Financial planning involves identifying an individual's financial needs and goals over time and developing a strategy to meet those needs and goals. The key objectives of financial planning are to identify monetary requirements, prioritize financial needs, assess one's current financial position, plan savings and investments to achieve goals, and optimize returns through diversification. Systematic investment plans (SIPs) allow regular investing of small amounts in mutual funds and are an effective way to benefit from rupee cost averaging and the power of compounding returns over the long term. Insurance provides protection from life's uncertainties and ensures one's dependents are provided for in times of need.

1. Financial Planning

2. What is Financial Planning?
Financial Planning is an exercise aimed at
identifying all the financial needs of an individual
and translating these needs into monetarily
measurable goals at different times in the future.
Financial Planning ensures that right amount of
money is available in the right hands at the right
time in the future to achieve an individual’s financial
goals

3. Objectives Of Financial Planning
• Identifying the requirement for money for different purposes
and prioritising them
• Converting these requirements into specific needs, in terms of
money, and the time when it is required
• Taking stock of the investors’ current financial position to
ascertain their net worth and net income / expenses
• Planning savings and investments in a manner that would
enable the investors to achieve their pre-determined goals
• Optimising returns through adequate diversification in sync
with the investors’ risk – return frame work

4. Why do we need Financial Planning?
 To fund our future needs through right mix of investments
 To protect our future from unforeseen contingencies
 To maintain the same standard of living even after retirement
 To enable risk management through diversification
 To choose assets commensurate with the investors’ life and wealth
stages
 To beat the ravages of inflation

5. Inflation erodes the value of your money
80000 74,726
70000
60000 55,839
50000
Future Value
41,727
40000 31,180
30000 23,300
20000
10000 5 10 15 20 25
0
No of Years
The slide illustrates the value of Rs 1 Lakh at different stages assuming an
average inflation rate of 6%

6. Can you do your own Financial Planning?
• Will your family be financially secure in the event of your unfortunate
illness / demise?
• Will the stream of cash flows arising from your asset holdings be sufficient
to match the expected liability structure?
• Are your finances inherently tax efficient?
• Have you made adequate provisions for your children’s education and
marriage?
• Are you confident enough to enjoy your post-retirement life?
If your answer is NO to any one or all of the above questions, you
need a specialist to handle your finances...

7. Asset Allocation Strategies
Conservative Moderate
20% Equities 10%
30% 45% Equities
Bonds
Bonds
Cash/Money
Cash/Money
Market
Market
45%
50%
Aggressive
10% Equities
15%
Bonds
Cash/Money
75% Market

8. Comparison Of Investment Options
Return Safety Volatility Liquidity
Equity Moderate to High Low High Low to high
Bonds Moderate to High High Moderate Moderate
Bank Deposits Low to High High Low High
PPF Moderate High Low Moderate
Life Insurance Low to Moderate High Low Low
Gold Moderate High Moderate Moderate
Real Estate Low to High Moderate High Low
Mutual Funds Moderate to High High Moderate High

9. Investment Life Cycle
Emergencies????
Retirement
Kid 2’s
Marriage
Kid 1’s
Marriage
????
House
Income
Kid 2’s
Car College
Kid 1’s
College
Kid 1
Kid 2
Marriage
Savings / Investing
Working Life 60 Retired Life
75 +
0 Birth and 25
Education Age

10. Asset Allocation
In simple words, it means determining the percentage
of the total investments to be made in equities, bonds
and money market / cash instruments.
Empirical studies indicate that over 94% of the returns
on a managed portfolio can be attributed to the right
mix of asset allocation
Here we seek to address the basic questions
of how, where and when to invest taking in to
consideration the market conditions and the
investors’ risk-return frame work

11. Wealth Creation Stage
Financial Goals
Planning to purchase a house in
the next ten years
Creating long-term wealth for
retirement / house
Aggressive Growth Portfolio
Cash
10% Bonds
15%
Age – Up to 30 Years Equity
75%

