A

Summer Internship Project Report

On
“General Awareness & Emerging Concepts Of Financial
Planning”

Submitted By,
Bhatesa Sima Kiritbhai

Enrollment Number: 4740900157

Project Guide
Mr. Madhur Todi (Managing Director)

Submitted To
THE NIS ACADEMY
Annamalai University

Masters of Business Administration (MBA)

2009-2010

1
 PREFACE

“All men can see is – the victory, but what none can see
is the planning out of which the great victory evolved.”

- Anonymous

Planning is the essential bridge between the present and future situations that
increases the likelihood of achieving the desired goals. Planning consists of
specific tasks like forecasting future requirements, establishing goals and making
strategies to achieve them.

In today’s competitive world it had become difficult for people to maintain their
standard of living. They are facing the problems, which are arising due to inflation,
decreasing interest rates, volatility in the stock markets, scams in the banks and
stock market, and many other changes in economy.

Society is changing fast and the joint family system is giving way to nuclear
families. In such a situations, an individual needs to provide for his own
retirement, children’s education and marriage, meeting debt obligations for house
mortgages and other personal loans and for unforeseen mishaps. To overcome
these changes it has become necessary for an individual to do financial planning.

Financial planning is the road-map of achieving one’s life goals through proper
management of his/her finances.

2
The concept of systematic financial planning is at the introduction stage in India
with comparison to countries like Australia, USA, UK, Canada, etc.

This project report speaks about the research done on “General Awareness and
Emerging Concept Of Financial Planning” among the high net worth individual
and upper middle class people of Ahmedabad.

The recommendation rest on the basis of findings from the research work done and
conclusion derived there of.

This summer project was the essential part of the syllabus of an MBA programme,
as the practical study checks out the application of theoretical knowledge in
practical world.

Last but not least, we have taken in this project report the latest issues and
information about the financial planning, which are the best of our knowledge in
the topics covered; it is likely that some of the contents in this regard may undergo
changes in the months/years to come. Naturally, in that event the contents of the
project report will have to be modified wherever required to reflect the emerging
changes. It is therefore expected that reader should go through the contents of the
project report with considering upcoming changes here after on the subject.

3
 ACKNOWLEDGEMENT

I would like to express our deep feeling of gratitude to the under mentioned
officials for their assistance, guidance and inspiration before and throughout their
project.

Special thanks to respected Ms. Bina Patel, our project coordinator for showing us
a proper way to walk on, for providing help and guidance throughout the project.
She has always been the source of encouragement. She has ceaselessly guided us
in all the aspects of the project, with her abundance amount of experience and finer
ideas.

I am very thankful to Mr. Madhur Todi, Managing Director – Mera Money

Advisors Pvt. Ltd., for his help and advice throughout my project. His gentleness,
availability and readiness to provide all the type of guidance, for understanding the
technical things made this project successfully completed well within the time. I
would like to thank, for his guidance whenever I called for.

Working on the project required hard work and concentration. What made is
possible is the support I received from those around us. I thank to all the members
of Mera Money Advisors Pvt. Ltd.
For giving me guidance, encouragement and right path to work on. I would also
like to thank our respondents without which the research work would not have
been possible. I thank to authors of all the books as well as the owners of all the
web sites for providing the information, which I had required.

I thank everybody who has directly or indirectly helped us in this project to make it
successful.

4
 EXECUTIVE SUMMARY

Everybody has some goals in life that can be measured terms. These goals can
include buying home, saving for child’s education and marriage or planning for
retirement.

In today’s competitive world it has become difficult for the people to maintain
their standard of living as the income has been limited but the expenses are rising
day by day. The sources of generating the income have also become difficult.
While on the other hand the expectations of people are very high, due to which the
saving power of people has reduced considerably.

Life is full of significant chapters – birth of child, education of children, wedding,

retirement. An individual needs to flag these off with financial planning. Simply
because financial planning plays a very essential role in these events.

The objective of the project was to see the awareness of financial planning among
the people of Ahmedabad. I tried to extract the views of the people with the help of
questionnaire and I also used the presentation slides prepared by us in English as
well as Gujarati on financial planning to make people understand about the concept
of financial planning. Presentation is the sort of summary of the project work.

This project in its endeavour provides a basic knowledge about the other areas of
financial planning, how they work, and the essence regarding how to get
continuous peaceful life with the planned occasions.

The methodology through which information has been gathered is both primary as
well as secondary data. I have filled the questionnaire from the respondents by
going into areas that are being identified as strong potential. Following are the
important out comes of the project:

5
➢ I found that all the people know the term financial planning but very few
people are doing the systematic financial planning or they have started to
do so.

➢ Society is changing fast and the joint family system is giving way to
nuclear families. Therefore there has been a considerable increase in
household expenses.

➢ I found that Life Insurance is the best vehicle as it gives return on

investment with risk cover.

➢ Most of the people are investing as per their own knowledge and
according to the information, which they get from news channels,
newspapers, other publication, friends, broker etc. In most of the cases
people do not try to know that the investment instrument is suitable to
them and the information which they received is either true or rumour.

➢ People generally do not consider post tax real rate of return. They
normally consider Coupon Rate, Interest Rate or Nominal Rate while
calculating return.

6
 CONTENTS PAGE

PREFACE I
ACKNOWLEDGEMENT III
EXECUTIVE SUMMARY IV

MERA MONEY ADVISORS PVT. LTD. 10

CHAPTER – 1 INTRODUCTION TO PROJECT 13

1.1 Objectives 14
1.2 Research Methodology 15

CHAPTER – 2 INTRODUCTION TO 18
FINANCIAL PLANNING
2.1 Concepts Of Financial Planning 19
2.2 Need Of Financial Planning 20
2.3 Benefits Of Financial Planning 21
2.4 Financial Planning Process For An Individual/Family 22
2.5 Ideal Approach To Financial Planning
24

7
CHAPTER – 3 DETAILS BE CONSIDERED
BEFORE DOING FINANCIAL 26
PLANNING
3.1 Family Details 27
3.2 Assets And Liabilities 28
3.3 Cash Flow Budgeting 29
3.4 Other Important Parameters 30

CHAPTER – 4 ROOTS OF FINANCIAL PLANNING

4.1 Desired Financial Goals 31
4.2 The Inflation Devil 32
4.3 Rapid Growth Through Power Of Compounding 34
4.4 Realistic Future Picture 36
37

CHAPTER – 5 COMPONENTS OF FINANCIAL 39

PLANNING
5.1 Investment Planning 41
5.2 Tax Planning 62
5.3 Insurance Planning 68
5.4 Retirement Planning 75
5.5 Estate Planning & Will 80
5.6 Emergency Fund Planning 81
5.7 Debt Planning 83
5.8 Charity Planning 85

8
CHAPTER – 6 AWARENESS OF FINANCIAL 86
PLANNING IN AHMEDABAD
6.1 Primary Data Analysis 87
6.2 Findings 103
6.3 Suggestions 104

BIBLIOGRAPHY 107

ANNEXURE - Questionnaire 108

– List Of The House Hold & Other 114
Expenses
- List Of Source Of Income 118

9
 MERA MONEY ADVISORS PVT LTD.

Who They Are ?

Mera Money Advisors Pvt Ltd was incorporated in 2008 and all the clients of
DhanVyavastha were merged into the new company. In essence, the company has
its roots in the financial services industry since the last 5 years. As of March 31,
2009, the company is managing more than Rs 70 Crores on behalf of more than
1000 clients spread across Gujarat, Maharasthra and Delhi. Over the last one year,
Mera Money has expanded its presence in Mumbai, Baroda, Surat, Delhi,
Gandhinagar, Sabarmati apart from the Head office in Ahmedabad. Further, Mera
Money is targeting to have its branches in 100 cities within the next 3 years.

About The Director Of The Company

Madhur Todi is the co-promoter and Managing Director of Mera Money
Advisors P Ltd, a wealth and risk management firm. Madhur Todi’s expertise
in comprehensive financial planning is reflected in the firm’s emphasis on estate
planning, tax strategies, risk management, investment selection, business
succession and retirement planning. Madhur has been active in the financial
community of India after he returned from US in 2004. Madhur Todi is also a
visiting faculty at Ahmedabad Management Association and gives lectures on
financial planning and business succession. Currently pursuing his certified
financial planner course, Madhur was quite active in the US business community
during his stint for three years in the financial sector, consulting corporate and

10
individuals on finance and investment planning. Madhur holds a Masters in
commerce from HL College of Commerce, Ahmedabad as well as a double MBA
from the Illinois Institute of Technology, Chicago – USA with specialization in
Finance and Information Management.

How are They different?

Mera Money is a leading provider of financial protection and wealth management
products and services including individual life insurance, long-term care
insurance, group life and health insurance, pension products, annuities and mutual
funds, to individual and group customers in India. If you are comparison shopping
among advisors, it is very important to ask each of them the same questions.

• Independent, Client-Centered Advice:

We provide unbiased, client centered advice for creating sustainable wealth
through a transparent yet ethical and regulatory compliances.

• Qualified Advisors Providing Comprehensive Advice:

We have an experienced team of research personnel who study the market
and business environment and are the only professionals trained to integrate
knowledge of estate planning, tax, investments, insurance, retirement, and
debt into advice driven by your goals.

• High-Touch, Boutique Service:

Our clients share their goals and needs with us. We, in turn, use our
expertise to seek out the most appropriate solutions for them. We don't
work with everybody. We limit the number of clients we work so we can
know them better. This allows us to be more attentive and provide better
service.

• Creating Awareness:

11
 The company regularly distributes informative newsletters on financial
planning and investment products to create awareness on personal wealth
creation. In order to inculcate the habit of savings and planning, Madhur
Todi also holds lectures for students and working professionals on financial
planning and wealth management at AMA.

Services

• Gold
• Fixed Deposits
• Real Estate/Property
• Equity and Debt based Mutual Funds
• Life Insurance
• General / Non Life Insurance
• Overseas Investments

They specialize in:

1) Identification of personal financial needs
2) Developing strategies for individuals’ sustainable wealth

12
 creation and betterment of life.
3) Execution of the developed strategies after discussions and
4) Continuous monitoring of the clients investments in accordance
With the planned strategies.

Mera Money's motive is:

To provide unbiased and quality advisory to NRIs for all their Investments in
India.
To offer them best services and make their investment experience in India, as
hassle free and convenient, as possible.

CHAPTER – 1

INTRODUCTION

TO
13
 PROJECT
CHAPTER CONTENTS

1.1 Objectives……………………………
1.2 Research Methodology……………….

1.1 OBJECTIVES

1. To understand the General awareness and Emerging concept of Financial

Planning in High Net Worth Individual and Upper Middle Class.

2. To establish the clarity regarding the need of Financial

Planning to analyze the strategic benefits in today’s global
scenario.

3. To gather insights about the traditional pattern of Financial

Planning of High Net Worth Individual and Upper Middle
Class.

14
 4. To identify the investment pattern of High Net Worth
Individual and Upper Middle Class.

5. To identify the reasons why as an investors, High Net Worth

Individual and Upper Middle Class are loosing their money
as well as not getting proper return form their hard earn
money.

6. To know how High Net Worth Individual and Upper Middle Class are deal
with their financial future.

7. To make the respondent know about the outcome of the

project by distributing a Handbook to them by the company itself.

1.1 RESEARCH METHODOLOGY

RESEARCH DESIGN:
Conclusive – Descriptive – Cross Sectional – Multi Cross Sectional

1.1.1 DATA COLLECTION PLAN AND SAMPLING

DESIGN

Population : Ahmedabad City.

Sample : High Net Worth Individual and Upper

Middle Class

Elements : Government & Private Employees

(Executives), Doctors, Advocates,

15
 Architects, Chartered Accountants,
Brokers, Wholesalers, Restaurant
Owner, Car Dealer.

Frame : Naranpura, Navrangpura, Drive-in,

Ashram Road, C.G.Road, Satellite,
Vastrapur, Ellisbridge, Panchvati,
Jodhpur, Shivranjni, Shyamal Cross
Road.

Extent : Ahmedabad

Sampling Method : Stratified Random Sampling.

Data Collection : The market research report is based on

combination of primary and secondary
data sources. Primary data has been
collected through the method of
structured questionnaire. The
questionnaire has been designed with the
aim of fulfilling the research objective.

1.1.2 SOURCES OF DATA

Information gathered in the project is mainly based on secondary data & primary
data.

1.1.3 PRIMARY DATA COLLECTION

PROCEDURE

➢ Method :
Field study was done to get better information and data from
the High Net Worth Individuals and Upper Middle Class.

16
➢ Technique :
Questionnaire ( As directed by the project guide ) has been
used to extract detailed information to facilitate research and
to obtain better feedback.

1.1.1 SECONDARY DATA COLLECTION

PROCEDURE

Secondary Data is mainly collected through Internet from web sites, Business
Magazines, and Newspaper etc. The secondary data was moreover collected from
the sources enlisted in the bibliography.

1.1.2 LIMITATIONS OF SURVEY

➢ Descriptive Study :
May or may not have the potential to draw powerful
inferences. However, such study is popular in research
because of its versatility across various disciplines. The
study has been done on the basis of generalize situation; but
as the situations and circumstances are different from person
to person. And so outcomes may or may not be fit or
applicable to every person.

