WORKSHOP

ON
FINANCIAL EDUCATION
FOR
YOUNG INVESTORS
SUJITH KUMAR S H
ASST. PROFESSOR
BIET-MBA PROGRAMME, DAVANGERE
(M)+91-9986029529
E:Mail: shsujith@yahoo.com

What is Money ?

What

is financial Planning ?

Financial

Planning is a plan to save

and spend future income.

Why? Today

people are

Beyond Means
Credit card Debt
Irresponsible things

BUDGETING

Exercise

Cash flow
calculator

Identify Goals

Prepare the financial plan

SMART
GOALS

GOALS

IMPLEMENTIN
G
THE PLAN,
THE REAL
CHALLENGE

RISK AND RETURN

Risk and Return

Risk and investing go hand in

hand

Risk increases as the expected

potential return increases

No-risk, whats that?

Manage the risks

Risk v/s returns

Risk
Instruments
category
Low risk
Cash, bank FD
Medium risk Debentures, bonds,
fixed income mutual
funds
High risk
Equity shares, equity
mutual funds

Introduction about capital market

For starting any Business, an entrepreneur needs
investments in the form of capital.
Depending on the size of the project, the amount
of
capital varies.
Entrepreneur cannot go for investing his own
money in the business, so he has to go for
borrowing.
borrowing has many problem such as paying
interest monthly, that too if it is a long term
project, he wont be able to give interest regularly.
Paying Interest
taxation.

has

some

advantage

over

Banks/Financial Institution may demand a

security for their loans in the form of collaterals,
the promoter may choose to raise the capital by
issuing shares to public making them a offering on

Definition
Capital

Marketing is defined as the

process of increasing the major part of
financial capital required for starting a
business through issue of shares to
public.

The

issue may be Shares, Debentures , Bonds,

etc.
Capital

market is a market for long term debts

and equity shares.

Classification of Capital Marketing

CAPITAL
MARKET

SECONDARY
MARKET

PRIMARY
MARKET

PUBLIC
ISSUE

RIGHT
ISSUE

BONUS
ISSUE

PRIVATE
PLACEMENT

STOCK
MARKET

Primary Market
In

Primary Market, Securities are offered to the public for

subscription, for the purpose of raising the capital or funds.

The

issue of securities in the primary market is subjected to

fulfillment of a number of pre-issue guidelines by SEBI and
compliance to various provision of the Company Act.
An unlisted issuer making a public issue i.e. (making an IPO) is
required to satisfy the following provisions:
The Issuer Company shall meet the following requirements:

(a)Net

Tangible Assets of at least Rs. 3 crores in each of the

preceding three full years.
(b) Distributable profits in at least three of the immediately
preceding five years.
(c) Net worth of at least Rs. 1 Crore in each of the preceding
three full years.
(d) The issue size does not exceed 5 times the pre issue net
worth as per the audited balance sheet of the last financial
year

Dematerialisation and
Demat Account
It is an account opened
with depository
institutions to
dematerlise securities
certificates.
Demat A/C opened with
NSDL OR CDSL

Depository
A depository is like a bank wherein the
deposits are securities (viz. shares,
debentures, bonds, government securities,
units etc.) in electronic form.
There are two types of Depository in our
country
NSDL
CDSL

Classification of Issues
Issues
Right

Publi
c

Initial Public
Offering
Fresh
Issue

Private
placement

Offer for
sale

Further Public
Offering
Fresh
Issue

Offer for
sale

PUBLIC ISSUE :It involves raising of funds directly from the public and get themselves
listed on the stock exchange
in case of new companies ,the face value of the securities is issue at
par, and

in

the case of existing companies, the face value of securities are issued
at premium
Initial public offer (IPO): When an unlisted company
makes either a fresh issue of securities or offers its
existing securities for sale or both for the first time to the
public, it is called an IPO. This paves way for listing and
trading of the issuers securities in the Stock Exchanges.
Further public offer (FPO): When an already listed
company makes either a fresh issue of securities to the
public or an offer for sale to the public, it is called a FPO.
RIGHT ISSUE:Right issue is the method of raising additional finance from existing
members by offering securities to them on pro rata bases.
The rights offer should be kept open for a period of 60 days and should
be announced within one month of the closure of books.

BONUS ISSUE:Companies
distribute
profits
to
existing
shareholders by way of fully paid bonus share in lieu
of dividend.
These are issued in the ratio of existing shares held.
The shareholders do not have to make any
additional payment for these shares
PRIVATE PLACEMENT:
Private Placement is an issue of shares
by a company to a select group of
persons under the Section 81 of the
companies act 1956. It is a faster way for
a company to raise equity capital.

