financial planning for an investor with kotak mahindra babk by roomlata bhagel
TRANSCRIPT
1
PROJECT
ON
“FINANCIAL PLANNING FOR AN INVESTOR”
FOR
KOTAK MAHINDRA BANK,
EAST STREET, PUNE
MASTER OF BUSINESS ADMINISTRATION (FINANCE)
SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENT
FOR AWARD OF
MASTER OF BUSINESS ADMINISTRATION OF
TILAK MAHARASHTRA UNIVERSITY, PUNE.
SUBMITTED BY:
ROOMLATA GYANSINGH BAGHEL
PRN: 07208013250
OF
PAI INTERNATIONAL CENTRE FOR MANAGEMENT EXCELLENCE,
PUNE.
Guided By Mr Prashant Gundawar
TILAK MAHARASHTRA UNIVERSITY.
GULTEKDI, PUNE 411037.
2
ACKNOWLEDGEMENT.
It is common knowledge that a guide plays the role of light in a maze of
darkness.
I would like to thank, Kotak Mahindra Bank at East Street Branch Pune for
having given me an opportunity to undergo summer training in their company.
My deep-rooted respect and sincere gratitude to Mr. Amul Sharma (Regional
Manager) ,Mr.Sachin Vaze (Branch Manager ), Mr.Dinesh Shendkar
(Relationship Manager-Business Banking) and Mr Prashant Gundawar (Internal
Guide) who in spite of their busy schedule listened to my problems and
suggested prompt solutions.
I am also thankful to Prof. R.Ganeshan (Director) for his constant support
throughout the duration of the project, a Special thanks to Ms. Shikha Khare and
our staff member Ms.Saumya Mehta, who helped me during the study.
Once again, I would like to thank all the staff members and my friends
who during the course of my training helped me with my learning objectives.
I hope that I have been successful in my endeavour. Discrepancies,
mistakes, if any, are solely mine.
Roomlata Baghel
MBA (PICME).
3
TABLE OF CONTENTS
S.NO. CONTENT PAGE NO.
1. Rationale of the Study. 1-2
2. Objective of the Study. 3-5
2.1 Title of the Project.
2.2 Objective of the Study.
2.3 Scope of the Study.
3. Profile of the Company. 6-17
4. Review of the literature. 18-19
5. Research Methodology. 20-24
6. Theoretical Background. 25-32
6.1 Introductory Chapter.
6.2 Planning Process.
6.3 Formation of Goals.
6.4 Benefits of Financial Planning.
7. Data Analysis and Practical Representation of the Plan. 33-52
8. Conclusion. 53-54
9. Suggestion and Recommendation. 55-56
10. Appendix 57-63
11 Bibliography. 64-65
4
RATIONALE OF
THE STUDY
5
RATIONALE OF THE STUDY1.
The rapid growth of capital markets in India has opened up new investment avenues for
investors. Keeping this in mind the Financial Institutions provide number of services to its customer
with a wide spectrum of investment opportunities. In order to retain their customers they provide
them with special services besides traditional services.
The invention of new technology and services by financial institutions has given the
consumers a wide range of investment avenues to invest in. One of the special services brought out
by them is „FINANCIAL PLANNING SERVICES‟ which aims at identifying a person‟s financial
goals, evaluating existing resource and designing the financial strategies that help the person to
achieve those goals and enables him to earn maximum returns at minimum level of risk.
The stock markets have become attractive investment options for the common man. But the
need is to be able to effectively and efficiently manage investments in order to keep maximum
returns with minimum risk.
Financial Planning helps you to give direction and meaning to your client‟s financial decisions. It
allows him to understand how each financial decision affects other areas of finance. For example,
buying a particular investment product may help your client to pay of his mortgage faster or may
delay his retirement significantly. By viewing each financial decision as a part of a whole, you may
help your client consider the long term and the short term effects on his life goals. You will help
them feel more secure and more adaptable to life changes, once they can measure that they are
moving closer to the realization of their goals.
In near future a proper financial planning is required to invest money in all type of financial product
because there is good potential in market to invest.
The main objective of this project on FINANCIAL PLANNING is to review the real meaning of
Financial Planning, its objectives, role, framework, responsibilities of Financial planner and the
study of various other issues related to Investment planning, Tax planning, Asset allocation and
Retirement planning.
I am inclined to this topic, as it has given me actual knowledge of this service along with its
working and how the financial planner plans and manages the portfolio. Moreover, it has guided me
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to understand this so called complex world of investment and financial planning and also increase
my knowledge to such extent. I hope it will prove beneficial to me in developing my further career.
OBJECTIVE
OF THE
STUDY
7
OBJECTIVE OF THE STUDY2.
A. TITLE OF THE PROJECT
“FINANCIAL PLANNING FOR AN INVESTOR”
IN KOTAK MAHINDRA BANK, EAST STREET, PUNE.
B. OBJECTIVE OF THE STUDY
To take an overview of the client‟s in short and long term goals.
To have the client‟s current financial strengths and weaknesses and implications of financial
plan.
To study the client‟s financial objectives anchored to current resources.
To give a detailed summation of all recommendations.
To suggest appropriate financial plan for mutually selected recommendations.
To also give comprehensive economic overview of the client‟s financial plan, supported by
financial statements.
To follow step-by-step implementation and monitoring plan.
8
C. SCOPE OF THE STUDY
Personal Financial Planners are not just for wealthy people. Every individual can benefit
from objective help to create, grow, accumulate and utilize wealth to fulfil one‟s personal goals,
family goals and other lifestyle objectives systematically without any anxiety. Financial planners
can guide individuals to achieve their ultimate aim of spending retired life peacefully without
compromising living standards. A Qualified financial planner will provide advice on.
Systematic Savings
Cash Flow Management
Debt Management
Assets Allocation for Investment
Managing Risk through Insurance Planning
Tax Strategies to increase investible surplus
Distribute residual wealth through estate planning
Financial Planning is a profession for people with good communication skills combined
with knowledge of how financial service industry works. As a Financial Planner one could work for
a bank, insurance company, a brokerage house or have own practice. Most important is to
understand that the suitability of products you are guiding people to purchase is based on their Risk
Appetite, Age and Time Frame of Goals and Objectives. Financial Planners need to update
themselves constantly on new products, services and tax laws that might be good for their clients.
This is a field that requires a life time of continuing education. A Trusted Financial Planner can play
an important role in people‟s lives helping them to achieve dreams such as owning a home, seeing
their children‟s education and enjoy an active retirement.
9
PROFILE OF
THE
COMPANY
10
PROFILE OF THE COMPANY 3.
Overview
The Kotak Mahindra Group:-
Kotak Mahindra is one of India's leading financial organizations, offering a wide range of financial
services that encompass every sphere of life. From commercial banking, to stock broking, to mutual
funds, to life insurance, to investment banking, the group caters to the diverse financial needs of
individuals and corporates.
The group has a net worth of over Rs. 6,523 crore and has a distribution network of branches,
franchisees, representative offices and satellite offices across cities and towns in India and offices in
New York, London, San Francisco, Dubai, Mauritius and Singapore. The Group services around 6.2
million customer accounts.
11
History:-
The Kotak Mahindra Group was born in 1985 as Kotak Capital Management Finance Limited. This
company was promoted by Uday Kotak, Sidney A. A. Pinto and Kotak & Company. Industrialists
Harish Mahindra and Anand Mahindra took a stake in 1986, and that's when the company changed
its name to Kotak Mahindra Finance Limited.
