1. FINANCIAL PLANNING FOR
YOUNG I NVESTORS
Presented by
Prof.K.Prabhakaran, SEBI Financial
Education Resource Person
& Assistant Professor-Finance,
RVS Faculty of Management,
Coimbatore.
2. Agenda
Introduction About SEBI
Basis of Savings and Investment
Financial Planning
Savings and Investment Related
Management of Personal
Finance
SMART Goals
How to achieve your Goals
Investment Activity
Human life Cycle
Various Investment Vehicles
Risk & Return
Time Value of Money
Effect on Inflation
products
Protection Related Products
Borrowing Related Products
Format of Individual Worth
Statement
Regulators of Indian Financial
Markets
Financial Planning-Asset
Allocation
NISM,NCFM Certificate Exams
Toll free Helpline Services
Important Websites
3. SEBI
Securities and Exchange Board of India
(SEBI) - A statutory body established
under the SEBI Act, 1992
Objectives
Protect the interests of Investors
Promote and Development the
Securities Market
Regulate the Securities Market
4. Financial Planning
“
Financial Planning is the process of
meting one’s life goals through the
proper
management
of
personal
finances.
The above definition can be best
understood by breaking it into three
parts viz.
i) Financial Planning as a process
ii) Meeting one’s life goals
iii) Management of Personal Finances
5. Management of Personal
Finances
Financial Planning is all about managing finances of
an individual or family. The following aspects of
personal finance should be analyzed as a whole rather
than seeing them in isolation.
Income
Expenses
Assets,
Liabilities
Insurance
Taxation
7. HOW TO ACHIEVE GOALS
Arrange goals in order of their time to
reach (short term, followed by medium
term and lastly long term)
Goals can be short term (upto 3 years),
medium term (3 to 5 years) and long
term (upwards of 5 years)
Plan investments for each goal.
11. Human Life Cycle – Disciplined
Planning
Income
Phase I
Phase II
Phase III
Child’s Marriage
Child’s Education
Housing
Child birth
Having a Financial
Goal is primary to
starting a
Investment Plan.
Marriage
Career
22 yrs
38 yrs
Birth & Education
Earning Years
22 yrs
60 yrs
Over 25 - 30 yrs
Retirement
Age
12. INVESTMENT ACTIVITY (ACQUISITION OF ASSETS)
1. FINANCIAL
ASSETS
2. PHYSICAL ASSETS
SAVER
HOUSE
CASH
BANK DEPOSITS
LAND
INVESTOR
P.F./LIC
PENSION
POST OFFICE
3. MARKETABLE
ASSETS
SHARES, BONDS,
GOVT. SECURITIES,
MUTUAL FUNDS,
CURRENCIES
BUILDINGS
GOLD
SILVER
OTHER METALS
14. Investment vehicles –
Equities Shares
Total equity capital of a company is
divided into equal units of small
denominations, each called a share.
For example, in a company the total
equity capital of Rs 2,00,00,000 is
divided into 20,00,000 units of Rs 10
each. Each such unit of Rs 10 is called
a Share.
15. Primary and Secondary
Market
Primary Market is a place where new
offerings by Companies are made either
as an Initial Public Offering (IPO)
&Following Public Offering(FPO).
Secondary Market is a market where
securities are traded after being initially
offered to the public in the Primary Market
and/or listed on the Stock Exchange.
16. Eligibility Criteria for Issue
of Primary Market
Profitability Related
Assets – Rs.3 crores, Net worth Rs.1 crore
Distributable profits, Issue size < 5 * Net worth
QIB related
50 % allotment to QIBs
Appraisal related
Project to be appraised by Banks/ PFI with 15 % of
project cost contribution,
Post issue capital = 10 crores
Market making for 2 years
17. Primary Market- Facts
Year
Number of
issues
Amount raised
(Rs. Crore)
2008-09
47
16,620
2009-10
76
57,555
2010-11
91
67,609
2011-12
71
48,468
Apr 12-Dec 12
40
20,869
18. STOCK EXCHANGE
Stock exchange is that place where trading of
shares is done in terms of sale and purchase.
There are 25 stock exchanges in the India .
BSE is oldest stock Exchange in Asia. It was
started at 1875.Parameter is SENSEX.
NSE is the first online stock exchange in India. It
was started at 1992.Parameter is NIFTY.
MCX-SX is New stock Exchange in India. It was
started at Feb 2013.Parameter is SX-40.
19. Market Participants
As on 31st Dec 2012
Regulators
Market Infrastructure
Institutions
Merchant bankers
Underwriters
SEBI,RBI, MoF, MoCA
Exchanges, Depositories,
Clearing Corporations
199
3
Brokers
8,922
Sub brokers
77,163
R & T Agents
74
Custodians
19
Depositories and DPs
FIIs
2 and 823
1767
24. STOCK PRICE MOMENTS
The price of every stock increases or decreases for the following Two
Analysis.
