FINANCIALLITERACYPROGRAMME

Shalibhadra
(MasterInvestmentBroker)

AGENDA
7KeyAreasofFinancialPlanning
Budgeting EstablishingGoals InvestmentAvenues DevisingPortfolios Insurance Loans&Debt TaxPlanning

WealthCreationOpportunities
S i Savingsvs.Investing I ti LifeStagesandFinancialGoals ValueofMoneyoverTime Impactof a ue o o ey o e e pact o

Inflation
PerformanceofvariousAssetClasses PowerofCompounding BenefitsofMutualFundInvestments Systematic Investment Planning SystematicInvestmentPlanning

throughMFs

Saving&Investing
HUMANLIFECYCLE

WhySave.. Considerthis

Age25yrs Age40yrs Age 40 yrs Age45yrs Age50yrs Age60yrs

StartsoffCareer(100%dependentonJob) BuildaHouse Build a House Payforchildrenshighereducation ChildrensMarriage Retirement(100%dependentonearningfrom Investment)

Whatarethefactorsunderlyingexpenses?expensesareafactorof: y g p p Inflation Higherlifeexpectancy Product/alternativesavailable Product/alternatives available Changeinincomeandconsumptionlevel

Investmentvs.Consumptionvs.Savings
Investmentincreasesthevalueofyourmoney YouinvestRs.1lactodayandearnRs.20000/.This1lacisaninvestment YoubuyacarworthRs.1lac Bringscomfort,efficiencyandbetterproductivityatwork. You buy a car worth Rs 1 lac Brings comfort efficiency and better productivity at work Carcanbeconsideredtobeaninvestmentsinceithasleadtoanoverallincreaseinyourwealth YouspendRs.20000/ onupholsteryofthecar willbeconsideredtobeaconsumptionsinceithasno impactinincreasingyourwealth Investment&Consumption areliketwosidesofthecoin I &C i lik id f h i Buyingthestockofacompanymanufacturingupholsterywillbeaninvestment Buyingupholsteryforthecarwillbeconsumption Investmentwillleadtoanoverallincreaseinyourwealth Consumptionwillnotleadtoanyincreaseinyouroverallwealth SavingsVsInvestment Savingshappensbychancevs.Investmenthappensbychoice Savingsdoesnotprotectyouagainstinflationvs.Investmentisintendedtobeatinflation g p y g Savings=Income Expense Expense=Income Savings

WhyInvest?
Emergencies????
Kid 2s Marriage Kid 1s Marriage House Car Kid 1 Kid 2 Kid 1s College Kid 2s College

Retirement

????

Maintain same lifestyle Decline in lifestyle lif t l

Marriage

Savings / Investing S i I ti
0
Birth and Education

25

Age

Working Life

60

Retired Life

75 +

WhyInvest?
ToBeatInflation.i.e.PreserveexistingWealth TofundfutureGoals Allindividualshaveafiniteperiodtosavefortheirinvestmentgoals To fund future Goals All individuals have a finite period to save for their investment goals Tomeetcontingencies Tomeetthesamestandardoflivingafterretirement g

Earnings ( g (Consumption + Savings) p g ) Consumption Savings 22 Young Independent 27 2 Young Married 40 0 Middle Age 60 Retirement

LuxuryorNecessity
Lifehasbecomemuchfastertodayandcertainitemswhichwereluxuryearlierhavebecome necessitytocopewiththefastpaceoflife.

ITEMS
MobilePhone LCD TV LCDTV Telephone/Internet WashingMachine HomeTheatre/Microwave Twowheeler/Car Brandedclothes/watches a ded c ot es / atc es Lifestylechangesandimpactofinflationhaveledtoanincreaseto ourbasicexpenses Keepingthatinmind,savingsforthefuturegoalsbecomes K i h i i d i f h f l b inevitable

LUXURY IN 1990

NECESSITY TODAY

Inflationrobsyourpurchasingpower
Item
Colgatetoothpaste l h (100gmtube) HamamSoap p MasalaDosa Petrol(perlitre) Petrol (per litre) LPGCylinder ZodiacMensshirt di hi