Since then it's been a steady and confident journey to growth and success.
1986 Kotak Mahindra Finance Limited starts the activity of Bill Discounting
1987 Kotak Mahindra Finance Limited enters the Lease and Hire Purchase market
1990 The Auto Finance division is started
1991 The Investment Banking Division is started. Takes over FICOM, one of India's largest
financial retail marketing networks
1992 Enters the Funds Syndication sector
1995
Brokerage and Distribution businesses incorporated into a separate company - Kotak
Securities. Investment Banking division incorporated into a separate company - Kotak
Mahindra Capital Company
1996
The Auto Finance Business is hived off into a separate company – Kotak Mahindra Prime
Limited (formerly known as Kotak Mahindra Primus Limited). Kotak Mahindra takes a
significant stake in Ford Credit Kotak Mahindra Limited, for financing Ford vehicles.
The launch of Matrix Information Services Limited marks the Group's entry into
information distribution.
1998 Enters the mutual fund market with the launch of Kotak Mahindra Asset Management
Company.
12
2000
Kotak Mahindra ties up with Old Mutual plc. for the Life Insurance business.
Kotak Securities launches its on-line broking site (now www.kotaksecurities.com).
Commencement of private equity activity through setting up of Kotak Mahindra Venture
Capital Fund.
2001 Matrix sold to Friday Corporation
Launches Insurance Services
2003 Kotak Mahindra Finance Ltd. converts to a commercial bank - the first Indian company
to do so.
2004 Launches India Growth Fund, a private equity fund.
2005
Kotak Group realigns joint venture in Ford Credit; Buys Kotak Mahindra Prime
(formerly known as Kotak Mahindra Primus Limited) and sells Ford credit Kotak
Mahindra.
Launches a real estate fund
2006 Bought the 25% stake held by Goldman Sachs in Kotak Mahindra Capital Company and
Kotak Securities
Our Corporate Identity
13
The Journey So Far:-
14
Group Structure:-
15
* Includes direct and indirect holdings
Board of Directors: Subsidiaries as on 31st March 2009
16
Sr. No. Name of the Company Directors
1
Kotak Mahindra Capital Company
Limited
Uday Kotak (C)
Falguni Nayar (MD)
Shanti Ekambaram
Dipak Gupta
Jaimin Bhatt
2 Kotak Securities Limited
Uday Kotak (C)
C. Jayaram
Narayan S.A. (MD)
Falguni Nayar
Vikram Sud
D.Kannan ( Executive Director & Chief
Operating Officer )
3
Kotak Mahindra Prime Limited
(formerly known as Kotak Mahindra
Primus Limited)
Uday Kotak (C)
Dipak Gupta
C. Jayaram
Chandrashekhar Sathe
17
Shanti Ekambaram
Jaimin Bhatt
Mohan Shenoi
4
Kotak Mahindra Old Mutual Life
Insurance Limited
Uday Kotak (C)
Gaurang Shah (MD)
Shivaji Dam
Dipak Gupta
Hasan Askari
Paul Hanratty
Vineet Nayyar
Pallavi Shroff
S.S. Thakur
Pankaj Desai (Whole-time Director)
Andrew Cartwright - Alt. to Paul Hanratty
5
Kotak Mahindra Asset Management
Co. Limited
Uday Kotak (C)
R.C. Khanna
Sukant Kelkar
18
C. Jayaram
Narayan S.A.
Bipin R. Shah
6 Kotak Mahindra Trustee Company Limited
Amit Desai (C)
Chandrashekhar Sathe
Girish Sharedalal
Tushar Mavani
Anirudha Barwe
7
Kotak Mahindra Trusteeship Services
Limited
Shailesh Haribhakti (C)
K.M.Gherda
Chandrashekhar Sathe
Berjis Desai
Shivaji Dam
Vikram Sud
8 Kotak Forex Brokerage Limited
Uday Kotak
Dipak Gupta
Chandrashekhar Sathe
19
9 Kotak Mahindra Investments Limited
Dipak Gupta
Jaimin Bhatt
Shanti Ekambaram
R. Sundarraman
C. Jayaram
Jaideep Hansraj
10 Kotak Mahindra (International) Ltd.
Ashraf Ramtoola
Ravi Lochan Pola
Sow Man Ah Yuk Shing
Louis Didier Merle
Ashish Nanda
Somer Massey
Shyam Kumar Syamasundaran
Viswanathan Varadarajan
Bilal Sassa
11 Kotak Mahindra (UK) Limited
Abhishek Bhalotia
Shyam Kumar Syamasundaran
20
Viswanathan Varadarajan
Paul Parambi
C. Jayaram
Hasan Askari
Ruchit Puri
12 Kotak Mahindra Inc.
Ravi Lochan Pola
Viswanathan Varadarajan
Shyam Kumar
Paul Parambi
C. Jayaram
13
Global Investment Opportunities
Fund Ltd.
Abdool Azize Owasil
Sow Man Ah Yuk Shing
Shyam Kumar Syamasundaran
Didier Merle
Ravi Lochan Pola
Riad Aubdool
21
14 Kotak Investment Advisors Limited
C. Jayaram
Shanti Ekambaram
Jaimin Bhatt
Falguni Nayar
S. Sriniwasan
Nitin Deshmukh
22
REVIEW OF LITERATURE4.
REVIEW OF
LITERATURE
23
This project was undertaken to know what exactly is the Financial Planning, How it is
carried out ,Who carries it out, Why it is carried out, When it is carried out ,and the most important
What is the benefit of carrying it out. Below my question were answered. Basically Financial Planning is the process of meeting life goals through the proper
management of your finances. There is a need for financial planning because the financial situation
in the country has changed in the last few years, this has changed in such a manner that it will be
difficult for one to maintain a decent standard of living with the current means this requires
financial planning and in addition there are also several individual specific factor that has to be
fulfilled. Financial planning provides direction and meaning to one‟s financial decisions. The
process involves gathering relevant financial information, setting life goals, examining customer
current financial status and then coming up with a plan for customer on how he can meet with his
goals.
The process that is followed by the Kotak bank is the planner first discuss the general
recommendations with the client informally, this allows the clients to indicate their preferences and
opinions on the options that have been designed. Once the planner and the client agree on the
recommendations, a concise written proposal is prepared along these lines:
An overview of the clients short and long term goals.
The client‟s current financial strengths and weaknesses and implications of financial plan.
The client‟s financial objectives anchored to current resources.
A detailed summation of all recommendations.
The financial plan for mutually selected recommendations.
A comprehensive economic overview of the client‟s financial plan, supported by financial
statements.
A step-by-step implementation and monitoring plan.
24
RESEARCH METHODOLOGY5.
RESEARCH
METHODOLOGY
25
DEFINITION:
Research refers to „a search for knowledge‟. It can be defined as a scientific and systematic
search for pertinent information on a specific topic.
Research comprises defining and redefining problems, formulating hypothesis or suggested
solutions; collecting, organizing and evaluating data; making deduction and reaching conclusions;
and at last carefully testing the conclusions to determine whether they fit the formulating hypothesis
– Clifford Wood.
RESEARCH METHODOLOGY
It is a way to systematically solve the research problem. It may be understood as science of
studying how research is done scientifically. In it we study the various steps that are generally
adopted by the researcher in studying his research problem along with the logic behind them. In
general methodology is an optional framework within which the facts are placed so that the
meaning may be seen more clearly. The sources of data shown that designing of a research plan
calls for decision on the data sources are research approaches (primary and secondary data) research
instruments (observation survey experiment) sampling plan and contact methods (personal
interviews).
