Contents

Chapter 7: Investment
Chapter 1: Money Matters
options
Chapter 2: Budgeting

Chapter 3: Banking

Chapter 8: Borrowing

Chapter 4: Insurance Chapter 9: Financial

Planning
Chapter 5: Understanding
Chapter 10: Retiremen
Investments
Planning
Chapter 6: Stocks & Bonds

Chapter 1

Money Matters: Smart Goals And Financial Analys

1

ney : A current medium of exchange in the form of coins

banknotes; collectively.

t 5 things you would like to buy right away, if you had mo

Net Worth
2

: Items owned by a person. Liability: Money owed by a p

Worth = Assets - Liabilities. Let us identify the assets, liab
ABC and calculate his net-worth.
Item

Amount

Assets

Gold / Jewellery
1000000 1000000
Laptop
40000
40000
Car
500000 500000
Home Loan
1500000
Loan Taken From A Friend 10000
Total Assets / Liabilities
1540000
Net Worth
30000

Liability

1500000
10000
1510000

SMART Goals And Financial Analysis

Not SMART

SMART

I want to go somewhereI want to visit Goa on my

Specific in my winter vacation.
winter vacations.

I need to save some money

I need to save Rs.3000 for
Measurable
for going on a trip. going on a trip.
I will arrange all the money
I will request my parents to
give me Rs.2000 & for rest I
Achievablemyself.
will use my savings.

I will start saving Rs.200

I will start saving the
monthly from my pocket
amount required 2 months
Realistic
before leaving for the money.
vacation.
I will save money I will save Rs.200 per month
Timely
sometime soon. for next 5 months.

Chapter 2

Budgeting - Balancing the Means and the En

4

Income: It is the moneyExpenditure: Money that you

earned/gained.
spend on your Needs and Wants.
.g. Rs.500 received monthlyE.g.
as Rs.100 you spent for having
ocket money.
pizza.

Income is of two types:

Expense are of two types:
1. Active Income: Rs.500 1. Regular Expense: That you
received regularly as your regularly or daily spend like
monthly pocket money.
eating daily in a canteen.
2. Passive Income: Rs.500
2. Lump Sum Expense: That yo
received from parents on spend once on your Birthday
your Birthday.
Party.

Expenses - Discretionary Or Non-Discretiona

ionary Expense: Its your choice5that you want to spend money f

teen. You can also bring your lunch.

cretionary Expense: Expense out of necessity. E.g. .Rs.10 spent

a bus to attend school.

Deficit: Deficit is a lack OR an excess of expenditure over earning

nstead of Rs.500, you spend Rs.600 on a pizza (pocket money =Rs

cost Rs.600 = - Rs.100, deficit amount borrowed from someone

urplus: Surplus is the amount that remains after a need is satisfie

ou order 4 Burgers, Cold Drinks etc. at McDonalds. The total cost of

s Rs.500. Now, instead of ordering everything separately, you orde
s which includes Burger, Cold Drinks, etc. for Rs.400 only. Rs.500 0 money you still have with you. This is your SURPLUS, where you
artness to fulfil your need.

Savings
6

Saving is a healthy habit, which will reap benefits in t

ng run

Why...?

ause you have short term goals like buying a book

& you have long term goals like saving for buying

ycle, Mobile, Laptop, etc.

Cash Flow Statement

7

h-Flow statement : It is a record of your income

enditure, i.e. Income - Expense = Cash Flow
Importance Of Cash Flow Statement:

tells us the amount of money remaining with us af

deducting our all expenses from our income.

Pocket Money (Rs.500) - Pizza Cost (Rs.100) = Rs

Cash Flow)

Now, you can utilize Rs.400 for any of your needs.

Budget
8

get: = Planning of your expenses keeping in mind

me/savings.

.g. You ordered a pizza of Rs.200 keeping in mind that yo

onthly pocket money is Rs.500.

rtunity Cost: It is what you give up every time you mak

e. Resources are limited and wants are endless. There is n
an have it all. So each choice to buy something is also a c
of what to give up.

