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Investment and financial planning

By By Suresh Parthasarathy Certified Financial Suresh Parthasarathy Certified Financial

PlannerPlanner Sr.Research AnalystSr.Research Analyst Business Line Business Line

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Economic Purpose of Life

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our aspirations

Dream car A beautiful house Child education

Holidays and Tours Children’s marriage Happy Retirement

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Why financial planning?The only permanent thing in life is change!

• Life is uncertain. We do not know what may happen tomorrow. All of us hope for a better future ahead.

• Don’t we all want to lead a worry-free and financially secure life?

• We should be able to deal with all kind of risks in life.

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Financial Planning

Financial decisions form the basis of much of what we do in our lives. Poorly thought out personal finance decisions can at best cause great anxiety and at worst lead to bankruptcy, whereas well thought out, sound financial decisions can lead to a prosperous lifestyle.

Financial Planning is the process of identifying a person’s financial goals, evaluating existing resources, and designing the financial strategies that help the person achieve those goals.

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What if no financial planning…?

Example:

Michael Gerard Tyson

• Former American world heavyweight boxing champion.

• Youngest man to have won a boxing world heavyweight title belt.

• Made US$30 million during his career.

• Declared bankrupt in 2003

Reason:

• Indiscriminate Spending

• No Financial Planning

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What if sound financial planning?

Example:

Kapil Dev

captained India to their maiden and only Cricket World Cup in 1983.

His businesses:• 5% stake in Zicom Electronics

• Invested money in his own Kapil's Eleven restaurant and Kaptain's Retreat Hotel.

• Established a company Dev Musco Lighting Pvt Ltd

Result… He is living comfortably even after retirement.

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Components of financial planning

Financial planning comprises

• Insurance Planning

• Investment Planning

• Tax Planning

• Estate Planning

• Retirement Planning

FinancialPlanning

Investment Planning

Tax Planning

Estate Planning

Retirement Planning

Insurance Planning

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Why investment Planning

• Identify Goals that have financial implications – Dream home, Children's education, marriage, managing life post retirement

• Implement Budgeting and spending plans

• Optimization of Insurance Premiums

• Manage Debt Efficiently

• Identify Investment Asset Allocation to meet the goals

• Take maximum benefit of tax laws and regulation to create additional surplus for investment

• Distribute wealth according to one’s wish and not according to law

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What is investment planning ?

Once we have saved enough money for emergencies, how can we grow our wealth?

Investment refers to a commitment of funds to one or more assets that will be held over some future time period.

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All of us work for money. It is equally important to ensure that money works for us.

We invest to improve our future welfare. Funds to be invested come from assets already owned, borrowed money, and savings or foregone consumption.

By foregoing consumption today and investing the savings, we expect to enhance our future consumption possibilities. In investment planning asset allocation plays important role.

Why investment planning?

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Asset allocation

Its paramount for wealth creationIts paramount for wealth creation There is no fixed rule for asset allocationThere is no fixed rule for asset allocation But as the age goes up the risk assets such as equity has to But as the age goes up the risk assets such as equity has to

be loweredbe lowered For instance if you are 40 you can restrict your exposure to For instance if you are 40 you can restrict your exposure to

equity between 50-60 per cent.equity between 50-60 per cent. Asset allocation can be in the range of Asset allocation can be in the range of

50:20:20:10(equity,debt,real estate and gold) for a 50:20:20:10(equity,debt,real estate and gold) for a conservative investor. conservative investor.

Fixing target and profit booking are the two important key Fixing target and profit booking are the two important key for wealth creation.for wealth creation.

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Why insurance planning ?

Needing insurance is like needing a parachute. If it isn't there the first time, chances are you won't need it again!

Insurance is not for the person who passes away, it is for those who survive.

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what is insurance planning ?

Insurance Planning takes into account the risks that surround you and then provides an adequate coverage against those risks.

Insurance is the most common method used for transferring risks. It shifts the risk from an individual to a group. It also provides a means for paying unforeseen losses. Insurance provides an important means of preventing risk from interfering with your financial objectives.

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Term Insurance

If you are 30 years and wish to buy a term insurance If you are 30 years and wish to buy a term insurance for Rs 50 lakh till age of 60 the premium out go for Rs 50 lakh till age of 60 the premium out go per annum will be Rs 13401 and it will be Rs per annum will be Rs 13401 and it will be Rs 21067 if you are 40 and if you are 50 for the same 21067 if you are 40 and if you are 50 for the same cover it will be Rs 37171 for a period of 10 cover it will be Rs 37171 for a period of 10 years( till age of 60).How many times of my years( till age of 60).How many times of my annual earnings I require insurance? The idea is annual earnings I require insurance? The idea is to protect monthly income even if the bread to protect monthly income even if the bread winner is not there.winner is not there.

