How to Achieve Financial Freedom Through Proper Planning and Investment (40

Spearhead FinServe
Be Financially Wise…

Be Financially Wise …
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How do we manage our personal Finance?
• Traditional Wisdom
• Luck & windfall
• Trial and Error
• Depend on property and Gold
• Goal achievement –Random
• Spending and Investments

Guess! What is common?
“Having higher income does not make you rich”

Outline…
Discovering the path to Financial
Freedom
Investment Avenues
Tax Planning
Ways of doing Financial Planning

Types of Goals Defining the goal
Primary goals
Secondary goals
One time
Recurring
Long term
Short term
Target Year
Current Value
Risk Capability
Inflation
SIP or one time
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My child PG in 15 years,
which requires Rs. 10 L
of today. I want to take
less risk and want to
invest a constant
amount on a monthly
basis.
The Future Value = Rs. 30
lacs
Investment Required =
Rs.9300 per month
Rs. 5000 per month in
balanced fund
Rs. 4300 in PPF

Financial Plan is a Blue print for management of all
financial affairs of entire life
It answers 3 straight questions:
1. Where am I today?
2. Where do I want to go?
3. How do I reach there?

CORPUS REQUIRED FOR CHILDREN'S EDUCATION
Current
Age Graduation
Current
Expenses
Future
Value @
8%
Savings per month @
12%
0 18 5,00,000 19,98,010 Rs. 2,600
5 18 5,00,000 13,59,812 Rs. 3,600
10 18 5,00,000 9,25,465 Rs. 5,800
15 18 5,00,000 6,29,856 Rs. 14,600

Life cycle Financial Planning

Striking a balance between life today and a
secured tomorrow

House
hold
Expens
es, 35%
EMI,
25%
Risk ,
10%
Saving
s, 30%
Top RulesTop RulesTop RulesTop Rules
• Maintain a Household
Budget
• Understand/Estimate
current spending
patterns
Income
Planned
Savings
=
Money
available for
spending

“I was sad, but then I bought something I feel better now”
Unnecessary purchases
Temporary relief for the
mood- angry, happy, sad
etc.
Lead to debt problems
Impulse buy
Effects-Confidence “What“What“What“What a Week! Ia Week! Ia Week! Ia Week! I
Deserve thatDeserve thatDeserve thatDeserve that
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Set up an emergency Fund (3-6-9 Rule)
Covering life risk through term cover
Health cover
Income loss due to disability-Personal
Accident cover
15
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Summary of Insurance Premiums for various Age Groups
Annual Premiums (in Rs.)
Age (in years)
Particulars 30 35 40 45 50 55
Life Insurance Cover of
Rs.1 crore (Pure Term Cover) 15,600 22,800 35,500 47,200 63,700 86,200
Health Insurance Cover of
Rs.5 lakh (2A+1C)
8,700 8,700 9,800 9,800 17,300 22,800
Personal Accident Insurance Cover of
Rs. 25 lakh 3,000 3,000 3,000 3,000 3,000 3,000
Total Annual Premium 27,330 34,535 48,340 60,045 84,050 112,055
Monthly Premium 2,278 2,878 4,028 5,004 7,004 9,338

Be Financially Wise……..
Liquidity
Return
Taxation
Safety

Setting aside hard cash
Parking it in extremely
safe, and liquid
instruments
The goal - capital
preservation, with a
secondary goal to keep
pace with inflation, if
possible.
Using saving to buy an
asset that will generate a
safe and acceptable
return over time
E.g. a real estate, stocks
bonds, small business to
fine art
It takes time, perhaps
even years, to work out
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FUTURE VALUES FOR DIFFERENT RATE OF RETURNS
No. of
Years
Amount
(Rs.) Returns Instrument
Future Value
(Rs.)
Difference In
Value (Rs.)
10 30,000 4% Insurance 44,17,494
10 30,000 8% PPF, NSC 54,88,381 10,70,887
10 30,000 12%
Mutual
Funds 69,01,161 24,83,667

