investor education program sep 2015

Financial Wellness Enhancement

Before we begin

Are specific questions in your mind which you would like to get clarified today?

Any ideas you would like to share ?

Any Expectations?

Financial Products MapPayments and Transactions

1. Savings A/c2. NEFT3. IMPS4. E-Wallet5. Mobile Wallet

Investment Products

1. Recurring Deposits2. Fixed Deposits3. PPF4. Mutual Funds5. Stocks6. Real Estate7. Gold

Insurance Products

1. Life Insurance2. Accident Insurance3. Motor Insurance4. Health Insurance5. Theft Insurance6. Critical Insurance7. Travel Insurance

Loan Products

1. Home Loan2. Education Loan3. Credit Card4. Car Loan5. Personal Loan

All Products have a purpose

Payments and Transactions – Money TransfersInvestment Products – Wealth CreationInsurance Products – Compensate Financial LossLoan Products – To meet emergency or short fall

First, Let’s Look at Investment Products

• Recurring Deposits

• Fixed Deposits

• Debt Mutual Funds

• PPF/Sukanya Smridhi Yojana

• National Pension System (NPS)

• Stock Market or Mutual Funds

• Stock

• ELSS (Equity Linked Savings Scheme) From Mutual Funds

• Gold

• Real Estate

Fixed Deposits and PPF/SSY

Fixed DepositsInterest Rate 8.75%Tax on Interest

20%

Tax Paid 1.75%Inflation 7%Real Return 0%

PPF/SSYInterest Rate 8.7% (9.1% for

SSY)

Tax on Interest

0%

Tax Paid 0%Inflation 6.3%Real Return +2.4% (2.8%

for SSY)

Why PPF or SSY gives higher return?

• PPF/SSY has Higher Return It must have Higher Risk

• Is it Riskier than FD ?

• If so, what are the Risks ?

• Blocked for 15 years or even higher in case of SSY

• Interest Rate not guaranteed during tenure

• Liquidity Risk, Interest Rate Risk

• Higher Return Higher Risk (It is not possible to get higher return

without taking more risk)

• Higher Risk ≠ Higher Return

Investment Fundamentals• If higher returns promised It will have higher risk

• Higher Return with Lower Risk Not possible

• But at the same time – Taking higher risk does not automatically guarantee

higher return

• Investment Risk if ignored – Capital Loss - Gambling

• Investment Risk if avoided - No Return – For e.g Fixed Deposit – No Risk

Product

• Investment Risk if Managed – Positive Returns

How to measure return?

•A = P(1+r)n

•There is no other formula in Money Management•Why it is important?

If money is doubling – Apply Rule of 72

72

---------------------- = r where n= No. of years taken to double money

n

National Savings certificate doubles in 8 years and 9 months, What is the interest rate offered ?

Why Returns are important?

2015 1000002023 200000

2031 400000

2039 800000

2015 1000002021 200000

2027 400000

2033 800000

2039 1600000

Return on Investment – 9%

Years taken to double – 8 years

What happens to Rs.1 lakh investment In 24 years

Return on Investment – 12%

Years taken to double – 6 years

What happens to Rs 1 lakh investment In 24 years

Or

Every 3% decrease in Returns makes one poorer by halfPPF Rates have come down from 12% to 8.7%

Every 3% improvement in Return doubles wealth

1-Jan-00

1-Jan-01

1-Jan-02

1-Jan-03

1-Jan-04

1-Jan-05

1-Jan-06

1-Jan-07

1-Jan-08

1-Jan-09

1-Jan-10

1-Jan-11

1-Jan-12

1-Jan-13

1-Jan-14

0

2000000

4000000

6000000

8000000

10000000

12000000

28280002778056

10214897

How Financial Products have delivered between 2000-2015?

InsurancePPFELSS

Why such a huge difference between PPF-ELSS?

Difference is because ELSS has given 6% more returns than PPF or Endowment Schemes

Investment Fundamental - High Return cannot happen with out High Risk ?

What is the risk in ELSS ?

PPF has Liquidity Risk and Interest Rate Risk

Let’s understand risk in ELSS by looking at how Gold or Stock Market have performed in last 20

years

GOLD Performance

94-0

4

95-0

5

96-0

6

97-0

7

98-0

8

99-0

9

00-1

0

01-1

1

02-1

2

03-1

3

04-1

4

0

5000

10000

15000

20000

25000

30000

35000

4598 4680 5160 4725 4045 4234 4400 4300 4990 5600 58505850 7000 840010800

1250014500

18500

26400

3179930221

28650

Year

GOLD

Per

10

Uni

ts

Stock Market (NIFTY) Performance

94-0

4

95-0

5

96-0

6

97-0

7

98-0

8

99-0

9

00-1

0

01-1

1

02-1

2

03-1

3

04-1

4

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

1226 938 1009 1200 942 1183 14951100 1068 1100

153715372211

3150

43133896

43405251 5627 5278

5950

7637

Year

NIF

TY

The risk is “Market Risk”. We don’t know when market can go up or

down,

But what we can see is that whenever investment was done, 10 years later Stock Market and Gold

Prices was always higher

Understanding and Managing Market Risk is key to Financial Success

How to manage market risk ?