1.Fundamental Analysis
Economic Analysis
(GDP,Inflation,Bank Rate, Political, Budgets, Infrastructure,FDI)
Industry Analysis
(Growth,ILC, Structure, Nature of Competition, Profitability)
Company Analysis
(Market Share, Sales, Capital Structure, SWOT Analysis ,
Dividends,
Financial Analysis)
25. CONT
2.Technical Analysis
Technical analysis is a method of
evaluating securities by analyzing the
statistics generated by market activity, such
as past prices and volumes.
Charts (Line,Candle& Bar Chart)
Technical Indicators (RSI,EMA,MFI,Pivot
Point)
Market Efficiency(Strong. Semi strong
,Weak Form)
Market Analysis with the help of Dow
26. Mutual Funds
An investment company that pools money from its
unit holders and invests that money into a variety
of securities, including stocks, bonds, and moneymarket instruments.
This represents a way of investing money into a
professionally managed and diversified pool of
securities that hopefully will provide a good return
on unit holders' money.
More than 25 Mutual funds Companies(AMC) in India
Best Schemes(Equity, ElSS, Growth,Liquidity,Gold ETF)
Best Plan (SIP,STP)
27. Calculation of NAV(Net Asset
Value)
Formula
= Net Value of Assets / Number of
Units Outstanding.
28.
29. Investment vehicle Insurance
Insurance is an economic tool by which
one can exchange large uncertain
financial loss with a small & definite
cost called ‘premium’.
Types of Insurance
- Life Insurance
- General Insurance(Non Life)
30. Insurance Companies in
India
Life Insurance Companies
Private Sector- 16
Public Sector- 1
General Insurance Companies(Non
Life)
Private Sector-9
Public Sector- 4
31. Types of Life Insurance
Plans
Term Life Insurance
Endowment Policies
Annuities
Group Insurance
ULIP
New Pension Scheme
2009
32. Types of Non Life Insurance
Fire Insurance: (Protection for property against Fire & other Special Perils)
Marine Insurance: (Cover the loss / damage to goods, during transit)
Motor Insurance:(For Vehicles, Personal Accident, Liability to Third Parties)
Personal Accident Ins: (Cover the insured sustaining injury from Accident)
Health Insurance:(Reimburses Hospitalization expenses)
Liability Insurance: (Covers personal injury toThird Parties & their property)
Engineering Insurance: (Cover Civil, Mechanical Contractors & Industries)
Miscellaneous Insurance: (Householders / Shopkeepers Insurance etc.,)
Rural Insurance: (Covers Cattle ,Poultry, Pump set etc. of rural population)
35. Currency market
Currency
transactions are spot, Forward
&Derivative Market.
NSE was the first exchange to have received an
in-principle approval from SEBI for setting up
currency derivative segment.
The exchange launched its currency futures
trading platform on 29th August, 2008.
Currency Options was introduced on October 29,
2010.
38. RISK-RETURN RELATIONSHIP
RISK : Risk is possibility of harm, injury, loss, danger or
destruction.
•
Risk is unpredictable.
•
Risk is uncertainty about future.
•
Risk is the possibility of adverse deviation from expected
outcomes.
•
Risk is outcome that is not favorable.
RETURN: Return differs amongst different instruments.
The most important factor influencing return is risk.
Normally, the higher the
risk ,the higher is the return.
39. Risk and Return Relationship
for Some Investment Options
Return
Derivatives
(High Risk)
Equity Shares
Real Estate
Mutual Funds
Bonds , Debentures
Deposits(FD,PPF,PO)(Low Risk)
Risk
40. Life Cycle Investment Guide
Mid Twenties
Late Thirties to Early Fo rties
10%
10%
REAL ESTATE
5%
5%
CA SH
CASH
20%
55%
65%
REA L ESTA TE
30%
BONDS
B ONDS
STOCKS
STOCKS
Mid Fifties
Late Sixties and beyond
13%
5%
44%
REA L ESTA TE
15%
25%
REA L ESTA TE
10%
CA SH
B ONDS
38%
CA SH
B ONDS
STOCKS
STOCKS
50%
41. Time Value of Money
Now Rs.1 lakhs Invested @ 10%
Year
1
Simple Interest @
10% P.A.
1,10,000.00
Compound Interest @
10% P.A.
1,10,000.00
2
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
42. Effects of Inflation
Item
Price in
2001-02
Price in
2012-13
Sugar (1 kg)
Cooking oil (5 liters)
Rice (1 kg)
Petrol ( 1 liter)
Rs. 16
Rs. 290
Rs. 14
Rs. 33
Rs. 40
Rs. 600
Rs. 60
Rs. 75
43. Basics of Savings and
Investment
Savings
Investing
Short term
Long term
Value remains stable Value moves up and
down in short term
Lower returns over
Potentially higher
long term
returns over long
term
44. Savings & Investment Related
Products
Bank deposits
Tax Savings Schemes(NSC,PPF,POS,ELSS,
Infrastructure Bonds)
Bonds / debentures
Company fixed deposits
Mutual funds
Equity shares
45. Protection Related Products
Insurance
Life insurance
Term life insurance
Endowment policies
Annuities / Pension plans
ULIPs
Health Insurance
Comprehensive health insurance
Hospitalization policy
Critical illness plan
Specific condition coverage
46. Borrowing Related Products
Personal loans
Vehicle Loans
Home loans
Reverse mortgage
Loan against securities
Credit card debt
49. Format of Individual Worth
Statement
Name: A. Sunil
Liabilities
As on 31.03.2013
Rs
Assets
Rs
Housing Loan
6,30,000
Cash on Hand
4,000
Vehicle Loan
1,15,000
Cash with Bank
12,000
Fixed Deposits
4,50,000
Recurring Deposits
1,20,000
Credit Card outstanding
18,000
Paid up in LIC
68,000
Investment in Shares
4,15,000
Vehicles (Market Value)
3,20,000
House (Market Value)
Networth
35,18,000
Jewellery
Total
42,81,000
Total
28,12,000
80,000
42,81,000
50. Worth Statement Exercise
The details of the liabilities and assets of Mr. Tamil as
on 31.03.2013 are as follows.
