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Final Year M.B.A. 206 FIN : PERSONAL FINANCIAL PLANNING- (April - 2023)
1 | P a g e Dr. Rakesh Bhati
Final Year M.B.A. 206 FIN : PERSONAL FINANCIAL PLANNING
(April - 2023)
Attempt any Five questions. [10]
a) Classify the following Investment Avenues into Conservative, Moderate and Aggressive
Investment Avenues;
i) Commodities ii) National Saving Certificates
iii) Mutual Funds and iv) Bitcoins
Conservative: - National Saving Certificates
(Conservative investments prioritize capital preservation and offer lower but relatively stable returns.)
Moderate: - Mutual Funds
(Moderate investments balance risk and return potential, offering a mix of safety and growth.)
Aggressive: Commodities, Bitcoins
(Aggressive investments seek higher returns but come with higher levels of risk and volatility.)
b) What is KYC?
KYC stands for Know Your Customer. It is a process that financial institutions and other entities use to
verify the identity of their clients or customers. KYC helps financial institutions ensure that they are
dealing with legitimate customers and comply with anti-money laundering (AML) and counter-
terrorism financing (CTF) regulations.
c) How much would Mr. A earn after 3 years if he invests Rs.10,000 @6% p.a.?
To calculate the future value of an investment after a certain period, we can use the compound
interest formula:
A=P×(1+r)n
Where:
 A is the future value of the investment
 P is the principal amount (initial investment)
 r is the annual interest rate (in decimal)
 n is the number of years
Given:
 P=Rs.10,000
 r=6%=0.06 (as a decimal)
 n=3 years
Plugging in the values:
A=10,000×(1+0.06)3
A=10,000×(1.06)3
A=10,000×1.191016
A≈Rs.11,910.16
So, Mr. A would earn approximately Rs. 11,910.16 after 3 years if he invests Rs. 10,000 at an annual
interest rate of 6%.
d) Enlist the investments to avail the tax benefit under See. 80C
Investments eligible for tax benefits under Section 80C of the Income Tax Act in India include:
1. Employee Provident Fund (EPF)
2. Public Provident Fund (PPF)
3. Equity Linked Savings Schemes (ELSS)
4. National Savings Certificate (NSC)
5. Tax-saving Fixed Deposits (FDs) in banks or post office
Final Year M.B.A. 206 FIN : PERSONAL FINANCIAL PLANNING- (April - 2023)
2 | P a g e Dr. Rakesh Bhati
6. Sukanya Samriddhi Yojana (SSY)
7. Senior Citizens Savings Scheme (SCSS)
8. 5-year Post Office Time Deposit
9. Life Insurance Premium Payments
10. Principal Repayment on Home Loan
11. Tuition Fees for Children's Education
These investments collectively offer deductions up to a maximum limit of Rs. 1,50,000 per financial
year under Section 80C.
e) Fill in the blanks:
i) ___________ focuses on maintaining a balance between all major asset classes
1) Asset Allocation 2) Wealth Management 3) Wealth Maximization 4) Asset Identification
i) The correct answer is 1) Asset Allocation.
Explanation: Asset allocation is the strategic distribution of investment funds across different
asset classes such as stocks, bonds, real estate, and cash equivalents. The primary objective of asset
allocation is to maintain a balanced portfolio that maximizes returns while minimizing risk. By
diversifying investments across various asset classes, investors can reduce the impact of market
fluctuations and achieve long-term financial goals.
ii) The Fifth Character of PAN represent the ______ of the PAN Holder.
1) Status 2) City 3) Name 4) Country
ii) The correct answer is 1) Status.
Explanation: The PAN (Permanent Account Number) is a unique 10-character alphanumeric code
issued by the Income Tax Department of India to individuals and entities. The fifth character of the
PAN represents the status of the PAN holder, which could be indicated by the following letters:
 C: Company
 P: Person (Individual)
 H: Hindu Undivided Family (HUF)
 F: Firm
 A: Association of Persons (AOP)
 T: Trust
 B: Body of Individuals (BOI)
 L: Local Authority
 J: Artificial Judicial Person
 G: Government
This character helps in identifying the type of entity or individual to whom the PAN is issued.
f) What do you understand by Systematic Risk and Non - Systematic Risk?
Systematic risk refers to the risk inherent in the entire market or economy, affecting all investments
to some degree. It cannot be diversified away and is caused by factors such as economic
downturns, interest rate fluctuations, political instability, and natural disasters.
Non-systematic risk, also known as unsystematic risk or specific risk, is the risk that is unique to a
specific company or industry and can be mitigated through diversification. Examples include
company-specific factors such as management changes, supply chain disruptions, and regulatory
changes.
g) What do you understand by estate planning?
Final Year M.B.A. 206 FIN : PERSONAL FINANCIAL PLANNING- (April - 2023)
3 | P a g e Dr. Rakesh Bhati
Estate planning is the process of arranging and managing an individual's assets, properties, and
liabilities during their lifetime and after death. It involves making decisions about how one's assets
will be distributed, managed, and transferred to beneficiaries or heirs upon death or incapacitation.
Estate planning aims to ensure that one's wishes regarding their estate are carried out efficiently,
legally, and in a tax-efficient manner while minimizing family disputes and maximizing the value of
the estate for beneficiaries.
Q2) Solve any 2: [10]
a) Chitra wants to have Rs 25,00,000 for her daughter’s wedding after 10 years. How much should
she start investing per year considering the inflation rate at 10% for the next 10 years?
We can use the Future Value of Annuity formula to calculate the annual investment needed:
Future Value of Annuity (FV) = PMT × ((1 + r)^n - 1) / r
Where:
 PMT = Annual investment
 r = Annual interest rate (inflation rate)
 n = Number of periods (years)
Given:
 Future Value (FV) = Rs. 25,00,000
 Inflation rate (r) = 10% per year
 Number of periods (n) = 10 years
Now, let's calculate the annual investment (PMT):
FV = PMT × ((1 + r)^n - 1) / r
25,00,000 = PMT × ((1 + 0.10)^10 - 1) / 0.10
25,00,000 = PMT × (2.5937 - 1) / 0.10
25,00,000 = PMT × 15.937
PMT = 25,00,000 / 15.937
PMT ≈ Rs. 1,56,802.22
So, Chitra should start investing approximately Rs. 1,56,802.22 per year to accumulate Rs. 25,00,000
for her daughter's wedding after 10 years, considering an inflation rate of 10%.
b) Explain the term “Financial Goals” with appropriate illustration.
Financial goals are specific objectives or targets that individuals set to achieve in the future
regarding their finances. These goals help individuals plan, prioritize, and work towards improving
their financial well-being. Financial goals can vary widely depending on individual circumstances,
preferences, and life stages. The few financial goals with appropriate illustrations:
1. Illustration of Short-Term Financial Goals:
 Emergency Fund: One short-term financial goal could be to establish an emergency
fund to cover unexpected expenses such as medical emergencies, car repairs, or job
loss. The target could be to save three to six months' worth of living expenses.
 Example: Sarah aims to save ₹50,000 in her emergency fund within the next six months
to provide a financial safety net in case of unforeseen circumstances.
2. Illustration of Medium-Term Financial Goals:
 Education Fund: A medium-term financial goal may involve saving for a child's
education expenses, such as tuition fees, books, and other educational expenses. The
target could be to accumulate a certain amount by the time the child starts college.