1987
8 3 3 8 56 225

1997
19 (8.91%) 8 (9.92%) (9 92%) 14 (14.87%) 25 (12.30%) 138 (9.40%) 500 (8.53%)

2012
34 15 75 72 430 1500

2017
104 52 224 259 831 2620

TimeValueofMoney
Timeisthebiggestenemyofidlemoney Investingtodaycanmakemoneygrowoveraperiodoftime Investing today can make money grow over a period of time Rs.100todayisworthmorethanRs.100thatwemaygetafter5years. E.g.Youcanbuy4pastriestodayforRs.100or2pastriesforRs.100after5years.Whichone g y p y p y wouldyouprefer? Investmoneyinthebestpossibleopportunitywhichwouldfetchyoumaximumreturnsonarisk adjustedbasis adjusted basis Opportunitycostofmoney Rs.1lacinvestedtodaywillgrowtoRs.17.45lacsattheendof30years@10%perannum

CostofFutureGoal
ShouldIbereallybotheredof7%inflationwhileplanningmydaughtersmarriage? Howmuchdifferencewillitmakefromthecurrentlevelofexpenses? How much difference will it make from the current level of expenses?

Expinyear2011 Rs5.0Lac Rs10.0Lac Rs 10 0 Lac Rs15.0Lac Rs25.0Lac

Source:DSPBlackRockassumes7%inflationrate

Expinyear2020 p y
Rs9.19Lac Rs18.38Lac Rs27.57Lac Rs36.76Lac

Expinyear2030
Rs18.08Lac Rs36.16Lac Rs54.24Lac Rs72.33Lac

TrendChart Costoffutureeducation

ValueofMoneyovertime
Impactofinflationonmonthly expensesofRs.30,000today
79,599 62,368 48,102 38,288 30,000 37,689 100,000

ValueofRs.100,000overtime
78,353

Today

5 years

15 years

20 years

Today

5 years

15 years

20 years

Investorsneedtobeatinflation esto s eed to beat at o

AllfiguresinRs.;Atinflationof5%;Hypotheticalnumbersmeantonlyforillustrationpurpose

7KeyAreasofFinancialPlanning
1. 2. 3. 4. 5. 6. 7.

Budgeting EstablishingGoals InvestmentAvenues DevisingPortfolios Insurance Loans&Debt TaxPlanning Tax Planning

Budgeting
BudgetingIsNothingButDeterminingHowMuchMoneyIs Coming&HowMuchIsGoing&Where.. Coming & How Much Is Going & Where..
1. 2. 3. 4. 5.

GatherInformation RecordIncome ListDownExpenses CategorizeFixed&Variable AdjustExpenses d

BudgetingIsNotAOneTimeThing.. ItNeedsToBeReviewedOnMonthlyBasis d d hl

7KeyAreasofFinancialPlanning
1. 2. 3. 4. 5. 6. 7.

Budgeting EstablishingGoals InvestmentAvenues DevisingPortfolios Insurance Loans&Debt TaxPlanning Tax Planning

DreamsfortheFamily

INCOME

7KeyAreasofFinancialPlanning
1. 2. 3. 4. 5. 6. 7. 7

Budgeting EstablishingGoals InvestmentAvenues DevisingPortfolios Insurance Loans&Debt TaxPlanning Tax Planning

InvestmentAvenues
ThereAreOnlyTwoInvestmentAvenues 1.LendMoney & 2.BecomePartnerInBusiness TheseAreWidelyKnownAs

Debt&Equity Debt & Equity

InvestmentAvenues
Adebtisanobligation owedbyoneparty(debtor)toasecondparty,thecreditor.
DebtIncludes LendingToBank BankFDs CompanyFixedDeposits p y p SmallSavingsSchemes PPF,NSC,KVP, PostOfficeSchemes Debentures b CommercialPapers MoneyMarketInstruments Callmoney, Overnightmoney,Repo,CBLO
DebtGivesYouGuarantee ButAllGuarantee ComesAtAPrice. AndPriceIsLowerReturns MeaningMoreSavings

InvestmentAvenues
EquityIncludesBuyingSharesofCompaniesDirectly,ThroughMutualFunds,F&Oetc. KnownAs Known As

ShareMarket
EquityRepresentsownership Theownerofequitysharesiseligiblefordistribution ofprofitsi.e.dividend/bonusshares
EquityIsVolatile ButGivesHigherReturns InLongerHorizon..