Intermediates in issue in the

Primary Market
Book Running Lead Managers(BRLM):
A Merchant banker possessing a valid SEBI registration in
accordance with the SEBI Regulations,1992 is eligible to
act as a BRLM to an issue.
Cut Off Price:
In the book-building issue, the issuer is required to
indicate either the price band or a floor price in the RHP.
The actual discovered issue price can be any price in the
price band or any price above the floor price. This issue
price is called as the Cut Off Price.
And the other intermediates are
Merchant Banker
Registrars to the Issue
Bankers to the Issue
Underwriters

Secondary Market
Secondary

Market refers to a
market where securities are traded
after being initially offered to the
public in the primary market and/or
listed on the stock exchange.
Secondary market comprises of
Equity market and Debt market.
It is the trading avenue in which
the already existing securities are
traded amongst investors.
Banks facilitate secondary market
transactions by opening direct
trading and demat accounts to

Secondary Market

STOCK
EXCHANGES IN
INDIA
India can boost of being one of oldest stock markets of

Asia.Nearly 200 years ago,trading in securities used to take

place.

The first stock exchange,however, came to be established

in 1875 in Bombay.

Popularly known as "BSE", it was established as "The Native

Share & Stock Brokers Association" in 1875.

Gradualy spread to other cities like

Ahmedabad,Kolkatta,Madras etc lead to formation of
Securities contracts(Regulation) act 1956

BSE BOLT : Bombay Online Trading.

NSE NEAT : National Stock Exchange Automated Trading
System.c

Stock Exchange
Meaning
Is capital market of stocks and securities
where in they can be exchanged
(purchased & sold) through the brokers
(members of stock exchanges) under
certain rules & regulations.
It represents the organised secondary
capital market

Einstein

called Compounding
?

THE POWER OF
COMPOUNDING

The eighth wonder compounding

Rs.1

lac invested @ 10%

Yea Simple
r
interest @
10% p.a.

Compound
interest @ 10%
p.a.

1
2
3
4
5
20
25
30

1,10,000.00
1,21,000.00
1,33,100.00
1,46,410.00
1,61,051.00
6,72,749.99
10,83,470.59
17,44,940.23

1,10,000.00
1,20,000.00
1,30,000.00
1,40,000.00
1,50,000.00
3,00,000.00
3,50,000.00
4,00,000.00

Compounding

Power of Equity
Unbelievable
but it has happened

Just imagine
How much can you make in 26
years by just investing Rs.10,000
initially in any of financial
instruments ?

Take a wild guess ???

Let us look at the real example

If you have subscribed in 100 shares of ________ company with

a face value of Rs. 100 in 1980
In 1981 company declared 1:1 bonus = you have 200 shares
In 1985 company declared 1:1 bonus = you have 400 shares
In 1986 company split the share to Rs. 10 = you have 4,000
In 1987 company declared 1:1 bonus = you have 8,000 shares
In 1989 company declared 1:1 bonus = you have 16,000 shares
In 1992 company declared 1:1 bonus = you have 32,000 shares
In 1995 company declared 1:1 bonus = you have 64,000 shares
In1997 company declared1:2 bonus= you have 1,92,000 shares
In 1999 company split the share to Rs. 2 = you have 9,60,000
In 2004 company declared 1:2 bonus = you have 28,80,000
In 2005 company declared 1:1 bonus = you have 57,60,000

At the end of 2005

You have 57,60,000 shares of the
company
Any guess about the company ?
(Hint : Its an Indian company)
Any guess about the present
valuation ?

The result of
Power of Compounding

Your valuation as on 2005

Rs. 200 Cr.+

Todays Valuation is
In 2010 Company declared 2:3 bonus = you have
86,40,000 and Value is 380,24,64,000

The company is WIPRO

Other such examples

CIPLA
Investment of Rs. 10,000 in 1979 will fetch Rs. 95 cr.+

INFOSYS
Investment of Rs. 10,000 in 1992 will fetch Rs. 2.5 cr.+

RANBAXY
Investment of Rs. 10000 in 1980 will fetch Rs. 1.9 cr.+

THE RULE OF 72

Retirement Planning
Start

early and retire peacefully

Plan wisely
Track and review your plan
Dont dip into your retirement
savings

RETIREMENT CALCULATION

No. of years after

30 Years
which you will retire
Amount of expenses of 43219.00
required at the time of
retirement
Amount required at
the time of retirement
(80%)

34575.00

Corpus amount
required if lives 20
years after retirement

6846077.
45

At 10% interest

Rs.