 Example: Rajesh and Maya plan to save ₹5,00,000 over the next five years for their
daughter's higher education, which they anticipate will begin in six years.
3. Illustration of Long-Term Financial Goals:
 Retirement Savings: A long-term financial goal for many individuals is to build a
sufficient retirement corpus to maintain their lifestyle and cover living expenses during
Final Year M.B.A. 206 FIN : PERSONAL FINANCIAL PLANNING- (April - 2023)
4 | P a g e Dr. Rakesh Bhati
retirement years. The target could be to accumulate a retirement fund that provides
a steady income stream post-retirement.
 Example: Amit wants to retire comfortably at the age of 60 and estimates that he will
need ₹2 crore in retirement savings. He plans to achieve this goal by investing
systematically over the next 30 years.
4. Illustration of Specific Financial Goals:
 Buying a Home: Another common financial goal is to purchase a house. This involves
saving for the down payment, as well as arranging funds for the home loan EMI and
other related expenses.
 Example: Priya and Rohit aim to buy their first home within the next five years. They
plan to save ₹20,00,000 for the down payment and closing costs, along with
maintaining a good credit score to qualify for a home loan.
5. Illustration of Lifestyle Financial Goals:
 Travel and Leisure: Some financial goals may involve indulging in travel and leisure
activities, such as taking vacations, exploring new destinations, or pursuing hobbies
and interests.
 Example: Ankit and Neha aspire to travel to Europe for a month-long vacation in three
years. They estimate the cost of the trip to be ₹10,00,000 and plan to save accordingly
over the next few years.
6. Illustration of Debt Repayment Goals:
 Debt-Free Lifestyle: Individuals may set financial goals to become debt-free by paying
off high-interest debts such as credit card debt, personal loans, or student loans.
 Example: Rahul aims to become debt-free within the next three years by aggressively
paying off his outstanding credit card debt and personal loans, thereby reducing
financial stress and improving his credit score.
c) Amar has applied for an Housing Loan of Rs. 20,00,000. How much EMI would he have to pay if
he is granted the housing loan at 12% p.a. for the next 10 years. Also calculate the total payable
amount.
To calculate the Equated Monthly Installment (EMI) for a housing loan, we can use the formula:
EMI = [P x R x (1+R)^N] / [(1+R)^N - 1]
Where:
 P = Loan amount (principal)
 R = Monthly interest rate (annual interest rate divided by 12 months)
 N = Number of monthly installments (loan tenure in years multiplied by 12 months)
Given:
 Loan amount (P) = Rs. 20,00,000
 Annual interest rate = 12%
 Loan tenure = 10 years
First, let's calculate the monthly interest rate (R): R = Annual interest rate / 12 = 12% / 12 = 1% per
month = 0.01
Now, let's calculate the total number of monthly installments (N): N = Loan tenure in years * 12 = 10
years * 12 = 120 months
Now, let's calculate the EMI using the formula:
EMI = [P x R x (1+R)^N] / [(1+R)^N - 1] = [20,00,000 x 0.01 x (1+0.01)^120] / [(1+0.01)^120 - 1]
Using a financial calculator or spreadsheet software, we find that the EMI is approximately Rs.
26,992.83.
Now, let's calculate the total payable amount over the entire loan tenure:
Total Payable Amount = EMI x Number of installments = Rs. 26,992.83 x 120 = Rs. 32,39,139.60
So, Amar would have to pay an EMI of approximately Rs. 26,992.83, and the total payable amount
over the 10-year loan tenure would be approximately Rs. 32,39,139.60.
Final Year M.B.A. 206 FIN : PERSONAL FINANCIAL PLANNING- (April - 2023)
5 | P a g e Dr. Rakesh Bhati
Q3) a) Explain the Financial Planning Process in detail. [10]
Financial planning is a systematic approach to managing one's finances to achieve specific
financial goals and objectives. It involves assessing the current financial situation, setting realistic
goals, developing strategies, implementing plans, and regularly monitoring and adjusting them as
needed.
1. Establish Financial Goals:
 The first step in financial planning is to identify and prioritize your financial goals. These
goals may include buying a house, funding education, retirement planning, wealth
accumulation, debt repayment, or any other financial objectives you aim to achieve.
 Goals should be specific, measurable, achievable, relevant, and time-bound
(SMART). This ensures clarity and helps in tracking progress effectively.
2. Assess Current Financial Situation:
 Conduct a comprehensive assessment of your current financial situation. Gather
information about your income, expenses, assets, liabilities, investments, insurance
coverage, tax obligations, and any other financial aspects.
 Analyze your cash flow, net worth, savings rate, debt levels, and risk exposure. This
assessment provides insights into your financial strengths, weaknesses, opportunities,
and threats.
3. Identify Risk Tolerance:
 Understand your risk tolerance and investment preferences. Assess your ability and
willingness to withstand fluctuations in the value of investments and potential losses.
 Consider factors such as investment knowledge, time horizon, financial obligations,
income stability, and personal comfort level with risk.
4. Develop Financial Plan:
 Based on your financial goals, current situation, and risk tolerance, develop a
customized financial plan. The plan should outline strategies and action steps to
achieve each goal effectively.
 Determine appropriate asset allocation, investment strategies, savings targets, debt
management tactics, insurance coverage, tax planning strategies, and estate
planning considerations.
5. Implement Plan:
 Once the financial plan is formulated, take action to implement it. This involves
executing the strategies outlined in the plan, such as opening investment accounts,
setting up automated savings, initiating debt repayment plans, purchasing insurance
policies, and optimizing tax-saving investments.
 Ensure proper documentation and adherence to regulatory requirements while
implementing the plan.
6. Monitor and Review Regularly:
 Financial planning is not a one-time activity; it requires regular monitoring and review.
Periodically assess the progress towards your financial goals and make adjustments as
needed.
 Review your financial plan annually or whenever there are significant life events,
changes in financial circumstances, or shifts in economic conditions or market
dynamics.
 Monitor investment performance, rebalance portfolios, update insurance coverage,
adjust savings targets, and revise strategies to stay on track with your goals.
7. Seek Professional Guidance:
 Consider seeking assistance from qualified financial planners, advisors, or professionals
to help develop and implement your financial plan. They can provide valuable
insights, expertise, and guidance tailored to your specific needs and goals.
 Choose reputable and certified professionals who adhere to fiduciary standards and
prioritize your best interests.
Final Year M.B.A. 206 FIN : PERSONAL FINANCIAL PLANNING- (April - 2023)
6 | P a g e Dr. Rakesh Bhati
8. Stay Disciplined and Flexible:
 Stick to the financial plan with discipline and consistency. Avoid impulsive decisions
and emotional reactions to market fluctuations or short-term trends.
 Remain flexible and adaptable to changes in personal circumstances, market
conditions, regulatory environment, and economic factors. Modify the plan as
necessary to accommodate evolving goals and priorities.
By following these steps diligently, individuals can create a robust financial plan that aligns with their
objectives, mitigates risks, and enhances their financial well-being over the long term.
OR
b) Explain in detail the various Investment Avenues considering their Risk and Return factors. [10]
Investment avenues can vary significantly in terms of risk and return profiles, catering to investors
with different risk tolerances, financial goals, and investment horizons. The various investment
avenues along with their associated risk and return factors are:
1. Cash Equivalents:
 Risk: Generally considered the safest investment option with minimal risk. Investments
such as savings accounts, fixed deposits, and money market funds offer capital
preservation and liquidity but may be susceptible to inflation risk.