InvestmentAvenues
ForGold PhysicalGold/Jewellery/GoldCoins GoldETF/GoldFOF Gold ETF / Gold FOF GoldEquities GoldFutures ForRealEstate CyclicalinNature Nobenchmark Illiquidinnature Cannotberedeemedinpart

7KeyAreasofFinancialPlanning
1. 2. 3. 4. 5. 5 6. 7.

Budgeting EstablishingGoals InvestmentAvenues DevisingPortfolios Insurance Loans&Debt TaxPlanning

Why it is Better
Systematic Investing has a compounding effects and early you start chances of building huge corpus is better

Sita SIP start Age Monthly Amount SIP till retirement ( 55) Amount Saved 25 5000 30 1800000

Gita 45 15000 10 1800000

Value atDifference of Rs. 1,41,64,483 ( More than 1.4 Crs) 55 17,649,569 3,485,086 ** CAGR Assumed is 12%

24

Whatallocationisrightforyou?
GOLDENRULE: DONOTPUTALLYOUREGGSINTHESAMEBASKET DO NOT PUT ALL YOUR EGGS IN THE SAME BASKET ASSETALLOCATION ASSET ALLOCATION
Allocationacrossassetclasses(E.g..Equities/Gold/RealEstate/Debt) Allocationwithinassetclasses(EquityMFs LargeCap/MidCap/Sectoral) Assetallocationdecisiontradeoff A ll i d ii d ff
Yourtimeframe Yourrisktolerance Yourpersonalcircumstances Your personal circumstances

DevisingaWinningInvestmentPortfolio
StartEarly SaveRegularly Useaportfolioapproach spreadyourinvestmentsacrosssectorsandassetclasses Seethatyourportfoliocontainsbothshorttermandlongterminvestments S h f li i b h h dl i Monitoryourinvestmentportfolioperiodically inlightofmarketchangesandchangesinyour life Staycalm,steadyanddisciplined keepyourgoalsfirmlyinsight donotgetcarriedawayby emotionsortemporarymarketfluctuations

7KeyAreasofFinancialPlanning
1. 2. 3. 4. 5. 5 6. 7.

Budgeting EstablishingGoals InvestmentAvenues DevisingPortfolios Insurance Loans&Debt TaxPlanning

Insurance
Insuranceisthemostcritical&importantpartofFinancial Planning.
Insurancemeansriskmanagement. Itisusedtohedgeagainsttheriskofa contingentuncertainloss Riskoflife,health,house,liabilities, Vehicles,fire,marine&manymore Vehicles fire marine & many more Insuranceisnotaninvestment Insuranceisonlyacoveragainstuncertainty.

7KeyAreasofFinancialPlanning
1. 2. 3. 4. 5. 5 6. 7.

Budgeting EstablishingGoals InvestmentAvenues DevisingPortfolios Insurance Loans&Debt TaxPlanning

Loan
BanklovesgivingyouAloan Becausetheinterestthattheygetfromyourloaniswhatmakesthemrunning. Because the interest that they get from your loan is what makes them running
Avoidunnecessaryloans Avoid unnecessary loans Notallloansarebad Loanstakentocreateassetsaregoodloans g E.G.Homeloans, Businessloans, Educationloans Education loans

7KeyAreasofFinancialPlanning
1. 2. 3. 4. 5. 5 6. 7.

Budgeting EstablishingGoals InvestmentAvenues DevisingPortfolios Insurance Loans&Debt TaxPlanning

TaxPlanning
Taxplanningshouldactuallybeconsideredwhilekeepinginmindthe o e a asse a oca o overallassetallocation Section80(C)options:
Debtoptions:EPF,PPF,NSC,bankFD,infrastructurebonds, Seniorcitizensavingsscheme Equityoptions:ELSSschemes&pensionschemes