If you ordered a pizza of Rs.500 but due to some reason i

ery got delayed. Due to delay, you got a discount of Rs.20
r pizza. So, in this case you paid only Rs.300 instead of Rs
n your Opportunity Cost is Rs.200.

Budget - contd

d Gratification: With long-term9 goals, you must be willing to

ing you want now to get something better/bigger in the futur

ou have pocket money of Rs.500 & want to order a pizza of R

you ask your parents for more money or you can order some
ke a burger for Rs.100 & next month you can have a pizza of
u have saved Rs.400 this month.

nt Gratification: When you satisfy a want immediately, it giv

t gratification.

g. You receive pocket money of Rs.500 & want to order a pizza

0. You ask your parents for Rs.200 more immediately so that y
have that pizza of Rs.700.

next month, your pocket money will be Rs.300 only (as you al
taken Rs.200 for Pizza).

Chapter 3

Banking - Basics
10

nk : Bank is an institution where people park their su

ney (Deposit) and earn some return called interest.

Types of Bank Accounts:

Savings Account: You deposit money & get interest on

deposit but there is a limit on monthly withdrawals.

urrent Account: You deposit money but you don't get

terest on that deposit and also there is no limit on withdra

Banking - Basics
11

Safety: If you lend 100 rupees to someone, will he give it back to

you ? i.e. Is your capital (Rs.100) safe?

Liquidity: Will you get your money back if you need it

immediately?

Growth: is the return you will get on your investment. It could be

in the form of income or appreciation or both.

Bank offers Safety on amount deposited.

You can withdraw money at any time through cheque, ATM etc.

On amount deposited, you will also get interest on same.

Note: In INDIA the regulatory body for Banks is RBI i.e. Reserve
Bank Of India.

Eligibility Criteria For Opening A Bank Accoun

12

One can open bank a/c who is of 18 years or above

Now, parents can also open bank a/c in name of their kids

E.g. Junior Account

Junior Account is designed to inculcate the habit of saving

children from an early age and help parents build a corpu
for their childs future

Services Offered By Bank:

13

Products & Services

Deposits
Term deposits
Demand
deposits

Current
deposits
Saving
deposits

Credit

Other Customized
Services and Products

Guarantee &
Bill purchased
advisory services

& discounted

Cash credit,
Overdrafts
and loans
Term Deposits

Derivative & other

treasury products
Insurance &
investments
Para banking
products
Other services

Types of Bank Deposits:

14

rring Deposit : a special Term Deposit offered by banks

people with regular income to deposit a fixed amount ev
h into their Recurring Deposit account and earn interest a
applicable to Fixed Deposits.

Deposit: a financial instrument which provides investors

rate of interest than a regular savings account, until the
ty date . It may or may not require the creation of a sepa
nt. It is also known as a term deposit.

al Bank Term Deposits: Banks also have their own spec

ffering attractive interest rate which is higher than normal

Banking
15

Cheque: an instrument in writing containing an uncondit

order, signed by the maker, directing a specified banker

pay a certain sum of money only to, or to the order of a
certain person or to the bearer of the instrument.

Demand Draft: a special instrument which does not ge

dishonoured bounced). It is always issued by a Bank.

ATM: a machine through which we can withdraw money

our deposit a/c at any time.

E-Banking/Internet Banking: a process by which one can m

his/her account online like viewing e-statement, fund tran

online shopping, ticket booking, etc.

Tele-Banking: a process by which one can manage his

account over t e telephone.

Cheque

No

Details

Circled

Entry in the above cheque

1 Pay (Name of person to be paid)

Ramesh K.N
2Date ( on which money is to be paid) 31-03-1999
3Rs. (Amount to be paid in words)
One Thousand only
1000
4Rs. (Amount to be paid in Figures)
Signature of the person issuing cheque
Signature (to be as per specime
5

signature card given to the Bank

6
Account
Number of Person issuing cheque
11987
State Bank of Mysore
Branch
Name (where the person signing
7
the cheque is having the account) Public Utility Branch, Blore 665078
8 Cheque Number
A/C Payee
9 Mode of Payment
1

Demand Draft

Enclosed Inform
Enclosing figure
In the figure
Details
Black rectangle Top Left
SBM - Somwarpet Bank Branch issuing DD
Red Rectangle against
FOODS LIMITED Party getting the amount
ON DEMAND PAY
specified in the DD