 Return: Offers lower returns compared to other investment avenues. Returns are
typically in line with prevailing interest rates, which may not always keep pace with
inflation.
2. Fixed-Income Securities:
 Risk: Generally low to moderate risk, depending on the issuer's creditworthiness and
prevailing interest rate environment. Bonds, government securities, corporate bonds,
and fixed deposits fall under this category. Government bonds are considered less
risky compared to corporate bonds.
 Return: Offers relatively higher returns compared to cash equivalents. Returns are
primarily influenced by prevailing interest rates, bond prices, and credit quality.
3. Equity Investments:
 Risk: Considered high-risk investments due to market volatility and uncertainty.
Investing in stocks exposes investors to various risks such as market risk, company-
specific risk, sectoral risk, and systemic risk. Equity investments are subject to price
fluctuations and may result in capital losses.
 Return: Historically, equities have generated higher returns over the long term
compared to other asset classes. However, the returns are not guaranteed and vary
depending on market conditions, company performance, and economic factors.
4. Mutual Funds:
 Risk: Mutual funds pool money from multiple investors to invest in a diversified portfolio
of securities. The risk associated with mutual funds depends on the underlying assets
held by the fund (equities, bonds, or a combination). Equity mutual funds carry higher
risk compared to debt mutual funds.
 Return: Mutual funds offer varying returns based on the asset allocation and
investment strategy of the fund. Equity mutual funds have the potential to deliver
higher returns over the long term, while debt mutual funds provide relatively stable
returns with lower volatility.
5. Real Estate:
 Risk: Real estate investments involve capital-intensive purchases and are subject to
market fluctuations, economic conditions, and regulatory changes. They also entail
risks related to property management, liquidity, and tenant turnover.
 Return: Real estate investments offer the potential for capital appreciation, rental
income, and portfolio diversification. Returns vary depending on factors such as
location, property type, rental yields, and market dynamics.
Final Year M.B.A. 206 FIN : PERSONAL FINANCIAL PLANNING- (April - 2023)
7 | P a g e Dr. Rakesh Bhati
6. Commodities:
 Risk: Commodities such as gold, silver, crude oil, and agricultural products are subject
to price volatility, geopolitical factors, supply-demand dynamics, and currency
fluctuations. Investing directly in commodities can be speculative and entail
significant risk.
 Return: Commodities serve as a hedge against inflation and currency devaluation.
They offer the potential for capital appreciation during periods of economic
uncertainty and inflationary pressures.
7. Alternative Investments:
 Risk: Alternative investments include hedge funds, private equity, venture capital, and
cryptocurrencies. These investments often involve higher risk due to their complex
nature, lack of regulation, and limited liquidity. They may also exhibit non-traditional
return patterns.
 Return: Alternative investments have the potential to generate higher returns than
traditional asset classes but also come with increased risk and volatility. Returns
depend on factors such as market conditions, fund manager expertise, and
investment strategy.
Q4) What are the varied Insurance Policies available to the Investors? [10]
In India, investors have access to a wide range of insurance policies to meet their diverse financial
needs and goals. The varied insurance policies available to investors in India are:
1. Life Insurance Policies:
 Term Insurance: Provides coverage for a specific term or duration. It offers a high sum
assured at affordable premiums and pays out the sum assured to the nominee in case
of the policyholder's demise during the policy term.
 Whole Life Insurance: Offers coverage for the entire life of the insured. It provides a
death benefit to the nominee and may also accumulate cash value over time, which
can be withdrawn or borrowed against.
 Endowment Policies: Combines insurance coverage with savings. It provides a lump
sum payout to the nominee in case of the policyholder's demise during the policy term
and also offers a maturity benefit if the insured survives the policy term.
 Unit Linked Insurance Plans (ULIPs): Offer both insurance coverage and investment
opportunities. Policyholders can invest in a variety of funds (equity, debt, or balanced)
based on their risk appetite, and the returns are linked to the performance of the
underlying funds.
2. Health Insurance Policies:
 Mediclaim/Health Insurance: Covers medical expenses incurred due to illness,
accidents, or hospitalization. It reimburses hospitalization expenses or provides
cashless treatment at network hospitals.
 Critical Illness Insurance: Offers a lump sum payout upon diagnosis of critical illnesses
such as cancer, heart attack, stroke, etc. The benefit amount can be used to cover
treatment expenses or other financial needs.
 Personal Accident Insurance: Provides coverage in the event of accidental death or
disability. It offers a lump sum payout to the insured or their nominee to cope with the
financial impact of the accident.
3. General Insurance Policies:
 Motor Insurance: Compulsory for all vehicle owners in India. It provides coverage
against damages to the insured vehicle due to accidents, theft, natural calamities,
etc., and also offers third-party liability coverage.
 Home Insurance: Protects the insured property (house and contents) against risks such
as fire, burglary, natural disasters, etc. It offers coverage for repair or replacement
costs in case of damage or loss.
Final Year M.B.A. 206 FIN : PERSONAL FINANCIAL PLANNING- (April - 2023)
8 | P a g e Dr. Rakesh Bhati
 Travel Insurance: Covers unforeseen events during domestic or international travel,
such as trip cancellation, medical emergencies, baggage loss, etc.
4. Retirement Plans:
 Pension Plans: Offer regular income to policyholders post-retirement. They can be
immediate annuity plans or deferred annuity plans, providing a pension for life or a
specific period.
 National Pension System (NPS): A voluntary, long-term retirement savings scheme
regulated by the government of India. It allows individuals to contribute towards a
pension account, which is invested in various asset classes to generate returns for
retirement.
OR
Discuss in details the necessary steps to be followed by filing the Income Tax Returns.
Filing income tax returns in India involves several steps, and it's essential to follow them accurately
to ensure compliance with the tax laws of the country. The necessary steps to file income tax returns
in India are:
1. Gather Documents: Collect all the necessary documents required for filing your income tax
return. This includes your PAN (Permanent Account Number) card, Aadhaar card, Form 16
(issued by your employer), bank statements, investment proofs, rent receipts (if applicable),
and any other relevant documents related to your income, expenses, and investments.
2. Choose the Correct Form: The next step is to choose the appropriate income tax return (ITR)
form based on your sources of income. The different types of ITR forms cater to various
categories of taxpayers, such as individuals, Hindu Undivided Families (HUFs), companies,
and firms. Make sure you select the correct form to avoid any discrepancies or delays.
3. Calculate Taxable Income: Calculate your total taxable income for the financial year by
adding up all your income from various sources, including salary, interest, rental income,
capital gains, etc. Deduct any eligible deductions under sections such as 80C, 80D, 80E, etc.,
to arrive at your net taxable income.
4. Compute Tax Liability: Use the applicable income tax slab rates to compute your tax liability
based on your taxable income. Ensure that you consider any applicable tax deductions and
exemptions while calculating your tax liability.
5. Pay Due Taxes: If there is any tax payable after considering TDS (Tax Deducted at Source)
already deducted and advance tax paid, ensure that you pay the remaining tax before
filing your income tax return. You can pay the tax online through the income tax
department's website or physically at designated bank branches.