InvestmentDecisions
InvestmentDecisionsarebasedonthreecriteria Wheretoinvest Optimalappreciationandincomegeneratingassetclass Equityoveralongerperiodwillgivethebestreturns,whileitwillbesubjectto volatilityintheshortterm Debtwillgiveyousteadyreturnsbutappreciationoverthelongtermwillremain limited Howtoinvest Diversificationacrossassetclasses(Realestate,equities,gold,shorttermdebt.Long Di ifi ti t l (R l t t iti ld h t t d bt L termdebt,commodities) Whentoinvest Wheneveryouhavemoney Whenever you have money Investinadisciplinedandsystematicmanner

SystematicInvestmentPlan
HOWTOMAKEMoneyWorkHarderForyou Theanswertoitis

Simple MinInvestmentofonlyRs.500 Min Investment of only Rs 500 Intelligent BenefitfromthePowerofCompounding B fit f th P fC di Practical WithAutoDebitFacility

SystematicInvestmentPlan
WhatareSIPs Theterm SystematicInvesting applies to the process of investing regularly i.e. at fixed intervals say The term Systematic Investingappliestotheprocessofinvestingregularlyi.e.atfixedintervalssay weekly/monthly/quarterly WhyshouldonedoaSIP? Toachieveyourfinancialgoals,thesimplestformofplanningistoinvestregularly To achieve your financial goals the simplest form of planning is to invest regularly Mostofuscalculateourearnings,expensesandsavingsmonthly Theeasiestwaytoplanourinvestments,therefore,isonamonthlybasis WhatarethebenefitsofSIPs? h h b f f Thepowerofcompounding Rupeecostaveraging idealwaytodealwithmarketvolatility Convenience/Affordability

Why SystematicInvestmentPlan?
Ihaveputmymoneyinthebank.WhyshouldIworry Traditionalsavingavenuesarenottheanswerforallthefinancialgoalsconsideringimpactof Traditional saving avenues are not the answer for all the financial goals considering impact of inflation Iamyoungrightnow.Ishouldjustspend.Ihaveplentyoftime Delayingyourinvestmentonlyincreasesyourburdenandmakestherealizationofyourgoals difficult. Idonthaveenoughmoneytoinvest YoucanstartaSIPwithaslowasRs.500/ aswesaySmalldropsofwatermaketheocean! Idonthavetimeorexpertisetofollowmarketmovementsandmakeinvestmentsattheright time MutualFundsandSIPareanidealwaytoinvestwithoutworryingaboutmarketmovements.

AveyFamousFolkTale
Onceapoorfarmerchallengedthekingforagameofchessandhewon. Thekingaskedthefarmertochoosehisreward.Allthatfarmeraskedforwas1grain The king asked the farmer to choose his reward All that farmer asked for was 1 grain wheatforthefirstsquareanddoublingitoneverysquareandsoonandsoforthfor all64squares Thekingwasveryhappyandreadilygrantedthewishthinkingitastinywish. Therealsnagcamewhenhehadtosettletheclaimwhenthecalculationreachedto 64th square. q Wouldyouliketoguessthenumber??

AveyFamousFolkTale PowerofCompounding
Thekingrequired1,84,46,77,40,73,70,96,00,000grainsofwheat forallthe64squares!! Ifthereareapprx 25000grainsin1kgofwheat,thekingrequired7,37,870milliontons ofwheatto settlethisclaim. IfthekingwantedtosettlethisforcashassumingsuperwholesalerateofRs.3.5perkg,hewould requireRs.25,82,54,417Crores tosettlethisclaim!! Whatexactlyhappenedhere?
Farmerusedpowerofcompoundingtohisadvantage Thingswerefinetillthefirstfewsquares,itwasonlybythe10 squareorsothatitwentoutofcontrol. Things were fine till the first few squares, it was only by the 10th square or so that it went out of control. Wecouldcallcompoundingtheeightwonderoftheworld Butitworksonlyifusedoverthelongterm Welcometotheworldofsystematicinvestingandpowerofcompoundingtomeetyourlongterm financialgoals

SIP:ThePowerOfCompounding
SIPofRs.1000investedpermonth@8%patilltheageof60.
StartingAge 25 30 35 40 TotalAmountSaved 4,20,000 3,60,000 3,00,000 2,40,000 Valueattheageof60

23,09,175 15,00,295 9,57,367 5,92,947

thesooneryoustart,makesadifference! the sooner you start makes a difference!