Stock Market goes up and down, but always higher after 10th year

Let’s assume price is varying like this

Year 1 – 10

Year 2 - 8

Year 3 - 5

Year 4 – 2

Year 5 – 1

Year 6 – 2

Year 7 – 5

Year 8 – 8

Year 9 – 10

Year 10 - 12

I buy Stock Market for Rs 100000 in Year 1

How many units will I get ?

10000

Stock Market becomes 12 after 10 years, my 10000 units will become

Rs 1,20,000

Stock Market goes up and down, but always higher after 10th year

Let’s assume price is varying like this

Year 1 – 10

Year 2 - 8

Year 3 - 5

Year 4 – 2

Year 5 – 1

Year 6 – 2

Year 7 – 5

Year 8 – 8

Year 9 – 10

Year 10 - 12

Suppose I buy stock market for Rs 100000, but I buy only Rs 10000 every year, then what will happen

Year 1 - For Rs 10000 – I will get : 1000 Units

Year 2 – For Rs 10000 – I will get : 1250 Units








Year 10 – For Rs 10000 – I will get 830 Units

In ten years I will get 29330 Units – Value of each gram is Rs 12 –

Total Value : Rs 3,51,960

Solution to manage market risk successfully

Invest every month in small amount – SIP

Wait for atleast 10 years from 1st Investment

How to Plan and Invest?

Simple Investment Plan

Invest in 3 – Buckets :

Short Term, Medium Term, Long Term

Investing with PurposePurpose in the order of Priority

When Funds are required?

How much Risk can be taken?

Which products are ideal?

Where to invest monthly?

Short Term (Less than 3 years)

Any Time No Risk Recurring Deposits

10% of monthly income after tax

Long Term (Tax Saving and/or Retirement)

Mostly After 15 years

High ELSS Mutual Funds, NIFTY Linked investments, NPS

10% of salary after tax or Rs 16000 p.m. whichever is higher

Mid Term (3-10 years) Family Functions, Vacations, Down Payment of home, Car, Home renovation etc.

Expected with in 5 years

Expected after 5 Years

Medium

High

Debt Mutual Funds, Fixed Deposits

Equity Mutual Funds

10% of Monthly Income after tax

Any Questions on Investment Products ?Payments and Transactions


Investment Products

1. Recurring Deposits2. Fixed Deposits3. Debt Mutual Funds4. NIFTY Stocks5. NPS6. Real Estate7. Gold

Insurance Products


Loan Products


Do we need Loan Products ?

What makes you richer – Home or Home Loan?

Cost of Home Rs 50 LakhsOwn Investment Rs 10 LakhsBorrowed @ 10% Home Loan Rs 40 LakhsIncrease in Home prices per year 12%Cost of Home at the end of Year Rs 56 LakhsSold home and Received Rs 56 LakhsRepay Interest of Rs 4 Lakhs and Principal of Rs 40 Lakhs : Total Repaid

Rs 44 Lakhs

Balance Left Rs 12 LakhsInvested Rs 10 Lakhs Received Rs 12 LakhsReturn on Investment 20% (and not 12%)Tax Benefits Received – Rs 1.2 Lakhs on (30% of Rs 4 Lakhs)

Actual Earned : 3.2 LakhsHence Return : 32%

What happens when take we take Car loan and buy Car?

Cost of Car Rs 5 LakhsOwn Investment Rs 1 LakhsBorrowed @ 12% Car Loan Rs 4 LakhsCar Depreciation at the end of year 20%Cost of Car at the end of Year Rs 4 LakhsSold Car and Received Rs 4 LakhsRepay Interest of Rs 48,000 and Principal of Rs 4 Lakhs : Total Repaid

Rs 4.48 Lakhs

Additional Amount to be paid from Pocket Rs 48,000Loss -48,000If bought with own money, then at least interest can be saved and Loss

Rs 0

Borrowing is good for Appreciating Assets

Same Case for Education LoanTax BenefitsIf, Bank is not willing to give loan, then college may not be goodBrings in DisciplineBUT – Most important : KEEP EMI to 25% of monthly family income

Any Questions on Loan Products ?Payments and Transactions


Investment Products

1. Recurring Deposits2. Fixed Deposits3. PPF4. Debt Mutual funds5. ELSS Mutual Funds6. NPS7. Stocks8. Real Estate9. Gold

Insurance Products


Loan Products


Insurance Products

Why should we buy these products ?

What are they ?

