Introduction to

FINANCIAL PLANNING
Presented by:
Vinod Krishna M. U. R15PMS15
As part of

Ph.D Course Work 3

Financial Planning & Financial Services Marketing
At

REVA University, Bengaluru

What is Financial Planning?

Financial Planning
is the PROCESS
of meeting ones
life goals through
the
proper
management of his
finances with the
help of a Financial
Planner.

Why Financial Planning ?

Retirement

Emergencies????
Kid 2s
Marriage

Income

Kid 1s
Marriage

????

House
Car

Kid 2s
College
Kid 1s
College

Kid 1
Kid 2

Marriage

Savings / Investing
0

Birth and
Education

25

Age

Working Life

60

Retired Life

75 +

How to do Financial Planning

Areas of Financial Planning

Risk Management & Insurance

Planning
Investment Planning
Retirement Planning
Tax Planning
Estate Planning

Some future needs

Investment Planning

Equation of Life
Income Expenditure = Savings
Income Savings = Expenditure

INVESTMENTS
INVEST TO MAKE YOUR MONEY WORK FOR
YOU

Equation to become RICH

FV = PV (1 + r)

Albert Einstein (1879 - 1955) called it the 8th

Wonder - It can work for you, or against you.
When you invest it works for you.
When you borrow it works against you!
He is quoted as saying,
"The most powerful force in the universe is
compound interest."

You can become financially secure by winning the lottery.

The surer way is to save money, invest it and ... Let it compound!

Enhancing Future Value

The more you
SAVE, makes
a difference

The more
you EARN,
makes a
difference

FV = PV (1 + r)
FV Future Value of your investments

PV Present Value of your investments

r Rate of Return
n Period of Investment

The
SOONER
you start,
makes a
difference

Asset Allocation

Asset allocation is an investment portfolio

technique that aims to balance risk and
create diversification by dividing assets among
major categories such as Gold, Real Estate,
Bonds, Stocks, and Cash.

What drives Portfolio performance?

Time Spent

Investment Decisions

Impact on Returns*

10%

Asset
Allocation

92%
KEY !!

60-70%

Security
Selection

< 5%

20-30%

Market Timing

< 2%

* Study by Brinson, Singer & Beebower, 1986

Diversification

Dont put all Eggs in One basket

Where to Invest?

Options for investing in Equity

Direct Equity Investments
IPOs (Primary Market)
Buying/Selling Shares/Derivatives/Commodities (Secondary
Market)
Portfolio Management Services
Mutual Funds
Lump sum Investment (NFOs & On-going)
Regular Investment Systematic Investment Plan (SIP)
Unit Linked Insurance Plans
Provides Risk Cover along with Wealth Creation

Insurance Planning

Why Insurance?
Insurance is a Risk Management Tool.
We all are faced with three types of risks.
Risk to Life
Risk to Health
Risk to Assets
Concept of Insurance is to protect the economic value of Assets.
Insurance does not protect the asset. It does not prevent its loss.
It tries to reduce the impact of the risk on the owner of the asset
and those who depend on that asset.
Insurance only compensates economic losses suffered by
the dependents in case of eventuality.

Retirement

Emergencies????
Kid 2s
Marriage
Kid 1s
Marriage

????
Living Too Long - LTL

Income

Dying Too Soon - DTS

Risk Management

House
Car

Kid 2s
College
Kid 1s
College

Kid 1
Kid 2

Marriage

Birth and
Education

25

Age

Working Life

60

Retired Life

75 +

Life Insurance

Imagine what happens to your familys

future needs in your absence because of
Uncertainties of Life
Childs Higher Education

Childs Marriage

Family compromising on the current Life Style

What about Liabilities like Housing Loan, Vehicle

Loan, Personal Loan, Credit Card Balance etc

Human Life Value

Human Life Value method is used to calculate the amount that is
needed by dependents in the case of unfortunate demise of the
breadwinner of the family.
HLV = Present Value of a persons future earnings
Steps to Calculate HLV
1. Estimate individuals average lifetime earnings
2. Deduct the self maintenance expenses, taxes, insurance
premium
3. Determine the balance span of earning life
4. Determine the present value of balance earning for the family

Simpler Method
Use a simple underwriting guideline, frequently
used by life insurance companies to suggest
proper amounts of coverage.
Age

Multiple of
Annual Income

25

25

35

20

45

15

55

10

Life Insurance Plans

Term Insurance: Pure Risk Cover insurance

Mortgage Protection Policy: To Cover Long term
liabilities like Housing Loan

Endowment: Risk Cover + Savings

Money Back Policies: Risk Cover + Saving + Liquidity at
regular interval

Unit Linked Plans:

preferences + Liquidity

Risk Cover + Returns based on your

Child Plans

Secure future needs of your child, for

higher education, marriage etc.

Pension / Annuities:

Post Retirement Expenses Cover

Health Insurance

2.Family
discounts
1. Cashless
Facility
8.Ambulance
Charges
7.Waiver for
pre-existing
diseases

3.Cumulative
Bonus
Health
Insurance

4.Pre & Post

Hospitalization
5.Income tax
benefit

6.Health
Check up

Asset Insurance
Householders Policy

RETIREMENT PLANNING

Risk of Living Too Long

Living Standard After Retirement

Imagine a life without car

Dream Home

Regular Health Check-ups

Routine House Hold Expenses

When do you spend more money

While at work or at Vacation??
So what do you think is Retirement for
you?
Shouldnt you have enough provisions to
take care of the increasing costs during
your
LONG VACATION - Retirement ??
Average Life Expectancy would increase from 75 years to 85 years
in the next two decades.
Living costs will increase dramatically over the next 20 years

Plan for your

Long Vacation from

TODAY

Different Investment
& Protection Plans
Tax Saving Mutual Fund (ELSS) for 3 Yrs + goals.
Life Insurance
Term Insurance to cover Liabilities.
Unit Linked Insurance Plans for various needs like
Childrens Higher Education and Marriage
Retirement Benefits
Asset Creation over long term
Health Insurance
House Holders policy to take care of your hard earned assets.