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Back to basic……
Plan Today… For Better Tomorrow
My dad had one pair of shoes and used it
for five years. I have five pair of shoes and
use it for one year.
In today’s wired world people connect less
emotionally more electronically.
High stress level.
Life is not easy…..
People change the basic principal
EARN – SAVE = SPEND
and now……
Life is not easy …
EARN – SPEND - EMI = ???
Life is not easy …
Don’t confuse with
“Spending for Life”
Or
“Life for Spending”
Why do we save?
• It is important to save from our earnings in order to accomplish our financial goals.
• Car • Home• Foreign vacation• Children education • Children ‘s Marriage • Retirement corpus • Contingencies
Wealth Protection- Non material and Material wealth
• You need to protect wealth to create it.
• Non-material wealth consists of you and your near and dear ones.
• There could be instances of job loss, migration, illness, disability, accidents, and death. We need to have a strategy to deal with these eventualities.
• Protecting material wealth is also important. This consists of a house, an office, a shop, other real estate, a car or other vehicles of transport, jewellary etc.
WEALTH ACCUMULATION
• One of the biggest hurdles in wealth accumulation is borrowing.
Further taking a loan on one hand and making an investment on
the other hand is like pouring water into a bottom less jar.
• Therefore, the first step in wealth accumulation is to control
debt.
• After paying off debts the focus then shifts on investments,
based on the financial goals.
5 Key aspects
Standard of Living
Income
Cash FlowFamily Security
Investments
Financial Planning
Why Planning
Financial Planning provides you with a blueprint which
helps you realize all your dreams in life in a very
systematic and planned manner without causing you any
sleepless nights.
Investment Avenues Equity
• Direct Equity• Equity Mutual funds Debt• Debt Mutual Fund• Fixed Deposits• Recurring Deposit• Bonds Alternate• Gold• Property
Asset Classes
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1.Domestic Bank FD rates for less than 1 crs with SBI for 10 yrs 2. S&P BSE Sensex index data as on 16 May 2014 3. 5 years CAGR returns of Value Research Bond Index as on
16 May 2014 4.Mutual Fund Returns of Large cap (Value research categorization ) category CAGR 10 yrs as on 16 May 2014. 5. Report by global real estate consultancy firm Jones
Lang LaSalle (JLL) 6.Gold returns based on $ value of AM fixation by LMBA, 10 yrs CAGR as on 12 May 2014.
The returns mentioned are of various instruments having different characteristics and risk in 10 years category. Investors should consult their financial
advisors before taking any decision of investment. Past Performance may or may not sustain in future.
Returns (CAGR%)
Asset Returns (as on - 31 Dec 2013)
1 Year 5 years 10 years 15 years
Gold -3.9% 16.8% 15.4% 13.10%
10 Yr treasuries - 4.7% 2.8% 4.9% 7.8%
Bank F D 8.5% 8.3% 7.3% 7.6%
Property assets 7.1% 5.4% 16.0% 11.4%
Equities 10.8% 18.6% 15.3% 15.3%
CAGR in WPI Index
7.0% 7.9% 6.6% 5.9%
Avg inflation 6.3% 7.1% 6.6% 5.9%
Asset Class - Gold
• Gold is wealth preserving asset not a wealth-
accumulating asset. We buy and hold gold
bullion to preserve wealth.
• Gold is not a bad investment, and gold is not
a good investment. Gold is not a investment
at all, Gold is alternate currency.
• Traditional means of storing wealth in India
Asset Class - Real Estate • Sense of security
• High returns
• Legal & Title Issue
• Illiquid
• Rental (sometimes) yield is low - 2% - 3%
• Small amounts cannot be invested
• Return diminishes with estate taken on loan
• Ancillary transactional costs range from 10–13 %
Asset Class – Debt
• Fixed Deposits, Bonds, Debentures etc.
• Debt Mutual Fund
• Fixed Returns, Secured feeling
• Net of Tax Returns 6-7%
• Never creates wealth in longer run
• Good for Capital Preservation and not for Wealth Creation
Asset class - Equity
• To earn higher returns - Slowly
• Tax efficient
• Only asset class that can beat inflation in long term
• Wealth creator
• Principal not protected or guaranteed
• Volatile in nature
• Investors loose money only due to two reasons – Greed & Fear
Importance of Equity allocation- A HEDGE AGAINST INFLATION
Source: Bloomberg; Returns are CAGR. Past Performance may or may not sustain in future
10 year returns of various asset shows that equity, in the long term, has outperformed other assets.