➢ Sampling Demerit :
The sample size of 120 people across Ahmedabad is
comprehensive composition and representative of the
population. As the survey was depended on convenient
sampling.

➢ Here I have considered the term High Net Worth

Individual (HNI) and Upper Middle Class as follows:

17
1. High Net Worth individual (HNI) : A Respondent having a monthly
income of more than Rs. 35,000/-.
2. Upper Middle Class : A Respondent having a monthly
income of more than Rs. 15,000/-.

CHAPTER – 2
INTRODUCTION

TO
18
 FINANCIAL PLANNING

CHAPTER CONTENTS

2.1 Concept Of Financial Planning………….

2.2 Need Of Financial Planning……………….
2.3 Benefits Of Financial Planning…………….
2.4 Financial Planning Process For An
Individual/Family …………………………
2.5 Ideal Approach To Financial Planning……….

2.1 CONCEPT OF FINANCIAL PLANNING

“Looking Beyond The Nose Where Finances Are Concerned”, is the main
concept of financial planning. Basically financial planning is process of charting
out the money course of an individual’s and his/her family’s life. It is like having a
Financial Roadmap that guides an individual every step till he/she passes on the
baton to the next generation.

“Structuring A Financial Plan Like A Pyramid That Gives Stability And

Solidity To Family.” Most people think of financial planning as a complex
19
exercise. But it’s actually a simple thing that involves planning of financial affairs
so that one can achieve his/her goals. Everybody has some goals that can be
measured in monetary terms. These goals can include buying a home, saving for
child’s education and marriage or planning for retirement.

This involves having individual plans for various components of his/her finances
like savings, investment, taxes, retirement, and estate (consisting of a succession
planning of assets. The objective of financial planning is to ensure that the right
amount of money is available in the right hands at the right point of time in future
to achieve an individual’s financial goals.

Put Simply,

➢ Financial planning lets one to reach a specific goal without making

compromise to his/her standard of living.
➢ It involves planning for individual components like savings, investment,
taxes, retirement, and estate.
➢ Financial planning is an ongoing process of creating, implementing, and
updating an individual’s financial road map.
➢ Planning finances cushions one against emergencies like a job loss, and
mitigates the impact of inflation and taxes.

So, disciplined spending by having a financial game plan one automatically

become more efficient with his/her money.

The areas that financial planning might address are :

 Investment Planning
 Tax Planning
 Insurance Planning
 Retirement Planning
 Estate Planning
 Emergency Fund Planning
 Debt Planning
 Charity Planning

20
Reality Of Financial Planning

Financial Planning is a common sense approach to managing finances to reach

one’s life goals. It cannot change the situation over night; it is a life long process.
Remember that events beyond control such as inflation or changes in the stock
market or interest rates and taxation will affect financial planning results.

2.1 NEED OF FINANCIAL PLANNING

Financial Planning helps an individual to take a “BIG PICTURE” for looking at

where he/she is financially as per “DESIRED FINANCIAL GOALS” right now.

➢ Financial planning provides direction and meaning to financial decisions.

➢ It allows understanding how each financial decision could affect other areas
of finances.

➢ By viewing each financial decision as a part of a whole, one can consider its
short and long-term effects on his life goals.

➢ One can also adapt more easily to life changes and feel more secure that his
goals are on track.

➢ For example, buying a particular investment product might help an

individual save adequately to finance child’s higher education or it may
provide enough for a comfortable retirement.

2.1 BENEFITS OF FINANCIAL PLANNING

Financial planning works as an autopilot for an individual and his/her family, in

relevance to any financial decision for each and every predictable and upcoming
events or situation.

 The Complete Picture:

21
 Financial planning helps an individual compile a complete financial picture and
determine his/her objectives. As, at the time of diagnosing any disease, usually
it involves a study of a complete medical history. Similarly, the financial
planning compiles a comprehensive and classified financial analysis of an
individual and his/her family. It helps an individual to understand how each
financial decision affects his/her life’s goals.

 Analyses Every Aspects Of The Current Financial Situation :

An individual’s financial situation has many aspects (assets, income, loans,
insurance, taxes – to name a few), which will be benefited from the careful
scrutiny, through proper and systematic financial planning. It also analyses
every aspects in light of an individual’s objectives as well as the Legal, Tax and
Economic environments.

 Identifies Weaknesses And Better Solutions For It :

The objective of financial planning is to help an individual make best use of
every rupee by designing a strategy which will overcome any weaknesses in the
management of his/her affairs and provide specific way to help him/her to
achieve his/her financial objectives.

 Reduced Stress :
The unknowns and fears cause stress. By prudent financial planning an
individual know exactly what their money is doing. This knowledge and

understanding helps him/her feel more secure and less stressed.

2.1 FINANCIAL PLANNING PROCESS FOR AN

INDIVIDUAL/FAMILY

 Setting Up Goals
Goals are the milestones on a financial road map, without them, one will lose.
Set specific targets of what an individual wants to achieve and when he/she
wants to achieve those results. Be quantitative wherever possible. An individual
may dream of his/her goals but be in touch with ground reality. Not all can be a
Rockefeller and try to find which are the short-term goals and which are the

22
 long term goals. One’s goals may be spacious house, luxurious car, higher
education for children, peaceful retired life, wealth creation and so on.

 Prioritise The Goals

➢ Some goals may be more important than other. Prioritise them, so that
the major portion of one’s focus remains on most important goals. For
instance, one might like to acquire a house in the next three years.
This could mean an expense of around Rs 10 lakh as down payment.
This being a high-priority goal, so one’s investments should ideally be
focused more on this rather than, say, on retirement.

 Make Planning
This phase involves proper management and planning of the
following mentioned components to achieve desired goals.

➢ Investment
➢ Tax
➢ Insurance
➢ Retirement
➢ Estate
➢ Emergency fund
➢ Debt
➢ Charity
➢ Will

But, before management and planning of mentioned components

one should go through the following steps:

(A) One Should Compare His/Her Existing Situation In

Accordance With His/Her Desired Goals :
One should realistically see his/her current situation and
compare his platform with his/her desired goals and also tries
to find out that the goal setting should be rational.

(B) Prepare And Analysis The Budget :

One should prepare his/her family’s income and expense
budget. One should also try to elaborate deep study of source
23
 of total income and give more analytical focus on expenses.
He/she should find out what should be access income to
expense, say saving and also focus on that it would be
sufficient for management as per goals.

(C) Make Necessary Adjustment :

If the saving is not with the alignment of desired goals then
one should have three options are as follows:

First, one can try earning more.

Second, one could try and increase his/her work life.

Third, making some compromises in terms of reducing

current unnecessary expenses or re-evaluates his/her
goals.

 Execute Plan Early And On Time In Life

Financial planning is a perishable commodity. What is
available today may be gone tomorrow. Speed and timeliness
of execution makes a difference between a millionaire and an
average performer.

There is a myth that financial planning is for the elderly. The

earlier and individual start financial planning the better of
him/her will be achieving his/her life’s goals. It’s more
advantageous to saves small amount of money regularly at a
younger age than to wait till one is much older to save larger
sums.

 Review The Plans

Once the plan has been implemented, it requires a periodic
review. This is imperative to adjust the plan to the changing
situation in one’s life, financial situation and income levels.

24
2.5 IDEAL APPROACH TO FINANCIAL PLANNING

To achieve the best results from financial planning, one should need to follow the
below mentioned points as The Ideal Approach to avoid some of the common
mistakes.

 Set Measurable Financial Goals

Set specific targets of what an individual wants to achieve and when to achieve
it. For example, instead of saying, “I want to give my children good education”
or “I want comfortable retired life”, but one needs to quantify what
“comfortable” and “good” means; so that he/she will know when he/she have
reached the goals.

 Understand The Effect Of Each Financial Decision.

Each financial decision taken by an individual can affect several other areas of
his/her life. For example, an investment decision may have tax consequences
that are harmful to one’s estate plans. Or a decision about child’s education may
affect when and how one can meet his/her retirement goals. Remember that all
financial decisions are interrelated.

 Re-Evaluate Financial Situation Periodically.

Financial planning is a dynamic process. The financial goals may change over
the years due to changes in one’s lifestyle or circumstances, such as an
inheritance, marriage, birth, house purchase or change of job status. Revise the
financial plan as time goes by to reflect these changes so that he/she stays on
track with his long-term goals.

 Start Planning As Early As Possible.

Don’t delay the financial planning. People, who save or invest small of money
early, and often, tend to do better than those who wait for it in life. Similarly, by
developing good financial planning habits such as saving, budgeting, investing

25
and regularly reviewing the finance early in life, such individuals will be better
prepared to meet life changes and handle emergencies.

 Be Realistic In The Expectations.

Remember that the goals are realistic and attainable, other wise the entire
exercise will be futile and frustrating.

For instance,
➢ A Mercedes S-600 costing Rs. 1 Crore may be an object of one’s desire
but at a salary or income of Rs. 6 lakh per annum, it may not be a feasible
goal.
➢ One goal might to send his/her to medical college. If after
factoring in inflation from right now, one expects this to
cost Rs 40 lakh when the child is 18, so discounting the
Rs 40 lakh at expected inflation rate; that is the amount
one have to save of invest for.

 One Should Be In Charge.

If an individual is working with a financial planner, he/she should understand

the financial planning process and what the planner should be doing. One
should provide the planner all the relevant information of his/her financial
situations. One should ask questions about the recommendations offered to
him/her and play an active role in decision- making.

CHAPTER-3
26
 DETAILS TO BE

CONSIDERED BEFORE

DOING

FINANCIAL PLANNING

CHAPTER CONTENTS

3.1 Family Details…………………………….

3.2 Assets And Liabilities……………………..
3.3 Cash Flow Budgeting…………………………
3.4 Other Important Parameters…………………..

3.1 FAMILY DETAILS

27
While doing financial planning one should consider the whole family, and so that one
should consider and analyze the following details of a family;

 Age And Size Of Family :

The size (numbers of family members) of family is the most concern things;
simultaneously the age of each family member is also one of the important
things as the decisions regarding income and expenditure depend on them.

 Health Status Of Family Members :

Health status includes current health status as well as possible future status and
health history of a family. It also considers the hereditary diseases like diabetes,
heart problem, asthma, along with habits like smoking, chewing tobacco and
any other habits that affect health now or in future. These things give direction
to plan for health related expenses or insurance premiums.

 Family Structure And Life Style :

It means family situation like joint family, nuclear family, widow etc. that also
provide situational guidelines while doing financial planning. Another main
thing is the life style of family. It could be orthodox, modern, conservative, and
extravagant.

 Employment Information :

Employment information focus on individual’s/family’s value, life style,

potential future earnings etc. It also includes status of individuals like Fully
Employed, Part Time, Self Employed, Unemployed, Early Retired or Student.

3.1 ASSETS AND LIABILITIES

28
The another important aspect that should be considered while doing financial planning is
give detailed focus on Net Worth and also sort out income producing and non income
producing assets. This exercise gives benchmark for other way of income generation,
maintenance of asset, liability/debt management etc.

 Here ASSETS means

NET WORTH = TOTAL ASSETS – TOTAL LIABILITIES

Non-Income Producing Assets

Main Residence
Holiday Home
Farm & Land
Business Interest
Collectibles & Commodities
Motor Vehicles etc.

Income Producing Assets

Investments
Rented Land, House, and Car etc.

Liabilities
House Mortgage
Personal Loans
Vehicle Loans
Any Other Borrowing Or Debts

3.1 CASH FLOW BUDGETING

29
Detail information of income sources and expenses of a family reflect requirement of day-
to-day cash requirement, expense cutting and increasing savings for investments.

One should look for the household & other expenses, which give the idea for required
cash outflow for different span of time.

And also look for sort-out sources of income of family that gives idea of total cash
inflow per annum.

Means TOTAL INCOME – TOTAL EXPENSE = TOTAL SAVINGS

( which is for Liquid or Investment Accordingly )

( The above-mentioned list of Expenses and Income are gives in Annexure – 2 and 3
respectively.)

30
3.2 OTHER IMPORTANT PARAMETERS

Here one can sort-out various other parameters which vary and affect different person
differently as per his/her belief, nature and status, while dealing with financial matters,
which are as follows:

➢ Personal Attitude & Approach Towards Investment

➢ Risk Taking Ability
➢ Inflation
➢ Tax Advantage/Liabilities
➢ Security/Volatility
➢ Liquidity/Flexibility
➢ Income & Growth
➢ Investment Experience
➢ Pension Plan
➢ Investment Time Horizon

 WILL

A will is the most important financial planning tool for most people. Many
people fail to make a will or fails to keep their will up to date to reflect their
current circumstances. Detail discussion follows in chapter no 5 & topic 5.5.

So, one should go through above-mentioned parameter if found necessary to

him/her.

31
 CHAPTER-4

ROOTS

OF

FINANCIAL PLANNING

CHAPTER CONTENTS

4.1 Desired Financial Goals………………….

4.2 The Inflation Devil………………………….
4.3 Rapid Growth Through Power Of Compounding.
4.4 Realistic Future Picture……………………

32
 4.1 DESIRED FINANCIAL GOALS

“DESIRED FINANCIAL GOALS ARE THE MILESTONE ON A

FINANCIAL ROAD MAP; WITHOUT THEM ONE MAY
LOSE.”