12. Wealth Management Stage
Financial Goals
Providing for children’s education
(5 - 8 years)
Planning for children’s marriage
(15 - 20 years)
Planning for retirement
Balanced Portfolio
Cash
20%
Equity Bonds
Age – 30 to 55 Years 30%
50%

13. Wealth Preservation Stage
Financial Goals
Making provisions for
higher life expectancy,
medical emergencies and
financial independence
Conservative Portfolio
Bank
Equity Deposits
20% 40%
Bonds
Age – 55 Years & Above 40%

14. Concept of Mutual Funds
Mutual Fund is an instrument where a number of
investors contribute to form a common pool of
money. This pool of money is invested in
accordance with a pre-determined objective. The
ownership of the fund is thus joint or “Mutual” and
the fund belongs to all the investors in the same
proportion as the amount of contribution made by
each one of them

15. Why Mutual Funds?
• Mutual Funds provide the services of experienced and skilled
professionals backed by a dedicated research team
• They enable efficient risk management by diversifying across a wide
variety of sectors and companies
• They are less expensive vis-à-vis direct investment in equities as they
seek to reap the benefits of economies of scale
• Performance and other investment details of individual schemes are
disclosed on a regular basis
• Mutual funds facilitate investment of small amounts in a number of
schemes to suit the investors’ risk - return framework

16. How Do Mutual Funds Work?
Step 1 : Make
MF
investments
Step 5: Returns provided to investors
Step 2: Money
is invested
Investor community
Step 4: Expenses
deducted
from the returns
Step3:
Assets
provide
returns
Earnings to the
Fund House/
Distributor Various Assets

17. Risk-Return-Time Horizon Scale
Time
SECTOR
EQUITY
RETURN
BALANCED
DEBT
RISK

18. Systematic Investment Plan (SIP)
The Smart Investors’ Preference

19. Why SIP?
The Formula For Creating Wealth
Start Early
+ Invest Regularly Create Wealth

20. Myth : Timing is essential to generate high returns
Reality: It is the time and not the timing that matters
Is it worth the risk or the tension?
Who can time the market to perfection?
Not even the experts can !!

21. It is the small drops that make an ocean!!
We earn regularly; We spend
regularly
Shouldn’t we also invest
regularly?

22. What Is Systematic Investing?
• It simply means investing ‘Fixed Amount’ every
month
• A method of investing regularly to benefit from the
stock market volatility
• The first step that may take you a long way towards
achieving your financial goals and objectives…

23. Why Should One Invest Systematically?
• To imbibe financial discipline
• To eliminate the need to time the markets
• To successfully achieve the financial goals
and objectives
• To harness the power of compounding by
investing with a long term perspective

24. Why Systematic Investment Plan?
Rupee Cost Averaging Works
Fluctuating Markets Declining Markets Rising Markets
Systematic Purchase Units Systematic Purchase Units Systematic Purchase Units
Investing Price bought Investing Price bought Investing Price bought
100 20 5 100 25 4 100 5 20
100 10 10 100 20 5 100 10 10
100 5 20 100 12.50 8 100 20 5
100 10 10 100 10 10 100 20 5
100 20 5 100 5 20 100 25 4
500 65 50 500 72.50 47 500 80 44
Avg NAV : Rs 13.00 (65/5) Avg. NAV : Rs 14.50 (72.50/5) Avg. NAV : Rs 16.00 (80/5)
Avg. Unit Cost : Rs 10.00 Avg. Unit Cost : Rs 10.64 Avg. Unit Cost : Rs 11.36
(Rs 500/50) (Rs 500/47) (Rs 500/44)

25. Power Of Compounding
“ The most powerful force in the universe is the power of
compounding “
-Albert Einstein
If you invest Rs 1000 for 50 years at 10% returns p.a., you would
receive Rs 100 every year for 50 years. So WITHOUT any
compounding you would have Rs 6000 (initial investment Rs
1000 + interest for 50 years Rs 5000) at the end of 50 years.
However WITH compounding, the same Rs 1000 at 10% returns
p.a. would mount up to Rs 1,17,391 at the end of 50 years