RESEARCH DESIGN
A research design is the determination and statement of the general research approach or strategy
adopted for the particular project. It is the heart of the planning. If the design adheres to the research
objectives, it will ensure that the client need will be served.
26
Research design is a plan structured and strategies of investigation. It is the arrangement of
condition and analysis of data in a manner to combine relevance to the research purpose with
economy in procedure.
In order to achieve the objective it was necessary to talk to the customers and public to
draws the conclusions regarding the objective.
For visiting the customers and publics to collect the relevant information; a questionnaire
has to be designed. The questionnaire was designed in such a manner to achieve the
objective of the research.
The sample size taken is 100 customers and publics.
TYPE OF RESEARCH
In this project Descriptive Research has been used.
Descriptive Research:
This is kind of research structure which is concerned with describing the characteristics of
the problem. In this way the main purpose of such a research design is to present a
descriptive picture about the marketing problem on the basis of actual facts. For this it is
important to obtain the complete and actual information about the subjects.
Research Objective:
The Financial Planning is vast in nature. It is intended to provide a bird‟s-eye view of the client‟s
assets. The Financial planner has to have bottomless knowledge of markets, funds etc. Considering
this fact, the scope of the study is defined to satisfy following objectives:
Understand the necessity of financial planning,
Study and apply the financial planning process,
Identify various investment alternatives that can fit in client‟s profile, and
Provide the client in an appropriate asset allocation mix based on certain factors like time
horizon, risk tolerance etc.
27
This project consist of Quantitative as well as Qualitative data as data collect for preparing plan is
both the types
Gathering Data
There are two types of data to gather from the client
- Quantitative
- Qualitative.
Quantitative Data
Quantitative data provides specific information concerning a client along with numerical details
Concerning his/her financial status. It also provides the basis for the many financial analyses that the
financial Planner needs to perform.
Examples of quantitative data include the following:
General family profile
Names, addresses, and phone numbers of family members
Assets and liabilities
Cash inflows and outflows
Insurance policy information
Employee benefit and pension plan information
Tax returns for the last three years
Details on current investments
Retirement benefits available
Client-owned business information
Copies of wills and trusts
Qualitative Data
Qualitative information provides general information concerning a client's goals, lifestyle, health
status, risk tolerance level, employment status, hobbies, attitudes, and fears. Knowing a client's specific
goals, such as planning to move when retiring at age fifty-five, funding a child's college education and
expenses, starting an expensive hobby just before retirement, or traveling extensively during retirement,
28
is important to the success of any financial plan.
Examples of qualitative data include the following:
Goals and objectives
Health status of client and family members
Interests and hobbies
Expectations about employment
Risk tolerance level
Anticipated changes in current/future lifestyle
Other planning assumptions.
Data Sources:
SECONDARY DATA:
The secondary data includes information obtained from various sources which includes
Kotak Mahindra Bank, Books, Business Newspapers, Websites, etc
LIMITATIONS:
1. The project work is mainly based on the above mentioned sources of information.
2. Limitation of client in investing in particular kind of asset based on his age.
3. Time limitation
29
THEORITICAL BACKGROUND6.
THEORITICAL
BACKGROUND
Introductory Chapter:-
Definition:-
30
Financial Planning is the process of identifying a person‟s financial goals, evaluating
existing resources and designing the financial strategies that help the person to achieve those goals.
Process of Financial Planning:-
Financial planning is a highly personalized service. It is not a product. It is a cyclical
service that constantly repeats as client needs change over time. Preparation and implementation
of the financial plan is a long-term relationship and not a one-off exercise.
For the success of the financial planning exercise, it is essential that the prospective client
should have complete confidence in the financial planner‟s capabilities. Confidence is built when
the planner can demonstrate adequate knowledge, technical depth and complete dependability.
Also remember that financial planning is a two-way interaction between the client and the
planner. It is not and should not be treated as a one-way prescription which is to be given by the
planner to the client. Both the planner and the client have certain responsibilities to make the
exercise a success.
The Planning Process:-
The preparation of the financial plan is a multi-dimensional process. It requires the
planner to collect as much information as possible about the current resources, assets and
liabilities of the client. The planner needs to analyze the collected information from a number of
different aspects to develop an optimal financial plan. To prepare and implement a comprehensive
and effective financial plan, the Financial Planning Standards
Board recommends the following 6-step process:-
Let us look at the above steps in more detail.
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1. Establish the Client-Planner Relationship
Before approaching a client, it is important for the financial planner to clearly understand his own
role. The role of the financial planner is not to suggest get-rich-quick schemes. Rather, it is to
evaluate and study the clients' needs, gather and analyze data and prepare a financial plan for now
and for the future. Preparation and implementation of the financial plan is a long-term relationship
and not a one-off exercise.
A financial planner has to prepare a plan that helps his clients:-
Organize their finances
Improve their cash flows
Lower their personal income taxes
Plan for their retirement
Improve their investment performance
Lower their investment risk
Insure themselves appropriately and reduce insurance costs
Minimize their estate settlement costs
To achieve this, the planner needs to answer the following questions:
What is the most immediate concern of the client?
What is the client‟s current financial situation?
What are the client‟s immediate and long-term needs?
What is the gap between the client‟s needs and the current financial situation?
What services can you apply to the client‟s needs?
How would the client benefit from your service portfolio?
What is the estimated time frame to complete the plan and accomplish goals?
Is your role likely to be of an adviser, motivator, teacher, or director?
Client agreements and confidentiality clauses
When a client utilizes the services of a financial planner, he/she shares financial and other
personal information with the planner that is normally not shared with anyone else. The client-planner
relationship presupposes a very high level of trust between the two parties. Consequently, the planner is
under obligation to maintain utmost confidentiality of this information. To prevent unnecessary litigation
and disputes in the future, it is recommended that the financial planner should enter into a client
32
agreement which formalizes the relationship with the client and establishes the basis on which the service
would be provided. Such an agreement is also referred to as the 'Letter of Engagement.'
2. Gather client’s data and determine goals and expectations
The next step involves researching and collecting information that will help the financial planner
design and implement a successful financial plan. There are two aspects to this exercise:-
(a) Understanding the client's current financial position.
(b) Getting to know the client's financial goals, objectives and requirements.
The first helps the financial planner understand where the client is at the moment and the second helps,
the financial planner understands where the client wishes to go.
Formulation of Goals
Financial goals are the milestones that the client hopes to reach with the help of his financial
resources.
These milestones could be concerning different aspects of life like:-
Saving for marriage / childbirth
Buying a new car / house / electronic equipment
Creating a corpus for retirement
Creating a corpus for children's education
Adequately insuring self and family
Creating cash reserves for emergency usage etc.
The financial planner should ensure that the goals are:
Specific;
Realistic;
Measurable / Quantifiable in money terms; and
To be achieved within a specific time period
Once the client has stated clear, quantifiable goals for financial planning, the next step is to
rank those goals in order of importance. This is necessary because most clients do not have the
resources to fulfil all their goals. The financial planner must make it clear to the client that less
important goals must be sacrificed or postponed to achieve the more important ones.This done, the
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financial planner needs to work out the amount of money available for achieving these goals. To
achieve most financial goals, the client would need to start saving and investing appropriately.
Therefore it is important for the financial planner to know where the money to invest will be
coming from.