As an individual thinks, it’s time to start planning to manage his/her finances like
savings, investments, or taxes. But first, there is a crucial exercise one should
need to carry out is: Determining the financial goals or to say – “Desired
Financial Goals.”

The goals are the milestones and an individual hopes to reach at the milestones in
life with the help of his/her existing and proposed financial resources. These
milestones could range from buying a microwave in the next six months to
ensuring a regular income at retirement and may also cover wealth creation for
next to next generation. Even an individual should identify his/her personal
financial goals as well as his/her family’s goals.

Generally the desired financial goals are :

 BUYING A HOME
 CHILDREN’S EDUCATION & MARRIAGE
 MEETING DEBT OBLIGATION & OTHER LOANS PAYMENT
 PEACEFUL RETIREMENT LIFE
 SAVING FOR CHILDREN
 MINIMIZING TAXES
 ESTATE MAXIMIZING
 LUXURIOUS CAR
 WORLD TOUR

These may be common goals in any individual’s life; there is nothing new for
anybody. The main thing is:

“How one can make sure that he/she does not just setting goals, but reaching them
as well.”
33
The following four points to be kept in the mind while developing and approaching
desired financial goals.

1) Plot The Goals :

One should write down his/her goals in proper manner in physical form. Means
the vocalizing is not enough. He/she should note down the goals, goes through
them and give them the due seriousness.

2) Be Specific :
One should not shot gun in air. Means goals need to be measurable. The fancy
car is not anybody’s specific goals. If he/she should target for ‘a blue Skoda
Octavia’ and so that he/she has a savings of Rs. 11 lakh is more specific target
in terms of money.

3) Visualise The Dreams :

An individual should not say: “We want an annual vacation.” He/she should say
: “We want a skilling holiday in Manali.”

These are the examples; that one should follow the mentioned example and
should adopt such visualize approach towards his/her desired goals, which can
help an individual to take an initiative towards goals.

4) Time Horizon :
The most important things are that the desired financial goals should be also
have particular time horizon. The list of desired goals may be long one, so for
better achievement of any goal at expected time and also for convenience, one
should classify the desired goals into three main time-spans.

➢ Short-Term Goals :
Short-term goals are those goals that have to be reached within a year. A
Vacation at Manali in very next year, buying a home theatre within in
this Diwali, may figure in the list of short-term goals.

➢ Medium-Term Goals :
Medium-term goals are those goals that have to be targeted to achieve in
one to five years away. Acquiring a house or a luxurious car can be come

34
 in the list of medium-term goals for the premium class or upper middle
class.

➢ Long-Terms Goals :
Long-term goals are those goals that are targeted in the more than five
years span of time. Children’s higher education in abroad, providing for
dependent parents and retirement may figure in the list of long-term
goals.

1) Review The Desired Goals And Give Priority :

One should review his/her goals regularly at particular span of time. He/she
tries to know that his/her goals, planning and financial situation are up to mark.
If he/she finds that some changes or alteration is required then does
accordingly. The most important thing is that he/she gives priority to those
goals, which are most important & necessary & risk appetite.

4.1 THE INFLATION DEVIL

“ONE MAY GO OUT OF SCREEN BUT THE

INFLATION WON’T.”

Inflation, the rate at which the general level of prices for goods and services rises
can steadily erode the purchasing power of income. That is why one should
invest a portion of his/her savings at a rate higher than the inflation rate to
recover the loss of purchasing power. This means that over time a rupee will be
able to buy a lesser amount of goods and services. If the inflation rate is 5%, then
Rs.100 worth of goods will cost Rs.105 after a year.

THE VALUE OF RS. 1,00,000 AFTER MENTIONED YEARS

INFLATION RATE ( % PER ANNUM )
No. Of Years 2% 3% 4% 5% 6%

0 100000 100000 100000 100000 100000

35
 5 90573 86261 82193 78353 74726
10 82035 74409 67556 61391 55839
15 74301 64186 55526 48102 41727
20 67297 55368 45639 37689 31180
25 60953 47761 37512 29530 23300
30 55207 41199 30832 23138 17411

So, one should consider Inflation- “The Devil” as an indispensable factor while
doing financial planning. To determine the future value of an individual’s nest-egg
or proposed nest-egg, one should consider the effect of inflation. Because if one fails
to consider the impact of inflation, the inflation will gradually erode an individual’s
standard of living as specially retired life.

For instance,
If we consider the inflation rate 6.5% and an individual of the age 30 today feels that
his/her retirement income requirement will be Rs.10,000 per month, now applying
the inflation rate, at the age 60 when he/she will retired he/she required Rs.66,143
per month. It is also important to consider that Rs.66, 143 per month is at the
beginning of the retirement period. Hence the planning must consider periodical
increase in income to balance the effect of inflation.

36
4.3 RAPID GROWTH THROUGH POWER OF
COMPOUNDING (WEALTH CREATION)

Every day that an individual’s money is invested, is the day that his/her money is
working for him/her.

As an investor, one would always think of ways to maximize the wealth that
he/she already have, or in the event that he/she would seek to accumulate the
maximum possible. It is an important, but not so implied, a need. That may be
wealth creation. Basically it is in the simplest sense a desire to be rich, a desire to
have control over the aspects that affect financial life, a desire to command
respect with the control of money power. So is it really a wrong thing to have a
desire such as that? Absolutely not, if a wealth creation goal is set with the noble
perspective of making conditions better for own self, and through means, which
necessitate a use of some investing and discipline.

THE “CROREPATI” :

For centuries, the Indian people could not even think about the very existence the
more possibility- of an Indian Dream. But ironically, it was up to a former US
President to define it. As a Bill Clinton put it in a speech- the dream of every
Indian is to become a “Crorepati.” That is the difference between India at
independence and the new India, at the turn of the millennium. What was once
not even a possibility has now been given a shape- a magic figure- Rs.1 Crore.

How does one go about achieving this figure? Surprisingly, the road to Rs.1 crore
is not as difficult as it may seem. The answer lies in a planned and disciplined
approach towards savings and investment. From the age of 25, any person
would invest monthly, an amount as low as Rs.4360 at 8% per annum

37
 (Monthly compounding basis), he/she will be Crorepati at his/her
retirement age (60 year). The secret lies in the power of compounding where
interest on re-invested interest ensures that individual’s savings grow at a
geometric rate rather than at an arithmetic rate. The other thing at work is the
magic of systematic investments. Rs.100 invested monthly would grow to an
amount larger than a one-time Rs. 1,200 investments at the end of the year simply
because of the interest earned on Rs.100 every month. Here, Rs.100 would grow to
Rs.1,245 at year-end at an interest rate of 8%.

Naturally, the value of Rs. 1 crore today would not be the same as that of Rs.1
crore 35 years hence or even 5 years down the line because of inflation. However,
the same strategy of planned and systematic investments, although with somewhat
higher amounts of monthly savings, will ensure that the amount will be in the hand
of an individual at 35 years hence can still buy most of what a Crore can buy
today.

If an individual wants to be a “Crorepati” after mentioned year, then he/she has to

invest mentioned amount at 8% Rate Of Return at monthly basis.

Years 10 15 20 25 30 35
Rs. 54,665 28,900 19,978 10,515 6,710 4,360

4.4 REALISTIC FUTURE PICTURE

Another most important scenario in financial planning is trying to see “Realistic

Future Picture.” While doing financial planning one should give more focus on
future; so that he/she takes realistic future picture by eliminating or managing the
negative factors like inflation, falling interest rate, scams and takes advantages of
systematic cutting of unnecessary expenses, regular saving and investment. But
what would be the benchmark in future, particularly at the time of retirement that
picture one can see by only doing financial planning.

38
 For instance,

How much money as a principle will one need at the age of 60 years. That is
shown in following table (Based on the capital relation method), which uses
interest return only to provide income. Principle is not liquidated and remains
available.

Monthly Capital Needed At Various

Retirement
Income Needed @6% @8% @ 10 %
In Future
Rs. 15,000 Rs. 30,00,000 Rs. 22,50,000 Rs.18,00,000

Rs. 20,000 Rs. 40,00,000 Rs. 30,00,000 Rs.24,00,000

Rs. 30,000 Rs. 60,00,000 Rs. 45,00,000 Rs.36,00,000

39
 CHAPTER – 5

COMPONENTS

OF

FINANCIAL PLANNING

40
 CHAPTER CONTENTS

5.1 Investment Planning………………………….

5.2 Tax Planning………………………………….
5.3 Insurance Planning……………………………
5.4 Retirement Planning…………………………..
5.5 Estate Planning & Will………………………..
5.6 Emergency Fund Planning…………………….
5.7 Debt Planning………………………………..
5.8 Charity Planning……………………………..

COMPONANTS OF FINANCIAL PLANNING

To put a viable financial plan, one should first get the big picture. That is
Where the pyramid comes in. First, look at the base upon which all
individual’s finances rests. The move up in layers till one reach the apex.
One should look his/her finances in this structure.

Most of the people are generally doing is – ad-hoc “Investment Plannimg”

only. Here we have mentioned components of a ‘Planned’ approach to an
individual’s ‘entire’ financial life; say- insurance, taxation, housing,
retirement, estate planning and so on. An individual has to plan before doing
any things, which is concerned with his/her money. For instance, before saving
an individual should know how much and for what goals he/she is saving. The
goals could be either buying a house or a car, education of children, getting
them married, going on vacation, and finally, having a comfortable
retirement. These all-financial matters need involvement or to say integration
of following tools or to say components as follows:

➢ INVESTMENT PLANNING
➢ TAX PLANNING
➢ INSURANCE PLANNING
➢ RETIREMENT PLANNING
➢ ESTATE PLANNING & WILL

41
 ➢ EMERGENCY FUND PLANNING
➢ DEBT PLANNING
➢ CHARITY PLANNING

5.1 INVESTMENT PLANNING

Investment means putting money to work to earn more money from it.
If done wisely, it can help to meet the financial goals.

One does not require being wealthy to be an investor. Investing even a

small amount can produce considerable rewards over the long term,
especially if done regularly. But one need to make decisions about how
much he/she wants to invest and where to invest it.

Investment planning is necessary for all individuals to achieve their

financial goals. One has to plan his/her limited resources to avail the
maximum benefit out of them. People should do investments to fulfil
major objectives like :

5.1.1 Objectives Of Investment Planning

➢ To earn more income

➢ To meet required liquidity
➢ To reduce tax liability
➢ To get regular adequate income
➢ To ensure smoother retirement life
➢ To create substantial corpus for next generation ( Wealth Creation )

Thus, Investment planning is the most important part of financial

planning, which is nothing but a holistic approach to meet life goals.
42
The investment options depend on personal circumstances as well as
general market conditions. For the better result of investment exercise one
should follow the following principles :

5.1.1 Five Important Investment Planning Principles

 Start Early
One should start from Today, Because Tomorrow Never Comes.

 Regular Investing
As Regular As One’s Salary.

 Allow Planning
Debt + Equity ( Optimum Combination )

 Save Plus Invest

According to, Safety + Liquidity + Tax Benefits

 Proper Risk Management

Diversification Of Investments With Regular Monitoring

5.1.1 Cash Flow Planning/ Regular Income Planning

Cash Flow Planning/Regular Income Planning is the proper planning of the flows of
one’s money. In other words, it refers to the activity of planning out the flows of
money in such a manner that it becomes easy for an individual to meet his/her
requirements as and when they arise.

So does it involve looking at future cash flows/regular income only? Not really, One
should always do a cash flow for himself/herself as on date, and he/she will realize
that he/she could have a potential savings amount within each month of the working
life. This is the amount that he/she should look at saving for meeting financial goals.

43
 Apart from the above, one should also look towards making a cash flow/regular
income for the same to what will be needed to withdraw in order to accomplish
objectives.

Hence, what a Cash Flow Plan/Regular Income Plan does is that it brings an
individual face to face with what one should ideally be saving, and investing in a
systematic and regular manner, and what would it mean to him/her to withdraw from
his/her portfolio after a couple of years. It brings down in numbers what the
financial future has in store for an individual, and gives a clear view (as is possible
with inflation and the interest rate scenario)

Cash Flow Planning/Regular Income Planning is the first thing that should be done
prior to starting an investment exercise, because an individual will be in a position to
know how his/her finances look like, and what is it that him/her can be invested
without a strain. It will also enable one to understand if a particular investment has
the specific feature of maintaining his/her flows as and when they want them.

 Need Of A Regular Income :

Simply put, for the same reason that there are expenses that happen regularly too!
Many times we look at investments as a means to supplement the incomes that is
being earned by us through our service or profession.

There could be events like receiving a lump sum like a bonus, which could be used
to add on to the income flows in the coming period. Or one could consider keeping
retirement funds in such a manner that it generates an income that suffices the needs.

Whatever are the circumstances or need, the relevance of a regular

return can never go down. In many case the regular returns are the
means to constant ‘Profit booking’, if one was to go on and try and
draw a conclusion.

Hence, in other words, regularity of income is the must for a

replacement as well as supplementing of income need of individuals.
For a regular income planning, it is advisable to get into investments,
44
 which generate incomes regularly, and consistently. Because the cash
flow depends on the income that is generated, the relevance of a
proper plan to get regular returns/incomes can never be reduced.

5.1.4 Basic Criteria To Considered For Investment

The right investment is a balance of following five things.