Investment ? or Expense?

Insurance - Most Important Expense

Protect your family from unexpected Financial Losses like

Loss of Income

Hospitalization Expenses

Accident

Critical Illness

2 New Schemes – Suraksha Bhima Yojana and Jeevan Jyoti Bhima Yojana – Protects from Accident and Life – for Rs 2 Lakh each at cost of Rs 377 per year

But is Rs 2 Lakh cover enough ?

Need at least 12 times annual income as Life cover – for e.g., if you are earning a monthly salary of Rs 40000, Annual salary is Rs 5 Lakh, cover Required is Rs 60 Lakh. Rs 2 Lakh cover is available for Rs 365/= Rs 60 Lakh will be maximum Rs 10000 per year (or even lower)

Any case Insurance expenses to be kept under 5% of income. If annual income is Rs 5 Lakh spend less than Rs 25,000 in year for all insurance – Life, Accident, Mediclaim

Any Questions on Financial Products?Payments and Transactions


Investment Products

1. Recurring Deposits2. Fixed Deposits3. PPF4. Debt Mutual funds5. ELSS Mutual Funds6. NPS7. Stocks8. Real Estate9. Gold

Insurance Products


Loan Products


Simple solutions for Financial Success

10% in Recurring Deposit10% in ELSS or NPS10% in Debt Mutual Funds or Fixed Deposits25% for Home Loan12 times your annual Income as Insurance sum assured

What will prevent us from implementing this simple solution?

TemptationFear

More than 80% of us are not happy with our monthly savings ?

Why ? Where is our money going ?

Marshmallow Test

Marshmallow

No end to discretionary spending

Earning – Spending will be close to 0

EARNInvest = 0

SPEND (1 Marshmallow)

Escaping Discretionary Expenses

EARN SAVE 30%

SPEND - 5% on Insurance and 40% on Regular

ExpensesPAY 25% EMI

for HOME

99% of us will get scared of market risk and give up in the first 5 years

First 5 years of ELSS investment is likely be a loss

ELSS starts performing after 5th year

But, many of us give up in the 5th year and will not be able to enjoy the benefits in the 15th year

Overcome TEMPATION and FEAR – SIMPLIFY and AUTOMATE

Earn More

1.Income from Investments

2.Save Tax

Invest Monthly

1. Emergency – 10%2. Tax Savings or Retirement

– 10% or Rs 16000p.m which ever is higher in ELSS

3. Down payment for home, Car, Vacation Abroad, Big Family Functions - 10% in ELSS or Debt Funds

Spend Less1. Insurance Premium (Less than 5% of Net

Income)1. Life Insurance (6 times Net Income)2. Accident Insurance (6 times Net

Income)3. Health Insurance (Upto Rs 5 Lakh Sum

Assured)4. Critical Insurance (Age > 35, 20 Lakhs,

Sum Assured)5. Motor Insurance (depending on vehicle)

2. EMI or Rent3. Food & Clothing4. Bills5. Unplanned Expenses

Borrow Rightly (EMI to be Max 25% of Net Income)

1.Home2.Education

If no borrowing, Invest in ELSS

What Next ?

Start your 10%-10%-10% Investments now!

Let’s spend 5 minutes on Self Assessment and identify priorities

Download our APP – “imoneyplant”

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Thank You

•Disclaimer The information provided here is intended to provide helpful and informative material on the subject matter covered. It is given with the understanding that owner/author/publishers of this material are not engaged in rendering professional services through this material. If the reader requires personal assistance or advice a competent professional should be consulted. The owners/authors/publishers specifically disclaim any responsibility for any Loss, Liability, or Risk, personal or otherwise, which is incurred as a consequence, directly or indirectly, of the use and application of any of the contents. The contents are general information that is intended, but not guaranteed, to be correct or updated. The information is not presented as a source of Investment, Tax, Insurance or Legal Advice. You should not rely on statements or representations made here or by any externally referenced sources. If you need investment or tax advice upon which you intend to rely in the course of your financial or business affairs, consult a competent, independent financial adviser. The contents should not be taken as financial advice or as an offer to buy or sell securities/insurance/fund or any financial product. It should not be taken as endorsement or recommendation of any particular company or individual and no responsibility can be taken for inaccuracies, omissions or errors. The Information presented is not to be considered as investment advice. The owners/authors/publishers do not assume any responsibility for actions or non-actions taken by people who have read the content and no one shall be entitled to claim for detrimental reliance based upon any information provided or expressed herein. Your use of any information provided herein does not constitute any type of contractual relationship between yourself and the providers of this information. The owners/authors/publishers hereby disclaim all responsibility and liability for all use of any information in this material.

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An Investor Education Initiative

http://www.dyotasolutions.in/

http://www.dyotasolutions.in/

mailto:[email protected]

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investor education program sep 2015

Economy & Finance