6. File Income Tax Return Online: The preferred method for filing income tax returns in India is
online through the Income Tax Department's e-filing portal
(https://www.incometaxindiaefiling.gov.in). Register yourself on the portal if you haven't
already and log in using your credentials. Choose the relevant ITR form and assessment year,
then fill in the required details accurately.
7. Verify ITR: After filling in all the necessary details in the income tax return form, verify the
information provided. Ensure that all the income, deductions, and tax payments are
correctly reflected. Review the form carefully to avoid any errors or discrepancies.
8. Submit ITR: Once you have verified all the details and ensured their accuracy, proceed to
submit the income tax return online. After submission, you will receive an acknowledgment
containing an acknowledgment number. This acknowledgment serves as proof that you
have filed your income tax return.
Final Year M.B.A. 206 FIN : PERSONAL FINANCIAL PLANNING- (April - 2023)
9 | P a g e Dr. Rakesh Bhati
9. E-Verify ITR: After submitting the income tax return, it's essential to verify it within 120 days.
You can e-verify your ITR using various methods such as net banking, Aadhaar OTP, bank
ATM, or by sending a signed physical copy of ITR-V to the CPC Bangalore address within 120
days.
10. Keep Records: Finally, keep a record of the filed income tax return, acknowledgment, and
any other supporting documents for future reference and audit purposes.
By following these steps diligently, you can successfully file your income tax returns in India and fulfill
your tax obligations as a responsible citizen.
Q5) What is the need for Retirement Planning? Explain in detail. [10]
Answer
Retirement planning is crucial for several reasons, as it ensures financial security and stability during
a period when individuals are no longer earning active income from employment. retirement
planning is essential for maintaining financial security, preserving lifestyle choices, managing
healthcare expenses, protecting against inflation and longevity risk, minimizing reliance on Social
Security, preparing for unexpected events, and leaving a legacy for future generations. By
proactively planning for retirement, individuals can enjoy a fulfilling and worry-free retirement
journey.
The few reasons why retirement planning is essential:
1. Maintaining Financial Independence: Retirement planning allows individuals to maintain
financial independence and autonomy during their retirement years. By accumulating
sufficient savings and investments, retirees can cover their living expenses, healthcare costs,
and other needs without relying solely on government benefits or family support.
2. Ensuring a Comfortable Lifestyle: Retirement planning helps individuals maintain their desired
lifestyle and standard of living during retirement. It enables retirees to pursue hobbies, travel,
engage in leisure activities, and enjoy quality time with family and friends without financial
constraints.
3. Managing Healthcare Expenses: Healthcare costs tend to increase with age, making it
essential to plan for medical expenses during retirement. Retirement planning allows
individuals to set aside funds for healthcare needs, including medical insurance premiums,
prescription medications, long-term care, and potential medical emergencies.
4. Protecting Against Inflation: Inflation erodes the purchasing power of money over time, which
can significantly impact retirees living on fixed incomes. Retirement planning involves
accounting for inflation and ensuring that savings and investments grow at a rate that
outpaces inflation, thereby preserving the purchasing power of retirement funds.
5. Mitigating Longevity Risk: With increasing life expectancy, retirees may need to support
themselves financially for several decades in retirement. Retirement planning helps
individuals mitigate longevity risk by ensuring that their savings and investments last
throughout their retirement years, even if they live longer than expected.
6. Minimizing Reliance on Social Security: While Social Security benefits provide a safety net for
retirees, they may not be sufficient to cover all expenses in retirement. Retirement planning
allows individuals to supplement Social Security income with additional savings and
investments, reducing reliance on government benefits and maintaining financial security.
7. Preparing for Unforeseen Circumstances: Life is unpredictable, and unexpected events such
as market downturns, job loss, disability, or family emergencies can impact retirement
savings. Retirement planning involves building emergency funds and contingency plans to
address unforeseen circumstances and ensure financial resilience during retirement.
8. Leaving a Legacy: Retirement planning enables individuals to leave a financial legacy for
their loved ones or charitable causes. By strategically managing assets and estate planning,
retirees can transfer wealth to future generations or support philanthropic initiatives, leaving
a lasting impact beyond their lifetime.
OR
Final Year M.B.A. 206 FIN : PERSONAL FINANCIAL PLANNING- (April - 2023)
10 | P a g e Dr. Rakesh Bhati
What are the benefits of investing in Mutual Funds? Explain in detail the steps required for investing
in Mutual Funds.
Answer:
Mutual fund benefits include diversification across various securities like stocks, equities, and bonds,
expert money management by professionals, cost advantages due to pooling resources, clear
transparency in operations, and much more.
 Professional Management: Access experienced fund managers who analyze market trends,
select investments, and adjust portfolios for maximum returns.
 Diversification: Spread your money across various assets like stocks, bonds, and cash
equivalents to reduce risk.
 Accessibility: Easily invest in the financial markets without needing extensive knowledge or
expertise.
 Liquidity: Enjoy quick and convenient access to your funds when needed, subject to market
conditions and exit load fees.
 Affordability: Start investing with small amounts and grow your wealth steadily over time
through systematic investment plans (SIPs).
 Tax Benefits: Save money on taxes through tax-efficient mutual funds, such as ELSS funds
offering benefits under Section 80C.
 According to the Union Budget 2023, there has been a significant change in the
taxation rules for debt funds effective from April 1, 2023.
 Only ELSS mutual funds offer tax benefits under Section 80C of the Income Tax
Act, 1961. Other mutual funds are taxed as capital gains.
 Specified mutual funds, which invest less than 35% in equity, will lose the
indexation benefit for gains from April 1, 2023. Other debt funds will still have
the indexation benefit for LTCG if held for more than 36 months.
 ELSS mutual funds have a lock-in period of three years and are subject to LTCG
tax at 10% if the gains exceed Rs 1 lakh in a financial year.
 Dividend income from mutual funds is taxable to investors at their applicable
slab rates. There is no DDT on mutual funds.
 Transparency: Gain insight into your investments with detailed information on investment
strategies, portfolio holdings, and past performance.
 Rupee Cost Averaging: Mitigate market volatility by buying more units when prices are low
and fewer units when prices are high through SIPs.
 Flexibility: Choose from a variety of mutual funds tailored to different investment goals and
risk tolerances.
 Wealth Creation: Benefit from the power of compounding as your investments generate
returns and reinvested gains grow over time.
Final Year M.B.A. 206 FIN : PERSONAL FINANCIAL PLANNING- (April - 2023)
11 | P a g e Dr. Rakesh Bhati
Investing in mutual funds is a smart way to grow your wealth in the stock market, and getting started
is easier than you might think. The step-by-step guide is as follows:
 Set Your Financial Goals: Determine your investment objectives, whether it’s saving for a
dream vacation, retirement, or buying a house.
 Understand Risk and Return: Assess your risk tolerance to choose mutual funds that align with
your comfort level. Remember, when investing in mutual funds, higher returns often come
with higher risk.
 Research Mutual Funds: Explore different types of mutual funds in India and also thoroughly
check the benefits of investing in mutual funds for all types, like equity, debt, or balanced
funds. Look for past performance, expense ratios, and fund managers’ track records.
 Choose the Right Mutual Fund(s): Select mutual funds that rightly match your goals and risk
tolerance. Portfolio Diversification is the ultimate key, so consider investing in a mix of funds.
 Complete KYC Process: Get your KYC (Know Your Customer) documents in order to comply
with the regulatory requirements involved in mutual fund investments.