Red circle at the

top right corner

22/06/2006

Green Circle
below the date
Green rectangle
in the middle

65000.00

Black circle at
the bottom

Date of issue of DD
(Validity=6 months)
Amount payable to party

6 - Ten Thousand Amount in words

5 - Thousand
0 - Hundreds
0 - tens
SBM - Service
Bank Branch that pays the
Bangalore
amount

Blue rectangle next DD715693

DD Number

Difference between Cheques and DDs:

NoFeatures
1 Issuer
2
3
4
5
6
7
8

Cheque

Demand Draft(DD)

Account holder
Issued by bank
Availability ofAccount needs to have
Amount needs to be paid
Amount
sufficient balance bank before DD is made
Safety
Can be forged easily
Highly Secure
1 - 2 days
Credit of amount
Could take few
to payees a/c days
Dishonoring ofCheque may be Guaranteed by Bank
instrument
dishonoured
Issue Date
Can be pre/post Cannot be pre/post dated
dated
Signature
Signed by Account 2 designated officers
holder/s
of the Bank
Charges
Nil or negligible Based on value of DD
for issue
1

Chapter 4

Insurance

Understanding Insurance
19

urance: It is the equitable transfer of the risk of a loss, from

ty to another in exchange for payment.

Types of Insurance:
e Insurance: Term Insurance, Whole Life, ULIP, Traditio
tirement Policy etc.

General Insurance: Motor, Property, Health (Mediclaim) etc

nsurance policies can be divided on the basis of two risks, i.e

Pure Risk : Where the coverage involves the risks relate

insured life only.

nvestment Risk Where the coverage not only involves the

ed to the insured life but also his investments.

Understanding Insurance - contd

20

Risk for human beings

27

Dying
too Early

Living too
Long

Financial Loss

ve picture explains the risks involved with Humans and if

early & live too long then it will get impact on their Financ
s explaining the importance of Life Insurance.

Need for Insurance

21

Peace of Mind

How much insurance do you need ?

cally, insurance is purchased as a tax-saving instrument - is it e

ver all our liabilities and provide for our families?. Whats a good
way of figuring out how much insurance you need.
nsurance needs change as you move on in life. Amount of insura
eeded for a single individual with no liabilities, or for a person w
hildren or a home loan to repay, will not be the same.

ple back-of-the-envelope calculation should indicate that value o

ance policy should be 15 to 20 times your current income. The lo
ure (15 times) would mean more frugal living while the upper lim
times the current income) anticipates a more lavish lifestyle.

other words, priorities in life determines your insurance ne

refore, sum insured should be equal with your future needs.

How much insurance do you need ? - contd

23

er way understand the life insurance requires you to ask:: how much
d your family need in an unfortunate circumstance of your untimely d
familys future needs can be determined by posing the following que
ow much money would be needed at death to meet immediate obliga
ow much future income would be needed to sustain the household?

How much would the family need in the more distant futurefor child
ucation, marriage, etc?
t by evaluating your family's needs. Gather all your personal financia
mation and estimate what each of your family members would need t
rent/future financial obligations. Then tally all resources that your sur
family members could draw upon to support themselves.
difference between your family's current and future needs and the re
ace to meet those needs will determine the amount of life insurance y
need.

Life Insurance products

24

Life Insurance
Products
13

Traditional Plan

Pure
Endowment

Unit Linked
Insurance Plan

Term plan
(Risk Management Scheme)

Note :
Endowment: Benefit paid only in case of survival during th
Plan: Benefit paid only in case of mishappening during the t

Life Insurance products

25

Basics
Element
32

Cover

Death

Term Assurance
(Provides only death
cover)

Survival
Benefit

Pure Endowment
(Provides only
survival benefit)

Endowment Plan
(Combo of Term and Pure
Endowment

Life Insurance products

26

Unbundled Pricing Factors

Premium

. Mortality

Expenses
Charges

Investment Element

They are more transparent in nature

Unit Linked Insurance Plan (ULIP)

27

They offer choice of funds to the investors

nvestments are made in equities, debts and the money m

Debt
Money
Market

Equity

Investors can choose an Asset class as per their risk

preferences

t offers more flexibility to the investor than a traditional p

Insurance Terminologies

Initial step(application) to initiate the contract

Proposal form

Proposer

The person who applies for the insurance contract

Life InsuredThe person who is covered in the insurance contract

The risk cover amount promised by the insurer

Sum Assured
The money paid as consideration for a specified
Sum Assured
Policy term The duration of the insurance contract

Premium

The amount received at the end of policy term

Maturity value

The number of years premium is to be paid.