 LIQUIDITY :
It deals with the accessibility of money. It means an investment can be easily
converted to cash. A part of invested money must be available to cover any
financial emergencies.

This is extremely relevant to consider this if one is to look at a scenario, where

he/she would like to keep a portion of his/her portfolio a liquid. Imagine a
situation like this…. An individual has some surplus money and wants to invest
it. Now he/she knows that he/she would need some of it in the next 3 to 4 years
for his/her daughter’s marriage, but what if the investment instrument does not
cater to the need of liquidity? So while choosing the investments, while
implementing plan, it becomes important to consider the liquidity criteria. If
one chooses to ignore the above aspect, he/she, may well end up picking up
some investments that do not meet his/her comfort factor, and the entire
planning process falls.

 RISK :
It deals with the amount of risk involved. The biggest risk is the risk of losing
the money invested. Another equally important risk is that investment will not
provide enough growth or income to offset the impact of inflation, which could
lead to a gradual increase in the cost of living. There are additional risks as well

45
(like decline in economic growth). But the biggest risk of all is not investing at
all.

 RETURN :
It deals with the incremental amount that can be expected to get back on
investment. Investments are made for the purpose of generating returns. Safe
investments often promise a specific, though limited return. Those that involve
more risk offer the opportunity to make-or-lose-a lot of money.

 TAXABILITY :
Whenever an individual considers an investments option, then he/she should
remember to evaluate the expected rate of return in real terms. In other words,
deduct The Tax Liability from the compound annual rate of return that one
expects from his/her investments.

For instance, say an individual is considering a Bank FD that promises him/her

a 6.5% annual rate of return over the next five years. Here the real compound
annual rate of return is only 3.5%. (Assumed inflation has no effect).

Let’s look at how one could improve his/her 8 % return. If he/she is willing to
take on a slightly higher level of risk, he/she could invest this money into an
income mutual fund with a dividend investment plan option. Such an
investment is likely to yield around 8 % post-tax return (since dividend income
from mutual funds is non-taxable). This would effectively result in a post-tax,
real rate of return of 8 % , far higher than the 3.5 % that the bank fixed deposit
would earn for he/she.

The above example highlights that taxes are important factors to consider while
evaluating investment returns and how a little more attention to the investment
decisions can result in a significant improvement in one’s financial health.

 CONVENIENCE :
The another things that most of the investor’s may do consider or act
accordingly while doing investments is – “Convenience” in terms of financial
product, services, or relation with product agent/broker and so on. Here
convenience in term of approach that may be easy to meet particular goals or
the activity concerned with financial goals.

46
5.1.5 Steps Of Investment Planning :

The following steps would enable an individual to get started on path to

becoming a successful investor.

1. Identify Financial Needs And Goals :

The starting point of a sound investment decision is to begin with a clear

understanding of financial needs and goals. Typically, any financial need or goal
would translate into determining the tenure of investment (investment horizon).
All investment needs and goals can therefore be translated into short-term (less
than 1 year). Medium-term (more than 1 year) and long-term (more than 5 years)
goals.

2. Understanding Investment Choices :

There are three basic investment categories: Equity, Debt and Cash. Any
investment can be classified into these categories. They are also known as three
basic asset classes. The key to investment success is in understanding how each
asset class performs over the various investment horizons, the choices within
each category and the risks involved in making investments decisions in each of
these choices.

47
Equity or stocks are ownership shares investors buy in a corporation. When one
makes equity investments. He/she becomes part-owner (to the extent of an
individual’s shareholding) of the company-invested in. However, there is no
particular rate of return indicated while investing. The current value of holding is
reflected in the price at which the stock/share is traded in the stock markets.
Hence, these constitute a relatively riskier form of investment.

Debt instruments or bonds are loans investors make to corporations and

governments. They promise a fixed return at the time of making the investment.
Also the promise of getting the money back is dependent on who is making the
promise. In case of the governments, the promise will certainly get fulfilled, but
if the issuer of debt is a company or an institution, the quality of the issuer needs
to be adjudged, to ascertain its ability to keep the promise. Debt investment,
therefore, provide with the promise that principal will be returned along with the
interest payable thereof.

Cash investment includes money in bank savings accounts and other liquid
investment options.

Asset Classes Example

Savings deposits in a bank.
Liquid Mutual Funds.
Cash O/D Against Long-term securities.
Precious Metal.
GOI Relief Bonds.
Public Provident Fund.
National Savings Certificate.
Debt Company Fixed Deposits.
Debt-Based Mutual Funds.
Debentures/Bonds.
Equity-based Mutual Funds.
Equity Stocks/shares issued by various
companies.

48
3. Decide an appropriate mix of various investment choices (Asset
Allocation Plan) :

Making an asset allocation plan is all about determining the proportion of

investments in each of the three basic asset classes. This is to be done on the
basis of pre-decided formula according to various investment approaches
discussed earlier i.e. aggressive, moderate and conservative. Whatever stage of
life an individual is at, one would need to invest part of his/her money for
security and liquidity, part of it for regular income and part of it for growth and
capital appreciation. The proportion however will vary based on individual goals,
time horizons available to meet those goals and one’s risk profile ( the tolerance
reaction to any down turn in the stock/debt markets). The key to investment
success lies in determining the appropriate mix of the above-mentioned
categories and not just the individual investments that are done within each
category.

4. Expenses which affect the yield of investment :

DIRECT EQUITY MUTUAL FUNDS OTHERS

BROKERAGE ENTRY LOAD ADVISOR’S FEE

DEMATE CHARGES EXIT LOAD FINANCIAL

PLANER’S FEE
OTHER EXPENSES RECURRING
EXPENSES

For instance,

49
 Here if an individual buys a scrip-say “Bhuvan Tripura Ltd.”; with an idea to
double his/her money. Here the bid price of her per share is only Rs. 0.45 and
he/she buys 100 shares, if the price of share goes to Rs. 0.45 to Rs. 0.90 then
his/her money will be double. Thus is the general consideration. But is it true?

“NO”

Any layman asks, “HOW?”

See the following;

PER SHARE (RS.)

PARTICULARS DEMATE TOTAL
(QTY) CHARGES RS.
TREADED BROKERAGE

BUY (100) 0.45 0.10 - 55

SELL (100) 0.90 0.10 25 55

PROFIT NIL

Here an individual sells for Rs. 90 of the share that he/she has already bought.
But both the items when trades take place buy and sell. The brokerage is Rs. 0.10
* 100 shares (2 times) = Rs.20. And Demate charge at the time of delivery is
Rs.25. Such a way he/she does not get any thing.

50
5.1.6 Risk vs. Return Relationship :

Risk v/s returns are essential for better investment planning as well as financial
planning. If an individual does not understand the risk v/s return relationship and
it’s importance, then it is quite likely that his/her investment returns will not
match his/her risk profile. Consequently he/she does not match his/her hard
earned money well and so a wasted opportunity, has even a small difference in
his/her investment returns (at the same level of risk) can make a BIG difference
to his/her financial wealth.

Every asset has risk attached to it.

And, the higher the risk, the higher should be its expected returns.

For most people who invest in shares there is a good chance that an individual
has heard someone say this before : ‘ Just by the blue-chip stock, there is no
risk at all.’ For most people who just put their money away in bonds or deposits,
one of the main reasons for this probably is – ‘ I don’t want to take any risk at
all, I just want my money safe.’

Is investing in bonds or deposits completely risk free? Or investing in blue-

chip stocks necessarily very low risk? Are these statements true?

“NO”

Whenever more than one outcomes is possible from an investment, there is

always some amount of risk only the level of risk is different as mention in above
figure. While investing, risk is measured to evaluate the kind of returns an
individual should expect from the investment. Or his/her expectations should be
based on the level of risk he/she can bear. In principle, the higher the risk, the
higher the returns that should be required. Empirically returns across various
assets classes show that the investment in equity shares give the highest level of
returns in the long term, followed by corporate bonds and deposits and lastly
bank deposits and government debt. Not surprisingly, the level of risk is also in
the same order.

Different types of risk that involved in any investment are as

follows :

51
  Credit Risk :
The risk is that the issuer of the security will default, or not repay the
principal amount. Such type of risk is there in corporate bonds etc.

 Liquidity Risk :
The risk is that the security is not saleable or tradable in the market, in
other words, money gets stuck unnecessarily creating an asset-liability
mismatch. ( Valid for bonds, stocks etc.)

 Market risk :
The risk is that financial markets are volatile in nature. Volatility means
sudden swings in value from high to low, or the reserve. The more volatile
an investment is, the more profit or loss one can make, since there can be a
big spread between what is paid and what it is sold for. But one also has to
be prepared for the price to drop by the same amount. Valid for stocks,
mutual funds etc.

 Interest Rate Risk :

This is part of market risk, which is valid for all market related debt based
investments. Depending on the interest rate movement in the economy, the
rates of interest on the investment instruments may go up or come down
resulting in a subsequent reverse movement of their prices, thus creating
big risk in times of economic uncertainty. (Valid for bonds, Government
securities, mutual funds etc.)

5.1.7 Investment Approaches :

The options, which one chooses to put money, reflects the investment strategy he/she
is using – whether he/she realize it or not. Most people adopt the following
approaches :

52
 Conservative portfolio approach & its suitability :
Take only limited risk by concentrating on secure, fixed-income
investments etc. this portfolio is suitable for an investor if he/she is over 50
and it would aim to keep his/her savings secure while at the same time
would generate enough income to help relax and enjoy retirement years.
Moreover, since source of income after retirement may be limited, the
savings would need to go a long way. And the small equity part can assist
in staying ahead of inflation.

CONSERVATIVE PORTFOLIO

CASH 10%

DEBT 60%

EQUITY 30%

 Moderate portfolio approach and its suitability :

Take moderate risk by investing in mutual funds, bonds, select blue chip
equity shares etc. this portfolio is suitable for an investor if he/she is within
35-50 years and is at peak earning years, might have to probably finance
child’s education and other social obligations. The extra debt portion will
take care of extra medium-term liabilities while equity piece continue to
provide the potential for long-term growth.

MODERATE PORTFOLIO

53
 CASH 10%

DEBT 40%

EQUITY 50%

 Aggressive portfolio approach and its suitability :

Take major risk on investments in order to have a high (above average)
returns like speculative or unpredictable equity shares etc. this portfolio is
suitable for young investors (less than 35 years), who are just starting out.
Early in profession, retirement is still a long way off. Probably just married
or planning a family, or perhaps building a home. The younger an investor
is, the greater is his/her ability to withstand higher risk. The younger an
investor is, the greater is his/her ability to withstand higher risk. The equity
part of the portfolio is meant for capital growth to meet the long-term goals
while the debt portfolio is to provide for medium term needs.

AGGRESSIVE PORTFOLIO

CASH 10%

DEBT 25%

EQUITY 65%

54
 ( The mentioned portfolio patterns should not be match to every one ; it
may be of other proportion of cash, debt and equity as per different
appetite towards risk-return and personal belief of his/her.)

Any exercise in investment planning is richer if an individual knows

his/her precise financial objectives and understand equally precisely the
nature of different investment instruments that an individual has
identified. It is also necessary for an investors to fulfill his/her investment
objectives requires careful selection of securities a diversification of risk,
and continuous supervision of portfolio to keep abreast of changing
economic and financial conditions. Knowledge, experience and training
are needed to construct a successfully administer an investment portfolio.
If the investor has adequate knowledge and experience to cope up with the
requirement of investment management, then he/she would generally
choose following direct and indirect options in relative proportion to make
wise and ideal investment.
5.1.7 The general classification of investment
options is as follows :

DIRECT INDIRECT
EQUITY DEBT OTHERS
P S
R E PPF EQUITY
I C GILT SEC. NSC DEBT
COMPANY DEBT INSURANCE &
M O
BANK FDS. OTHER
A N CPs.
POSS ETC. MFs.
R D BONDS
Y A
R
Y

55
(A) EQUITY INVESTMENTS

Generally the equity instruments have following attributes;

➢ Equity may give higher return than any other investment option with high
risk.
➢ Equity is also having high liquidity.
➢ In long term equity enjoys growth for good investment and also enjoys long
term capital gain; which is another plus point for equity to avoid greater tax
effect.

THUMB RULES

➢ Don’t be speculative.
➢ Don’t get panic when capital market crash, buy low & sell high (Regular
investment advisable)
➢ Invest for long term
➢ Go for growth, not for profit booking
➢ Invest in sector or company whose knowledge an individual have.

EVALUATION OF EQUITY SHARE INVESTMENT

Review:

➢ Industry profile
➢ Management
➢ Past history
➢ Takeover activity
➢ Company gearing
➢ Performance measures

(B) DEBT INVESTMENTS

56
Generally the debt instruments have following attributes;
➢ Regular/Cumulative Income
➢ Risk is lesser
➢ Some investment’s income are tax free or rebatable or deductable
➢ Some of these investments are rated by credit rating agencies for risk
assessing purpose.

 INSTRUMENTS IN THE INDIAN DEBT MARKET

The objective of the debt fund is to provide investors with a stable income
stream. Hence, a debt fund invests mainly in instruments that yield a fixed rate of
return and where the principal is secure. The debt market in India offers the
following instruments for investments by mutual fund.