 Pick an Investment Method: Merely looking at the benefits of mutual funds is not the only way
to choose your mutual fund in India. It is a must that you decide whether to invest through
lump-sum payments or SIPs (Systematic Investment Plans) for regular mutual fund
investments.
 Register with a Fund House: Open an account with a mutual fund company to start investing.
You can also open a free DEMAT account with an online broker and start investing in mutual
funds.

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MBA 206 FIN PERSONAL FINANCIAL PLANNING APRIL 2023.pdf

  • 1. Final Year M.B.A. 206 FIN : PERSONAL FINANCIAL PLANNING- (April - 2023) 1 | P a g e Dr. Rakesh Bhati Final Year M.B.A. 206 FIN : PERSONAL FINANCIAL PLANNING (April - 2023) Attempt any Five questions. [10] a) Classify the following Investment Avenues into Conservative, Moderate and Aggressive Investment Avenues; i) Commodities ii) National Saving Certificates iii) Mutual Funds and iv) Bitcoins Conservative: - National Saving Certificates (Conservative investments prioritize capital preservation and offer lower but relatively stable returns.) Moderate: - Mutual Funds (Moderate investments balance risk and return potential, offering a mix of safety and growth.) Aggressive: Commodities, Bitcoins (Aggressive investments seek higher returns but come with higher levels of risk and volatility.) b) What is KYC? KYC stands for Know Your Customer. It is a process that financial institutions and other entities use to verify the identity of their clients or customers. KYC helps financial institutions ensure that they are dealing with legitimate customers and comply with anti-money laundering (AML) and counter- terrorism financing (CTF) regulations. c) How much would Mr. A earn after 3 years if he invests Rs.10,000 @6% p.a.? To calculate the future value of an investment after a certain period, we can use the compound interest formula: A=P×(1+r)n Where:  A is the future value of the investment  P is the principal amount (initial investment)  r is the annual interest rate (in decimal)  n is the number of years Given:  P=Rs.10,000  r=6%=0.06 (as a decimal)  n=3 years Plugging in the values: A=10,000×(1+0.06)3 A=10,000×(1.06)3 A=10,000×1.191016 A≈Rs.11,910.16 So, Mr. A would earn approximately Rs. 11,910.16 after 3 years if he invests Rs. 10,000 at an annual interest rate of 6%. d) Enlist the investments to avail the tax benefit under See. 80C Investments eligible for tax benefits under Section 80C of the Income Tax Act in India include: 1. Employee Provident Fund (EPF) 2. Public Provident Fund (PPF) 3. Equity Linked Savings Schemes (ELSS) 4. National Savings Certificate (NSC) 5. Tax-saving Fixed Deposits (FDs) in banks or post office
  • 2. Final Year M.B.A. 206 FIN : PERSONAL FINANCIAL PLANNING- (April - 2023) 2 | P a g e Dr. Rakesh Bhati 6. Sukanya Samriddhi Yojana (SSY) 7. Senior Citizens Savings Scheme (SCSS) 8. 5-year Post Office Time Deposit 9. Life Insurance Premium Payments 10. Principal Repayment on Home Loan 11. Tuition Fees for Children's Education These investments collectively offer deductions up to a maximum limit of Rs. 1,50,000 per financial year under Section 80C. e) Fill in the blanks: i) ___________ focuses on maintaining a balance between all major asset classes 1) Asset Allocation 2) Wealth Management 3) Wealth Maximization 4) Asset Identification i) The correct answer is 1) Asset Allocation. Explanation: Asset allocation is the strategic distribution of investment funds across different asset classes such as stocks, bonds, real estate, and cash equivalents. The primary objective of asset allocation is to maintain a balanced portfolio that maximizes returns while minimizing risk. By diversifying investments across various asset classes, investors can reduce the impact of market fluctuations and achieve long-term financial goals. ii) The Fifth Character of PAN represent the ______ of the PAN Holder. 1) Status 2) City 3) Name 4) Country ii) The correct answer is 1) Status. Explanation: The PAN (Permanent Account Number) is a unique 10-character alphanumeric code issued by the Income Tax Department of India to individuals and entities. The fifth character of the PAN represents the status of the PAN holder, which could be indicated by the following letters:  C: Company  P: Person (Individual)  H: Hindu Undivided Family (HUF)  F: Firm  A: Association of Persons (AOP)  T: Trust  B: Body of Individuals (BOI)  L: Local Authority  J: Artificial Judicial Person  G: Government This character helps in identifying the type of entity or individual to whom the PAN is issued. f) What do you understand by Systematic Risk and Non - Systematic Risk? Systematic risk refers to the risk inherent in the entire market or economy, affecting all investments to some degree. It cannot be diversified away and is caused by factors such as economic downturns, interest rate fluctuations, political instability, and natural disasters. Non-systematic risk, also known as unsystematic risk or specific risk, is the risk that is unique to a specific company or industry and can be mitigated through diversification. Examples include company-specific factors such as management changes, supply chain disruptions, and regulatory changes. g) What do you understand by estate planning?
  • 3. Final Year M.B.A. 206 FIN : PERSONAL FINANCIAL PLANNING- (April - 2023) 3 | P a g e Dr. Rakesh Bhati Estate planning is the process of arranging and managing an individual's assets, properties, and liabilities during their lifetime and after death. It involves making decisions about how one's assets will be distributed, managed, and transferred to beneficiaries or heirs upon death or incapacitation. Estate planning aims to ensure that one's wishes regarding their estate are carried out efficiently, legally, and in a tax-efficient manner while minimizing family disputes and maximizing the value of the estate for beneficiaries. Q2) Solve any 2: [10] a) Chitra wants to have Rs 25,00,000 for her daughter’s wedding after 10 years. How much should she start investing per year considering the inflation rate at 10% for the next 10 years? We can use the Future Value of Annuity formula to calculate the annual investment needed: Future Value of Annuity (FV) = PMT × ((1 + r)^n - 1) / r Where:  PMT = Annual investment  r = Annual interest rate (inflation rate)  n = Number of periods (years) Given:  Future Value (FV) = Rs. 25,00,000  Inflation rate (r) = 10% per year  Number of periods (n) = 10 years Now, let's calculate the annual investment (PMT): FV = PMT × ((1 + r)^n - 1) / r 25,00,000 = PMT × ((1 + 0.10)^10 - 1) / 0.10 25,00,000 = PMT × (2.5937 - 1) / 0.10 25,00,000 = PMT × 15.937 PMT = 25,00,000 / 15.937 PMT ≈ Rs. 1,56,802.22 So, Chitra should start investing approximately Rs. 1,56,802.22 per year to accumulate Rs. 25,00,000 for her daughter's wedding after 10 years, considering an inflation rate of 10%. b) Explain the term “Financial Goals” with appropriate illustration. Financial goals are specific objectives or targets that individuals set to achieve in the future regarding their finances. These goals help individuals plan, prioritize, and work towards improving their financial well-being. Financial goals can vary widely depending on individual circumstances, preferences, and life stages. The few financial goals with appropriate illustrations: 1. Illustration of Short-Term Financial Goals:  Emergency Fund: One short-term financial goal could be to establish an emergency fund to cover unexpected expenses such as medical emergencies, car repairs, or job loss. The target could be to save three to six months' worth of living expenses.  Example: Sarah aims to save ₹50,000 in her emergency fund within the next six months to provide a financial safety net in case of unforeseen circumstances. 2. Illustration of Medium-Term Financial Goals:  Education Fund: A medium-term financial goal may involve saving for a child's education expenses, such as tuition fees, books, and other educational expenses. The target could be to accumulate a certain amount by the time the child starts college.  Example: Rajesh and Maya plan to save ₹5,00,000 over the next five years for their daughter's higher education, which they anticipate will begin in six years. 3. Illustration of Long-Term Financial Goals:  Retirement Savings: A long-term financial goal for many individuals is to build a sufficient retirement corpus to maintain their lifestyle and cover living expenses during
