularly. The best
way to do it? SIP in equity based mutual funds. Keep contributing to this SIP
long enough. Read: SIPs in Mutual Funds.
#2. Book Profits: Let this equity keep accumulating return for 3-4 years
minimum. When you can see a sizeable capital appreciation, book profits.
Read: investing for beginners.
#3. Buy Income Assets: This is the end goal – buying income generating
assets. It is at this step that monthly income from investments will start to drip
in. Read: how to remove salary dependency.

14. Question?
Q.1 What is the benefit of following this long loop?
Ans - Because this way the overall yield of the investment
will improved.
2. Which assets to buy to build income based portfolio?

15. Assets That Generate Income
• Fixed Deposits (FD): (1.85% to 7%)
• P.O. Monthly Income Scheme (POMIS): (7.4%)
• Mutual Fund’s Monthly Income Plans (MIPs): (15% to 30%)
• Company Deposits (7.75% to 8.5 % )
• Bonds (Non Cumulative): (Coupon Rate 8% to 10.75%)
• Annuity (5%)
• Income post retirement schemes (70 to 80 percent of your total
salary after retirement)
• Real Estate: (9% in 20 Years)
• Reverse Mortgage:
• Dividend Paying Mutual Funds:
• High-Interest Saving A/c: (3 % to 3.5%)

16. Start investing for monthly income: Fix A Goal
Q. What should be the
goal?
Ans- My favourite is
this: “reduction of
dependency on
salary“.
Example -

17. Ask difficult questions…
Imagine that there will be
no salary from next month
• How to pay bills?
• Fuel car?
• How to pay EMIs?

18. Think and Invest Differently
People generally invest with an
idea to buy low and sell
high (capital appreciation –
growth).
What is the difference?
• In growth investing – focus
in on returns.
• In income investing – focus
is on asset accumulation.

19. Person 1: Has an investment
portfolio size of Rs.1.5 Crore. This
portfolio can generate income @8%
p.a. to yield a passive income of
Rs.100,000 per month. As passive
income is taking care of full
expense requirement, hence
person 1 is financially free.
Person 2: Has an investment
portfolio of size Rs.75 Lakhs. This
portfolio can generate income @8%
p.a. to yield a passive income of
Rs.50,000 per month. As passive
income is taking care of only 50%
expense, hence the person is still
50% dependent on salary from job.
Read more about financial planning
in first job.
Examples - The expense of the person 1 and 2 is Rs.100,000 per month.

20. Size of Portfolio & ‘Monthly Income From
Investments’

21. Visualize Investment Portfolio Like a Big Tank of
water
Higher is the level of water in tank,
longer one can draw-out water.
• Water in tank represents assets in
portfolio. Higher water level means
more assets.
• Dripping water from tank
represents ‘income’.
• The time for which water will
continue to drip is dependent on
the height of the water column
inside the tank.
• In order to strengthen the asset
column, investors shall keep adding
income generating assets.
• Selection of right income
generating options is also a key.
Investment portfolio can be imagined like a ‘big tank’ of
water.

22. Conclusion
• For a beginner, if the objective is to get monthly income from investment, the
best starting point will be, investment in fixed deposits.
• First, these bank deposits are super safe. Secondly, in the backdrop of safe
investment, they can also give a feel of ‘monthly income’ to its investors.
• Once a person becomes comfortable with incomes coming out of FD’s the next
step can be mutual fund’s MIP’s.
• Select a suitable “Regular Savings Plans”. Check this for example.
• Post Office MIS, Company Deposits and Government Bonds (non-cumulative) can
be also be added in the portfolio with time.
• For more experienced income-investors, REITs, Rental property and Annuity can
be the next additions.

23. 2. Goal Based Investing
• Why are you investing?
• Invest money to have the right
amount of funds at the time of
“need.”
• Why Practicing Goal Based
Investing is Essential For Small
Investors?
• Here the “need” is the financial
goal.

24. Identify and Phase The Financial Goals
This is the time when one should
start listing the priorities of life.
These are such priorities that are
mainly capital intensive. Few
examples of typical priorities are
mentioned in the above
infographics.

25. 1. Building An Emergency Fund
The composition of an
emergency fund consists
of two types of financial
instruments –
• Cash- (At least 6 times of
Monthly Expences)
• Insurance (Next)

26. Emergency Fund

27. Arrangements of Emergency Fund

28. • . Life Insurance: • Liquid Cash

29. • Medical Insurance: • Motor Insurance:

30. Property Insurance

31. How to Build Emergency Fund?

32. My ways of keeping the cash:
• Piggy Bank (10%)
• Savings Account (20%)
• Fixed Deposit (30%)
• Gold ETF (20%)
• Money Market Mutual Fund (20%)

33. 2. Saving for a new car/
Vehicle/Matchinery purchase
I prefer putting my
money in equity based
mutual funds
through SIP to manage
this goal.