3. Analyze client‟s objectives, needs and current financial situation Preparation of the Client's Personal
Financial Statements Preparation of the Cash flow Statement and the Budget Prioritizing Goals
The next step is to prioritize the financial goals of the client and work out the amounts that are required
to be invested towards achieving these goals.
Evaluate Qualitative Factors
Qualitative factors have a significant bearing on the financial plan for a client. The client's tolerance
towards risk, investment preferences, current health status etc. need to be kept in mind while evaluating
alternative Strategies.
4. Develop appropriate strategies and present the financial plan
A financial planner needs to develop appropriate strategies for the client in the following areas:
Cash flow management
Insurance planning
Investment planning
Retirement planning
Income tax planning
Estate planning
Cash flow management
Cash flow management is the means for funding client‟s goals in other planning areas, therefore;
generally it is the starting point of the planning process. Once the cash flow management plan is in place,
the inflows have to be channeled in one of the three areas - expenses, reserves for emergencies and
capital accumulation.
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IncomeCash Flow
Management
Daily
Expenses
Emergency
Funds
Capital
Accumulated
Once your clients have planned to maximize income and minimize spending, they need the
planner's help to plan for their insurance, investment, education, income tax, retirement, and their
estate.
The Benefits of Financial Planning
Financial Planning helps you give direction and meaning to your client‟s financial decisions. It
allows him to understand how each financial decision affects other areas of finance. For example,
buying a particular investment product may help your client to pay off his mortgage faster or may
delay his retirement significantly. By viewing each financial decision as a part of a whole, you may
help your client consider the long term and the short term effects on his life goals. You will help
them feel more secure.
35
Assessing your current wealth
Net worth: - Your assets are the things that you own. You probably own assets that have many
different forms, including cash, investments, personal property, real estate etc.
Definition:-
Your net worth is the difference between the totals of your assets and liabilities. In other
words, if you sold all your assets for the values stated and paid off all your debts, the amount left
over would be your net worth. The net worth of a person is a measure of a person‟s financial
position as of the date of the personal balance sheet.
This relationship is shown below:
Items of Value - Amounts Owed = Net Worth
36
37
DATA ANLAYSIS &
PRACTICAL
REPRESENTATION OF
THE PLAN
38
DATA ANLAYSIS & PRACTICAL REPRESENTATION OF THE PLAN7.
Financial planning:-
Financial planning for Tarun Sharma:-
A personal financial assessment is designed to help you evaluate your current financial position and
your ability to achieve your objectives for the future.
Your ability to maintain your lifestyle objectives for the future is determined by your investment capital and
ongoing income. In analyzing your situation we need to consider what is achievable given your current
position, and how we can take best advantage of the assets you have accumulated.
This report has been prepared to assist in the analysis of your current financial position and to help you
identify steps that you can take to achieve your personal financial goals and objectives. Although great care
has been taken to ensure the accuracy of this report, it should be kept in mind that projections, by
their very nature, are based on a variety of assumptions and as such it is likely that the actual results achieved
will be somewhat different than illustrated. For this reason it is very important that you review your strategy
on a regular basis to ensure its relevance to your changing financial position.
Mr. Tarun Sharma Date prepared: **July 2009
Personal Details
Self Spouse Contact Details
Name: Mr. Tarun Sharma Name: Mrs. Seema Sharma Residential Address:
DOB: 24-Jun-1977; Age: 31 DOB: 23rd Apr 1978 1234, Sushant Lok 1
Employer: ABC Solutions Age: 30 Phone number:
Address: 4rth Floor, DLF Phase 2, 9999222111/0124-455111
Sector 25, Gurgaon
Family Members
Name Relationship Date of Birth Age (years) Dependant
Seema Wife 23-Apr-1978 30 Y
es Khushi Daughter 23-Oct-2005 3 Y
es Simran Daughter 24-Apr-2008 1 month Y
es Sanjay Sharma Father - 68 Y
es
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Financial Goals
The following table lists your individual goals in today's value, when you expect to meet them
and the expected rate of inflation.
Description
Frequency
Goal
(today's value)
Rs.
Inflation
rate
Start
Year
End
Year
Remarks
Retirement goal – Living
Expenses
Monthly 30,000 5% 2027 2056
Khushi's school
education goal
Annual 30,000 10% 2009 2022
Simran's school
education goal
Annual 30,000 10% 2013 2026
Khushi's college
education
Annual 48,000 10% 2022 2025
Simran's college
education
Annual 48,000 10% 2026 2029
Khushi's
professional
education
Single 10,00,000 10% 2026 2026
Simran's
professional
education
Single 10,00,000 10% 2030 2030
Khushi's marriage goal Single 4,00,000 5% 2028 2028
Simran's marriage goal Single 4,00,000 5% 2032 2032
Primary home Single 30,00,000 5% 2008 2008 15% will be
paid towards
down
payment of
the house
and
85% will be
funded by
bank loan
Vacation Every 2
years
20,000 5% 2009 2047 Every 2 years
till your age
7
0
40
Assumptions:
1. Life expectancy for Mr Sharma and Mrs.
Sharma is age 80.
2. Retirement age of Mr Sharma is 50 years.
3. An average annual inflation rate of 5% used
in the analysis.
4. Savings account is expected to earn a 3.5%
annual rate of return.
5. Liquid funds expected to earn an 6% annual
rate of return.
6. Debt funds are expected to earn an 8%
annual rate of return.
7. Large cap equity funds are expected to earn
a 12% annual rate of return.
8. Mid cap equity funds are expected to earn a
14 % annual rate of return.
9. Education expenses are expected to increase
at 10% per annum.
10. Salary income is expected to increase at
10% per annum. 11. Current living expenses are expected to
increase at 10% per annum.
Your Risk Level
Following our discussions regarding
your investment objectives and the
completion of the risk profile
questionnaire, you are estimated to
have a
Moderate Profile.