  • 4. Final Year M.B.A. 206 FIN : PERSONAL FINANCIAL PLANNING- (April - 2023) 4 | P a g e Dr. Rakesh Bhati retirement years. The target could be to accumulate a retirement fund that provides a steady income stream post-retirement.  Example: Amit wants to retire comfortably at the age of 60 and estimates that he will need ₹2 crore in retirement savings. He plans to achieve this goal by investing systematically over the next 30 years. 4. Illustration of Specific Financial Goals:  Buying a Home: Another common financial goal is to purchase a house. This involves saving for the down payment, as well as arranging funds for the home loan EMI and other related expenses.  Example: Priya and Rohit aim to buy their first home within the next five years. They plan to save ₹20,00,000 for the down payment and closing costs, along with maintaining a good credit score to qualify for a home loan. 5. Illustration of Lifestyle Financial Goals:  Travel and Leisure: Some financial goals may involve indulging in travel and leisure activities, such as taking vacations, exploring new destinations, or pursuing hobbies and interests.  Example: Ankit and Neha aspire to travel to Europe for a month-long vacation in three years. They estimate the cost of the trip to be ₹10,00,000 and plan to save accordingly over the next few years. 6. Illustration of Debt Repayment Goals:  Debt-Free Lifestyle: Individuals may set financial goals to become debt-free by paying off high-interest debts such as credit card debt, personal loans, or student loans.  Example: Rahul aims to become debt-free within the next three years by aggressively paying off his outstanding credit card debt and personal loans, thereby reducing financial stress and improving his credit score. c) Amar has applied for an Housing Loan of Rs. 20,00,000. How much EMI would he have to pay if he is granted the housing loan at 12% p.a. for the next 10 years. Also calculate the total payable amount. To calculate the Equated Monthly Installment (EMI) for a housing loan, we can use the formula: EMI = [P x R x (1+R)^N] / [(1+R)^N - 1] Where:  P = Loan amount (principal)  R = Monthly interest rate (annual interest rate divided by 12 months)  N = Number of monthly installments (loan tenure in years multiplied by 12 months) Given:  Loan amount (P) = Rs. 20,00,000  Annual interest rate = 12%  Loan tenure = 10 years First, let's calculate the monthly interest rate (R): R = Annual interest rate / 12 = 12% / 12 = 1% per month = 0.01 Now, let's calculate the total number of monthly installments (N): N = Loan tenure in years * 12 = 10 years * 12 = 120 months Now, let's calculate the EMI using the formula: EMI = [P x R x (1+R)^N] / [(1+R)^N - 1] = [20,00,000 x 0.01 x (1+0.01)^120] / [(1+0.01)^120 - 1] Using a financial calculator or spreadsheet software, we find that the EMI is approximately Rs. 26,992.83. Now, let's calculate the total payable amount over the entire loan tenure: Total Payable Amount = EMI x Number of installments = Rs. 26,992.83 x 120 = Rs. 32,39,139.60 So, Amar would have to pay an EMI of approximately Rs. 26,992.83, and the total payable amount over the 10-year loan tenure would be approximately Rs. 32,39,139.60.
  • 5. Final Year M.B.A. 206 FIN : PERSONAL FINANCIAL PLANNING- (April - 2023) 5 | P a g e Dr. Rakesh Bhati Q3) a) Explain the Financial Planning Process in detail. [10] Financial planning is a systematic approach to managing one's finances to achieve specific financial goals and objectives. It involves assessing the current financial situation, setting realistic goals, developing strategies, implementing plans, and regularly monitoring and adjusting them as needed. 1. Establish Financial Goals:  The first step in financial planning is to identify and prioritize your financial goals. These goals may include buying a house, funding education, retirement planning, wealth accumulation, debt repayment, or any other financial objectives you aim to achieve.  Goals should be specific, measurable, achievable, relevant, and time-bound (SMART). This ensures clarity and helps in tracking progress effectively. 2. Assess Current Financial Situation:  Conduct a comprehensive assessment of your current financial situation. Gather information about your income, expenses, assets, liabilities, investments, insurance coverage, tax obligations, and any other financial aspects.  Analyze your cash flow, net worth, savings rate, debt levels, and risk exposure. This assessment provides insights into your financial strengths, weaknesses, opportunities, and threats. 3. Identify Risk Tolerance:  Understand your risk tolerance and investment preferences. Assess your ability and willingness to withstand fluctuations in the value of investments and potential losses.  Consider factors such as investment knowledge, time horizon, financial obligations, income stability, and personal comfort level with risk. 4. Develop Financial Plan:  Based on your financial goals, current situation, and risk tolerance, develop a customized financial plan. The plan should outline strategies and action steps to achieve each goal effectively.  Determine appropriate asset allocation, investment strategies, savings targets, debt management tactics, insurance coverage, tax planning strategies, and estate planning considerations. 5. Implement Plan:  Once the financial plan is formulated, take action to implement it. This involves executing the strategies outlined in the plan, such as opening investment accounts, setting up automated savings, initiating debt repayment plans, purchasing insurance policies, and optimizing tax-saving investments.  Ensure proper documentation and adherence to regulatory requirements while implementing the plan. 6. Monitor and Review Regularly:  Financial planning is not a one-time activity; it requires regular monitoring and review. Periodically assess the progress towards your financial goals and make adjustments as needed.  Review your financial plan annually or whenever there are significant life events, changes in financial circumstances, or shifts in economic conditions or market dynamics.  Monitor investment performance, rebalance portfolios, update insurance coverage, adjust savings targets, and revise strategies to stay on track with your goals. 7. Seek Professional Guidance:  Consider seeking assistance from qualified financial planners, advisors, or professionals to help develop and implement your financial plan. They can provide valuable insights, expertise, and guidance tailored to your specific needs and goals.  Choose reputable and certified professionals who adhere to fiduciary standards and prioritize your best interests.