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CAGR % returns (as on 18th Oct 13)
35 year - 16.28 % CAGR
Apr 14
CAGR % returns (as on 21th May 14)
Why Mutual Fund • Professional Management• Diversification• Return Potential• Low cost • Liquidity• Transparency • Tax efficient• SIP Feasible • Flexibility • Convenient administration
Systematic Investment Plan (SIP)
SIP is investment of a fixed sum at periodic intervals for a particular period .
Advantages of SIP
• Eliminating the need of timing the markets
• Rupee cost averaging
• Benefits of power of compounding
• Inculcates disciplined habit of saving
Need of SIP
• To maintain discipline investments.
• To facilitate planning for accumulation of a corpus.
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Monthly transfers
Monthly/Quarterly/weekly transfers
Monthly/Quarterly/
weekly transfers
The Advantage of starting early. And investing regularly
Assuming returns of 12% p.a. for illustration purpose only
15 years SIP Returns-Education for your Child
• You were a proud parent this April when IIM Ahmadabad announced its results for the 2012-13 batch…..your daughter has made into the final list…..
• And you were also proud of yourself….because you saw this coming 15 years back…..
• At your daughter’s third birthday, you started an SIP in S&P BSE Sensex to prepare yourself for this big day….
• A monthly SIP of Rs. 1000/- started on 01/04/1999 for 15 years ending on 30/04/2014, has grown into Rs. 5.9 lakh (14.4% XIRR) as on 21/05/2014
Source: MFI Explorer & internal calculation .Above calculations & numbers are for illustration purpose only. Please seek independent professional advice & arrive at informed investment before making investment. Past performance may or may not be sustained in the future.
Invested Rs. lacs
Growth after 15 years Rs. Lacs
9 29.5
5.4 17 .7
3.6 11.8
1.8 05.9
14.4% XIRR
S&P BSE Sensex
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20 years SIP Return-Investment Planning for Marriage
Invested Rs. lacs
Growth after 20 years Rs. Lacs
12 51
7.2 30
4.8 20
2.4 10
12.75% XIRR
You are amazed how much world has changed in last 2-3 decades…..how much economy has become service oriented….all work can be done on phone….You are preparing for your son’s marriage & you don’t have to rush yourself to manage all the things….like you used to do in your times….And one factor which really made things easy is money…..which was all because of your foresightedness…..20 years back on 01/04/1994, you started a monthly SIP in S&P BSE Sensex to save money for your son ’s marriage….And today after 20 years, a monthly SIP of Rs. 1000/-, has gown into Rs. 10lakh (12.75% XIRR) as on 21/05/2014
Source: MFI Explorer & internal calculations .Above calculations & numbers are for illustration purpose only. Please seek independent professional advice & arrive at informed investment before making investment. Past performance may or may not be sustained in the future.
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S&P BSE Sensex
Cost of Delay in a 20 yr SIP if it is delayed by 5 years the investment amount reduces by 25% but maturity value reduces by more than 50%
SIP of Rs 10,000 - Frequency - monthly , Return assumed – 12%
Term Maturity Value Cost of Delay 20 Years 91,98,574
Delayed by one year 80,99,026 10,99,548
Delayed by three years 62,40,733 29,57,841
Delayed by five years 47,59,314 44,39,260
SIP of Rs 10,000 - Frequency - monthly , Return assumed – 15%
Term Maturity Value Cost of Delay 20 Years 1,32,70,734 Delayed by one year 1,14,27,124 18,43,610 Delayed by three years 84,29,950 48,40,784 Delayed by five years 61,63,656 71,07,078
Essentials of Financial planning
• Don’t keep any funds idle
• Plan for goals and start saving towards your goal.
• If you are not working for your goals you are working for some one else goals
• Look for tax efficiency while investing
• Don’t collect wrong assets
• As you eat regularly, work regularly, so you need to invest regularly also.
• Review your investment plans at least annually to keep in sync with your changing needs & incomes.
While Investing
Focus on goals and not on market
Focus on Time in and not Timing
Don’t blame your wealth level to destiny if you do not nurture , it will not grow.
Equity market is place to earn higher returns- Slowly
Ensure your lifestyle should not your biggest liability.
Basic is beautiful.
Saving and splurging gives you same pleasure only the order changes.
Donate generously
Just for you….
“Investment is a boring activity . It
is better to get bored and be
wealthy than to get excited and
end poorly. “
Your opinion ?
