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Financial planning

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Financial planning

  1. 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. 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. 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. 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. 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
  6. 6. SMART
  7. 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. 
  8. 8. Exercise
  9. 9. Prepare the Financial Plan Financial Goals Risk taking Ability
  10. 10. Expenditure Income Risk taking Ability Assets Liabilities
  11. 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. 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
  13. 13. Vehicles            Bonds and Debentures Bank Deposits Post office Deposits Employees Provident fund Gold Company Deposits Real Estate Equity Shares Mutual funds Currencies(FOREX) Insurance Products
  14. 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. 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. 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. 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. 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. 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
  20. 20. Trading & Settlement Process Depository Clearing House Investor Broker Exchange
  21. 21. Secondary Market Facts -BSE 2007-08 2008-09 2009-10 2010-11 2011-12 Number of Companies listed 4,887 4,929 4,975 5,067 5,191 Turnover Cash Segment (Rs .Cr.) 15,78,85 7 11,00,075 13,78,809 11,05,027 6,67,498 Market Capitalisation ( Rs.Cr.) 51,38,01 4 30,86,075 61,65,619 68,39,084 62,14,941
  22. 22. Secondary Market Facts -NSE 2007-08 2008-09 2009-10 2010-11 2011-12 Number of Companies listed 1,381 1,432 1,470 1,574 1,665 Turnover Cash segment (Rs.Cr) 35,51,03 7 27,52,023 41,38,023 35,77,410 28,10,893 Market Capitalisation ( Rs.Cr.) 48,58,12 2 28,96,194 60,09,173 67,02,616 60,96,518
  23. 23. 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)
  24. 24. 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
  25. 25. 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)
  26. 26. Calculation of NAV(Net Asset Value)  Formula = Net Value of Assets / Number of Units Outstanding.
  27. 27. 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)
  28. 28. Insurance Companies in India  Life Insurance Companies Private Sector- 16 Public Sector- 1  General Insurance Companies(Non Life) Private Sector-9 Public Sector- 4
  29. 29. Types of Life Insurance Plans  Term Life Insurance  Endowment Policies  Annuities  Group Insurance  ULIP  New Pension Scheme 2009
  30. 30. 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)
  31. 31. Growth of Indian Insurance Companies
  32. 32. Market Share of Insurance Companies in India
  33. 33. 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.
  34. 34. Major Currencies Transaction in India  US DOLLAR  EURO  BRITISH POUND  JAPANESE YEN
  35. 35. RISK AND RETURN
  36. 36. 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.
  37. 37. 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
  38. 38. 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%
  39. 39. 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
  40. 40. 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
  41. 41. 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
  42. 42. Savings & Investment Related Products  Bank deposits  Tax Savings Schemes(NSC,PPF,POS,ELSS, Infrastructure Bonds)  Bonds / debentures  Company fixed deposits  Mutual funds  Equity shares
  43. 43. 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
  44. 44. Borrowing Related Products  Personal loans  Vehicle Loans  Home loans  Reverse mortgage  Loan against securities  Credit card debt
  45. 45. Choosing the Right Investment Options Safety Liquidity Returns
  46. 46. Various Parameters considered before Investment  Stock Market Indices-Sensex,Nifty  RBI Monitory Policies-Bank Rate, Interest Rate  Economic Policies- GDP, Inflation, Growth rate, GNP,PPP, IIP,Foreign Exchange etc  Govt. Policies- Budget,Tax Structure,etc
  47. 47. 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
  48. 48. 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.
  49. 49. 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)
  50. 50. FINANCIAL PLANNING – ASSET ALLOCATION
  51. 51. 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%
  52. 52. 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.
  53. 53. 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
  54. 54. 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
  55. 55. 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
  56. 56. NCFM 2009/10
  57. 57. Employment Opportunities  Public and Private Sector Banks Financial Institutions  Regulatory Bodies-(SEBI,RBI,FMC,MCA,MOF)  Stock Broking Companies  Mutual Fund Companies  FOREX Market(Currencies)  Commodity Markets  Insurance Companies
  58. 58. 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
  59. 59. Websites  www.myiris.com  www.moneycontrol.com  www.investopedia.com  www.nseindia.com  www.bseindia.com  www.mcxindia.com  www.sebi.gov.in  www.nism.ac.in  www.imf.org  www.rbi.gov.in  www.ssrn.com
  60. 60. Success Investment Mantra Safe Life Happy Investing

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