Premium paying
Can be less than or equal to Benefit Period
term
The amount received if policy is closed before the end
Surrender value
policy term

Types Of General Insurance:

30

General
Insurance

Miscellaneous
Marine
(dealing
with
Fire (dealing with
transport related (dealing with all
fire related risks)
other like motor,
risk & ships) liability,
Medical etc

Examples Of General Insurance (Motor)

31

You own a car of Rs.3 lac & have taken a car insurance. Th
mium for this is Rs.6000/year. After 1 month your car met
n accident and to fix the damage (make the car new again
will cost Rs.20000. Now the insurance company will pay th
amount as you have taken a car insurance.

Examples Of General Insurance (Motor)

mple Of General Insurance (Mediclaim); You have tak

insurance cover of Rs.5 lac (Sum Assured). The premium
000/year. After 6 months you need to be hospitalized due
llness & your hospital bill was Rs.200,000. Now the insura
ny will pay this amount as you have taken a health insura

tability Of Health Insurance: Here one can change his

urance company.

: In INDIA the regulatory body for insurance companies is

surance Regulatory And Development Authority.

Chapter 5
Understanding Investments

Understanding Investments
33

estment: Investment is a instrument which helps in

ney & it also helps you to fulfil your certain desires in
.

Benefits Of Investments:
Investing makes your savings grow
Invested money grows with time
Interest is the extra money you get when you inves
Your money for some time
When interest is compounded money grows faster

Inflation
36

ion: The rate at which the general level of prices for good
es is rising, and, subsequently, purchasing power is falling

r E.g.; When McDonald launched its McAloo Burger it wa

s.20, now because of inflation (Due to rise in price of pota
portation cost, etc.) the same burger now costs Rs.30 (inc
). So, inflation rate is 30-20/20 = 50%.

Inflation - contd
37

nsumer Price Index): A measure that examines the weighted av

f a basket of consumer goods & services, such as transportation, fo
care. CPI is calculated by taking price changes for each item in the
etermined basket of goods and averaging them; the goods are wei
according to their importance.

annual percentage change in a CPI is used as a measure of inflat

An index that measures and tracks the changes in price of goods

es before the retail level. Some countries use WPI changes as a cen
sure of inflation.

Value Of Money: The time value of money is the principle that a

cy amount of money today has a different buying power (value) th
currency amount of money in the future. The value of money at a
of time would take account of interest earned or inflation accrued
period of time.

Understanding Investments

rsification: Diversification is a very familiar fin

inology to most investors.

e most general sense, it can be summed up with this p

"Don't put all of your eggs in one basket.

g a closer look at the concept of diversification, the i

eate a portfolio that includes multiple investments in or
reduce risk.

t us understand growth of money with an exam

35

Anil received Rs. 500 from his grandfather for his Birthday. Anil wen
with this Rs. 500.

Father: Son, put the money in your a piggy bank.

Anil: Father, it is almost full. What should I do now?
Father:Why don't you put the money in my bank?

I have total Rs.1000 (Rs. 500 in my piggy bank & this Rs.500), bu
ld I give it to your Bank? Will they return my money?

er: What if I say, they will not only return your money but will als
additional Rs. 60 at the end of the year?.