➢ Certificate Of Deposit
Certificates of deposit (CD) are issued by scheduled commercial banks
excluding regional rural banks. These are unsecured negotiable
promissory notes. Band CD’s have a maturity period of 91 days to one
year, while those issued by FI’s have maturities between one and three
years.

➢ Commercial Paper
Commercial paper (CP), is a short term, unsecured instrument issued by
corporate bodies (public & private) to meet short term working capital
requirements. Maturity varies between 3 months and 1 year, this
instrument can be issued to individuals, banks companies and other
corporate bodies registered or incorporated in India. CP’s can be issued
to NRIs on non-repatriable and non-transferable basis.

➢ Corporate Debentures
Manufacturing companies usually issue the debentures with physical
assets, as secured instruments, in the form of certificates. They are
assigned a credit rating by rating agencies. Trading in debentures is
generally based on the current yield and market values are based on
yield to maturity. All publicly issued debentures are listed on
exchanges.

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➢ Floating Rate Bonds
These are short to medium term interest bearing instruments issued by
financial intermediaries and corporate. The typical maturity of these
bonds is 3 to 5 years. FRBs issued by financial institutions are generally
unsecured while those from private corporates are secured. The FRBs
are pegged to different reference rates such as T-bills or bank deposit
rates. The FRBs issued by the government of India are in the form of
stock certificates or issued by credit ti SGL accounts maintained by the
RBI.

➢ Government Securities
These are medium to long-term interest bearing obligations issued
through the RBI by the government of India and state governments. The
RBI decides the cut-off coupon on the basis of bids received during
auctions. There are issues where the rate is pre-specified and the
investor only bids for the quantity. In most cases the coupon is paid
semi-annually with bullet redemption features.

A large part of the trading is concentrated in those government

securities that are eligible for Repo transactions i.e. sale of a security
with a parallel agreement to repurchase the same at a future date. The
RBI acts as the depositary, its public debt office maintaining as SGL
account for various banks and financial institutions, and issues or
transfers the securities in the form of book entries made in SGL
accounts. If a fund does not have an SGL account, it may open a
constituent account with any RBI registered bank.

➢ Treasury Bills
T-bills are short-term obligations issued through the RBI by the
government of India at a discount. The RBI issues T-bills for different
tenures: 14 days, 91 days, 182 days and 364 days. These treasury bills
are issued through an auction procedure. The yield is determined on the
basis of bids tendered and accepted.

➢ Bank/Financial Institutional Bonds

Most of the institutional bonds are in the form of promissory notes
transferable by endorsement and delivery. These are negotiable
certificates, issued by the financial institutional such as

58
 IDBI/ICICI/IFCI or by commercial banks. These instruments have been
issued both as regular income bonds ad as discounted long-term
instruments (deep discount bonds)

➢ Public Sector Undertakings (PSU) Bonds

PSU Bonds are medium and long term obligations issued by public
sector companies in which the government share holding is generally
greater than 51%. Some PSU bonds carry tax exemptions. The
minimum maturity is 5 years for taxable bonds and 7 years for tax-free
bonds. PSU bonds are generally not guaranteed by the government and
are in the form of promissory notes transferable by endorsement and
delivery. PSU bonds in electronic form (demate) are eligible for Repo
transactions.

(B) MUTUAL FUNDS

The situations could vary as per age groups, mindsets and

risk-taking ability, but the solution, in each case wants
money to grow. Most of the investors don’t have sufficient
knowledge about different investment options, financial
instrument’s nature, market information, analytical skills and
therefore their funds are lacking proper management and
diversification to get market-linked return with flexibility as
well as liquidity.These kinds of investors should prefer
mutual funds to channelise their funds properly.

Mutual funds are the unique instrument that offers an

individual professional management, diversification,
fiexibility, liquidity and a chance to get market-linked returns.
Mutual funds are indeed the best tool for wealth creation.
Whatever other instruments can do, mutual funds can do too-
and more efficiently.

 Concept Of Mutual Fund

A mutual fund is a common pool of money into which investors place their
contributions that are to be invested in accordance with a stated objective.
59
 The ownership of the fund is thus joint or “mutual” the fund belongs to all
investors. A single investor’s ownership of the fund is in the same
proportion as the amount of his/her contribution to the total amount of the
fund.

 Advantages of Mutual Funds

If mutual funds are emerging as the favourite investment vehicle, it is
because of the many advantages they have over other forms and avenues of
investing, particularly for the investor who has limited resources available in
terms of capital and ability to carry out detailed research and market
monitoring. The following are the major advantages offered by mutual funds
to all investors:

1. Portfolio Diversification
2. Professional Management
3. Reduction/Diversification Of Risk
4. Reduction of transaction costs
5. Liquidity
6. Convenience and fiexibility

 Mutual Fund Classification

➢ OPEN-END FUNDS :
An open-end is one that has units available for sale and
repurchase at all times. An investor can buy or redeem
units from the fund itself at a price based on the net asset
value (NAV) per unit.

➢ CLOSED-END FUNDS :
Unlike an open-end fund, the ‘unit capital’ of a closed-end fund is fixed,
as it makes a one-time sale of a fixed number of units. Later on, unlike
open-end funds, closed-end funds do not allow investors to buy or
redeem units directly from the funds. However, to provide the much
needed liquidity to investors, many closed-end funds get themselves
listed on a stock exchange (s). Trading through a stock exchange enables
investors to buy or sell units of a closed-end mutual fund from each

60
other, through a stockbroker, in the same fashion as buying or selling
shares of a company.

➢ LOAD FUNDS :
Marketing of a new mutual fund scheme involves initial expenses. These
expenses may be recovered from the investors in different ways at
different times. Three usual ways in which a fund’s sale expenses may be
recovered from the investors are :

• At the time of investor’s entry into the fund, by deducting a

specific amount from his initial contribution, or
• By changing the fund/scheme with a fixed amount each year,
during the stated number of years, or
• At the time of the investor’s exit from the scheme, by deducting a
specified amount from the redemption proceeds payable to the
investor.

Funds that charge front-end or deferred loads are called

LOAD FUNDS.

SEBI has defined a “LOAD” as the one-time fee payable by

the investor to allow the fund to meet initial issue expenses
including brokers’/agents’/distributers’ commissions,
advertising and marketing expenses.

The load charged to the investor at the time of his entry into
a scheme is called a “Front-End Or Entry Load”. This is
the first case above. The load amount charged to the scheme
over a period of time is called a “Deferred Load”. This is
the second case above. The load that the investor pays at the
time of his exit is called a “Back-End Or Exit Load”. This
is the third case above. Some funds may also charge
different amounts of loads to the investors, depending upon
how many years the investor has stayed with fund; the
longer the investor stays with the fund, less the amount of
“Exit Load” he is charged. This is called “Contingent
Deferred Sales Charge.”

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 ➢ NO-LOAD FUNDS :
A no-load fund is one that does not charge a commission for entry or exit. That
is, no commission is payable on purchase or sale of units in the fund. Funds that
make no such charges or loads for sales expenses are called “No-Load Funds”.
So the advantage of a no load fund is that the entire corpus is put to work.

 MUTUAL FUND TYPES :

Funds are generally distinguished from each other by their investment objectives
and types of securities they invest in. We now look at the major types of funds
that are available under the general classifications:

A) By Nature Of Investments
B) By Investment Objective
C) By Risk Profile

According to the above mentioned Nature Of Investments, Investment

Objectives and Risk Profile, the types of funds are:

1) Money Market Funds

2) Gilt Funds

3) Debt Funds (Or Income Funds)

a) Diversified Debt Funds

b) Focused Debt Funds

c) High Yield Debt Funds

d) Assured Return Funds

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4) Equity Fund

a) Aggressive Growth Funds

b) Growth Funds

c) Specialty Funds

i. Sector Funds

ii. Offshore Funds

iii. Small-Cap Equity Funds

d) Diversified Equity Funds

i. Equity Linked Savings Schemes

e) Equity Index funds

f) Value funds

g) Equity Income Funds

5) Hybrid Funds

a) Balanced Funds

b) Growth-and-income Funds

c) Assets Allocation Funds

1) Commodity Funds

63
 5.2 TAX PLANNING

Tax planning isn’t just about saving tax, it’s not also about maximizing an
individual returns from investments. One should look for the best options in the
mart, which help one to do both.

Taxation is a fundamental element of virtually all financial planning consideration-

Investments, Retirement Planning and Estate Planning.

Theii primary objective of Taxation Planning is to ensure the utilization of all

available legal means to reduce or defer taxes. Accomplishing the objective oh tax
minimization requires familiarity with basic income tax concepts and approaches
to income Tax Planning.

Most of the people put their powers of deduction to the test as diligently as when
they sit down to plan their taxes. The financial year-end is fast approaching, and if
an individual haven’t made those tax-saving investments already. It’s time to get
cracking. There are two things an individual should keep clear in mind those are :

He/she will have to dig deep into his/her pocket to fund his/her investments. And
so an individual needs to comprehend the myrid tax laws, rules and amendments,
which help him/her to reduce their tax burden while investing or say through
investing.

Where the income levels exceed certain limits, tax Planning helps to reduce tax to
an individual but it may not be possible to completely avoid tax. The good news is
that proper Tax Planning will help to improve the efficiency of his/her
investments.

Also, since tax savings strategies in India are centered on making investments, it
helps an individual to save that much more every year. The news gets even better.
In India there is a system of progressive Taxation, where taxes are levied as per
slabs, and not at a flat rate. So an individual will find himself/herself in different
tax brackets depending on the total income that an individual earn which are as
follows:

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 Tax Slabs : Tax

Up to Rs.50,000 Nil

Rs. 50,000 to Rs. 60,000 10 %

Rs. 60,000 to Rs. 1,50,000 20% + 2.5 % surcharge

Rs.1,50,000 and above 30% + 2.5 % surcharge

Heads of income that are taxable are :

 Income from Wages, Salaries, Fees, Commissions and any other earnings
for services
 Business Income
 Income From Property
 Capital Gains
 Income From Other Sources (i.e. Interest, Royalty, Winnings)

An individual should try to take the maximum tax benefit from the following
options :

 Exempted Income
 Deductions (Standard Deduction, 80L, 80ccc(1), 80d)
 Rebates (Section 88)

1. Exempted Income

65
Exempt income refers to those amounts or classes of income which, although
received as income and so would otherwise be taxable, they are listed in the
legislation as exempt from income tax. Examples are :

➢ Some social security payments like interest on Public

Provident Fund (PPF), Employee Provident Fund (EPF).
➢ Interest on government of India Relief Bonds.
➢ Any Capital receipts from insurance companies.
➢ Interest on savings bank account with the post office.

2. Deductions (Standard Deduction, 80L, 80ccc(1), 80d,etc.)

A deduction is a reduction from assessable income of an
individual. Tax is levied on taxable income, which comprises

ASSESSABLE INCOME – ALLOWABLE DEDUCTION

Standard Deduction :
Salaries employees are issued a salary certificate by their employers in form 16.
Salaries employees are allowed a standard deduction at the rate of 33.33% of
salary subject to the maximum limit as under.

Assessable Income Standard Deduction

1. Up to Rs.1,50,000 Rs.30,000 or 1/3rd of the

salary which ever is less.

2. From Rs.1,00,000 – 3,00,000 Rs.25,000

3. From Rs.3,00,000 – 5,00,000 Rs.20,000

4. Above Rs.5,00,000 Nil

66
There are another deductions under sections 80L, 80ccc(1), 80D, etc.

3. Rebate (Section 88)

A rebate is a reduction from the tax liability of an individual. In essence, a rebate is

a form of tax credit that can be used to reduce the tax payable. It does not enter in
to the computation of taxable income.

Those eligible for section 88 benefits stand to gain even more, since principal
repayments of up to Rs.20,000/- a year are eligible for a rebate. Under section 88,
tax payers can invest up to Rs.1 lakh – Rs.70,000/- in a variety of eligible
instruments, and an additional Rs.30,000/- in infrastructure bonds- to claim a
rebate; alternatively, the entire Rs.1 lakh can be invested in infrastructure bonds.
The rebate is available at 15, 20 or 30 % depending on an individual gross total
income.

The following table shows the benefits and feature of various Tax- saving options :

INSTRUMENT TAX BENEFITS OTHER

FEATURES

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 Deduction u/s 80ccc from No assured
Pension Plans taxable income up to returns
Rs.1,00,000/- p.a.

Rebate u/s 88 on investment up Interest (8% now)

PPF to Rs.70,000/- revised every year

Rebate u/s 88 on investment up Equity linked,

ELSS to Rs.10,000/- higher risk; no
assured returns

Rebate u/s 88 on investment up Interest eligible

NSCS to Rs.70,000/- for additional
rebate

Infrastructure Rebate u/s 88 on investment up Shortest (3 year)

Bonds to Rs. 1 lakh tenure

Post Office Savings account interest tax- POMIS + RD

Deposits exempt; deduction u/s 80L for combo fetches
others with no TDS highest assured
returns
Life Insurance Differs from plan to plan and High (but no
Plan insurer to insurer assured) returns
on offer from
unit-linked plans.

 INVESTMENT RELATED TAX-BREAKS :

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 If an individual’s income is more than Rs.1.5 lakh and so, the government
provides some investment-related tax breaks in a mix of both long-term
retirement and medium-term saving options. To facilitate capital creation as
well as to make the right balance between maximizing returns in
investments in tax savings instruments with his/her need for cash to meet
daily needs.

