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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 Slide 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 Slide 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 Inflation erodes the value of your money : Inflation erodes the value of your money The slide illustrates the value of Rs 1 Lakh at different stages assuming an average inflation rate of 6% Slide 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... Asset Allocation Strategies : Asset Allocation Strategies Comparison Of Investment Options : Comparison Of Investment Options Slide 9: Investment Life Cycle Slide 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 Slide 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 Cash10% Bonds15% Equity75% Age – Up to 30 Years Slide 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 Cash20% Bonds30% Equity50% Age – 30 to 55 Years Slide 13: Wealth Preservation Stage Financial Goals Making provisions for higher life expectancy, medical emergencies and financial independence Age – 55 Years & Above Conservative Portfolio Bank Deposits40% Equity20% Bonds40% Slide 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 Slide 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 Slide 16: How Do Mutual Funds Work? MF Step 5: Returns provided to investors Investor community Various Assets Risk-Return-Time Horizon Scale : Risk-Return-Time Horizon Scale DEBT BALANCED EQUITY SECTOR Time RETURN RISK Slide 18: Systematic Investment Plan (SIP) The Smart Investors’ Preference Slide 19: Why SIP? The Formula For Creating Wealth + Slide 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 !! Slide 21: It is the small drops that make an ocean!! We earn regularly; We spend regularly Shouldn’t we also invest regularly? Slide 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… Slide 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 Why Systematic Investment Plan? : Why Systematic Investment Plan? Rupee Cost Averaging Works Fluctuating Markets Declining Markets Rising Markets Avg NAV : Rs 13.00 (65/5) Avg. Unit Cost : Rs 10.00 (Rs 500/50) Avg. NAV : Rs 14.50 (72.50/5) Avg. Unit Cost : Rs 10.64 (Rs 500/47) Avg. NAV : Rs 16.00 (80/5) Avg. Unit Cost : Rs 11.36 (Rs 500/44) Slide 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 Power Of Compounding : Power Of Compounding Rs 5000 invested per month Slide 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” Slide 28: Financial Planning Through Insurance “Insurance is not for the one who passes away, it is for those who survive” - Anonymous Slide 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 Insurance = Investment + Assurance : Insurance = Investment + Assurance Slide 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 Slide 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 Slide 33: Insurance – Buy a policy, buy peace of mind Slide 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 Slide 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 SIP with Sundaram BNP Tax Saver : SIP with Sundaram BNP Tax Saver * As on 30/06/2009 ** For growth option on a compounded annual basis *** Launched – November 1999 Personal Income Tax Structure 2009-10 : Personal Income Tax Structure 2009-10 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 Tax Slab 2009 - 10 Equity Oriented Schemes : Tax Slab 2009 - 10 Equity Oriented Schemes Other Schemes : Other Schemes * 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 Slide 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 Slide 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 Slide 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 Slide 43: Inflation Rising Life Expectancy Protection against Uncertainty Balanced Asset Allocation Financial Planning Factors necessitating Financial Planning Slide 44: Who are we? Slide 45: SPRISM Investment Services Pvt Ltd Mumbai Established in the year 2000. One of the leading distributors in South India Based in Bangalore with presence in Mumbai, Chennai, Hyderabad & Coimbatore Current Assets Under Management – Rs.5000 Cr Our range of products includes Mutual Funds, PMS, Insurance, Bonds, IPO and Fixed Deposits which will meet the needs of the investor at every step in life Slide 46: Special Attributes Clearly defined advisory models with a holistic approach Dedicated sales team for client servicing Seasoned professionals with rich experience in the financial service industry Offers portfolio tracking, customized reports, information alerts & event triggers A wide array of products to suit the customers’ risk – return framework Slide 47: Value Added Services SMS Alerts Sprismatic – Tabloid & Newsletter Weekly Portfolio Update Monthly Portfolio Review Client - Fund Manager Interface Daily & Weekly Market reports Monthly Market Report Reports on Credit Risk Analysis Standard Reports on Equity Schemes Weekly Inflation Report Adhoc Reports on request Slide 48: Corporate Office: # 7/2, 1st Floor, Brunton Road, Bangalore-560025, Tel:080-25550129/30/31, 41503210/11/12/13. Bangalore Sales Office: #21,Raja Glitz, 1st Floor, K.H.Road, Bangalore-560027, PCS – Tel: 080-66653100-125, Retail – Tel: 080-66653126-149. Mumbai: #4, Khaitan Chambers, 2nd Floor, 143-145, Mody Street, Fort, Mumbai-400001, Tel: 022-40991111/12 Chennai: 5th Floor, Crown Court, #128, Cathedral Road, Chennai-600086, Tel: 044-28112861/62 Coimbatore: #42/19, Ahuja Towers, 3rd Floor, T.V. Swamy Road (west), R.S.Puram, Coimbatore-641002, Tel: 0422-4364440/41. Hyderabad: #1-11-222/2, Street No-4, Gurumurthy Lane, Behind Levis Dockers Showroom, Begumpet, Hyderabad-500016, Tel: 040-40056555 SPRISM Network Slide 49: Thank You.. Slide 50: www.sprisminvest.com You do not have the permission to view this presentation. In order to view it, please contact the author of the presentation.