Anil: I want to know that why they are giving me this extra Rs.60
r : Rs.1000 was your investment and Rs.60 is the return on inves
mple terms interest amount.
** Interest Rate Taken As 6% Per Annum

Types of Interest
38

A. Simple Interest: Formula:

= P*N*R/100 = Principal (Rs.1500 Amount Deposited) Number O
Year) Rate (6%) / 100
S.I. (Simple Interest) = Rs.90
B. Compound Interest: Interest On Interest.
ose Anil has deposited his Rs.1500 with bank for 2 years then his i
d be Rs.1685.40
Formula:
C.I. = P (Principal) * (1+r)^n = P (Rs.1500 Amount Deposited)
{1+0.06}^n(2) = Rs.1685.40
= Compound Interest, P= Principal, R = rate of interest, n = numb
periods, r = R/100 (6 / 100 = 0.06)
So, Compound Interest for 2 years = Rs.185.40 (Compound Interes

Rule Of 72:
39

Chapter 6

Introduction Of Stocks & Bonds

40

Can you identify these buildings?

Important Facts & Terms

o buildings in the last slide are: National Stock Exchange (NSE) and B
Exchange (BSE) located In Mumbai, India.
the oldest stock market in Asia & NSE is the largest stock exchange in In
rd largest in the world in terms of volume of transactions. Though a num
exchanges exist, NSE and BSE are the two most significant stock exchan

is a Stock Exchange? an organization constituted for the purpose of a

rrying out buying, selling or otherwise dealing in securities. It is also know
Secondary Market.

e securities? Financial instruments, including instruments such as shar

es of a company or body corporate or a government. Thus, a stock
hange provides a trading platform, where buyers and sellers can me
nsact in securities.

e: In INDIA the regulatory body for stock exchange is SEBI i.e. Securities
ange Board Of India.

Important Facts & Terms - contd

42

An initial public offering (IPO) or stock market launch is a type of pu

g where shares of stock in a company are sold to the general publi
ties exchange (like NSE, BSE), for the first time.

Account: In India, shares and securities are held electronically in

erialized account, instead of the investor taking physical possessio
ates. A Dematerialized account is opened by the investor while reg
investment broker(or sub-broker). Every shareholder will have a
Dematerialized account for the purpose of transacting shares.

erializing a security means converting it from physical form to el

dia there are two depositories which take care of securit

erialization- NSDL (National Securities Depository Limited) &
ral Depository Services Limited).

Important Facts & Terms - contd

43

y Stocks: generally refers to buying and holding of shares of a company

market by individuals/ firms in anticipation of income from dividends and
as the value of the stock rises.

Value: It is also known as par value of the stock. Face Value of share is ge

nd: is a payment made by a corporation to its shareholders, usually as a

tion of profits. When a corporation earns a profit or surplus, it can either
t in the business (called retained earnings), or it can distribute it to share

arning Per Share): It is the rupee value of earnings per outstanding sh

ny's equity stock.

(net income formula) = Profits - Dividends / No. Of Outstanding Sh

Ratio: or price-to-earnings ratio, is an equity valuation multiple. It is defin

et price per share divided by annual earnings per share.

Important Facts & Terms - contd

44

hareholders: Individuals who (in

buyother words invest in) shares of a
any are the owners of the company and are referred to as share ho
holders usually have voting rights and can participate in managem
mpany.

It is a debt security, under which the issuer owes the holders a de

ding on the terms of the bond, is obliged to pay them interest. Bon
by public authorities, credit institutions, companies and supranatio
tions in the primary markets.

enture: A debenture is a document that either creates a de

owledges it, and it is a debt without collateral.

s the 50 stock index comprised of some of the largest & most liquid
on the NSE.

00 is the stock index comprised of 100 of the largest & most liquid
on the BSE.

Phases of Stock Market

45

53

Bull Phase: A bull market is associated with

increasing investor confidence, and increased
investing in anticipation of future price increases
(capital gains). A bullish trend in the stock market
often begins before the general economy shows
clear signs of recovery.
Bear Phase: A bear market is a general decline
in the stock market over a period of time. It is a
transition from high investor optimism to
widespread investor fear and pessimism.

Chapter 7

Investments : The Wider Spectrum

46

are asset classes for investing apart from bank saving a/c suc
l Funds, Commodities (Gold), Real Estate, Foreign Exchange (D

utual Fund: It is a pool of funds for doing investments which

ofessionally managed by Fund Managers & has a common goa
Types Of Mutual Funds:

A. Open Ended Funds: Where you can invest/sell anytime.

se Ended Funds: Where you can invest for a specified time a

y after the specified time.

y/Exit Load: A Load is a charge, which the mutual fund collec

and/or exit from a fund. A load is charged to cover the cost
red by the mutual fund when it buys or sells shares in the sto
et.