➢ Pension Plans
➢ Public Provident Fund
➢ Equity Linked Savings Schemes (ELSS)N
➢ National Savings Certificates
➢ Infrastructure Bonds

5.3 INSURANCE PLANNING

Insurance, in its purest form, is a risk management tool, a security blanket. It

provides financial protection against unexpected events. When one buy insurance,
he/she effectively transfers a portion of his/her risk to the insurer. This protection
comes at a price, but it’s a fraction of what one might otherwise find an individual
burdened with. Whatever the life stages individual facing, the chances and the
changes, an individual must need insurance.

5.3.1 Need For Insurance

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 Risks and uncertainties are part of life’s great adventure – accident, illness, theft,
natural disaster- they are all built into the workings of the universe, waiting to
happen.

Insurance then is man’s answer to the vagaries of life. If one can not beat man-
made and natural calamities, well, at least be prepared for them and their
aftermath.

Insurance is a contract between two parties – the insurer ( the insurance company )
and the insured ( the person or entity seeking the cover ) – wherein the insurer
agrees to pay the insured for financial losses arising out of any unforeseen events
in return for a regular payment of “premium”.

These unforeseen events are defined as “risk” and that is why insurance is called a
risk cover.

Hence, insurance is essentially the means to financially compensate for losses that
life throws at people – corporate and otherwise.

The principle of insurance works on the concept of a large number of people

exposed to a similar risk making a contribution to a common fund. Those who
suffer losses due to the occurrence of these events are compensated for them from
this fund.

5.3.2 Comparison of Life Insurance with other option for savings :

“Life Insurance is the best vehicle with combination of risk cover

and gives tremendous return as wealth creation form.”

1. Protection
2. Liquidity
3. Tax Relief
4. Money when needed

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 5. Loans and mortgages available

1) Protection :
Savings through life insurance guaranteed full protection against risk of
death of the saver. In life insurance the full sum assured is payable with
bonus whenever applicable whereas in other savings schemes, only the
amount saved with interest is payable.

2) Liquidity :
Saving can be made in a relatively “painless” manner because of the easy
installment facility built into the scheme.

3) Tax Relief :
Tax relief in IT and WT is available for months paid by way of premium for
life insurance subject to IT rates in force.

4) Money When Needed :

A suitable insurance plan a combination of different plans can be taken out
of meet. Specific needs are likely to arise in future.

e.g. Children’s education

Start in life
Marriage Provision or
Periodical needs for cash over a stretch of time.

5) Loans And Mortgages Available :

Against the policy, loan from banks and other financial institutions are
sanctioned. Means loans is available against the mortgage of policy.

Since a single policy cannot meet all the insurance objectives, one
should have a portfolio of policies covering all the needs. So as
per the main factor, namely – age or say life cycle, the
circumstances are different for different time of span and so every
one needed different types of insurance as their profile which is

71
 very clearly shown in; Annexure – 4

5.3.3 There are mainly two types of Insurance

1. Life insurance
2. General Insurance

1. LIFE INSURANCE :

Life Insurance is mainly a risk management tool, meant to

offer financial protection to one’s dependents in the
unfortunate event of his/her death. But if an individual insure
adequately, his/her should enable their dependents, e.g. spouse,
children, parents to maintain their current life style and pursue
their life goals. Till such time as they are in a position to set up
an alternative income stream by themselves. That is the basic
purpose of life insurance. The various life insurance plans are :

 Whole – Life Plans

The only class of Insurance policies, which gives cover through the lifetime,
is a whole life plans. Typically, whole life plans are structure such that
policyholder has the option to pay premium up to a certain age (referred to
as the ‘maturity age’, which is generally 80-100 years) or for a specified
period. On reaching maturity age, the insurer gives insured, the option to
either continue with the cover through life time (for which no further
premiums will have to be paid) or encase the maturity benefits (sum assured
plus bonuses). Some insurer do gives the option to encase the bonus during
the later years, if it is desired.

 Endowment Plans
Endowment plans cover the risk of death, as well as it offers some return on
the premiums paid by an individual. So, if the person dies during the policy
term, his/her nominee gets the sum assured plus some returns. If the person
survives up to the policy term, then also he/she will get the sum assured and

72
 returns back. As much as this “money if one die, money if one live”
philosophy is an enticing proposition, it comes at a price. High premiums,
which drag down the returns from endowment plans, to barely 4-6 % a year.

In an Endowment plan, one pays premiums for pre-defined tenure and sum
assured. The premium depends on one’s age. A portion of this premium is
paid by an individual is invested by the insurer on him/her behalf.

There are two types of endowment plans, with the policyholder a share in
the insurer’s profits or not.

Without Profit Plans : These endowment plan don’t offer a share in the
insurer’s profit available for a lower premium. They are structured in such a
way that if one outlives the
policy term, one get back the sum assured and a nominal return on
investment termed as ‘loyalty additions’. This is basically a token one-time
payout, expressed as percentage of the sum assured, made to an individual
staying in the plan through its term.

With Profit Plans : With profit endowment plans offer relatively higher
returns than without profit plans, by sharing with the policy holder and the
profits earned by insurer from year to year. Depending on whether the return
carries assurances.

 Money Back Plans

Money back plans are variants of endowment plans, with one basic
difference. Unlike endowment plans, where the survival benefits are
disbursed at the end of a policy term, the payback in money back plans is
staggered through the policy term. Typically, a part of the sum assured is
returned to an individual at periodic intervals through the policy tenure.

 Unit Linked Insurance Plans

A unique insurance plan where an individual gets freedom about his/her
money that where should his/her money should be invested. By the nature of
unit linked insurance plans are made for individuals who understand
investing and the stock market but prefer to leave it to the experts to do
active money management; they are prepared to forfeit assurances on returns

73
 for a chance to take home more than what a conventional endowment plan
would offer.

Unit linked plans also enable an individual to periodically monitor the

performance of his/her investment. Insurers declare the NAV of the various
plans periodically generally once in three months. After a lock- in period i.e.
generally one year an individual can withdraw his/her units anytime, in part
of in full at the then prevailing NAV. His/her life cover will be reduced
accordingly there is also facility of incremental investments any time, and
add a corresponding amount to his/her life cover.

 Pension Plans
Pension plans are such investment options, which lets an individual to set up
an income stream in his/her post retirement years by his/her routing savings
through an insurer, who invests it on his/her behalf for a fee. The precise
returns an individual will get depend on several factors: the age when an
individual begin investing, the contribution that an individual makes, the
investment preference based on risk profile, the age at which an individual
wants the money to start coming back to him/her, and the number of years
for which he/she wants the returns.

Pension plans facilitate disciplined, long term investing one of the pillars of
wealth creation. Each year, an individual set aside a certain, pre- specified
sum towards his/her retirement fund. This money stays invested for a long
period of time, reaping the benefits of compounding.

 Annuities/Children’s Policy
Here basically the nominee receives a guaranteed amount of money at a pre-
determined time and not immediately on death of the insured. On survival
the insured receives money at the same pre-determined time. These policies
are best suited for planning children’s future education and marriage costs.

Today, Life is highly competitive, education and setting in life entails high
costs. Parents needs, therefore to make provision in advance, for good
education for their children. Children also need financial support for
entering business/career.

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 In the event of unfortunate death during the term, after commencement of
risk but before maturity, sum assured becomes payable together with
guaranteed addition irrespective, of installment benefit received earlier.

 Term Insurance Policy

A term insurance plan is a pure risk cover for a specified period of time. It
means, the sum assured is payable only if the policyholder dies within the
policy term. For instance, if a person buys a Rs. 2 lakh policy for 15 years,
his family is entitled to the money if he dies within that 15 yaer period.

• What if he survives the 15 year period? Well, then he/she is not

entitled to any payment; the insurance company keeps the entire
premium paid during the 15-year period.
• So, there is no element of savings or investment in such a policy. It is
a 100 per cent risk cover. It simply means that a person pays a certain
premium to protect his family against his sudden death. He/she
forfeits the amount if he/she outlives the period of the policy. This
explains why the term insurance policy comes at the lowest cost. In
recent times, this kind of a policy hasn’t found too many takers.
Which is why insurers now offer this as a rider to other products; so,
• Life insurance with no investment component.
• Contract cover the event of death within a specified period (hence
often referred to as temporary insurance)
• Pays an agreed lump sum on death.
• No surrender value.

1. GENERAL INSURANCE :

Every asset has a value, and the business of general insurance is related to the
protection of economic value of assets. Assets would have been created by the
efforts of owner, which can be in the form of building, vehicles, machinery, and
other tangible properties. Since tangible property has a physical shape and
consistency, it is subject to many risks ranging from fire, allied perils to theft
and robbery.

Concepts of insurance have been extended beyond the coverage of tangible

asset. Now the risk of losses due to sudden changes in currency exchange rates,

75
 political disturbance, negligence, and liability for the damages can also be
covered.

But if a person judiciously invests in insurance for his property prior to any
unexpected contingency then he/she will be suitably compensated for his loss as
soon as the extent of damage is ascertained.

The General Insurance Policies are:

➢ Property Insurance
The home is most valued possession. The policy is designed to cover the
various risks under a single policy. It provides protection for property
and interest of the insured and family.

➢ Health Insurance
It provides cover, which takes care of medical expenses following
hospitalization from sudden illness or accident.

➢ Personal Accident Insurance

This insurance policy provides compensation for loss of life or injury
(partial or permanent) caused by an accident. This includes
reimbursement of cost of treatment and the use of hospital facility for the
treatment.

➢ Travel Insurance
The policy covers the insured against various eventualities while
traveling abroad. It covers the insured against personal accident, medical
expenses and repatriation, loss of checked baggage, passport etc.

➢ Liability Insurance
This policy identifies the Directors of officers or other professionals
against loss arising from claims made against them by reason of any
wrongful act in their official capacity.

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 ➢ Motor Insurance
Motor vehicles act states that every motor vehicle plying on the road has
to be insured, with at least liability only policy. There are two types of
policy one covering the act of liability, while other covers insurers all
liability and damage caused to one’s vehicles.

Since a single policy cannot meet all the insurance objectives, one
should have a portfolio of policies covering all the needs.

5.4 RETIREMENT PLANNING

“ I don’t want to work for money, I want money to work for me.” This should
be the motto.

For most of us “Retirement is a 10 letter word that conjures images of sitting in the
garden of a house with partner for life, playing with the grand children, or hearing
the sounds of their laughter as one read the morning news paper. No more troubles
in the world, no more effort to overcome the many obstacles that come in
everyone’s life, just the joy of knowing that have arrived into this heavenly state of
peaceful bliss – of Financial Nirvana.

The big question : How to start with it? If one is in the late twenties/early thirties,
retirement may be the last thing on mind. Rightly so. But if he/she thinks he/she
has a log way to go for to plan for requirement, he/she should think again. The fact
of matter is that it is never too early to prepare for retirement, especially if he/she
wants to maintain the same standard of living that one would have got accustomed
to by then.

Let us take a hypothetical example. Consider an individual is of 35 years age and

earning Rs. 3 lakhs per annum. His/her salary grows at 5 % per annum and he/she
plan to retire after 25 years. Under these circumstances, assuming the post
retirement would be 60 % of his/hers last annual income ( Rs. 10 lakhs approx.),
He/she would need about Rs.6 Lakhs per annum after retirement. To achieve this :
He/she needs a retirement corpus of 75 lakhs assuming he/she earns a return of 5
% per annum over a period a 20 years. To meet this goal, he/she would have to

77
invest more than Rs. 9,000 per month at 7 % per annum for next 25 years. Inflation
and tax implications have not been considered for simplicity.

There are many reasons for the working individuals to insure their
future with foolproof security and attractive returns : emergence of
nuclear families and its attendant insecurity, increasing
uncertainties in personal and professional life, the growing trends
of seeking early retirement and rising health risks. Failing interest
rates and the sustained increase in the cost of living make it a
compelling case for individuals to plan their finances to fund their
retired life.

Generally, there are two distinct categories of populace who want

avail the benefits of retirement planning. An individual’s needs and
preferences depend on which category he/she is in. One’s
retirement plan will be made as per his/her category and
preferences.

5.4.1 Concept Of Retirement Planning

In simple words, Retirement Planning means making sure one will have enough
money to live on after retiring from work. Retirement should be the best period of
one’s life, when an individual can literally sit back and relax or enjoy life by
reaping benefits of what he/she earn in so many years of hard work. But it is easier
said than done. To achieve a hassle-free life, one need to make prudent investment
decisions during working life, thus putting hard earned money to work for in
future.

Importance Of Retirement Planning

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 India, unlike other countries, does not have state-sponsored social security for
the retired people. And after several decades when pensions provided many
people with a large chunk of money they needed to live comfortably after they
retired, things are changing. While one may be entitld to a pension, or income
during retirement, in the new economic era, individuals are increasingly likely
to be responsibly for providing for their own needs.

“PLAN NOW, RETIRE RICH”

Ideally, an individual should start planning for his/her sunset years; from the
scratch of he/she starts earing.

It is not about quitting work today; it is about giving him/her options for
tomorrow. Option that will mean an individual can well and truly stop working
eight hours an day at an age when the spirit may be willing but the flesh is
certainly weak. Look at Retirement Planning as preparing for Financial
independence. Something that will allow an individual to lead the life he/she
wants to when he/she is 60 to 75 or more than. And it should be comfortably
and without compromising on basic values.