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Retirement planning?

Some may like it and others may not! But retirement is a reality for every working person.

It is important to plan for your post-retirement life if you wish to retain your financial independence and maintain a comfortable standard of living even when you are no longer earning. According to NSSO 93 per cent of working classes has no social security.

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Case Study

Assume if you are at 40 and your currently Assume if you are at 40 and your currently monthly expenses is Rs 40000 and annual monthly expenses is Rs 40000 and annual requirement is Rs 4.8 lakhs.Taking a inflation at 6 requirement is Rs 4.8 lakhs.Taking a inflation at 6 per cent at the end of 20 years( at the age of 60) per cent at the end of 20 years( at the age of 60) you need annual pension of Rs 15.4 lakh.To get you need annual pension of Rs 15.4 lakh.To get this pension at the time of retirement you should this pension at the time of retirement you should have a corpus of Rs 1.63 crore and it should earn 8 have a corpus of Rs 1.63 crore and it should earn 8 per cent interest. To reach this target he should per cent interest. To reach this target he should save monthly a sum of Rs 16340 for next 240 save monthly a sum of Rs 16340 for next 240 months and it should earn an interest of 12 per months and it should earn an interest of 12 per cent. cent.

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Paying tax

It would be great if all of us could pay our taxes with a smile on our face, but unfortunately, this is not so

Therefore, the question arises“How to minimize our tax liabilities?”

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ways to reduce tax liabilities

Three ways used by the taxpayers are

• Tax evasion• Tax Avoidance• Tax Planning

Tax Evasion means trying to reduce taxes by concealing income, inflation of expenses, falsification of accounts and wilful violation of the provisions of the Income-tax Act.

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Tax Evasion

Taxpayers

Tax Avoidance

Tax Planning

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ways to reduce tax liabilities cont’d

Tax Avoidance means minimizing the incidence of tax by adjusting the affairs in such a manner that it falls within the four corners of the laws

Tax planning is an arrangement of financial activities in such a way that maximum tax benefits, as provided in the income-tax act are availed of. It envisages use of certain exemptions, deductions, rebates and relief's provided in the act.

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What is estate planning?

Estate is the total property, real and personal, owned by an individual prior to distribution through a Trust or Will. Real property is real estate and personal property includes everything else, for example cars, household items, and bank accounts.

Estate Planning distributes the real and personal property to an individual's heirs.

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Why estate planning?

Example: Parveen Babi considered to be one of the most successful Bollywood actresses in the 1970s.

She did not leave a will.

Result.

Fights amongst relatives on her property after her death.

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Why estate planning?

Dhriubhai Ambani • started the Reliance Commercial Corporation with a capital of Rs. 15,000

• passed away on July 6, 2002.

• Reliance Group had a gross turnover of Rs. 75,000 Crore or USD $ 15 Billion at the time of his death

• Had not done proper estate planning. His will was not clear.

Result…

Arguments between his sons for Reliance.

Is writing a WILL is difficult?

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Thanking you

My contact no 98404 54737My contact no 98404 54737

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Role, Scope and Opportunities for Wealth Creators in Indian

Economy

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Retail Financial Services Industry

an overview

• Over 100 Million Retail investors and still growing

• 53,000 + Bank Branches in the Country• 8913+ Pvt&LIC Insurance Branches• 10000+ Brokerages Service Branches• 100,000 + CA’s• Growing number of Financial Products

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aspirations to create wealth..

Some Statistics from Income Tax dept • Rs. 200,000+ in mutual funds by 320,000+

investors = Rs. 685,000 crore. • Rs. 100,000+ in primary issues by 60,00,000

investors = Rs. 60,000 crore.• Rs 495,000 crore invested in gold

• Rs. 200,000+ spent by 300,000+ credit card holders = Rs. 6400 crore.

• 1000,000 cars sold = Rs. 5000 crores

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Confusion & Fear

…need for someone Trustworthy, who can hold his hand

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Financial Planning

By Suresh Parthasarathy,By Suresh Parthasarathy, Sr.Research Analyst,Sr.Research Analyst, Business Line, Chennai.Business Line, Chennai. Mobile 98404 54737Mobile 98404 54737 E mail suresh_pin@yahoo.comE mail suresh_pin@yahoo.com

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Mutual Fund Products

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Life Insurance Products

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Health and Property Insurance

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Banks

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Abundance