26. Power Of Compounding
Rs 5000 invested per month
Rate of Value at the Value at the Value at the Value at the
Return end of 3 yrs end of 5 yrs end of 10 yrs end of 15 yrs
10% 2,08,909 3,87,185 10,24,225 20,72,352
12% 2,15,384 4,08,348 11,50,193 24,97,901
15% 2,25,578 4,42,873 13,76,085 33,42,534

27. Equity Markets & SIP
• Equity markets are synonymous with uncertainty and
volatility
• The average investor invariably suffers from such
market gyrations
• SIP - A strategy of not only preserving capital but
also translating into substantial creation of wealth
in long run
“If you want to stay calm and sail smoothly in
turbulent times GO FOR SIP”

28. Financial Planning Through Insurance
“Insurance is not for the one who passes away, it is for those
who survive”
- Anonymous

29. Why do we need Insurance?
• To ensure adequate coverage and protection against the risks
and uncertainties of life
• To ensure a decent standard of living to the dependants in the
event of unexpected demise of the bread winner
• To provide a feeling of security and financial support during
critical hours and periods of crisis in life
• Reduced mortality rates, increased life expectancy and rising
medical and hospitalisation expenses
• Emergence of nuclear family system – reduced dependency on
other family members

30. Insurance = Investment + Assurance
Life Insurance
Unit Linked
Term Endowment
Insurance Plans
Insurance Plans
(ULIPs)

31. Term Insurance
• Sum assured is payable only at the death of the policy holder
• Provides only risk cover with no savings elements
• Low Premium & High Coverage
Endowment Policy
• In this policy the insured amount is payable at the end of specified
period or upon the death of the insured person whichever is earlier.
• Moderate Premium
• High Bonus
• High Liquidity
• Savings Oriented

32. Unit Linked Insurance Plans
A policy, which provides for life insurance where the policy value at any time
varies according to the value of the underlying assets at the time. Investors can
also take a SIP route of investment. ULIP distinguishes itself through the
multiple benefits that it provides to the consumer. The plan is a one-stop
solution providing:
• Investment and Savings
• Life protection
• Flexibility
• Adjustable Life Cover
• Tax benefit (as per Section 80C of Income Tax Act)
• Transparency
• Options to take additional cover against
- Death due to accident
- Disability
- Critical Illness
- Surgeries

33. Insurance – Buy a policy, buy peace of mind
General
Insurance
Health Vehicle Property
Insurance Insurance Insurance

34. Need for Health Insurance
• Reduced human mortality rates and increasing life spans due to
advancements in medical science
• Rising hospitalisation and medication expenses
• Compensates the loss of income to the family due to
accident/disability to the earning member
Vehicle & Property Insurance
• Covers the risk of loss/damage to your movable and immovable
assets
• Also provides adequate coverage to any financial liability arising
from the risk of loss/damage to the life and property of third parties

35. Tax Planning With Mutual Funds
• The Equity Linked Savings Schemes (ELSS) are equity-oriented
schemes that offer the twin benefits of tax savings and the potential to
earn higher returns
• The traditional products such as post-office schemes and bonds do
not offer high returns and are not tax efficient
• ELSS power packs both these benefits with a minimal lock-in period of
three years
• Under section 80C of Income Tax Act, investment made in ELSS up to
Rs 1lakh qualifies for deduction
• An investor can either make a lump sum investment or choose to take
the SIP route to counter market volatility

36. Illustration assuming Rs 1000 per month SIP
Period Total Inv.(Rs) Value*(Rs) % Return**
Last 1 Year 12,000 14,996 49.70
Last 2 Years 24,000 26,103 8.30
Last 3 Years 36,000 41,827 10.00
Last 5 Years 60,000 97,424 19.50
Since Inception*** 1,15,000 4,71,390 28.30
* As on 30/06/2009
** For growth option on a compounded annual
basis
*** Launched – November 1999

