Sagayaraj
Personal Financial Planning

Why invest?
 Most of us in private job with no job security
 Inflation rate doesn’t match the increment rate
 To have regular income after retirement
 Taking care of children’s needs
 Investments must, hence, be foremost in the
order of priority barring any financial emergency

Understanding cash flow
 Preparing a Cash Flow statement of income and
expenses
 Helps to focus or curtail unwanted expenses
 “The secret to getting rich is to pay yourself first
(i.e., invest for your future), before you pay others
(utilities, shops, etc)” – Kiyosaki (author of Rich
Dad Poor Dad)

Example of a cash flow
statement
Total (savings) +Rs 10,000.00

Where to Invest?
 Different avenues of investment
 Stocks, mutual funds, government bonds, post
office schemes, bank fixed deposits, commodities,
gold, real estate, art, etc.

Inflation
 Inflation is the rate at which the cost of goods and services rises
 As inflation goes up, purchasing power decreases
 Three years ago, you could have bought a three bedroom apartment
in a premium suburb of Mumbai for Rs 75 lakh; today, the same
amount will probably get you a one bedroom apartment in the same
locality
 Inflation reduces the value of money

Impact of Inflation on financial goals
 Over the years, you have to spend more in order
to maintain your standard of living
 A management course that costs Rs 15 lakh today
will cost around Rs 41 lakh (at 7 per cent inflation),
15 years hence when your child is ready for it!

Real return
 To fight inflation, invest in a product which gives
not just a higher rate of interest than inflation, but
also leaves with a substantial amount that
enables to meet the goals
 Real return = stated return – Inflation
 Investing in an investment product provides 10%
return then actual return is 3% (10 – 7)
 If we consider 30% tax on return then the return is
almost nil
 Consider investing in equities, real estate and
commodities which are insulated from inflation

Accelerate earnings: The concept of
reinvestment
 Are you investing the interest earned?
 The simple act of reinvesting the interest earned means you earn
interest on the interest and make more money
 Suppose you invested a sum of Rs 2 lakh in the Post Office Monthly
Income Scheme (MIS) @ 8 per cent per annum. Every month, a sum of
Rs 1,333 will be deposited into your savings account, for a period of 6
years. “Where should i invest such a small amount?”, you may ask.
Well, the Department of Posts has a Recurring Deposit (RD) scheme,
where you can invest as little as Rs 10 each month @ 8 per cent per
annum. Your MIS interest over 5 years would be Rs 80,000. Reinvesting
would, hence, earn you an additional interest of 8 per cent on the Rs
80,000, without much effort.

Accelerate earnings: The concept of
reinvestment
 The following table demonstrates the value of Rs 10,000
invested at 7 per cent over a period of 35 years, assuming that
the interest is reinvested.

Compounding
 “Compounding the greatest mathematical discovery ever” –
Albert Einstein
 Reinvest your income from interest on investments, your capital
or principal that is invested goes up
 Another factor that influences compounding is the frequency of
compounding
 Compounding is such a powerful financial tool that if you
invest and reinvest your savings and profits regularly, your
investment portfolio will steadily outgrow your salary!

Financial Planning
 Financial planning is the process of developing a
personal roadmap for your financial well being
 The output of the financial planning process is a
personal financial plan that tells you how to use
your money to achieve your goals, keeping in
mind inflation, real returns, and taxes
 Process of systematically planning your finances
towards achieving your short-term and long-term
life goals

Benefits
 Helps monitor cash flows and reduces unnecessary
expenditure
 Enables maintenance of an optimum balance between
income and expenses
 Helps boost savings and create wealth
 Helps reduce tax liability
 Maximizes returns from investments
 Creates wealth and ensures better wealth management to
achieve life goals
 Financially secures retirement life
 Reviews insurance needs and therefore also ensures that
dependents are financially secure in the unfortunate event
of death or disability
 Lastly, it also ensures that a will is made

Financial Planning Process
 Identify your current financial situation
 Identify your goals
 Identify financial gaps
 Prepare your personal financial plan
 Implement your financial plan
 Periodically review your plan