  • 6. Final Year M.B.A. 206 FIN : PERSONAL FINANCIAL PLANNING- (April - 2023) 6 | P a g e Dr. Rakesh Bhati 8. Stay Disciplined and Flexible:  Stick to the financial plan with discipline and consistency. Avoid impulsive decisions and emotional reactions to market fluctuations or short-term trends.  Remain flexible and adaptable to changes in personal circumstances, market conditions, regulatory environment, and economic factors. Modify the plan as necessary to accommodate evolving goals and priorities. By following these steps diligently, individuals can create a robust financial plan that aligns with their objectives, mitigates risks, and enhances their financial well-being over the long term. OR b) Explain in detail the various Investment Avenues considering their Risk and Return factors. [10] Investment avenues can vary significantly in terms of risk and return profiles, catering to investors with different risk tolerances, financial goals, and investment horizons. The various investment avenues along with their associated risk and return factors are: 1. Cash Equivalents:  Risk: Generally considered the safest investment option with minimal risk. Investments such as savings accounts, fixed deposits, and money market funds offer capital preservation and liquidity but may be susceptible to inflation risk.  Return: Offers lower returns compared to other investment avenues. Returns are typically in line with prevailing interest rates, which may not always keep pace with inflation. 2. Fixed-Income Securities:  Risk: Generally low to moderate risk, depending on the issuer's creditworthiness and prevailing interest rate environment. Bonds, government securities, corporate bonds, and fixed deposits fall under this category. Government bonds are considered less risky compared to corporate bonds.  Return: Offers relatively higher returns compared to cash equivalents. Returns are primarily influenced by prevailing interest rates, bond prices, and credit quality. 3. Equity Investments:  Risk: Considered high-risk investments due to market volatility and uncertainty. Investing in stocks exposes investors to various risks such as market risk, company- specific risk, sectoral risk, and systemic risk. Equity investments are subject to price fluctuations and may result in capital losses.  Return: Historically, equities have generated higher returns over the long term compared to other asset classes. However, the returns are not guaranteed and vary depending on market conditions, company performance, and economic factors. 4. Mutual Funds:  Risk: Mutual funds pool money from multiple investors to invest in a diversified portfolio of securities. The risk associated with mutual funds depends on the underlying assets held by the fund (equities, bonds, or a combination). Equity mutual funds carry higher risk compared to debt mutual funds.  Return: Mutual funds offer varying returns based on the asset allocation and investment strategy of the fund. Equity mutual funds have the potential to deliver higher returns over the long term, while debt mutual funds provide relatively stable returns with lower volatility. 5. Real Estate:  Risk: Real estate investments involve capital-intensive purchases and are subject to market fluctuations, economic conditions, and regulatory changes. They also entail risks related to property management, liquidity, and tenant turnover.  Return: Real estate investments offer the potential for capital appreciation, rental income, and portfolio diversification. Returns vary depending on factors such as location, property type, rental yields, and market dynamics.
  • 7. Final Year M.B.A. 206 FIN : PERSONAL FINANCIAL PLANNING- (April - 2023) 7 | P a g e Dr. Rakesh Bhati 6. Commodities:  Risk: Commodities such as gold, silver, crude oil, and agricultural products are subject to price volatility, geopolitical factors, supply-demand dynamics, and currency fluctuations. Investing directly in commodities can be speculative and entail significant risk.  Return: Commodities serve as a hedge against inflation and currency devaluation. They offer the potential for capital appreciation during periods of economic uncertainty and inflationary pressures. 7. Alternative Investments:  Risk: Alternative investments include hedge funds, private equity, venture capital, and cryptocurrencies. These investments often involve higher risk due to their complex nature, lack of regulation, and limited liquidity. They may also exhibit non-traditional return patterns.  Return: Alternative investments have the potential to generate higher returns than traditional asset classes but also come with increased risk and volatility. Returns depend on factors such as market conditions, fund manager expertise, and investment strategy. Q4) What are the varied Insurance Policies available to the Investors? [10] In India, investors have access to a wide range of insurance policies to meet their diverse financial needs and goals. The varied insurance policies available to investors in India are: 1. Life Insurance Policies:  Term Insurance: Provides coverage for a specific term or duration. It offers a high sum assured at affordable premiums and pays out the sum assured to the nominee in case of the policyholder's demise during the policy term.  Whole Life Insurance: Offers coverage for the entire life of the insured. It provides a death benefit to the nominee and may also accumulate cash value over time, which can be withdrawn or borrowed against.  Endowment Policies: Combines insurance coverage with savings. It provides a lump sum payout to the nominee in case of the policyholder's demise during the policy term and also offers a maturity benefit if the insured survives the policy term.  Unit Linked Insurance Plans (ULIPs): Offer both insurance coverage and investment opportunities. Policyholders can invest in a variety of funds (equity, debt, or balanced) based on their risk appetite, and the returns are linked to the performance of the underlying funds. 2. Health Insurance Policies:  Mediclaim/Health Insurance: Covers medical expenses incurred due to illness, accidents, or hospitalization. It reimburses hospitalization expenses or provides cashless treatment at network hospitals.  Critical Illness Insurance: Offers a lump sum payout upon diagnosis of critical illnesses such as cancer, heart attack, stroke, etc. The benefit amount can be used to cover treatment expenses or other financial needs.  Personal Accident Insurance: Provides coverage in the event of accidental death or disability. It offers a lump sum payout to the insured or their nominee to cope with the financial impact of the accident. 3. General Insurance Policies:  Motor Insurance: Compulsory for all vehicle owners in India. It provides coverage against damages to the insured vehicle due to accidents, theft, natural calamities, etc., and also offers third-party liability coverage.  Home Insurance: Protects the insured property (house and contents) against risks such as fire, burglary, natural disasters, etc. It offers coverage for repair or replacement costs in case of damage or loss.
  • 8. Final Year M.B.A. 206 FIN : PERSONAL FINANCIAL PLANNING- (April - 2023) 8 | P a g e Dr. Rakesh Bhati  Travel Insurance: Covers unforeseen events during domestic or international travel, such as trip cancellation, medical emergencies, baggage loss, etc. 4. Retirement Plans:  Pension Plans: Offer regular income to policyholders post-retirement. They can be immediate annuity plans or deferred annuity plans, providing a pension for life or a specific period.  National Pension System (NPS): A voluntary, long-term retirement savings scheme regulated by the government of India. It allows individuals to contribute towards a pension account, which is invested in various asset classes to generate returns for retirement. OR Discuss in details the necessary steps to be followed by filing the Income Tax Returns. Filing income tax returns in India involves several steps, and it's essential to follow them accurately to ensure compliance with the tax laws of the country. The necessary steps to file income tax returns in India are: 1. Gather Documents: Collect all the necessary documents required for filing your income tax return. This includes your PAN (Permanent Account Number) card, Aadhaar card, Form 16 (issued by your employer), bank statements, investment proofs, rent receipts (if applicable), and any other relevant documents related to your income, expenses, and investments. 2. Choose the Correct Form: The next step is to choose the appropriate income tax return (ITR) form based on your sources of income. The different types of ITR forms cater to various categories of taxpayers, such as individuals, Hindu Undivided Families (HUFs), companies, and firms. Make sure you select the correct form to avoid any discrepancies or delays. 3. Calculate Taxable Income: Calculate your total taxable income for the financial year by adding up all your income from various sources, including salary, interest, rental income, capital gains, etc. Deduct any eligible deductions under sections such as 80C, 80D, 80E, etc., to arrive at your net taxable income. 4. Compute Tax Liability: Use the applicable income tax slab rates to compute your tax liability based on your taxable income. Ensure that you consider any applicable tax deductions and exemptions while calculating your tax liability. 5. Pay Due Taxes: If there is any tax payable after considering TDS (Tax Deducted at Source) already deducted and advance tax paid, ensure that you pay the remaining tax before filing your income tax return. You can pay the tax online through the income tax department's website or physically at designated bank branches. 6. File Income Tax Return Online: The preferred method for filing income tax returns in India is online through the Income Tax Department's e-filing portal (https://www.incometaxindiaefiling.gov.in). Register yourself on the portal if you haven't already and log in using your credentials. Choose the relevant ITR form and assessment year, then fill in the required details accurately. 7. Verify ITR: After filling in all the necessary details in the income tax return form, verify the information provided. Ensure that all the income, deductions, and tax payments are correctly reflected. Review the form carefully to avoid any errors or discrepancies. 8. Submit ITR: Once you have verified all the details and ensured their accuracy, proceed to submit the income tax return online. After submission, you will receive an acknowledgment containing an acknowledgment number. This acknowledgment serves as proof that you have filed your income tax return.