Benefits Of Mutual Fund

48

Professional Management - Fund Manager

Diversification - In all sectors of economy
Return Potential - High Returns/ Post Tax Returns
Low Costs - Entry/Exit Load
Liquidity - Anytime Redemption/ Partial Withdrawal
Transparency - Fact Sheet

Flexibility - Switching Option (One Scheme to other)

Choice of Schemes - Various Funds
Tax Benefits - u/s 80 c

What is NAV?
49

NAV : Net asset value(NAV) is the value of a mutu

fund's asset less the value of its liabilities per unit.

NAV = Assets of the Fund - Liabilities of the Fun

Number of Outstanding Units of the Fund

ere Assets = Market value of the funds investmen

Receivables + Accrued Income

Comparisons
50

59

v/s

v/s

Comparisons
Parameter

PPF

Returns
Interest Receipt

8%
On Maturity

8% - 9%
On Maturity

Tenure

15 Yrs

7 -10 yrs

Partial Withdrawal

No

No

Equity MF
Schemes
12-15%
Depends on
Performance
No Specified
Term
Yes

Yes
Rs 10000

No
Rs 5000

No Upper Limit

No Upper Limit

N.A.

Rs 500

Long term Tax Liability No

Minimum
Rs 500 p.a.
Investment
Maximum
Rs 1,00,000
Investment
Monthly Investments
N.A
Lock In Period

Bank FD

Default 15 yrs Depends on

No Lock-in
Term of Deposit Period

National Saving Certificate (NSC)

52

(NSC): (also known as NSO) is a

ational Saving Certificate
ng bond, primarily used for small saving and income tax s
vestment in India, part of the Postal savings system of Ind
stal Service (India Post). These can be purchased from a p
ffice by an adult in his own name or in the name of a mino
st or two adults jointly. These are issued for six year matu
d can be pledged to banks for availing loans.

Post Office MIS

53

t Office Monthly Income Scheme (POMIS): POMIS is o

many investment options offered by Post Office in India.
mes offered by Post Offices are risk free as there is no eq
stments in them.

Chapter 8

Beyond Savings : Borrowing

54

an: Money borrowed that is expected to be paid back with inter

e.g. your pocket money is Rs.500, you order a pizza of Rs.700. Y
age is Rs.200, so you borrow/take a LOAN from a friend for Rs
your loan is Rs.200 which you will pay back when you get your p
ey next month. This loan also can be treated as Personal Loan.

EMI (
s the amount that
ld ay
month. For e.g. You pay back Rs.200 on a loan taken from your
onthly instalments of Rs.50. In simple terms, you will pay back yo
s of Rs.50.

Loans

57

House Loan
Consumer Loan

Personal Loan
Auto Loan

Education Loan etc.

Different Types Of Loans:

Suppose you purchase a car for Rs.5 Lac. You pay Rs.2 Lac now
down payment. For the remaining portion you take an Auto L
ac (Loan Amt-3Lac) at 12% per annum (Int Rate-12%). You p
00 monthly to pay off your loan i.e. EMI.

interest rate remains the same i.e. 12%, it is called as Fixed

interest rate fluctuates i.e. Sometime 12%, sometime 13%, i
d as Floating Rate.

Credit Card
55

ortization: Amortization is the process by which loan pri

reases over the life of a loan, typically an amortizing loan
ith each loan payment that is made, a portion of it is app
wards reducing the principal, and another one is app
wards reducing the interest on the loan.

dit Cards: A credit card is a payment card issued to user

em of payment. It allows the cardholder to pay for goods
ices based on the holder's promise to pay for them.