The First Thing;

As necessary, what is an individual goal? It is financial security, to provide a
lump sum or an income stream at the end of an active career that will take care
of all his/her financial needs for the rest of his/her non-working life. That kind
of goal means Retirement planning has to begin as soon as an individual begin
work. It involves putting away money in a systematic manner into assets-
financial or real-that will pay off when an individual no longer can or want to
use his/her physical or mental faculties to fend for own and his/her dependents.

The Second Thing;

How much money an individual need for this goal that could be two years or 40
years away? Individual needs differ, but it is likely that he/she wants to
continue the standard of living that he/she is used to. It is important that an
individual will enjoy traveling sleeper class if he/she has been used to second-
class AC travel all his/her working life.

A Rough rule of thumb say that an individual need about 80% of his/her current
income to live on when he/she retired; here 80% does not mean the 80% of

79
his/her current income but the future value’s 80% of his/her current income. An
individual’s expenses will be much lower since debts like home and car loans
will be paid off, the children will be independent, and work-related expenses
like commuting, clothes or eating out will be much lower. And he/she will
spend more on utilities-AC, fan, phone – since he/she is home all day; on
medical bills since old age brings on a host of problems and on medical
insurance since the premiums for older people are higher.

5.4.4 Countdown To Retirement

The circumstances and strategy of an individual’s earning phase to retirement

are as follows that can help any one to reach better retirement.

 YOUNG ADULT (AGE 20S) :

Circumstances :

1. An individual has no dependants

2. He/she has taken car/bike loan
3. Investible surplus low

Strategy :

1. Life insurance needs low

2. Accumulate growth assets (Home, Stock, Mutual Funds etc.)
3. Aggressively as risk-taking ability is high at this stage

 YOUNG FAMILY (30S) :

Circumstances :

1. He/she has young children

2. Spouse may be dependent
3. He/she has taken home loan
4. Starts investing in earnest
80
 Strategy :

1. He/she should have adequate life insurance and asset

protection.
2. Continue aggressive wealth creation

 MATURE FAMILY (40S) :

Circumstances :

1. Higher education goal of grown-up children approaching

2. Home loan nearly repaid
3. Income peaking
4. Investible surpluses high

Strategy :

1. Life insurance needs now low as asset base builds up

2. He/she clears debts
3. Start derricking investments portfolio by deploying funds in safer
invts.

 EMPTY NESTERS (5OS) :

Circumstances :

1. Children are independent

2. Home loan repaid
3. No other debt
4. Investible surplus peak
5. Preparing for liquidation

Strategy :
81
 1. Divert new surpluses to building retirement corpus
2. Reduce portfolio risk

 RETIRED (60 and above) :

Circumstances :

1. Health expenses replace work-related expenses

2. Creating regular cash flows
3. Beating inflation is top priority

Stretegy :

1. Create adequate cash flows from safe investments

2. Invest surpluses in such instruments that beat inflation to prevent
erosion of retirement capital

5.5 ESTATE PLANNING AND WILL

One area requiring considerable attention by an individual is the matter of estate

planning. Estate planning deals with an individual’s assets and liabilities and how
these are dealt with if that individual is unable to do so (through either death or
incapacity). It seeks to identify what assets are required to achieve the desired
objectives. These objectives will vary from person to person, but there are various
common objectives include :

➢ Ample and appropriate provision for surviving dependants such as

spouse and children.

➢ Minimization of wealth taxation liabilities.

➢ Succession of non-estate assets.

➢ Protection of estate.

82
 ➢ The satisfaction of philanthropic objectives.

➢ Make his/her side secure against liabilities.

The ultimate goal of the estate plan, and its final achievement is to provide for the
smooth transition and distribution of assets at the most appropriate times (which
could be at death or quite some time after).

In simple terms estate planning is not only the preparation of will and powers of
attorney, but estate planning also includes in the lifetime of the purchase and
maximizing assets so that there may be positioning of both capital and income
benefits in a manner which fulfils an individual’s wishes. The planning includes :

➢ Buy an estate
➢ Maintain an estate
➢ Properly insure an estate
➢ Maximization of an estate
➢ As a source of regular income generation

There are mainly two basic concepts of estate planning which are essential while
considering estate planning for an individual. There are as follows.

1. Will
2. Power of attorney
a) General power of attorney
b) Special power of attorney

5.6 EMERGENCY FUND PLANNING

Normally people are plan for regular income or say routine cash flow in there day
to day life; but the another considerable things that should be planned is the an
emergency fund which may be required for a variety of reasons. Some of them are
as follows :

83
5.6.1 Need Of Emergency Fund Planning

➢ Natural disasters like floods or drought condition, earthquakes can cause

harm to both life and property. In such a case, to get back to a semblance of
normalcy, an Emergency fund may be required till such time regular income
commences and for assets reconstruction or medical expenses.

➢ In today’s situation, man made disasters like riots and civil disturbances can
also disrupt life and funding may be required for the victims of such events.

➢ Though, medical science has made rapid strides medical emergencies like
operations or major diseases require funding at short notice.

➢ Similarly, nobody can predict death funeral expenses and social obligations
may require sizeable funds from the surviving members of the family.

➢ Marriage of children may require liquid funds at short notice even though
such events are anticipated and savings may
have been made for them.

➢ Similarly, when children are dependent and studying, emergency funding

may be required for additional courses like tuitions or computer skills.

➢ When a house is being constructed, emergency funding during the course of

the litigation and then at the time of settlement if any.

5.6.1 How to keep an emergency fund

➢ Savings accounts have been specially designed for liquidity. The money in
a savings bank account though earning only around 4% interest is readily
available on demand at any time.

➢ Fixed deposits in banks are liquid to the extent that premature withdrawals
can be made at a discount to the negotiated rate of interest at the discretion
of the bank manager.

84
 ➢ Similarly life insurance policies have cash or surrender value can be
utilized in case of emergencies.

➢ Shares, which are actively traded on the stock exchanges, are also liquid
especially with the dematerialization of major shares.

➢ While liquid fund schemes of mutual funds are realizable within a day,
open-ended schemes can be redeemed in a week or so.

➢ Withdrawals/loans are permitted from the public provident fund account of

an individual after five years/three years respectively.

➢ Loans against shares schemes of mainly foreign banks are another sources
of liquidity for individuals there are a
stiff margin imposed by these banks against specific shares and the interest
rate is quite high.

➢ Loan is also available against specified insurance policies of LIC.

➢ Foreign banks provide unsecured loans against documents like income tax
returns and salary slips. The verification and loan documentation process
may however take some time.

➢ With the advent of credit cards advances are available albeit at a stiff interest
rate, going up to 36 % p.a. the money can be withdraw from ATM counters
at all times and from bank counter during banking hours.

5.6 DEBT PLANNING

As there are different needs in every one’s life may arise as per situations and
circumstances. There are various reasons which prompt people to borrow or avail
of credit some of them are as follows :

 Consumerism :
If an individual do not have a cash to pay for his/her consumption
requirements, naturally his/her will avail of credit. Increasing consumerism

85
 is making people consume now and pay later. With credit, goods and
services are available now, rather than later.

 Contingency :
At times, the emergency fund may prove inadequate or lacking and one may
have to borrow to need these requirements. However this option should be
reserved for extreme emergencies as borrowing carries interest.

 To Buy A House :
Everybody needs a house to live in and will have to borrow in most cases to
fulfil this requirement unless there is an ancestral home to fall back upon.
Even in such a cause one may borrow for repairs and maintenance.

 Children’s Education :
Education loans are common nowadays and parents may act as guarantors or
co borrowers of the loan.

 Children’s Marriage :
Marriage of children is a matter of pride in society and parents may not like
to spare any expense. A personal loan may conveniently tide over the
situation.

HOW TO MANAGE DEBT

➢ Debt is not free; it costs money in the form of interest. A debt trap should be
avoided where one needs to borrow just to be able to repay old debts and
interest.

➢ Different individuals will have different debt tolerance levels for e.g. a
salaried person who is risk averse, may avail of lower debt even though his
income is more regular than that of businessman who is more risk tolerant.

➢ Families where both spouses are working may be able to afford higher level
of debt than families where just one spouses is working.

➢ It is best to repay first debt taken at higher rates of interest with surplus
funds, which may be earning lower interest.

86
 ➢ The most considerable things is that try to pay off all the debits at least five
years before retirement.

Though most credit has limits on the overall borrowing from the side of the lender,
one may impose our own limits on the level of borrowing as a percentage of
annual income.

5.6 CHARITY PLANNING

“Nobody in the world is self sufficient, all are interdependent.”

Most of the people think that, they have received something from the society, as
they live and will live in society and so it becomes their duty to do something for
society.

There are many ways to do the same.

➢ Some may choose to do social welfare work,
➢ Some may choose to do charity,
➢ Some may choose to do any religious activity.

If an individual wants to do some big charity due to which many people could be
benefited from it, say
➢ To open a charitable trust like old people home, orphanage, charitable,
hospital, etc.
➢ Giving donations to the charitable institutions/trusts.
➢ To provide some auxiliary services.
➢ By giving donations for the religious activity etc.

This requires a big amount of fund. Therefore if an individual wants to do such

charity than he should plan out that how much amount of charity he wants to give
and when he wants to give it.

For that planning for charity is required. For creating a big charity fund the
individual should start investing in such a way that he gets a maximum return out
of it at pre decided time, And if an individual have some extra fund on hand for
doing charity, than he should think of increasing such fund.

87
 CHAPTER – 6
AWARENESS OF

FINANCIAL PLANNING

IN AHMEDABAD
CHAPTER CONTENTS

6.1 Primary Data Analysis………………………….

6.2 Findings……………………………………..
6.3 Suggestions………………………………….

88
 6.1 PRIMARY DATA ANALYSIS

Que. What is your Educational Qualification ?

FINDINGS :

Educational Under Graduate Post Others

Qualification Graduate Graduate

89
No. Of Persons 22 55 32 11

Interpretation
The above graph and table show that from the total respondents, graduate are
45.83% and 26.67% of people are postgraduate. While under graduate people are
18.33%. So, there are, around 46 % major portion of respondents from high net
worth individual and upper middle class are graduate. And only around 18% of
respondents are under graduate, so most respondent are well educated as they are
HNI or from upper middle class.

Que. 2 How Many Members in your family are earning ?

90
 FINDINGS

No. Of Earning
Members 1 2 3 4 5

Families 63 31 21 4 1

Interpretation

From the answer of this question we found that, in most of the families earning
member is only one person and the other members of the family are dependent on
him/her. While 25.83 % families are noted of having two earning members.

Que. 3 What is your family’s monthly average income ?

FINDINGS

91
Family’s 15 – 25 25 - 35 35 - 45 >45
Monthly Rs. Rs. Rs. Rs.
Income (‘000)

Families 37 41 30 12

INTERPRETATION :

Here as the figure shows, almost all of the respondents’ family’s monthly income
is between Rs. 25,000 to Rs. 45,000. And 34.16 % of respondents highest numbers
of respondents’ family’s monthly income is noted between Rs. 25,000 to Rs.
35,000.

Que. 4 Have you ever prepared Budget?

&
Que. 5 Do you act according to your budget?

INTERPRETATION:

92
From the answer of this question we found that, in most of the families, there is no
existence of the word “BUDGET” in real term. Almost 90% of people are not
preparing monthly budget for their income & expenses break-up. Another
remarkable thing is that there is not a single fellow who prepares budget regularly.
Some of the people, around 10% are preparing budget, but sometimes and hardly,
while none can follow their budget that we found as shown in second graph.

Que. 6 How much percentage of household expenses do you

Incur of monthly income?

INTERPRETATION:
It implies from the above graph that around 51% of the people spend 50-60
percentage of their monthly income for household expenses, & 35% of people
spend more than 60% of their monthly income. So here the outcome is that major
portion of the income has been spend for household expenses.

93
Que. 7 On what basis do you invest?

FINDINGS:

INTERPRETATION:

Most of the people are investing as per their own knowledge and according to the
information, which the get from news channels, newspapers, other, publication,
friends, broker etc. Only around 25% of people are doing investment according to
expert advice.

94
Que. 8 Which of the following things do you consider while
Investing?

FINDINGS:

95
INTERPRETATION:

It implies from the above graphs that most of the respondents have given first rank
to return; it means they give their 1st preference to it. But also they had given
second rank to risk it means they invest in the instruments, which give more return
and are safe.

After risk & return people had given third rank to taxability as they invest in tax
saving instruments for reducing their tax liability, liquidity had been given the
fourth rank as the people are ready to compromise with liquidity if the instrument
is safe, gives comparatively more return, and also reduces tax liability, people does
not give more importance to convenience if they get all the above four things, of
their choice from particular investment.

Que. 9 Where do you invest your saving most probably?

FINDINGS:

INTERPRETATION:

From the above graph it implies that most of the people have made their side safe
by investing in bank’s saving a/c & fix deposit, post office & insurance, while here

96
we marked that people generally less invest in equity. They are generally risk
averse. Some of them are committed wits higher risk & return regarding equity.

Que. 10 How much time horizon do you keep in mind?

