Financial Planning and Investment Products for Financial Wellness

2. What does Financial Planning mean to you? We asked over 500 salaried professionals.

3. We got varied responses Do some research and get hold of a STOCK which can give more than 100% return. Take a good Child Plan and Pension Plan i.e. Insurance, investment and tax planning, all in one. Just buy a property on loan and Pay EMI regularly! Just keep earning more.. life will take care of itself… Come on! - I just started working.. I will think about this after couple of years I don't know. it is not for me.. my husband will take care of it

4. Financial Planning leads to • More Money for Saving every month • Continuous improvement in Financial Wellness – there is no end to it • No more falling prey to Marketing Gimmicks, know what works and what doesn’t • Identifying hidden risks and having a plan to manage risks in investments • Money flow is planned to meet life goals and aspirations

5. Commonly used Financial Products (not exhaustive list)

6. All Products have a purpose Payments and Transactions – Money Transfers Investment Products – Wealth Creation Insurance Products – Compensate Financial Loss Loan Products – To meet emergency or for creating assets

7. First, Let’s Look at Investment Products • Recurring Deposits • Fixed Deposits • Liquid Mutual Funds • Debt Mutual Funds • Public Provident Fund/SukanyaSmridhiYojana • National Pension System (NPS) • Stock Market or Mutual Funds • Stock • Gold • Real Estate

8. Investment Fundamentals • If higher returns promised  It will have higher risk • Higher Return with Lower Risk  Not possible • But at the same time – Taking higher risk does not automatically guarantee higher return • Investment Risk if ignored ? Gambling, Derivatives, Teak Plantation • Investment Risk if avoided ? Post office Deposit : 0 Risk Investment • Investment Risk if Managed? May be returns above inflation

9. Risk – the most important Factor What is risk? • Toss a coin – Outcome ? • Uncertainty = Risk

10. Risk – the most important Factor Are we conscious of Risk? • What is the Risk in Post office Fixed Deposit ? • No Risk • What is the Risk in PPF? • Interest Risk • Liquidity Risk • Does PPF offer more returns than Post office Fixed deposits?

11. Risks • Interest Risk • Liquidity Risk • Default Risk • Market Risk • Company Risk

12. Market Risk What is this?

13. GOLD Performance Note : Brown Bar represents value of investments after 10 years, as compared to the original investment value Which is represented in BLUE. Source : www.goldprice.org

14. Stock Market (SENSEX) Performance Note : Brown Bar represents value of investments after 10 years, as compared to the original investment value Which is represented in BLUE. Source : www.bseindia.com

15. The risk is “Market Risk”. We don’t know when market can go up or down, But what we can see from these 2 charts for the period 1994-2015 (21 years) whenever investment was done (Blue bar), 10 years later Stock Market or Gold Prices was higher (Green Bar) Note : Past performance may not be sustained in the future

16. Managing Market Risk Key to our Financial Success

17. Let’s assume Stock Market is varying like this Year 1 – 10 Year 2 - 8 Year 3 - 5 Year 4 – 2 Year 5 – 1 Year 6 – 2 Year 7 – 5 Year 8 – 8 Year 9 – 10 Year 10 - 12 Buy Stock Market for Rs 100000 in Year 1 How many units will I get ? - 10000 Stock Market becomes 12 after 10 years, my 10000 units will become Rs 1,20,000 Stock Market goes up and down, what happens if invested only once Note : The example provided in this slide is for illustration purpose only.

18. Let’s assume Stock Market is varying like this Year 1 – 10 Year 2 - 8 Year 3 - 5 Year 4 – 2 Year 5 – 1 Year 6 – 2 Year 7 – 5 Year 8 – 8 Year 9 – 10 Year 10 – 12 This example is only for illustration and not to be compared with any real products Suppose I buy stock market for Rs 100000, but I buy only Rs 10000 every year, then what will happen Year 1 - For Rs 10000 – I will get : 1000 Units Year 2 – For Rs 10000 – I will get : 1250 Units Year 3 – For Rs 10000 – I will get : 2000 Units Year 4 – For Rs 10000 – I will get : 5000 Units Year 5 – For Rs 10000 – I will get : 10000 Units Year 6 – For Rs 10000 – I will get : 5000 Units Year 7 – For Rs 10000 – I will get : 2000 Units Year 8 – For Rs 10000 – I will get : 1250 Units Year 9 – For Rs 10000 – I will get : 1000 Units Year 10 – For Rs 10000 – I will get 830 Units In ten years I will get 29330 Units – Value of each unit is Rs 12 – Total Value : Rs 3,51,960 What happens if same amount is invested in parts every year ?