34. 3. Buying a home
To execute the plan, there are two
basic rules that can be followed:
(a) Always buy a house within one’s
affordability.
(b) Always pay at least 40% of the
cost of the house from savings. It
means the home loan component
shall be a maximum of 60%.
How to plan the house purchase?

35. Once this rule is followed, the next plan should be to
accumulate the 40% self-contribution corpus. How to do it?
Like in our example, the
available time horizon to buy
the house is 6 years. Hence,
one can opt for a multi-cap or
large-cap mutual fund for
investing.
Question
What is Multi-cap or
large-cap mutual
fund???

36. Market capitalization
Market capitalization can be
defined as the total value of the
company that is traded on the
stock market.
Market capitalization = Total
number of outstanding shares of
the company * Current market
price per share
• As per the SEBI guidelines the
companies are classified as:
• Large-cap – companies ranked between
1 and 100, when sorted by market
capitalization.
• Mid-cap – companies ranked between
101 and 250, when sorted by market
capitalization.
• Small-cap – companies ranked beyond
250, when sorted by market
capitalization.

37. Large/Mid/Small Cap Mutual Funds?
• Large cap mutual funds are open-ended equity mutual funds that invest a
significant portion i.e., at least 80% of their investments typically in companies
having a market capitalization of more than thousands of crore.
• Mid cap mutual funds are open-ended equity mutual funds that invest at least
65% of their investments in mid cap company stocks. Mid cap stocks are those
companies that rank 101st to 250th in terms of market capitalization values.
• Small cap mutual funds are open-ended equity mutual funds that invest at least
65% of their investments in small cap stocks. Small cap stocks are those companies
that rank below 250th in terms of market capitalization. These are small companies
that are new entrants in the market.
https://www.etmoney.com/mutual-funds/equity

39. 4. Child’s Future
• As shown in the
above infographics,
investing Rs.28,000
per month in a
balanced mutual
fund will help us
follow a goal-based
investing.

40. 5. Building retirement corpus
• Every individual demands his/her own size of retirement
corpus. It is a part of retirement planning that must be done
as immaculately as possible.
• On average, a person will require a minimum of 20-25 years
to build a sufficiently big retirement corpus. Hence it is
essential to start as early as possible.
• It is better to divert at least 5% of income towards
retirement corpus building. For an employee, this is in
addition to the EPF contributions. For a self-employed
person, the number should be 15% minimum.
• When the available time horizon is as long as 20-25 years, one
can afford to invest in value stocks. If one is not comfortable
investing directly in stocks, mid-cap mutual funds can be a
good alternative.

41. Conclusions
Before investing our dime anywhere else, it is better to identify financial goals. Goal based investing
has its advantages. It helps us to invest our money more responsibly. Furthermore, such
investments stay put for a longer time thereby, yielding compounding returns.
• I often use a SIP calculator to fix the amount of money I need to invest each month to reach my
financial goal.
• I keep tweaking my financial goals every year. Based on the current circumstances, some new
goals gets added to the list. Some old one gets less priority, or some existing ones attract more
attention.
• To practice goal based investing, it is equally essential to keep reviewing ones financial goals
once every year. Read more about how tough financial goals need higher investment risks…
• Fixing financial goals for self, and making investments accordingly, will always keep you in
control of your actions. Market movements will not scare you. You will never be confused about
your decisions.

42. Investment Basics for Beginners in India
Question?
How to make the
right investment
decisions?
Ans- By being aware
of the ‘investment
basics’.

43. Topics
• 1. What is Investment?
• 2. What are high returns?
• 3. Why invest money?
– Small contributions will do.
– The power of compounding.
– Start early.
• 4. Preparations before investing.
– #4.1 Eliminate costly debts.
– #4.2 Pay-yourself first.
• 5. Where to Invest?
– Diversification.
• 6. Overcome the mental blocks.

44. The process of investing

45. 1. What is Investment?
Investment is a process of
buying assets to generate
returns. The generated return
can be in the form of “regular
income’ or ‘capital
appreciation’.

46. Questions ?
Why buy asset?
Because keeping money with
self will yield only low returns.
When money is kept in locker –
it generates zero returns. When
money is kept idle in bank
account – it generates only
3.5% interest.
To generate higher returns,
one must invest money.
Investments has potential to
yield higher returns. By
investing money, one actually
puts their money to work.
This in turn, generates higher
returns.

47. 2. What are high returns?
• In USA and Europe, earning
even 7-8% per annum
returns from equity mutual
funds is considered high.
• But in India, 7-8% p.a. return
can be generated even by
debt based funds. In India,
7-8% return from equity is
low.
• How a common
man can know,
what is a good
return (in a
country)?