FINDINGS:

INTERPRETATION:

From this chart we found that 35.83% of families generally keep time horizon of 5
to 10 yrs for the investment. While on the opposite side there are only 8.33% of
families keep time horizon of more than 10 years and 9.16% of families said that
they generally not decided any time horizon for the investment and would like to
invest their money as per the scheme.

97
Que. 11 Which of the following insurance plan do you have?

FINDINGS:

INTERPRETATION:

From the answer of above question we found that most of the people have
endowment plan & vehicle insurance. Now a days as the medical expenses are
being costly; we also found the people with medical insurance.

Que. 12 Are you aware about financial planning?

FINDINGS:

INTERPRETATION:

From the above pie chart we found that 82% of people are aware about that there is
something like the term financial planning. But the meaning of financial planning
differs from person to person.
Que. 13 How you have got the idea of financial planning?
FINDINGS:

98
INTERPRETATION:

As the graph shows most of the people have got the idea about financial planning
from newspapers, magazines, internet, friends & relatives. But the majority of
source is magazine, friends, and relatives.
Que. 14 What do you expect from financial consultant?
FINDINGS:

INTERPRETATION:

From the above graph we found that all the people expect that financial consultant
should have knowledge of products, market awareness, sales approach. While
some of people also ask for home service and commission sharing.

6.2 FINDINGS
We have found following findings from analysis.
(Financial Planning involves each of the below mentioned findings.)

 Society is changing fast and the joint family system is giving way to nuclear
families. Therefore there has been a considerable increase in household
expenses.

 Most of the people are investing as per their own knowledge and according
to the information, which they get from news channels, newspapers, other
99
 publication, friend, broker etc. In most of the cases people do not try to
know that the investment instrument is suitable to them and the information
which they received is either true or rumor.

 People generally give priority first to return then Risk, Taxability, Liquidity
and convenience respectively while choosing an investment option.

 The class of employees are more conservative compare to professional and

businessmen as they generally avoid risk and satisfy with the interest as
regular income. The dividend income was found to be more in case of
professionals, which implies that they also use to invest their funds in
Capital Market/ Mutual Funds, as they believe in balanced portfolio.
Businessmen are the only class whose income from rent is found to be more
than income from interest and dividend as they normally reinvest their funds
in properties either for expanding their own business or creating wealth for
themselves.

 Most of the people investing in Bank’s Savings Account and Fix Deposit,
Post Office and Insurance. While here we marked that people generally less
invest in equity. They are generally risk averse. Less people are committed
with higher
risk and return regarding equity.

 People generally do not consider post tax real rate of return.

They normally consider Coupon Rate, Interest Rate Or
Nominal Rate while calculating return.

 The people who are investing in capital market could not take
the advantage of long-term growth of capital market because
of their speculative nature.

 Most of people very well know that life insurance is the best
vehicle as it gives return on investment with risk cover and
they know the importance of life insurance in their lives.

 Most of the people invest accordingly, to reduce their Tax

100
 Liability and they generally invest in the period of January to
March, just before the time of assessment.

 Most of the people want to retire before the age of 60 year.

But they did not plan how they can retire early and live
happily.

 People generally believe that buying an asset is Estate

Planning.

 All the people have answered that they know the term
Financial Planning; but very few people are doing the
Systematic Financial Planning or they have started to do so.

• So Systematic Financial Planning in India is at the

introduction stage.

6.3 SUGGESTIONS

Following elaborated suggestions are the way how one can do better
Financial Planning.

 The people should make their monthly/yearly budget so that they can come
to know that how much portion of their income is spent on particular head as
mentioned in ANNEXURE-2. So that they can cut down unnecessary
expenses and increase their savings as well as investment.

 Simultaneously, one can find those sources of income, which is still a way
of earnings, (mentioned in ANNEXURE-3) and through those sources of
income one can generate more savings and investment.

 People should not blindly follow the information, which they receive from
news channels, newspapers, other publication, friends, broker etc. They
should also evaluate the information. People should also try to know while
buying any investment instrument/product that the investment
instrument/product is suitable to them or not. “Don’t follow the Trend.”

101
 Don’t be speculative while investing in capital market.

 Rather keeping money idle in Bank’s savings Account or investing more in

Fix Deposit, Post Office, and Insurance. The people should be committed
with higher risk and return regarding equity.

 The person should keep in mind their personal profile towards return, Risk,
Taxability, Liquidity, and Convenience while prepare an optimum
combination.

 The people should consider Real Rate Of Return or Post Tax Real Rate Of
Return while calculating return from investment and invest accordingly to
over come the effect of high inflation rate in India.

 The class of employees should also increase the proportion of the equity
portion in their investment portfolio from 40% to 50%. If they want to earn
more return in comparison with other investment options. (SELECTION OF
SCRIP DOES MATTER)

 As most of the people don’t have expert knowledge and sufficient time to
track the market, they should seek for expert advice if found necessary.
People should also invest in Mutual Funds to take advantages of
diversification, professional management, and convenience.

 There are so many people have habit of Chewing Tobacco, Pan Masala and
Smoking. If they continue with their present habits for longer period then
there is a possibility that they would suffer from any serious or dangerous
disease in long run, for which some big amount would be required for curing
the disease or should to make insurance cover for such expenses.

 The investments, which are made to reduce tax liabilities, should not be
made in the period from January to March, just before the time of
assessment but it should be made through out the year or periodically so that
one can get more return for whole year.

 While deciding the income needed at the time of retirement one should
consider the future value of current required income at expected inflation
rate.

102
 Estate may be one of the regular income source in form of Rent or Lease, it
also one of the best source of capital appreciation, so one can invest also in
Estate but keep in the mind the regular maintenance expenses of Estate.

BIBLIOGRAPHY

WEBSITES

○ www.moneycontrol.com
○ www.outlookmoney.com
○ www.google.com
○ www.financialpalnning.uk.com
○ www.nseindia.com
○ www.birlamutual.com
○ www.amflindia.com

103
 MAGAZINES

○ Outlook Money
○ The Layman’s Guide To Insurance
(Outlook Money Book – First Edition 2003)

ANNEXURE – 1

Questionnaire

Dear Sir / Madam,

I am management student from NIS ACADEMY, Ahmedabad, affiliated to

Annamalai University. I am doing project on “General Awareness and Emerging
Concepts of Financial Planning” and for that purpose we would like to have
some information from you. This information would be kept strongly
confidential and will be used only for academic purpose.

104
Personal Details :

Name : ──────────────────────────────

Address : ──────────────────────────────
──────────────────────────────────────

Telephone : ──────────────────────────────

E-mail : ──────────────────────────────

Gender : Male
Female

Age : 20-30 31-40 41-50

50-60 >60

[PLEASE TICK √ IN APPROPRIATE CELL]

1) What is your Educational Qualification ?

Under Graduate Graduate Post Graduate
Other Specify _____________________

2) What is your Employment Status ?

Unemployed Part-Time Fully Employed
Retired Other, Specify ________________

3) What is your Occupation Status ?

Govt. Servant Pvt. Employee Business
Profession Other, Specify ___________________

4) Do you have any other source of income ?

Yes No
If Yes,
Which are the Other Source Of Income ?
105
 Interest Dividend Rent
Other, Specify __________________

5) How many Members are there in your family ?

6) How many Members in your family are Earning ?

7) What is your family’s monthly average income ? (Rs. ‘000)

15 – 25 25 – 35 35 – 45
> 45

8) What is your feeling about your family’s monthly average

income ? (Rs.)
Is it,
Sufficient
Want More

9) Have you ever prepared Budget ?

Yes No
If Yes,
Regularly Sometimes Hardly

10) Do you act according to your Budget ?

Yes No

11) How much percentage of House hold expenses do you

incur of monthly income ? (%)
30% - 40% 40% - 50% 50% - 60%
> 60 %

12) What is your family’s monthly average savings of income ?

< 10 % 10% - 20% 20% - 30%
> 30 %

13) Do you save regularly ?

Yes No

14) Do you invest your savings regularly ?

Yes No

106
15) Approximately what percentage of your family’s monthly
income do you invest ?
< 10 % 10% - 20% 20% - 30%
> 30 %

16) On what basis/media/advice do you rely to invest ?

Your Knowledge
News Channels
News Paper / Publications
Expert Advice
To oblige Friend / Relative
Other, Specify __________________________

17) Which of the following things do you consider while

investing ?

Return
Risk
Liquidity
Taxability
Convenience
Relation with Agent / Distributor
Other, Specify _______________________

18) What is your approximate Investment Corpus ? Rs._______

19) Where do you invest your savings most probably?

Savings A/C.
Bank Fixed Deposits
Govt. Securities
Post Office Schemes
Gold, Silver and Jewellery
Company Deposits / Debt
Equity
Real Estate
Life Insurance

107
 Mutual Funds
Other, Specify _______________________

20) Are you aware about Financial Planning ?

Yes No
If Yes,

A) How you have got the idea of Financial Planning ?

News Paper
Magazines
Internet
Financial Advisor
Financial Product Broker
Friends / Relatives / Colleagues
Other, Specify _______________________

B) When do you think about Financial Planning ?

Regularly Basis
For Upcoming Financial Needs
At The Time Of Financial Distress (Unhealthy
Condition)
To Achieve Financial Goals

C) Which things do you cover in Financial Planning ?

Proper Planning & Management Of;

Investments
Taxation
Insurance
Retirement
Estate
Liquidity
Debt

D) Whom do you consult for your Financial Planning ;

108
 Yourself
Chartered Accountant
Investment Advisor
Financial Planner
E) How long are you doing Planning of your Finance ?
Since 1 Yr 1 – 4 Yrs 5 – 10 Yrs
> 10 Yrs

F) Do You Review & Monitor your Financial Plan ?

Yes No
If Yes,
How Often ?
Monthly Quarterly Half Yearly Yearly
According To Requirements Specify __________

G) Financial Planning is basically “Savings” = Income –

Expenses. Do you agree with sentence ?
Yes No

H) Do you think that only wealthy people do Financial

Planning ?
Yes No

1) Whether you would be willing to pay the reasonable fees for

proper advice and financial planning though you don’t get
any proper commission sharing from advisor ?
Yes No

If Yes,
How much :
One time (Amount Specify) _______________
Regularly Monitoring of your portfolio (Amount Specify)
_______________

We are thankful to you for providing us your valuable time

and sharing your information.

THANK YOU

109
 ANNEXURE – 2
LIST OF THE HOUSE HOLD & OTHER EXPENSES

EXPENSES Daily Weekly Monthly Bimonthly Quarterly Half- Yearly

yearly

110
Toiletry
Expenses
1 Soaps
2 Towel (6)
3 Napkin (4)
4 Perfumes
5 Fresheners
6 Tissues
Housing Ex
1 Maintenaces
2 Rent
3 Municipal
Tax
4 Auda Tax
5 Vegetables
& Fruits
6 Milk (2
litter)
7 Mineral
Water
8 Medicines
9 Gas
Cylinder
10 Bonus
11 Home
Servants
12 Clothing &
Hosiery Exp.
13 Cutlery
Expenses
14 Fragrance
Stick
15 Cotton
16 Match Box

111
Edu. &
Stationary
Expenses
1 Stationary
2 Educational
Fees
3 Educational
Transportation
4 School Kids
Expenses
5 Snacks /
Pocket
Money
6 Internet
Charges
Transportation
Expenses
1 Fuel
2 Vehicle
Maintenance
3 Conveyance by
Auto / Bus

Installments &
Premiums
Expenses
1 Housing Loan
2 Vehicle Loan
3 Life Insurance
Premiums
4 Non Life
Insurance
Child Care
Expenses
112
1 Baby Food
2 Baby Sitting
3 Baby Health
Care
Entertainment
Expenses
1 Tv Cable
2 Theatre / Movie
Watching
3 Club
Membership
4 Tours
5 Breakfast Items
6 Restaurant
7 Gathering &
Picnic
8 Ice cream
9 Cold Drinks
10 Juices
Social
Expenses
1 Gifts
2 Festivals
3 Occasions
Professional’s
Fees Expenses
1 Lawyer’s Fees
2 Chartered
Accountant’s
Fees
3 Doctor’s Fees
4 Financial
Planner’s Fees

113
5 Advisor’s Fees
Personal
Expenses
1 Mobile Bill
Expenses
2 Cosmetic Exp.
3 Smoking and
Chewing
4 Pet’s Expenses
TOTAL

MARK TO THOSE EXPENSES, WHICH IS UNNESSARY, AND

BY AVOIDING THEM ONE CAN GENERATE MORE
SAVINGS & INVESTMENTS.

ANNEXURE – 3

LIST OF SOURCES OF INCOME

114
 TOTAL FAMILY
SOURCES OF INCOME INCOME PER
ANNUM

Salary
Fees
Remuneration
Pension
Dividend
Debt & Other Interest
Monthly Income Scheme (Post & others)
Rent
Commission
Brokerage
Business Profit
Premium
Subscription
Tuition Fees
Royalty
Patents
Copyright
Lease
License Fees

Technical Know How

Perks

115
Speculation
Gambling
HUF Income

TOTAL

MARK TO THOSE SOURCES OF INCOME, WHICH

COULD BE A WAY OF EARNING, AND BY DOING
ACCORDINGLY ONE CAN GENERATE MORE
SAVINGS AND INVESTMENT.

116
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