Rule no.Rule no.Rule no.Rule no.
72727272
Desired Rate of
Return
6% 8% 12% 15% 20%
Years to double
the money
12 9 6 5 4
Risk Low Low Medium High High
Example FD/Post
office
Instruments
Gold/Corpo
rate
bonds/Tax
free bonds
Balanced
MF’s/Lar
ge cap
equity
funds
Equity &
Real
estate
Equity &
Real
estate

Equity Real Estate
Debt Gold
Asset
Allocation/Diversification

IDENTIFYING PROFILES
Parameters
Risk Profile
Conservative Moderate Aggressive
Age 50 & above 35 - 50 20 - 35
Dependents Parents & Kids Kids Spouse
Commitments High Moderate Low
Liquidity Needs High Moderate Low
Loans/liabilities Yes No
Risk appetite Low Moderate High
Income stability Unstable Stable
Time horizon Short Moderate Long
Understanding
Investments& financial
mkts No Yes

Basic nature Top rules
Sense of security
Simple to understand
Tangible
Low volatility
Returns to the portfolio
Study stream of Income
Professional help
Workout a budget
Select Carefully

Shortage of nearly 20 million homes in
India…
Why are more than 12 million homes are
vacant in India?

2001 to
2011
38 million
new homes
available
24 million
new house
holds
Excess of
14 million

Outperformed every other asset class in long run
Best Hedge to Inflation
Returns ranging between 15% to 25% annually
Tax Advantage
India Considered as an Emerging Market

Volatile and Uncertain Market
Government Policies
Lack of Professional Guidance
Close Supervision of the performance of the market
Element of Inevitable Risk.

Equities may be risky, over long term nullifies the
volatility
Invest for long term
Be patient and keep cool while investing
Take experts help
First time Investors- Through SIP in Mutual Funds

Features SIP
Diversification
Affordability
Ease of operation
Special features
Taxation
Wide range of funds
Small periodic amounts
instead of lump sums
The frequency of
investment is usually
weekly, monthly or
quarterly
Rupee cost averaging

Why? How to Invest in Gold?
Hedge against
Inflation
Store of value
Status Symbol
Emergency funding
Jewellery
Gold coins
Bars/Biscuit
Gold fund
ETF

Cash…
Banks
• Savings Bank Account
• Bank FDs
• Recurring Deposit Account
• Special Bank Term Deposit
Bonds
• Tax Saving Bonds
• Regular Income Bonds
Others
• Debentures
• Company Fixed Deposits
• Equity

“Early investment is very much like growing a tree, if you take
care of it at the start, it will take care of itself later”

10 Years
Delay
Investment required per month to
generate 5 crores in 35 years @
12% return
Investment required per month to
generate 5 crores in 25 years @
12% return
Rs.3400
Rs.15000
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Savings
FD
Mutual
Funds
Property
Stocks
Career
Invest in yourselfInvest in yourselfInvest in yourselfInvest in yourself

875%more is the earning of high performer vs
underperformer over 35 years
Returns from career – Poor -5%, average-8%, good-12%,
High- 15%
Update skills, make smart choices….
35

Know how much you need when you Retire
Decide on how is it going to be Accumulated
Decide on asset allocation
Choose appropriate products
What if I Retire Early?

CORPUS REQUIRED
Current
Age
Retirement
Age
Current
Expenses
Future Value
of Expenses at
Retirement
@8% inflation
Required amount
at Retirement
Investment per
month @ 12%
25 60 30,000 4,43,560 Rs. 8,76,80,359 Rs. 13,634
30 60 30,000 3,01,880 Rs. 5,96,73,779 Rs. 17,074
40 60 30,000 1,39,829 Rs. 2,76,40,506 Rs. 27,940
50 60 30,000 64,768 Rs. 1,28,02,902 Rs. 55,655

Investing for retirement If you start saving late
Save 10% of your income
for retirement
Increase investment as
your income grows
Don’t dip into corpus
before you retire
Borrow for kid’s
education, but save for
retirement
Focus on saving, not
returns
Cut down on risks
Cut down on wasteful
expenses
Review your retirement
plan
Consider reverse
mortgage

In time Income Tax Return Filing
Using all benefits of exemptions/deductions
- 80C: Insurance/EPF/PPF/Housing Loan/ELSS etc.
Using best tax saving instruments to save tax

