Financial Planning for Young

Investors
An initiative of SEBI & NISM

Need for financial

education
Deterioration of personal
finances
Proliferation of new and
complex financial products

Agenda
Introduction

Protection

Financial

products
Borrowing related
products
Investment strategies
How not to lose money
How to begin investing
Advantages of
financial education
Investor protection
and grievances

planning
SMART goals
How to achieve your goals
Risk v/s return
The power of
compounding
Inflation effects on
investments
Savings v/s investments
Loans v/s investments
Savings and investment
related products

related

WHAT IS FINANCIAL
PLANNING?

The

financial planning process

Gathering financial data

What

is the source of income

and what is its nature
Monthly Salary
Business Income

How

much are your monthly

expenses

Exercise

Cash flow
calculator

Identify Goals

Identify gaps or issues

Are

there any expenses which

have to be met on a priority,
due to which plan may have to
be changed
Are there any liabilities which
are already existing or worse
still, may crop up suddenly?

Prepare the financial plan

SMART GOALS

Objective Incorrect
s
approach

Correct approach

Specific

I need money to
pay my college
fees

I will save Rs. 50,000 to pay

my college fees in a years
time

Measurabl I will pay off my

e
debts

In the next six months, I will

return Rs. 3,000 I owe to
my friends

Attainable I will save money

I will save Rs. 2000 every

month by cutting down on
eating out and partying

Realistic

If I save money, I
will be rich

If I save regularly, need not

borrow more money, I can
pay off my debts by next
year and will have enough
savings till I begin to earn

Timebound

I will save money

for my vehicle

I will save Rs. 10000 a year

for the next 2 years for my

How to achieve goals

Arrange

goals in order of their

time to reach (short term,
followed by medium term and
lastly long term)
Plan investments for each goal.

Implementing 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

The power of
compounding

The eighth wonder compounding

Rs.1 lac invested @ 10%
Year Simple
interest @
10% p.a.

Compound
interest @ 10%
p.a.

1
2
3
4
5
20
25

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

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

Compounding

THE RULE OF 72

WHAT IS INFLATION?

Effects of Inflation
Item

Price
in
200102

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

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

Price in
200910

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
Depository system

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

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!

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
optional

Advantages of Financial
Helps build a secure financial future
Education
Prepared

for financial emergencies

Protection
Feeling

from marketing gimmicks

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

Regulators
Various

regulators in Indian
financal 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)

THANK YOU!