  • 9. Final Year M.B.A. 206 FIN : PERSONAL FINANCIAL PLANNING- (April - 2023) 9 | P a g e Dr. Rakesh Bhati 9. E-Verify ITR: After submitting the income tax return, it's essential to verify it within 120 days. You can e-verify your ITR using various methods such as net banking, Aadhaar OTP, bank ATM, or by sending a signed physical copy of ITR-V to the CPC Bangalore address within 120 days. 10. Keep Records: Finally, keep a record of the filed income tax return, acknowledgment, and any other supporting documents for future reference and audit purposes. By following these steps diligently, you can successfully file your income tax returns in India and fulfill your tax obligations as a responsible citizen. Q5) What is the need for Retirement Planning? Explain in detail. [10] Answer Retirement planning is crucial for several reasons, as it ensures financial security and stability during a period when individuals are no longer earning active income from employment. retirement planning is essential for maintaining financial security, preserving lifestyle choices, managing healthcare expenses, protecting against inflation and longevity risk, minimizing reliance on Social Security, preparing for unexpected events, and leaving a legacy for future generations. By proactively planning for retirement, individuals can enjoy a fulfilling and worry-free retirement journey. The few reasons why retirement planning is essential: 1. Maintaining Financial Independence: Retirement planning allows individuals to maintain financial independence and autonomy during their retirement years. By accumulating sufficient savings and investments, retirees can cover their living expenses, healthcare costs, and other needs without relying solely on government benefits or family support. 2. Ensuring a Comfortable Lifestyle: Retirement planning helps individuals maintain their desired lifestyle and standard of living during retirement. It enables retirees to pursue hobbies, travel, engage in leisure activities, and enjoy quality time with family and friends without financial constraints. 3. Managing Healthcare Expenses: Healthcare costs tend to increase with age, making it essential to plan for medical expenses during retirement. Retirement planning allows individuals to set aside funds for healthcare needs, including medical insurance premiums, prescription medications, long-term care, and potential medical emergencies. 4. Protecting Against Inflation: Inflation erodes the purchasing power of money over time, which can significantly impact retirees living on fixed incomes. Retirement planning involves accounting for inflation and ensuring that savings and investments grow at a rate that outpaces inflation, thereby preserving the purchasing power of retirement funds. 5. Mitigating Longevity Risk: With increasing life expectancy, retirees may need to support themselves financially for several decades in retirement. Retirement planning helps individuals mitigate longevity risk by ensuring that their savings and investments last throughout their retirement years, even if they live longer than expected. 6. Minimizing Reliance on Social Security: While Social Security benefits provide a safety net for retirees, they may not be sufficient to cover all expenses in retirement. Retirement planning allows individuals to supplement Social Security income with additional savings and investments, reducing reliance on government benefits and maintaining financial security. 7. Preparing for Unforeseen Circumstances: Life is unpredictable, and unexpected events such as market downturns, job loss, disability, or family emergencies can impact retirement savings. Retirement planning involves building emergency funds and contingency plans to address unforeseen circumstances and ensure financial resilience during retirement. 8. Leaving a Legacy: Retirement planning enables individuals to leave a financial legacy for their loved ones or charitable causes. By strategically managing assets and estate planning, retirees can transfer wealth to future generations or support philanthropic initiatives, leaving a lasting impact beyond their lifetime. OR
  • 10. Final Year M.B.A. 206 FIN : PERSONAL FINANCIAL PLANNING- (April - 2023) 10 | P a g e Dr. Rakesh Bhati What are the benefits of investing in Mutual Funds? Explain in detail the steps required for investing in Mutual Funds. Answer: Mutual fund benefits include diversification across various securities like stocks, equities, and bonds, expert money management by professionals, cost advantages due to pooling resources, clear transparency in operations, and much more.  Professional Management: Access experienced fund managers who analyze market trends, select investments, and adjust portfolios for maximum returns.  Diversification: Spread your money across various assets like stocks, bonds, and cash equivalents to reduce risk.  Accessibility: Easily invest in the financial markets without needing extensive knowledge or expertise.  Liquidity: Enjoy quick and convenient access to your funds when needed, subject to market conditions and exit load fees.  Affordability: Start investing with small amounts and grow your wealth steadily over time through systematic investment plans (SIPs).  Tax Benefits: Save money on taxes through tax-efficient mutual funds, such as ELSS funds offering benefits under Section 80C.  According to the Union Budget 2023, there has been a significant change in the taxation rules for debt funds effective from April 1, 2023.  Only ELSS mutual funds offer tax benefits under Section 80C of the Income Tax Act, 1961. Other mutual funds are taxed as capital gains.  Specified mutual funds, which invest less than 35% in equity, will lose the indexation benefit for gains from April 1, 2023. Other debt funds will still have the indexation benefit for LTCG if held for more than 36 months.  ELSS mutual funds have a lock-in period of three years and are subject to LTCG tax at 10% if the gains exceed Rs 1 lakh in a financial year.  Dividend income from mutual funds is taxable to investors at their applicable slab rates. There is no DDT on mutual funds.  Transparency: Gain insight into your investments with detailed information on investment strategies, portfolio holdings, and past performance.  Rupee Cost Averaging: Mitigate market volatility by buying more units when prices are low and fewer units when prices are high through SIPs.  Flexibility: Choose from a variety of mutual funds tailored to different investment goals and risk tolerances.  Wealth Creation: Benefit from the power of compounding as your investments generate returns and reinvested gains grow over time.
  • 11. Final Year M.B.A. 206 FIN : PERSONAL FINANCIAL PLANNING- (April - 2023) 11 | P a g e Dr. Rakesh Bhati Investing in mutual funds is a smart way to grow your wealth in the stock market, and getting started is easier than you might think. The step-by-step guide is as follows:  Set Your Financial Goals: Determine your investment objectives, whether it’s saving for a dream vacation, retirement, or buying a house.  Understand Risk and Return: Assess your risk tolerance to choose mutual funds that align with your comfort level. Remember, when investing in mutual funds, higher returns often come with higher risk.  Research Mutual Funds: Explore different types of mutual funds in India and also thoroughly check the benefits of investing in mutual funds for all types, like equity, debt, or balanced funds. Look for past performance, expense ratios, and fund managers’ track records.  Choose the Right Mutual Fund(s): Select mutual funds that rightly match your goals and risk tolerance. Portfolio Diversification is the ultimate key, so consider investing in a mix of funds.  Complete KYC Process: Get your KYC (Know Your Customer) documents in order to comply with the regulatory requirements involved in mutual fund investments.  Pick an Investment Method: Merely looking at the benefits of mutual funds is not the only way to choose your mutual fund in India. It is a must that you decide whether to invest through lump-sum payments or SIPs (Systematic Investment Plans) for regular mutual fund investments.  Register with a Fund House: Open an account with a mutual fund company to start investing. You can also open a free DEMAT account with an online broker and start investing in mutual funds.