48. How a common man can know, what is a good
return (in a country)?
1. Check Average Inflation
In last 10 years, the average
inflation in India was 7.3% per
annum. Hence, for an
investment to be referred as
high return option, it must
have generated returns more
than 7.3% p.a. in last 10 years.
https://tradingeconomics.com/
india/inflation-cpi

49. How a common man can know, what is a
good return (in a country)?
2. Check Index Growth • In the past 10 years, mid-caps (Nifty
Mid-cap 150) gave 18.5 percent
annualised returns. During the
same period, large caps (Nifty 50)
have 13.2 percent annualised
returns and small caps (Nifty Small
Cap 250) gave 16.3 percent
annualised returns.
Market
capitalisation
10-year- CAGR
(Compound annual
growth rate)
returns (%)
Large cap 13.2
Mid cap 18.5
Small cap 16.3

50. How a common man can know, what is a
good return (in a country)?
3. Check 10Y Govt.
Bond Yield
In the above step, we have
figured out expected return
from equity in long term.
A ten year government bond of
India is currently yielding 7.39%
per annum. Hence, if one is
investing in long term debt
funds, their return-expectation
should be more than 7.39%
over long term.

51. How a common man can know, what is a
good return (in a country)?
4. Check Savings
Deposit Rates:
Currently RBI’s website is
showing the “Savings
Deposit Rate” between
3.5%-4%. This means that,
this is the minimum zero
risk return one can earn in
India.

52. 3. Why to invest money?

53. Why to invest money?
• Example: Suppose you have to make a
downpayment of Rs.10 lakhs for your home
purchase. You will need the downpayment amount
after 5 years from today. If you plan to keep your
savings parked in your savings account, earning
3.5% interest, you must save Rs.15,300 per month to
accumulate Rs.10 lakhs.
(Total Investment in 5 years – Rs. 9,18,000)
• But if you decide to invest in a multi cap fund which
generates a return of 14% p.a., you must invest
only Rs.11,700 per month to accumulate Rs.10 lakhs
in 5 years.
(Total Investment in 5 years– Rs. 7,02,000)

54. The Power of Compounding
Years 5% 10% 15% 20%
0 $1 $1 $1 $1
1 $1.05 $1.10 $1.15 $1.20
5 $1.28 $1.61 $2.01 $2.49
10 $1.63 $2.59 $4.05 $6.19
15 $2.08 $4.18 $8.14 $15.41
25 $3.39 $10.83 $32.92 $95.40
30 $4.32 $17.45 $66.21 $237.37

55. The Power of Compounding
Allow me to explain how to
read the above table:
@5% Return: $1 will grow by
4.32 times in 30 years.
@10% Return: $1 will grow by
17.45 times in 30 years.
@15% Return: $1 will grow by
66.21 times in 30 years.
@20% Return: $1 will grow by
237.37 times in 30 years.

56. Example
Example: Raj invested Rs.1.0 Lakhs
in a multi cap fund when he was 21
years of age. He kept this money
invested till he became 60 years of
age (holding time 39 years). At 18%
per annum returns, Rs.1.0 Lakhs
became Rs.6.4 Crore. Read
more about compounding
investment returns here.

57. Example
• Starting @Age30: Suppose you
are currently 30 years of age.
As per your company’s policy
you will retire at age 60. You
still have 30 years in hand. By
the time you retire you want $1
million as your retirement
corpus. How much you must
invest per month to build this
corpus (assuming 16% p.a.
average returns)? You must
invest $113 per month.
• Starting @Age25: Suppose you
started investing early. You
realised the necessity of
building a big retirement
corpus when you were 25 years
of age. How much you must
invest now to build the corpus
of $1 million (@16% p.a.)? Just
because you have started 5
years early, you need to invest
only $51 per month.
https://www.calculatorsoup.com/calculators/financial/net
-present-value-calculator.php

58. 4.2. Pay Yourself First
By the time monthly bills and everyday
expenses are paid for, it can be hard to find
extra money for savings. That’s where the
“pay yourself first” method comes in handy.
This budgeting strategy encourages setting
aside money for things like retirement, savings
and debt before paying for other variable
expenses.

59. 5. Where to Invest?
• Direct Stocks
• Equity Mutual Funds &
ETFs
• Debt Funds
• Real Estate Investment
Trusts (REITs)
• Physcal Real Estate
• E-Gold

60. Always Diversify

61. 6. Overcome mental blocks
Now, before one proceeds and start
implementing the above-discussed
investment basics, it is necessary to
remove a few mental blocks.
• I cannot invest because I
can’t afford it
• I’ll start investing from
tomorrow
• Avoid equity as it is risky

62. Conclusion
• These are the 11 investment basics which I’ve
almost by-hearted like my favourite poem.
Based on these basics, all of my investment
decisions are taken.
• It is one of those articles which I keep reading
to reinvent my investment style time and
again. This is one of those articles of mine,
which I have read the most till date.
• I hope you liked this work. Have a happy
investing.