• Housing Loan from SBI: Rs 8,12,000
• Market value of House: Rs 19,20,000
• Personal Loan from Canara Bank: Rs1,42,000
• Investment in L&T shares: Rs 3,40,000
• Market Value of Car: Rs 3,60,000
• Vehicle Loan from SBI: Rs1,40,000
• Investment in Chits: Rs 90,000
• Furniture & Fittings : Rs 48,000
Calculate the Networth of Mr. Tamil in the Worth
Statement Format.
51. Regulators in Indian Financial
Markets
◦ 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)
53. INVESTOR PROFILE
Monoj&Manju( Age 28 years )
Short-term
Planning to purchase a
15%
Financial Goals
•Planning to purchase a house in the
next 5 - 8 years
•Planning to purchase of car for next 2
years
Stocks
•Creating long-term wealth for
75%
retirement
Investment Strategy
Aggressive Growth Portfolio
Balanced Portfolio
Short-term
Short-term
Bonds
10% 10%
Bonds
15%
15%
Stocks
75%
54. Financial Planning-Joke
Jack was a single guy living @ home with his father
and working in the family business.
When he found out he was going to inherit a fortune
when his sickly father died, he decided he needed a
wife with which to share his fortune.
One evening @ an investment meeting he spotted
the most beautiful woman he had ever seen, Her
natural beauty took his breath away. I may look like
just an ordinary man, he said to her, but in just a few
years, my father will die, and I’ll inherit 10 crores.
Impressed, the woman obtained his business card
and three days later…. She become his stepmother.
This is a Financial Planning.
55. Securities Market and
Knowledge Initiatives
SEBI’s Initiative
NISM(National Institute of Security Market)
Pocket Money
Investor Outreach
Financial Education Workshops
Initiatives of Stock Exchanges
National Stock Exchange
Bombay Stock Exchange
MCX-SX
56. NISM Certifications-SEBI
More than 15 Modules are available . Important Modules
are
NISM Series VII: Securities Operations and Risk
Management
NISM Series VIII: Equity Derivatives
NISM Series I: Currency Derivatives
NISM Series VI: Depository Operations
NISM Series V A: Mutual Fund Distributors
NISM Series XI: Equity Sales
nism.ac.in-quick link-nism certifications
57. NCFM Certifications-NSE
More than 40Modules are available . Important
Modules are
Capital Market (Dealers) Module (CMDM)
Derivatives Market (Dealers) Module (DMDM)
Commodities Market Module
Investment Analysis and Portfolio Management
Technical Analysis Module
Surveillance in Stock Exchanges Module
Banking Sector Module
Insurance Module
Mutual Funds (Advanced) Module
nseindia.com-education-nsecertification-ncfm
61. Toll-free Helpline Service for
Investors
To lodge grievance or to view status of the grievance
◦ www.scores.gov.in
◦ www.sebi.gov.in
◦ www.investor.sebi.gov.in
Investors can contact the following Toll free numbers
to know about the status of their grievances and to
get assistance
◦ 1800 22 7575
◦ 1800 266 7575
The toll free helpline service is available on all days
from 9:30 a.m to 5:30 p.m (excluding declared
Financial plan can be prepared after assessment of income, expenditure, assets, liabilities, risk taking ability and financial goals
An important part of preparation of a financial plan is assessment of risk taking ability.Understand the risk taking abilityIncome & Expenditure and Assets & Liabilities play a very important role in an individual’s risk taking abilityHigh income does not necessarily mean high risk appetite if the person also has large amount of liabilitiesLow income used judiciously to build assets, can increase risk appetiteFor two college going students will the risk taking ability be same if one’s father is the richest businessman in town and the other’s father has expired 5 years back and their family is dependent on the investments made by his father.Ask students to come out with reasons why each student’s risk taking ability will be different
The choice of investment options will depend upon personal circumstances as well as general market conditions. Based on those two factors, one would like to strike a balance between the following three: Safety Liquidity, and Returns
There are various regulatory agencies that work for the interest of the investors. Page 31 in the booklet elaborates the SEBI framework for redressal of investor grievances. (Request the participants to read the same at their convenience.)