19. Risks are every where

20. Real Estate returns and risks Real Estate – Risks and Returns 5L’s of Real Estate • Location • Lettability • Loan • Legal • Liquid • Returns depends on how these risks are managed

21. How to measure return? • A = P(1+r)n A = Maturity Amount P = Principal Invested r= Rate of Interest n=No of years invested • There is no other formula in Money Management • Why it is important?

22. Why Returns are important? Return on Investment – 9% Years taken to double – 8 years What happens to Rs.1 lakh investment In 24 years Return on Investment – 12% Years taken to double – 6 years What happens to Rs 1 lakh investment In 24 years The example provided above is only for illustration purpose, it does not represent any real investment products. The purpose of this illustration is to highlight the fact that even a small difference in Interest can make an impact

23. Historical Returns of Various products

24. Liquid Mutual Fund Vs Savings Account Vs Deposits

25. Sensex Analysis • It did not matter which year investment was started • If Investments were done regularly and held for more than 12 years returns were similar

26. Which risks can be managed? • Interest Risk • Liquidity Risk • Default Risk • Market Risk • Company Risk

27. Manageable Risk • Interest Risk • Liquidity Risk • Default Risk • Market Risk • Company Risk

28. Returns – A Summary Zero Risk – Zero Return • Recurring Deposits –Fixed Deposits Low Risk – Low Return • Liquid Mutual Funds Medium Risk – Medium Return • Debt Mutual Funds • Public Provident Fund/SukanyaSmridhiYojana High Risk – High Return • National Pension System (NPS) • Mutual Funds • Gold Very High Risk – Very High Return • Stocks • Real Estate

29. Ideal Investment Products Zero Risk – Zero Return • Recurring Deposits • Fixed Deposits – 8% Low Risk – Low Return • Liquid Mutual Funds Medium Risk – Medium Return • Debt Mutual Funds • Public Provident Fund/SukanyaSmridhiYojana – 8% - 9% High Risk – High Return • National Pension System (NPS) • Equity or ELSS Mutual Funds • Gold – Similar to Stock Index Very High Risk – Very High Return • Stocks – Not sure • Real Estate – Difficult to estimate

30. Financial Planning - Simplified • Step 1 : Save As much tax as you can through ELSS Mutual Fund • Step 2 : Maintain Liquid Mutual Fund Balance which is equal to 1 year Annual Income • Step 3 : If Liquid fund balance exceeds Step 2, then transfer to EQUITY MUTUAL FUND • Step 4 : 150 times monthly income as Life Insurance Sum Assured • Step 5 : Home Loan EMI to be limited to 25% of Family monthly income

31. Have a Goal • Have a Goal – Goal to increase Networth Every year • What is Networth? • What you own – What you owe = Investments – Loans • Why only one Goal ? • Networth Goal is the most realistic goal

32. Why we cannot implement these simple steps? Temptation Fear

33. More than 80%* of us are not happy with our monthly savings ? Why ? Where is our money going ? Marshmallow Test – Research Conducted by Stanford University professors in late 1960’s * Independent survey conducted by Dyota Solutions from 10000 participants who have attended Investor Awareness program till date

34. MarshmallowNo end to discretionary spending • Mobiles, Tablets & Other Gadgets • Apparels • Vacations • Eating Out • Sale Offers • Cars, Bikes • Impulse buys

35. Cumulative Value of Investment in Rs. Past performance does not guarantee that it will be repeated in the future and may not be sustained Data Source : www.nseindia.com, for NIFTY, For ppfhttp://www.succinctfp.com/, For endowment as recommended by IRDA for showing benefits for illustration purposes.

36. First 5 years of SIP investment is likely be a loss Mostly the SIP starts performing after 5th year But, many of us give up in the 5th year and will not be able to enjoy the benefits in the 15th year Most of us give up in the first 5 years Past performance does not guarantee that it will be repeated in the future and may not be sustained Data Source : www.nseindia.com, for NIFTY, For ppfhttp://www.succinctfp.com/, For endowment as recommended by IRDA for showing benefits for illustration purposes.

37. Over come fear and temptation • Saving A/c = Spending A/c • New Saving A/c = Liquid Mutual Fund • Keep only minimum balance in Saving A/c, Park more than minimum balance in Liquid Fund and grow your emergency corpus faster • Tax Saving ELSS block for 15 years (similar to PPF) • Once Liquid Fund corpus is more than One year income, use STP facility to transfer to Equity Mutual Fund

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