41
NET WORTH
Assets Amount Rs. % of Total
Liquid Assets
Savings account 121,000
Liquid funds 0
Total 121,000 18%
Financial Assets
Fixed interest investments 0
Mutual funds 206,089
Direct equity 60,260
Cash value of life insurance
policies
0
Employee stock option plan (ESOP) 0
Total 266,349 39%
Tangible Assets
Real estate 0
Other assets (e.g. Art, Coin and Stamp
Collections)
0
Total 0 0%
Personal Assets
Primary house 0
Vacation home 0
Car/Vehicle
Jewellery
Other personal assets 0
Total 0 0%
Retirement Assets
Provident fund 200,000
Superannuation 0
Gratuity 0
Public provident fund 100,000
Cash value of pension plan 0
Total 300,000 44%
Total Assets 687,349 100%
Liabilities and Net Worth
Outstanding Loan
Home loan 0 0%
Vehicle loan 198,712 29%
Personal/Credit card loan 163,709 24%
Education loan 0 0%
Total Liabilities 362,421 53%
Net Worth
(total assets-total liabilities)
324,928 47%
42
Projected cash flow-
Cash Flow
Current Amount (Rs) Recommended Amount (Rs)
Description
% of total
income Annual Monthly
% of total
income Annual Monthly
Income
Salary-Fixed(CTC) 10,00,008 83,334 10,00,008 83,334
Salary-Variable 0 0 0 0
Income from
business/profession 0 0 0 0
Pension 0 0 0 0
Rental income 0 0 0 0
Investment income 0 0 0 0
Other income 0 0 0 0
Total Income 100% 10,00,008 83,334 100% 10,00,008 83,334
Expenses
Living Expenses
Household expenses 4,03,200 33,600 4,03,200 33,600
House rent 0 0 0 0
Education expenses 0 0 0 0
Total Income 40% 4,03,200 33,600 40% 4,03,200 33,600
Loan EMI's
Home Loan 0 0 0 0
Vehicle loan 76,152 6,346 76,152 6,346
Personal loan/Credit card 1,18,656 9,888 1,18,656 9,888
Total 19% 1,94,808 16,234 19% 1,94,808 16,234
Insurance Premiums
Life insurance 26,647 2,221 49,839 4,153
Health insurance 3,575 298 3,575 298
Motor insurance 0 0 0 0
Home(content) insurance 0 0 0 0
Home(building) insurance 0 0 0 0
Other insurance 0 0 0 0
Total 3% 30,222 2,519 53,414 4,451
Other Expenses
Travel and vacation 0 0 0 0
43
Charity 0 0 0 0
Others 0 0 0 0
Total 0% 0 0 0% 0 0
Contribution to Emergency
Fund
Taxes
Salary-Fixed 75,822 6,319 75,822 6,319
Salary-Variable 0 0 0 0
Income from
business/profession 0 0 0 0
Pension 0 0 0 0
Rental income 0 0 0 0
Other income 0 0 0 0
Total 8% 75,822 6,319 8% 75,822 6,319
Excess(shortage)before savings
Savings
Contribution to Retirement
assets
PF(employer's contribution) 4% 42,001 3,500 4% 42,001 3,500
PF(employee's contribution) 4% 42,001 3,500 4% 42,001 3,500
Superannuation 0% 0 0 0% 0 0
Gratuity 2% 16,801 1,400 2% 16,801 1,400
PPF 0% 0 0 0% 0 0
Other Committed Savings
Excess (shortage)after Savings 20% 1,95,153 16,263 17% 1,71,961 14,330
Create and maintain an adequate emergency fund
You must ensure that you are adequately prepared for unexpected events in the short-term by creating an
emergency fund equal to three to six months of living expenses. This will enable you to pay for costs that
are not covered by insurance, as well as any kind of urgent expenses.
You have Rs. 1.21 lakh in your savings account. You are advised to maintain Rs. 50,000 (approximately one
month of your expenses) as an emergency fund. Though one must keep at least 3-6 months of living and
committed expenses in emergency fund. However, you have an immediate goal of house purchase in the
year 2008.
You are advised to build and maintain an emergency fund gradually (after you have acquired the
immediate goal – home purchase) to an equivalent amount of Rs. 1.50 Lakh over time.
44
Your emergency fund
Category Amount in
Rs. Total 1,21,00
0 Amount transferred from savings account to investment
portfolio
71,00
0 Savings account amount allocated to emergency fund 50,00
0
Investment Planning
Current Asset Allocation
Asset allocation is the cornerstone of good investing. Each investment included in your portfolio must be of an overall asset allocation strategy and this plan must be genetic (one-size-fits-all),but rather must tailored to your specific needs. Based on the information that have provided, the current asset allocation if your portfolio is:
Asset Class
Amount
(Rs)
% of total
asset
Cash 71,000 16.23%
Liquid funds 0 0.00%
Fixed interest
instruments 1,00,000 22.87%
Equity 2,66,349 60.90%
Total 4,37,349 100.00%
Expected Portfolio Return : 9.71%
Proposed Asset Allocation
Asset allocation is the cornerstone of good investing. Each investment included in your portfolio must be part of an overall asset allocation strategy and this plan must be genetic (one-size-fits-all),but rather must tailored to your specific needs. Based on the information that have provided, the current asset allocation if your portfolio is:
Asset Class %
Expected Portfolio Return : 10.80%
Liquid Funds 5%
Fixed interest
Instruments 25%
Large Cap Equity 65%
Mid Cap Equity 5%
Total 100.00%
Liquid Funds
Fixed interestInstruments
Large Cap Equity
Mid Cap Equity
Cash
Liquid funds
Fixed interest instrumentsEquity
Asset Allocation
45
Protection Planning
The purpose of the protection planning section is to examine existing insurance coverage and make
recommendations. The goal is to determine whether there is adequate coverage and/or if any additional
coverage that may be needed.
Life Insurance
Observation
Currently you are covered by different life insurance policies worth sum assured of Rs. 8 laky by LIC,
Max Life and ING Vyasa. You pay an annual premium of Rs. 26,647 per annum. (See life insurance
details, Annexure 1).
Life insurance need analysis requires that we look at what would happen in the event of your death. This
analysis is done using information you provided to us about your income, expenditure, assets and
insurance coverage.
We have computed the insurance coverage requirement for you based on a scenario that all household
expenses that will need to be incurred by your family and all other financial goals and liabilities are fully
met in the event of your death. As per our analysis you are under-insured by Rs. 1 crore. (See life insurance need analysis, Annexure 2)
0
2000000
4000000
6000000
8000000
10000000
12000000
Insurance Needs Vs Current Coverage
46
Recommendation
You are advised to buy an additional term life policy worth Rs. 1 crore. The annual estimated premium is
expected to be Rs.26, 192 for a term of 20 years. (Source: HDFC Term Life Insurance Policy).
Health Insurance
Observation
Currently, you are not covered for health by any private health plan.
You must have adequate health insurance coverage especially because of rapidly rising health care costs. In
addition to the employer provided plan, it is strongly advisable to keep a private health plan. This is
especially useful if you change jobs. Also, health insurers do not accept pre-existing diseases.
Recommendation
You must consider buying a family floater scheme worth sum assured Rs. 3 Lakh. This will cover you, your spouse and your child. The estimated annual premium is Rs. 3,575. (Source: Reliance Health Silver Plan)
Planning for Goal
Observation
You are planning to buy a new house of approximately Rs. 30 Lakh in the year 2008.
Analysis
Based on your current situation, you can meet the above mentioned goal to the extent as mentioned below: Amount in Rs. (in today's value)
Year Goal
Amount
Goal Amount
Purchase of new house
End of 2008
(Desired)
30 Lakh
(Achievable)
30 Lakh
Recommendation:
Funding available towards your home purchase goal
1. Down payment of 15% of the value of home through the Investment Portfolio
2. Bank loan for funding the balance of Rs. 25.50 Lakh.
1. Down payment of Rs. 4.50 Lakh through the Investment Portfolio as follows:
Savings account – Rs. 71,000 must be utilized
Mutual funds – Rs. 2.07 Lakh
Surplus of year 2008 – Rs. 1.71 Lakh
2. Bank loan for funding the balance Rs. 25.50 Lakh.
Description Year Annual Estimated EMI in Rs.
Annual Income 2009-2023 3.04 Lakh
Note: Please note that our analysis shows that in the year 2009, the annual income surplus is not expected to support the EMI in the year 2009 by Rs. 96,000. However, as you will get tax benefits under section 24(b) for the interest portion paid towards home loan, you will be able to meet the EMI expense by the Money saved on taxes.
47
Goal: Khushi’s Education
Observation
You need to plan for the following education expenses of Khushi's in today's value.
1. School education of Rs. 30,000 per annum starting in the year 2009 till the year 2021. This is
expected to
Grow at 10% per annum.