Credit Card
56

Advantages of Credit Card:

Availability of interest free credit for 45 days

No need to carry cash

Useful for online shopping/payments

Available all over the world

Disadvantages of Credit Card:

High interest rates on late payment

If lost, it can be misused

One tends to spend a lot over and above his earning

1

Chapter 9

Financial Planning

Financial Planning
58

ancial planning is the process of developing a personal road

your financial well being.
The inputs to the financial planning process are:
your finances, i.e., your income, assets, and liabilities,
your goals, i.e., your current and future financial needs and
your appetite for risk.

output of the financial planning process tells you how to use

ey to achieve your goals, keeping in mind inflation, real ret
taxes.

hort, financial planning is the process of systematically plan

r finances towards achieving your short-term and long-term
ls.

Financial Planning - contd

59

Importance of Financial Planning:

any people manage without financial planning, but they may find
r that they dont have the means to achieve their life goals.

e average person can, today, expect to live a healthy life well in

her 70s or 80s, which means that retirement life is almost as lon
king life.

cially, it implies that savings (after taking into account inflation)

ough, not just to maintain the same lifestyle for almost 25-30 ye
o new income, but also to take care of medical expenses, which
y high the older a person gets.

ats why its critical for everyone to plan their finances from an e
e.

Financial Planning - Benefits

60

A well chalked out financial plan can bring about many benefits
Helps monitor cash flows and reduces unnecessary expenditur
Enables maintenance of an optimum balance between income a
xpenses
Helps boost savings and create wealth.
Helps reduce tax liability.
Maximizes returns from investments.
reates wealth and ensures better wealth management to achiev
ls.
Financially secures retirement life.
views insurance needs and therefore also ensures that depende
cially secure in the unfortunate event of death or disability.
Lastly, it also ensures that a will is made.

Financial Planning - contd

61

Setting Goals
Identify your goals
uying a new car, buying a house, taking a vacation, educa
r children etc

Understand the trade offs

esser money in the short term for clothing, entertainment

Set clear targets and time frames to achieve your goals

Saving `2000 per month will help educate your children

Saving `1000 per month will help fund your vacation

Financial Planning - contd

62

dentifying your financial goals enables you to focus your investm

towards achieving those goals

Focusing on your investments ensures that you create wealth thr

timely and appropriate investments. It also ensures that you pro
your wealth.

Creating wealth ensures that you are financially secure and on tr

achieving your financial goals

Financial security means you are prepared to overcome expected

unexpected ups and downs that life throws at you, such as sudd
illness, retirement, etc.

inancial planning, when properly done, ensures that your investm

re inflation proof.

Chapter 10

Retirement Planning

g for retirement is a journey but a systematic step-by-step approach m

ss laborious. The longest of journeys start with a single step!.

early - Financial planners recommend that its never too early to star

uement.
with the
same quantum
of investments
is likely to save
as mue
Someone
who started
saving for retirement
eventwice
five years
ment. The key lies in starting with what you have and making up for t
t a later stage. However the opportunity to make an early start should
promised with.

the assistance of a financial planner - You need to have a good i

you want to be 30 years from now in financial terms and what kind o
le you would like to maintain. This is where an investment advisor ste
e can give a concrete shape to your retirement plan by coming up wit
portant figure, based on your inputs and chart out a investment strat
ng term.

Retirement Planning - contd

64

enting the plan - Having an investment plan in place sets the ball rolling for you a
ent advisor. Depending on your risk profile, the objective is to invest in avenues that
imise returns. Asset allocation i.e. investing across assets in varying degrees will pla
the long run. Typically a retirement portfolio should be well-diversified across pensi
mutual funds, equities, EPF/PPF and fixed deposits.
g/reviewing the plan - Your investment plan must be monitored regularly to make
on course to meeting your objectives over different market cycles without compromi
h passage of time, your risk profile changes, the same will be reflected in your inves
portion of investments in market-linked products like equities and mutual funds is l
e; instead greater allocations could be made in assured return avenues like fixed de

p into your retirement savings - Retirement money is to be treated as sacred an

d upon every time you witness a cash crunch. Avoid dipping into your retirement mo
s urgent. A one-time sum of Rs 5,000 invested over 30 years (at 10% compounded g
to Rs 100,000. That
what long-term
investing
can
docome
for you,
needs to g
yourisretirement
savings
kitty and
not
out so
of money
it.