37. Personal Income Tax Structure 2009-10
Total Income(Rs) Tax Rates
Upto 1,60,000 Nil
1,60,001 to 3,00,000 10%
3,00,001 to 5,00,000 20%
5,00,001 and Above 30%
Note :
• In case of resident women below age of 65 years, the basic exemption limit is
Rs 1,90,000/-
• In the case of resident individual of the age of 65 years and above, the basic
exemption limit is Rs 2,40,000/-
• The Finance Bill 2009 has abolished surcharge
• Education cess is applicable at 3% on income tax

38. Tax Slab 2009 - 10
Equity Oriented Schemes
Short Term Long Term Capital Dividend Dividend
Capital Gains Tax Gains Tax Income Distribution Tax
Resident
Individual/HUF 15% Nil Tax Free Nil
Resident Partnership
Firm /AOP/BOI 15% Nil Tax Free Nil
Domestic Companies 15% Nil Tax Free Nil
NRIs
15% Nil Tax Free Nil

39. Other Schemes
Dividend Distribution
Dividend Distribution
Short Term Long Term Capital Dividend Tax - Other than
Tax - Liquid/Money
Capital Gains Tax Gains Tax* Income Liquid/Money market
market Schemes
Schemes
Resident
Individual/HUF As per slab 10% Tax Free 14.16% 28.33%
Resident Partnership
Firm /AOP/BOI 30% 10% Tax Free 22.66% 28.33%
Domestic Companies 30% 10% Tax Free 22.66% 28.33%
NRIs
As per slab 10% Tax Free 14.16% 28.33%
* The Finance Bill 2009 has abolished surcharge in case of Resident Individuals, HUF,
Partnership Firms, AOP, BOI on the amount of income tax. For others including
corporate bodies, 10% surcharge on tax payable
Secondary and Higher Education Cess: To be levied at the rate of 3% calculated on tax
payable plus applicable surcharge

40. Bank FDs vs. Debt Funds
Investors in higher tax brackets are better off investing in debt funds as
against bank FDs as debt funds are inherently more tax efficient
For example consider an investor in the highest tax bracket. Interest from
his investment in bank FDs would attract the maximum marginal tax rate
(inclusive of cess – 30.90%) applicable to him. If a one year bank FD fetches
around 10%(pre-tax), his post-tax returns would be a meager 6.91%
As opposed to this, if he had invested in a short term debt fund (dividend
option) which also delivers close to 10% average annualized returns (over 1
year period) and distributes it among the unit-holders in the form of
dividends. The dividend income will be tax-free in his hands but the mutual
fund will be paying a dividend distribution tax of 14.16% (which is indirectly
borne by the investor). So he will be getting a net effective return of 8.58%
p.a. which is much higher as compared to the post tax returns on FDs

41. However, if the investor invests in a debt fund with growth
option, then the tax treatment becomes slightly different. For
example, let’s assume he invests in an Bond Fund for two years.
Appreciation in the NAV of a debt fund is treated as capital gains.
Now, at the time of redemption, returns from debt funds are
taxed as Long Term Capital Gains (LTCG) if invested for more
than a year. Now, based on the option he chooses, LTCG is either
taxed @ 11.33% without indexation or 22.66% with indexation.
Both the options are certainly better than the tax treatment of
FDs where he pays tax at the rate applicable to his marginal
income
Moreover, just by investing for a little over 12 months in debt
funds at the end of the financial year, one can reap double
indexation benefits thereby further reducing his/her tax liability
Put simply, for similar pre-tax returns, debt funds provide better
post tax returns as compared to FDs. Moreover, no TDS is
deducted by mutual funds in case of resident individuals

42. Golden Rules Of Investing
• Invest early, regularly and systematically for a longer period
• Ensure adequate liquidity for contingencies of life
• Ensure adequate diversification by investing across asset
classes and time horizons
• Do not attempt to time the market. Patience is the key
• Be realistic in expectations of returns
• Balance investments in accordance with your risk-return
framework

43. Factors necessitating Financial Planning
Rising Life
Inflation Expectancy
Financial
Planning
Protection against Balanced Asset
Uncertainty Allocation

44. Thank
You..

45. PPT
By
Aaryendr