2. College education expenses of Rs. 40,000 per annum (in today's value) between 2022 and 2025.
3. Professional education expense of Rs. 10 Lakh in today's value in the year 2026.
Analysis
Based on your current situation, you can meet the above mentioned goal to the extent as mentioned below:
Amount in Rs. (in future value)
Year Goal Amount Goal Amount
(Desired) (Achievable)
School education expenses
2009-2021 Rs. 30,000/year Rs. 30,000/year (grows at inflation rate of
10%)
College education expenses
2022-2025 Rs. 1.1 crore/year Rs. 1.1 crore/year (grows at inflation rate
of 10%)
Professional education expense
2026 Rs. 55.59 lakh Rs. 55.59 lakh
Recommendation
You should consider utilizing the following sources of cash to help you fund your goal as per our analysis.
1. Regular annual income surplus to fund the school education – We have treated the school and college
expense as a regular expense and deducted this from your cash flow every year. Your annual income
surplus during the years
2009-2025 is expected to support the education expenses as mentioned above.
2. Investment from the Annual surplus in the recommended portfolio to fund college and
professional education expenses
Description Year Amount to be invested (Rs.) Investment from 2011-2025 1.48 Lakh annual surplus
Note: The Investment is expected to be made in the recommended asset allocation which is expected to
generate
10.80% per annum
48
Observation
You need to plan for the following education expenses of Khushi's in today's value.
1. School education of Rs. 30,000 per annum starting in the year 2013 till the year 2025. This is
expected to grow at 10% per annum.
2. College education expenses of Rs. 40,000 per annum (in today's value) between 2026 and 2029.
3. Professional education expense of Rs. 10 lakh in today's value in the year 2030.
Analysis
Based on your current situation, you can meet the the above mentioned goal to the extent as mentioned
below:
Amount in Rs. (in future value)
Year Goal Amount Goal Amount
(Desired) (Achievable)
School education expenses 2013-2025 Rs. 30,000/year Rs. 30,000/year (grows at inflation
rate of 10%)
College education expenses 2026-2029 Rs. 2.66 Lakh/year Rs. 2.66 Lakh/year (grows at inflation rate of 10%)
Professional education expense
2030 Rs. 81 Lakh Rs. 81 Lakh
Recommendation
You should consider utilizing the following sources of cash to help you fund your goal as per our analysis.
1. Regular annual income surplus to fund the school education – We have treated the school and college
expense as a regular expense and deducted this from your cash flow every year. Your annual income
surplus during the years
2013-2025 is expected to support the education expenses as mentioned above.
2. Investment from the Annual surplus in the recommended portfolio to fund college and
professional
education expenses
Description Year Amount to be invested (Rs.)
Investment from 2010 88,782 annual surplus 2011 43,939
2012 1.24 lakh
2013 1.06 lakh
2014-2027 1.58 lakh
Note: The Investment is expected to be made in the recommended asset allocation which is expected to generate 10.80% per annum
49
Observation
Khushi's is expected to get married in 2028. You need to plan for the following expenses in today's value.
1. Marriage expenses of Rs. 4 lakh (today's value) in the year 2028.
Analysis
Based on your current situation, you can meet the above mentioned goal to the extent as mentioned below:
Amount in Rs. (in future value)
Year Goal Amount Goal Amount
Marriage expenses
2028
(Desired)
Rs. 10.61 lakh
(Achievable)
Rs. 10.61 lakh
Recommendation
You should consider utilizing the following sources of cash to help you fund your goal as per our analysis.
1. Regular annual surplus
Description Year Amount to be invested
(Rs.)
Annual Income Surplus 2015-2027 37,035
Note: The Investment is expected to be made in the recommended asset allocation which is expected
to generate
10.80% per annum
Observation
You need to plan for following expenses in today's value:
1. Domestic - You wish to spend Rs. 20,000 on vacation every 2 year.
Analysis
Amount in Rs. (in today's value)
Description Year Estimated Amount Inflation rate Goal Amount
Domestic
2009-2047
(Desired)
20,000
(Assumed)
5%
(Achievable)
20,000
50
Recommendation
In our analysis, we have taken the above expense as an annual regular expense and your cash flow is
supporting this
expense from your annual income surpluses from 2009-2047.
Observation
The probable year for your expected 2nd child to get married is 2032. You need to plan for the following
expenses in today's value.
1. Marriage expenses of Rs. 4 Lakh (today's value) in the year 2032.
Analysis
Based on your current situation, you can meet the above mentioned goal to the extent as mentioned below:
Amount in Rs. (in future value)
Year Goal Amount Goal Amount
(Desired) (Achievable)
Marriage expenses on
2032
Rs. 12.90 Lakh
Rs. 12.90 Lakh
You should consider utilizing the following sources of cash to help you fund your goal as per our analysis.
1 Regular annual surplus
Description Year Amount to be invested
(Rs.)
Annual Income Surplus 2014-2031 26,630
Note: The Investment is expected to be made in the recommended asset allocation which is expected to
generate 10.80% per annum
Observation
You intend to retire at age 50. After retirement you need to plan for the following expenses in today's value.
1. Annual household expenses of Rs. 3.60 Lakh in today's value between 2027(your retirement year)
and 2056 (life expectancy).
51
Analysis
Based on your current and projected financial situation you cannot meet the above mentioned goals due to
retirement at age 50.
Amount in Rs. (in today's value)
Year Goal Amount Goal Amount
Annual household
expenses
2027-2056
(Desired)
Rs. 3.60 Lakh/year
(Achievable)
Rs. 3.60 lakh/year
Amount in Rs. (in future value)
Year Goal Amount Goal Amount
Annual household
expenses
2027-2056
(Desired)
Rs. 9.55 lakh per annum
(Achievable)
Rs. 9.55 lakh per annum
Note: You are contributing every month Rs. 3,500 towards to Provident Fund and Rs. 1,400 per month
towards Gratuity. In our analysis, expected growth rate of PF and Gratuity is 8% per annum. Also there is a
contribution from your employer of Rs. 3,500 per month towards your Provident Fund account.
Recommendation
You should consider utilizing the following sources of cash to fund your retirement goal as per
our analysis:
1. Retiral assets
2. Insurance maturity proceeds
3. Annual income surplus to be invested in recommended asset allocation
1. Retiral assets
Description Year Estimated accumulated amount
Provident fund and
Gratuity fund
2027
52.42 lakh
52
2. Insurance maturity proceeds
Description Maturity Year Estimated maturity
proceeds
LIC Jeevan Anand 2029 5 lakh
Note: We have not taken the non-guaranteed portion i.e. bonus, we have only taken the
guaranteed part.
3. Annual income surplus to be invested in recommended asset allocation to fund the balance of retirement goal:
Description Year Amount to be invested
(Rs.) Annual income surplus 2014 10,970
2015 12,972
2016 117,725
2017 167,617
2018 290,647
2019 353,947
2020 498,710
2021 578,534
2022 670,463
2023 762,740
2024 1,295,626
2025 1,411,208
2026 1,970,708
2027 17,68,991 Note: All the above surpluses have been allocated towards your retirement goal, this is done after funding the other
goals such as Khushi's marriage, education, etc.
53
NEXT STEPS
Goal/Needs Next Step
Life Insurance You are advised to buy an additional term life insurance policy worth Rs.
1 crore. The annual estimated premium is expected to be Rs. 23,192 for a
term of 20 years. (Source: HDFC Term Life Insurance Policy).
Health Insurance You must consider buying a family floater scheme worth sum assured Rs.
3 Lakh. This will cover you, your spouse and your child. The estimated
annual premium is Rs. 3,575. (Source: Reliance Health Silver Plan)
Recommendation for
existing investment
Savings account to be used for maintaining an emergency fund
Current savings account balance is Rs. 1.21 lakh. You need to maintain
an emergency fund of Rs. 50,000 where the money is easily accessible
and liquid to meet any unforeseen contingencies. Balance must be
utilized towards the home goal.