WhySIPisbetterthanothers?
SystematicInvestinghasacompoundingeffectsandearlyyoustartchancesofbuilding hugecorpusisbetter.
Sita SIPstartAge MonthlyAmount SIPtillretirement(55) AmountSaved Valueat55 **CAGRAssumedis12% 25 5000 30 1800000 Gita 45 15000 10 1800000

1,76,49,569

34,85,086

DifferenceofRs.1,41,64,483(Morethan1.4Crs)

Thecostofdelay.
Sunita,AnilandSunil begintheircareerstogetherattheageof25buthavedifferentattitudestowards savings.Sunita isaconservativespenderandbelievesinsaving.AnilandSunilbelievethatwithgood savings. Sunita is a conservative spender and believes in saving. Anil and Sunil believe that with good careersaheadofthemitdoesnotreallymatterwhentheystartsaving. Sunita.Sunita getsintothehabitofsavingregularlyfromdayone.ShesuccessfullysavesRs.10,000in thefirstyear.ShecontinuessavingRs.10,000peryearfor35yearstillherretirement. y g , p y y Anil. Anilgetsmarriedattheageof27.Withnewresponsibilitiesaheadofhim,hegetsintothehabitof savingRs.10,000everyyearandcontinuessavingRs.10,000peryearfor33yearstillhisretirement. Sunil. Sunilisthelastonetostartsaving.Hegetsmarriedandbecomesafatherattheageof30.He, l l h l d db f h h f too,realises thathecannotdelayhissavingsdecisionanymore.Hegetsintothehabitofsaving Rs.10,000everyyearandcontinueswiththisfor30yearstillhisretirement. Sunita beganatage25andsavedRs.350,000;Anilbeganatage27andsavedRs.330,000andSunil S it b t 25 d d R 350 000 A il b t 27 d d R 330 000 d S il beganatage30andsavedRs.300,000.

Itdoesmatterwhenyoustartsaving Theearlierthebetter! The earlier the better!

Sunitabeganatage25andsavedRs.350,000;Anilbeganatage27andsaved Rs.330,000andSunilbeganatage30andsavedRs.300,000. g g

Ifeachofthemgotacompoundedreturn of15%peryearontheirsavings, SunitawouldhaveoverRs.1Crore, , AnilapproximatelyRs.75lacsand SunilapproximatelyRs.49lacs.

ANNEXURES

Differentassetclassreturns Indiancontext
20yearsand10yearsreturnsofdifferentassetclassesasonMarch2011

EquitythebestAssetclassinlast20yearsdespiteseveralCrisis! 20yrreturnsofdifferentassetclassesasonMarch2011 Source:RBI&BSE

EquitythebestAssetclassinlast10yearsdespiteseveralCrisis! 10yrreturnsofdifferentassetclassesasonMarch2011 Source:RBI&BSE

Tenstepstoajourneyforabrighterfuture
Investearlytogetmore Experiencethemagicalpowerofcompounding Diversifyyourinvestments,playsafe Neverputallyoureggsinonebasket Diversify your investments play safe Never put all your eggs in one basket ThinkSmart,ThinkAhead Keepfutureinsight MakeSavingsyourExpense Everyrupeesavedisarupeeearned a e Sa gs you pe se e y upee sa ed s a upee ea ed PlannowforaHappyFuture ProtectyourmoneyfromTaxAttack Taxefficientinvestments Havesomenow.Havesomeforthefuture Setabudget ProvideforyourFuturetoday Medical&Contingentrequirements Expertsmakeeverythingeasy Seektheadviceofaprofessionalqualifiedexpert

Wordsofwisdom
Buywhenmostpeople,includingexpertsarepessimisticandsellwhenthey areactuallyoptimistic are actually optimistic Benjaman Graham,PioneerofStockAnalysis Befearfulwhenothersaregreedyandgreedywhenothersarefearful f f l h h d d d h h f f l WarrenBuffett Tobuywhenothersaredespondentlysellingandtosellwhenothersare vividlybuyingrequiresthegreatestfortitudeandpaysthegreatestultimate rewards rewards SirJohnTempleton