Investment Planning for Executives

1. Investment Planning for Executives An initiative of SEBI & NISM

2. Need for financial education Deterioration of personal finances Proliferation of new and complex financial products

3. Agenda • Introduction to financial planning • Basics of savings and investments • Choosing the right investment options • Asset allocation strategy • Self portrait • Savings and investment related products • Protection related products • Borrowing related products • Retirement planning • Planning finances to become an entrepreneur • Understanding Ponzi schemes • Tax saving options • Purchasing financial products • Advantages of financial education • Investor protection and grievances redressal mechanism

4. Financial planning

5. Basics of Savings and Investment • Savings • Short term • Value remains stable • Lower returns over long term • Investing • Long term • Value moves up and down in short term • Potentially higher returns over long term

6. Price of procrastination • Twin brothers: Anil and Sunil • Anil saved from the age 25 years till 35 years. He did not withdraw till 60 • Sunil started saving at 35 years, but continued till 60 years • Both saved Rs. 50,000 per year and earned 10% p.a. on their investments

7. Price of procrastination • Twin brothers: Anil and Sunil • Amount accumulated at 60 years Rs. 86 lacs Rs. 49 lacs

8. Ask yourself • Can you reduce your spending by 10% • Put that money to work to fund your future financial goals

9. BUDGETING

10. Benefits of budgeting • Checks or balances to prevent overspending • Unexpected need for funds • Discipline • Helps maintain standard of living

11. Steps for budget planning • Calculate your income • Determine your bill for essentials • Note down your total debts • Determine your bill for non-essentials • Calculate your savings

12. WHAT IS INFLATION?

13. Effects of Inflation

14. Inflation Effects on Investments

15. RISK AND RETURN

16. Risk and Return Risk and investing go hand in hand Risk increases as the expected potential return increases No-risk, what’s that? Manage the risks

17. Time Value of Money The value of the money today is not the same as it will be in the future

18. The eighth wonder - compounding • Rs.1 lac invested @ 10%

19. The rule of 72

20. Choosing the right investment options

22. Asset allocation strategy

24. Self portrait …

25. The products

26. Savings & investment related products • Bank deposits • Government schemes • Bonds / debentures • Company fixed deposits • Mutual funds • Equity shares • Depository system

27. Protection Related Products • Insurance • Life insurance • Term life insurance • Endowment policies • Annuities / Pension plans • ULIPs • Health insurance • Comprehensive health insurance • Hospitalisation policy • Critical illness plan • Specific condition coverage

28. Borrowing Related Products Personal loans Home loans Reverse mortgage Loan against securities Credit card debt

29. Steps to avoid excess debt • Set debt limits • Shop carefully for debts • Don’t give into temptation • Automatically have money go towards your bills

30. Retirement Planning Start early and retire peacefully Plan wisely Track and review your plan Don’t dip into your retirement savings

31. Investment needed to create retirement fund

32. Finances for entrepreneurs Understand financial needs of self and business Save money in job before jumping in self employment Borrow from close relatives/ friends on strict business terms, if required Start groundwork while still in job Apply for loans from organisations designed to fund SMEs

33. UnderstandingPonzi schemes Ponzi schemes promise high returns and low risk Initial investors may get high promised returns Money from initial investors is given to new investors – thus it is only rotation of funds, not investment of funds If its too good to be true – its probably not true. It’s a Ponzi!

34. Tax Saving Options • Section 80C gives rebate upto Rs. 1,00,000 for select investments like life insurance premiums, housing loan principal, PPF, ELSS, etc. • Long Term Capital Gains are not taxable for equities • 80D (medical insurance), 80G (donations) and 24D (Housing loan interest repayment) are other important sections

35. Investment philosophies • Evaluate risk of every investment • Decide the investment based on needs • Do not invest in any scheme that you do not understand • Do not invest on trust. Have everything backed up by documents • Take into account tax implication of every income • Do not blindly follow market tips and rumours • Anything that appears unnaturally high or low will have some “catch” disguised • Do not follow schemes where you may protect the interest but lose the principal • Invest with knowledge after understanding the product well

36. Purchasing financial products

37. Selection of intermediary • Registration with regulator or a body approved by regulator, e.g. AMFI or stock exchange

38. Steps to become securities market investor • Know Your Client (KYC) form and documents • PAN Card • Personal identification proof • Address proof • Demat accounts & trading accounts required for equity investing • For investing in MF, demat is optional

39. Advantages of Financial Education Helps build a secure financial future Prepared for financial emergencies Protection from marketing gimmicks Feeling a sense of accomplishment Disciplined approach to money Awareness of questionable practices Setting a good example for your family Benefit other aspects of your life

40. Regulators • Various regulators in Indian financal markets are: • Securities & Exchange Board of India (SEBI) • Reserve Bank of India (RBI) • Forward Markets Commission (FMC) • Insurance Regulatory & Development Authority (IRDA) • Ministry of Corporate Affairs (MCA) • Ministry of Finance (MoF)

41. Thank you!