Fixed interest investments:
Retain the PPF till its maturity date. Then, invest the maturity proceeds in
the recommended portfolio. We have allocated this investment towards
your retirement goal.
Mutual funds:
You may liquidate this and fund the down payment of the home goal in the
year 2008. If you are not liquidating this then you have to arrange
additional source of fund for the down payment of the house goal.
Recommendation for
current annual surplus –
Year 2008
Current annual surplus for year 2008 is expected to be approx. Rs. 1.71
Lakh. This amount is expected to be directed towards the down payment of
the home goal. You must invest the monthly surplus for the next 6 months in
capital preservation funds as this is needed for down payment within 6
months.
Estate Planning We recommend that you must consider writing a Will within the next 1 year.
Car goal You are advised to avail the car lease option provided by your company
for a new car. You are having a car loan liability as of now. Your
Relationship Manager will discuss about the car lease facility in detail
vis-a-vis your existing car loan liability.
54
Annexure 1
Company
Name Insurer Term
Year of
Commence
ment
Sum
Assured
Annual
Premium
Remarks Type Policy No
Premiu
m
Paying
Term
Year of
Maturity
(Guarant
eed)
Mode of
Payment
LIC-Jeevan
Anand
Tarun
Sharma 2 2004
5,00,000
20,517
Plan 149 241268027 25 2029
Annual
Premium
MAX
Tarun
Sharma 65 2003
3,00,00
6,130
Whole Life 234256972 65 2068
Rs. 3,065 paid
semi
annually
ING Vyasa
Tarun
Sharma 10 2005
1,50,000
4,300
ULIP 11256985 10 2015 Annually
You have
discontinued
this policy,
still sum
assured
continues
Life Assured
Tarun
Sharma
Sum Assured
(Guaranteed)
Annual
Premium
Date of Birth 24th June 77 9,50,000 26,647
55
Annexure 2: Your Insurance Need Analysis
A Survivor’s Living Expenses 95,19,875
House Rent 0
Education 0
B Other Expenses
Vacation 0
Charity/Gift 0
Others 0
C Outstanding Debt to be Paid off
Home Loans 0
Vehicle Loan 1,98,709
Personal Loans/Credit Cards 1,63,709
D Protection for Goals
House/Land Purchase 0
Jewellery and Arts 0
Purchase of Car 0
Education 20,00,000
Marriage 0
Other goals 0
E Total Funds Needed to cover Expenses, Liabilities and Goals (A+B+C+D) 1,18,82,296
F Assets Currently Available to Support Family
Savings account 1,21,000
Liquid Assets 0
Financial Assets
Fixed interest investments 0
Mutual funds 2,06,089
Direct Equity 60,260
Employee stock option plan(ESOP) 0
Tangible Assets
Real estate 0
Other assets (e.g. Art, Coin and Stamp Collection)
Retirement Assets
Provident Fund 2,00,000
Superannuation 0
Gratuity
Public Provident Fund 6,87,349
56
G Total 0
H Other Regular Income 0
I Survivor’s Estimated Annual Income from Employment 6,87,349
J Total Available Funds to Cover Expenses, Liabilities and Goals (F+G+H) 1,11,94,948
K Life Insurance Coverage Required (E-I) 9,50,000
L Life Insurance Coverage Already Available 1,02,44,948
Additional Insurance Required (J-K)
Financial Glossary: Net Worth: Assets less Liabilities.
Cash Flow: Income less Expenses.
Monthly Budget: A way of tracking your monthly income and expenses.
Contingency Reserve Fund: Fund to meet any unforeseen immediate
Emergency/contingency need.
Large Cap Stocks: These are investments in the common stocks of well-
Recognized, large companies that are expected to produce relatively
Secure and stable earnings.
Mid Cap Stocks: These are investments in stocks of mid-sized companies
that are expected to provide a blend of growth and earnings.
Small Cap Stocks: These are investments in common stock
of r e l a t i v e l y small, low capitalization companies whose earnings
are expected to grow at an above-average rate.
57
CONCLUSION
58
CONCLUSION8.
The overall study about each and every aspect of this topic shows that Financial Planning is a
dynamic and flexible concept which involves regular and systematic analysis, proper management,
judgment, and actions.
It can also be concluded that client or Investors should start planning soon, set measurable
goals, Look at the bigger picture and should not expect unrealistic returns on the investments and value
of the plan lies in its implementation and it accurately reflects what you are personally trying to
accomplish.
It can also be concluded that with the combination of different stocks we can reduce the risk
and increase the returns of a portfolio. . By constructing portfolio we can only minimize the un-
systematic risk we cannot reduce systematic risk.
A proper Fundamental & Technical Analysis should be done before selecting any particular
stock for the portfolio. It minimizes the risk involved .
Financial Planning Service which was not so popular earlier as other services has gained lot of
importance and popularity & will gain more importance in future as people are now understanding the
importance of it.
Financial planning service is very important and effective investment tool for meeting your life
goals through the proper management of your finances.
59
SUGGESTIONS
& RECOMMENDATIONS
60
SUGGESTIONS & RECOMMENDATIONS9.
To the Client:
The most vital problem spotted is of ignorance. Investors should be made aware of the benefits.
Investors should be made to realize that ignorance is no longer a bliss and what they are losing by
delay in planning.
Set measurable goals:
Set measurable goals that you want to achieve with a specific time. For example
What should be your lifestyle after retirement, or that to send children to good
Schools
Start planning soon:
Delay in financial planning affects the whole big picture that he has in mind for
himself and his family. Developing good habits like saving, budgeting, investing and regularly
reviewing finances early in life, makes one better prepared to meet changes and handle
emergencies.
Be realistic in terms of expectations:
Financial planning is a commonsensical approach to managing finances to reach life goals. It is
a lifelong process. There are certain extraneous factors like inflation, changes in
macroeconomic policies or interest rates that may affect financial results.
Understand the effect of each financial decision:
To realize that each financial decision that is taken affect several areas of his life.
To The Planner:
The planner should target for more and more young investors. Young investors as well as
persons at the height of their career would like to go for advisors due to lack of expertise and
time.
The planner should try to highlight some of the value added benefits, such as tax benefits,
systematic transfer plan, etc. Investors could also try to increase the spectrum of services
Offered.
The most important reason for not availing the serves of planner was spotted to be expensive.
The planner should try to charge a nominal fee at the beginning. But if no then they could go
for offering more services and benefits at the existing rate.
61
Appendix
62
APPENDIX.10.
Questionnaire followed by the Kotak bank to identify investor‟s investment objectives and risk profile.
Customer Name: ___________________________
Investment Advisor: ___________________________
An important aspect of investment planning and analysis is to ensure that our clients‟
money is invested in a manner that reflects the individual attitudes and personal circumstances.
In order to achieve this we need a clear understanding of what your “risk profile” is. When
we refer to risk, we mean how much an investment is likely to go up or down in the short-term. To
achieve higher long-term returns, you have to be prepared to accept that the value of your
investment may fall significantly in the short-term. This is because investments that provide higher
returns are usually more volatile than those producing low returns. There is a trade-off between risk
and return.
Your risk profile will be affected by a number of factors including:
Investment experience
Time-frame
Professional management
Tax effectiveness
Income requirements
Completing the following questions will help us understand the individual attitude to investing.
This will enable us to recommend investments appropriate to your specific needs.