Tips for Financial Planning
 Start now. Even if you are in your mid thirties or forties, it’s
better to start now than dawdle for another five years. Every day
counts
 Be honest with yourself. Seek help when needed.
 Set sensible, measurable goals for yourself. Be realistic in your
expectations of the results of financial planning
 Review your plan and financial situation periodically and adjust
as needed
 Always review the performance of your investments; pull out if
needed and reinvest the money elsewhere.
 Be hands-on. It’s your money and no one else will do your work
for you

Types of Investment
 Stocks
 Mutual funds
 Government bonds
 Post office schemes
 Public Provident Fund
 Bank fixed deposits
 Company fixed deposits
 Commodities
 Gold
 Real estate
 Art
Why Insurance is not categorized as Investment?

Stocks
 Risk
 High
 Returns
 High
 Tax impact
 Capital gains tax will be calculated based on your
gain
 Requirements
 Demat account to be opened

Mutual Funds
 Risk
 High to Low based on the type of funds chosen
 Returns
 Medium
 Tax impact
 Requirements
 KYC process to be followed
 Investment type
 Fixed amount more than Rs. 1000 or SIP

Tax Impact on Mutual Funds
Capital Gains Dividend Income
In the hands of
Tax on distributed income
Paid by Fund House
Equity Schemes*^ Other than Equity Schemes
Short Term
(units held
for 12
months or
less)
Long Term
(units held
for more
than 12
months)
TDS Short Term Long Term TDS Equity
Scheme
Other
Schemes
Equity
Scheme
Debt
schemes
Money
market and
Liquid
schemes
15.45%
(15% + 3%
education
cess)
NIL STCG -
15.45%
(15% +3%
education
cess) LTCG
-NIL
Applicable
income tax
as per slab
+ 3%
education
cess
10.30%
without
indexation
or 20.60%
with
indexation
(10%/20%+
3%
education
cess)
STCG -
30.90%
(30% + 3%
education
cess) LTCG
- 20.60%
(20% +3%
education
cess) (after
providing
for
indexation)
NIL NIL NIL 13.519%
(12.5% +
5%
surcharge +
3%
education
Cess)
27.038%
(25% + 5%
surcharge +
3%
education
Cess)

Government Bonds
 Risk
 Low
 Returns
 Low
 Tax impact
 Tax free based on type of bonds
 Requirements
 Demat account or buy in paper form
 Investment type
 Fixed amount more than Rs. 5000 as one time
investment with specific period

Post Office Savings Scheme (POSS)
 Risk
 Nil
 Returns
 Low
 Tax impact
 Interest is taxable
 Requirements
 None
 Investment type
 National Savings Certificates (NSC), National Savings
Scheme (NSS), Kisan Vikas Patra, Monthly Income
Scheme and Recurring Deposit Scheme

Public Provident Fund (PPF)
 Risk
 Nil but poor liquidity
 Returns
 Medium
 Tax impact
 Tax free
 Requirements
 Should be opened on individual’s name
 Maximum savings can’t exceed 70000 per year
 Can remit in a single installment or in max of 12
installments
 Can avail loan
 Can liquidate only after 15 years

Bank FDs
 Risk
 Low
 Returns
 Medium
 Tax impact
 Interest is taxable
 Interest rate will vary based on RBI’s monetary
policy

Company FDs
 Risk
 Medium
 Returns
 Medium
 Tax impact
 Interest is taxable
 Interest rate is high when compared with Banks
but risk is high
 Fixed term

Insurance
 Provides financial protection to dependants
 Doesn’t make sense if there are no dependants
 Finalizing Life Cover
 Life cover should be 10 times your annual income
 Consider other debts, pre-existing medical complication, etc.
 Fund performance
 In case of ULIP, evaluate the performance of the company in
the past years
 Types of Insurance Products
 Term Insurance
 Endowment Insurance Plans
 ULIP
 Pension Plans
 Money-Back Plan

Best Practices in investing
 Diversify your portfolio
 Constantly monitor your investment and try to
correct bad performing assets
 Use online portfolio tools to have consolidated
view of your investments
 Don’t save what is left after spending but spend
what is left after saving
 Add nominee in all your investments
 Constantly review your financial goals with the
investments you have made

Thanks
 Any Questions?