TAX SAVING INVESTMENT PRODUCTS
Scheme
Max Amount
(Rs.)
Tenure Returns TaxabilityRemarks
Rajiv Gandhi Equity Savings
Scheme (RGESS) 50,000
3 yrs 10-12% NO
Only first time
equity investors
Employee Provident Fund (EPF) No Limit 8.75% NO Only employees
Public Provident Fund (PPF)
1,50,000
15 yrs 8.70% NO All Individuals
NSC 5 yrs or 10 yrs
8.5% -
8.8%
YES All Individuals
NPS No Limit 8 -12% YES All Individuals
Fixed Deposits 5 yrs 8.5 - 9.5% YES All Individuals
Equity linked savings schemes
(ELSS)
3 yrs 8 -10% NO All Individuals
SCSS 5 yrs 9% YES
Individuals above
60 yrs
Insurance 3 Yrs 5 - 6% NO All Individuals

Income from Salary 6,75,000
Basic Exemption 2,50,000
-
Total Income 4,25,000
Deductions under 80C 1,50,000
PPF, EPF, Insurance, Fixed Deposits, Home
Loan principal amount etc
NPS investment 50,000 Additional Rs. 50 k apart from 1.5 lacs
Deduction under 80D 25,000 Medical Insurance premium
Home loan interest 2,00,000
Rs. 2lacs for self occupied property, let out
property- no limit
Total Taxable Income -

Periodic readjustment
Proactive
Review –Short term goals- Quarterly
- Long term goals – Annually
Rebalancing the asset mix

Do you have a fair knowledge of investments?
Do you enjoy reading about investments and doing
research?
Do you have expertise in investments?
Do you have the time to monitor, evaluate them and
make periodic changes to your portfolio?
AND do your Regular Job?

Sources Result
Friends
Family
Colleagues
Banks
Insurance Agent
Stock Broker
Tax consultant/CA
Several people-Different
views
Intentions are good
worked well
Conflict of interest
Copy and paste

Qualification
Reputation
Independence
Multidimensional Approach
Strategy over Product
Research capabilities
Accessible to you
Fee

I don’t have time
Terribly Busy. Too much work, Everything urgent.
Working overtime. Tired of this.
Cash lying in bank account without earning. What to
do? Terribly busy… How much I will lose because I
have not invested? May be 30K. Is it OK ?
No Problem I will make it up.

Cost of Delay Calculator
Retirement Age 60 60
Interest Rate p.a. 12% 12%
Monthly Investment Rs.10,000 Rs.15,000
Delay in Investment 1 year 1 year
Age (in yrs.)
Amount lost until age 60
(in lakhs)
Amount lost until age 60
(in lakhs)
30 41 61
35 22 34
40 12 19
45 7 10
50 4 6

I have taken care of my Parents
and
“Why not my Son or Daughter”
Be Financially Wise……..

Number of Old Age Homes have doubled in the last
three years
In 2009, Help age India, an NGO working for the
welfare of elderly people, counted 60 homes for aged
in Bangalore and now this number has crossed 120.

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Savings., investments etc…..
Boring. Calculations even more boring, advices, excel
sheets. No not interested.
“Great match I watched yesterday” How much time I
have spent? Just about 5 to 10 hours. What a match!
Investment deficit…Investment deficit…Investment deficit…Investment deficit…

• My finances are simple
• Financial planners help people only with investing
• Financial planners are interested only in making
money
• I like free lunches only
• Have our parents not survived without Financial
Planning?
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Start early
Set financial goals
Have a Financial Plan
Don’t be dependent on someone else for your financial
management
Do not hesitate to take professional help
Be proactive in managing your personal finance
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Be Financially Wise…..

This document is completely confidential and is being shared only to a selected set
of viewers. Copying, Modifying or Altering the contents of this document is strictly
prohibited. Sharing of this document requires prior permission from Spearhead
FinServe Pvt Ltd.
For further queries / information, please revert to srivathsala@spearglobal.com

How to Achieve Financial Freedom Through Proper Planning and Investment (40

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