1. Which best describes how you keep up with financial and investment matters?
a. I don‟t.
b. I take notice of the financial report in the news or on television shows.
c. I read the investment section in the newspaper.
63
d. I read the WSJ more than three days a week.
e. I subscribe to several financial journals/investment magazines and read the
financial press each day.
2. How familiar are you with the capital and investment markets?
a. Very little understanding or interest.
b. Not very familiar.
c. Have enough experience to understanding the importance of diversification.
d. Understand that markets may fluctuate and that different market sectors offer
different income, value and taxation characteristics.
e. Understand all investment sectors, the risks, and understand the various factors
which may influence performance.
3. Which one of the following best describes how well you feel you are able to manage
your way through the complexities of investments?
a. I definitely need the help of a professional investment adviser.
b. I need a professional investment adviser to help me make decisions on investments.
c. I know what I want to do, but would prefer to have a professional investment adviser
to work with me in tailoring my investment plan and making the right decisions.
d. I prefer to make all investment decisions on my own.
4. For how long would you expect most of your money to be invested before you would need to
access it?
a. Less than 2 years.
b. Between 2 – 3 years.
c. Between 3 – 5 years.
d. Between 5 – 7 years.
e. Longer than 7 years.
5 What is your current income requirement (dividends plus interest) from your investments?
a. Less than or equal to 2%.
b. Greater than 2%, but less than or equal to 4%.
c. Greater than 4%, but less than or equal to 6%.
64
d. Greater than 6%.
6. Which investment balance do you feel most comfortable with?
a. Less than or equal to 2%.
b. Greater than 2%, but less than or equal to 4%.
c. Greater than 4%, but less than or equal to 6%.
d. Greater than 6%.
7. Other than your own home, how do you feel about borrowing to invest?
a. Would not do.
b. Very uncomfortable.
c. Comfortable.
d. Very comfortable.
8. Considering the annual returns of the six hypothetical investment plans below over the
last ten years. Based on the range of possible outcomes shown, which plan would be most
acceptable to you or best suit your investment philosophy?
a. Average annualized return: 4%, Best case: 5%, Worst case: 2%.
b. Average annualized return: 6%, Best case: 9%, Worst case: -2%.
c. Average annualized return: 8%, Best case: 12%, Worst case: -5%.
d. Average annualized return: 10%, Best case: 15%, Worst case: -8%.
e. Average annualized return: 12%, Best case: 18%, Worst case: -10%.
f. Average annualized return: 14%, Best case: 24%, Worst case: -12%.
1. A typical investment portfolio consists of both investments with high expected returns and
high risk (i.e., stock, options, derivatives, property) and those with low expected returns
and low risk (i.e., cash, money market, fixed income). Which of the following spread of
investments would you feel comfortable investing it?
a. 0% High Risk/High Return, 100% Low Risk/Low Return.
b. 30% High Risk/High Return, 70% Low Risk/Low Return.
c. 50% High Risk/High Return, 50% Low Risk/Low Return.
d. 65% High Risk/High Return, 35% Low Risk/Low Return.
e. 80% High Risk/High Return, 20% Low Risk/Low Return.
f. 100% High Risk/High Return, 0% Low Risk/Low Return.
65
10. If you didn’t need your capital for more than 10 years, for how long would you be
prepared to see your investment performing poorly before you cashed it ?
a. You would cash it in immediately if there was any loss in value.
b. Up to 3 months.
c. Up to 6 months.
d. Up to 1 year.
e. Up to 2 years.
f. More than 2 years.
Your risk profile:-
Extremely Conservative – Cash (0% High Risk, 100% Low Risk)
Your main concern is preservation of capital. You would prefer to take no investment risk and invest
in cash. The expected average return is 4.5% and the likelihood of a negative return is never.
Conservative – A very low risk taker (30% High Risk, 70% Low Risk)
You are a conservative investor. Risk must be very low and you are prepared to accept lower returns to
protect capital. The negative effects of tax and inflation w ill not concern you, provided your initial
investment is protected. The expected average return is 6.5% and the likelihood of a negative return is
once every 9 years.
Moderately Conservative – A low risk taker (50% High Risk, 50% Low Risk)
You are a moderately conservative investor seeking better than basic returns, but risk must be low.
Typically an older investor seeking to protect the wealth which you have accumulated, you may be
prepared to consider less aggressive growth investments. The expected average return is 8% and the
likelihood of a negative return is once every 6 years.
Balanced – An average risk taker (65 % High Risk, 35 % Low Risk)
You are a balanced investor who wants a diversified portfolio to work towards medium to long-term
financial goals. You require an investment strategy, which will cope with the effects of tax and
inflation. Calculated risks will be acceptable to you to achieve good returns. The expected average
return is 9% and the likelihood of a negative return is once every 5 years.
Moderately Aggressive – A high risk taker (80% High Risk, 20% Low Risk)
You are a moderately aggressive investor, probably earning sufficient income to invest most funds for
capital growth. Moderately aggressive investors are aiming to receive a significantly higher return than
cash over time and are therefore prepared to accept a reasonably high level of volatility. The expected
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average return is 11.5% and the likelihood of a negative return is once every 4 years. A minimum
investment period of 5 years is advisable.
Aggressive – A very high risk taker (100% High Risk, 0% Low Risk)
You are an aggressive investor prepared to compromise portfolio balance to pursue potentially greater
long-term returns. Your investment choices are diverse, but carry with them a higher level of risk.
Security of capital is secondary to the potential for wealth accumulation. The expected average return
is 14% and the likelihood of a negative return is once every 4 years.
I/we acknowledge that after completing the attached “risk profile” that my/our risk profile
is:(please check)
Extremely Conservative
Conservative
Moderately Conservative
Balanced
Moderately Aggressive
Aggressive
Investment Objectives
Your Statement of Advice should take into consideration factors that are considered important
to you. In designing your Statement of Advice could you please rate the following objectives in their
order of importance to you. Please add any other financial objectives not in this list. Please rate each
item in order of their importance to you by placing a circle around the relevant number.
The numbers represent:
1. Not important
2. Slightly important 6
Use the last column to list the objectives in order of their priorities with “A” being the client’s
main priority.
Objective Importance: Priority
Generate more income 1 2 3 4
Invest for capital growth/wealth creation 1 2 3 4
Invest in tax advantaged investments 1 2 3 4
Invest to minimize the impact of inflation 1 2 3 4
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Invest in a regular savings and/or retirement plan 1 2 3 4
Flexibility 1 2 3 4
Security of capital 1 2 3 4
Retirement planning 1 2 3 4
Education planning 1 2 3 4
Investment/portfolio management 1 2 3 4
Asset Allocation 1 2 3 4
Diversification 1 2 3 4
Other 1 2 3 4
Other Objectives (Please provide details):-
Signed: ________________________________________________Date:__________________
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Bibliography
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Bibliography.11.
BOOKS, NEWSPAPERS and WEBSITES: -
I. BOOKS REFERED:
BOOK NAME AUTHOR NAME
1. Security Analysis & Bodie, Kane & Marcus
Portfolio Management
2. Financial Management I.M Pandey
3. Financial Planning Handbook - IMS Preschool.
II. NEWSPAPER REFERED:
1. Economic Times and
2. Financial Express.
III. WEBSITES USED:
1. www.equitymaster.com
2. www.cmlinks.com
3. www.nse.com
4. www.nymex.com
5. www.netashare.com
6. www.kotak.com
7. www.investopedia.com
8. www.esnips.com