Retirement
Calculator

WHAT IS INFLATION?

Effects of
Inflation
Item

Sugar (1 kg)
Cooking oil (5
liters)
Rice (1 kg)
Petrol ( 1 liter)

Price
in
200102

Price in
200910

Rs. 16 Rs. 40
Rs. 290 Rs. 500
Rs. 14
Rs.
33.46

Rs. 35
Rs.
48.83
Inflation
calculator

Basics of Savings and

Investment

Savings

Short term
Value remains
stable
Lower returns
over long term

Investing

Long term
Value moves up and
down in short term
Potentially higher
returns over long term

Price of procrastination
Twin

brothers: Anil and Sunil

Anil saved from the age 25
years till 35 years. He did not
withdraw till 60
Sunil started saving at 35 years,
but continued till 60 years
Both saved Rs. 50,000 per year
and earned 10% p.a. on their
investments

Price of procrastination
Twin

brothers: Anil and Sunil

Amount accumulated at 60
years
Rs. 86 lacs

Rs. 49 lacs

CHOOSING THE RIGHT

INVESTMENT OPTIONS

LOANS V/S
INVESTMENTS

Before

you borrow:
Financial strength
Credit card debt and personal
loans
Low interest rates
Tax benefits
Loan for investments

THE
PRODUCTS

Savings & investment related

products
Bank deposits
Small savings schemes
Bonds / debentures
Company fixed deposits
Mutual funds
Equity shares

Why Insurance Planning ?

Insurance is like a
parachute.
If it isn't there the
first time, chances are
you won't need it the
second time!
Insurance is protection
for the person and his
family

Protection Related
Products
Insurance
Life insurance
Term life insurance
Endowment policies
Annuities / Pension plans
ULIPs

Health insurance
Comprehensive health insurance
Hospitalisation policy
Critical illness plan
Specific condition coverage

Borrowing Related Products

Personal loans
Home loans
Reverse mortgage
Loan against securities
Credit card debt

Financial planning pyramid

Tax Saving Options

Section

80C gives rebate upto

Rs. 1,00,000 for select
investments like life insurance
premiums, housing loan
principal, PPF, ELSS, etc.
Long Term Capital Gains are not
taxable for equities
80D (medical insurance), 80G
(donations) and 24D (Housing
loan interest repayment) are

Steps

to avoid excess

debt:
Set debt limits
Shop carefully for debts
Dont give into temptation
Automatically have money go
towards your bills

HOW NOT TO LOSE

MONEY

Ponzi schemes

Ponzi schemes promise high returns

and low risk
Initial investors may get high promised
returns

Money from initial investors is given to

new investors thus it is only rotation
of funds, not investment of funds If its
too good to be true its probably not
true.

Its a Ponzi!

Investment philosophies
Evaluate

risk of every investment

Decide the investment based on needs
Do not invest in any scheme that you do not
understand
Do not invest on trust. Have everything backed
up by documents
Take into account tax implication of every
income
Do not blindly follow market tips and rumours
Anything that appears unnaturally high or low
will have some catch disguised
Do not follow schemes where you may protect
the interest but lose the principal

PURCHASING
FINANCIAL PRODUCTS

Selection of intermediary
Registration

with regulator or a
body approved by regulator, e.g.
AMFI or stock exchange

Steps to become securities market

investor
Know

Your Client (KYC) form and

documents
PAN Card
Personal identification proof
Address proof
Demat accounts & trading
accounts required for equity
investing
For investing in MF, demat is

Regulators
Various

regulators in Indian
financial markets are:
Securities & Exchange Board of
India (SEBI)
Reserve Bank of India (RBI)
Forward Markets Commission (FMC)
Insurance Regulatory &
Development Authority (IRDA)
Ministry of Corporate Affairs (MCA)
Ministry of Finance (MoF)

Advantages of Financial
Education

Helps build a secure financial future

Prepared for financial emergencies

Protection from marketing gimmicks

Feeling a sense of accomplishment

Disciplined approach to money

Awareness of questionable practices

Setting a good example for your family

Benefit other aspects of your life

THANK YOU!
SUJITH KUMAR S H
ASST. PROFESSOR
BIET-MBA PROGRAMME
DAVANGERE