financial planning in portfolio management

Single Window Services

Chapter 2. ORGANIZATION PROFILE

2.1 History of Organization

(Alparambha: Kshemakara) – It’s always advisable to make a small and humble
beginning. It ultimately pays off handsomely in the long run.
The concept of Single Window Services (SWS) came out of a need to provide a customer-
centric, hassle-free and highly reliable package in an environment of complete trust and
credibility. Promoted by a highly qualified technocrat with a keen eye for financial markets,
SWS today is a symbol of quality, reliability and, above all, complete credibility. The products
and services offered by SWS encompass a vast array of financial options such as Life & General
Insurance, Mediclaim, Deposit schemes from reputed corporate houses, Postal & other Savings
Schemes, Automobile, Home & Personal loans, Mutual Funds and, above all, all forms of policy
servicing.

The SWS was incorporated in 1994, and the certificate of Commencement of Business in 1996.

The age-old wisdom, which has percolated over generations, has proved its efficacy time &
again in whatever ventures we pursue. This, precisely, is the philosophy that is followed at
Single Window Services, a complete solution provider for all your financial needs, future
provisions and planning.

It has been our constant endeavors, as the name aptly suggests, to provide a complete bouquet of
financial services to all our clients; be it life or general insurance, or a multitude of investment
options available in today’s ever-expanding world; or simply future planning with some specific
goal in mind via a single interface.

Although most professionals today tend to think that they have adequate life and health
insurance cover, the ground realities prove otherwise. In most cases, this realization comes too
late. In order to overcome this problem, SWS has adopted a unique methodology of Investment

9


& Insurance Audit for all its clients. This helps them realize their actual value and take
appropriate corrective steps well in time.

In today’s ever-changing world, keeping up-to-date is mandatory at all levels of functionality.
Training & Orientation Activity, therefore, has become an inseparable part of any enterprise.
SWS, apart from offering turn-key, single-stop financial services, has also provided for a
comprehensive facility that can be used for conferences, meetings, training & orientation
seminars, mini-exhibitions, on-line examinations, etc.

With a capacity that can accommodate 30 participants, the centrally air-conditioned Training
Hall at SWS provides the best of audio-visual facilities combined with comfortable seating and a
soothing ambience to help make any program a grand success. A state-of-the-art public address
system, provision for multiple computer terminals, slide & LCD projector, broad-band
connectivity, fully-adjustable lighting system and piped music that soothes and enhances
participants’ mood are just a few of the features that go hand in hand with the conference-cum-
training hall at SWS.

The Training Division at SWS also offers you a one-stop solution combining catering, stationery
and other support services when you organize events at SWS Training Hall. While the facility is
conveniently located (just 2 minutes’ walking distance off College Road), the professional
support services play a key role in the success of any event.

The Training Division maintains a database of professional trainers / facilitators in various
subjects and can also organize training schedules suited to your specific requirements. You can
choose from a variety of pre-designed course options or request for a custom-designed training
program. A number of options combining subjects such as Communication Skills, Selling Skills,
Value Engineering, Personal Total Quality (PTQ), Business Ethics, etc. are currently available
with the services of experienced facilitators associated with SWS.
We, at SWS, are committed to provide one-stop quality services to all our customers. We
sincerely believe that ‘Excellence is the best bargain you can offer’!

10


2.2 Organization Flow Chart

CEO

Chief Financial Back Office Staff Chief Tax
consultant consultant

Marketing Account
Dept Dept

GIC LIC Mutual Fund

11


2.3 Objective of company

In next three years, the Most Preferred Financial Advisor in Nashik and surrounding districts.
Achieve a high level of client satisfaction through value-added services like comprehensive
financial planning, support and back-up services and providing fair return on their investments
and savings.

2.4 Services Offered by company

• LIFE INSURANCE
• GENERAL INSURANCE
• MUTUAL FUND
• STOCK
• TAX
• ADVISORY @ FINANCIAL PLANNING
• CLAIM SETTLEMENT
• SUCCESSION PLANNING... ALLIED SERVICES IN THE FORM OF NETWORK

12


Chapter 3
INTRODUCTION TO FINANCIAL PLANNNG

Each one of us needs ‘finance at various stages of our life & to ensure that we have the
money available at the right time when needed. We may need money at the time of marriage of a
daughter or son & we need money at that time only, and not later! Or at the time of medical
emergency and again at the time as later the money helps. Or money will be needed simply at
the time of retirement. We need finance at different times for different goals. Buying a home
providing for a Childs education or marriage or retirement. Are examples of goals in life that can
be measure in monitory terms?
Every individual can benefit from objective help to create, grow, other lifestyle
objectives systematically without any anxiety. Financial planner can guide individuals to
achieve their ultimate aim of spending retire life peacefully without compromising living
standards. A Qualified financial planner will provide advice on:
• Systematic savings
• Cash flow management
• Debt management
• Asset allocation for investment
• Managing risk through insurance planning
• Tax strategies to increase inventible surplus
• Distribute residual wealth through estate planning.
The objective of financial planning is to ensure that the right amt of moneys available in
the right hands at the right point in the future to archive an individual’s financial goals.
Successful financial planning makes a considerable contribution to the sum total of human
happiness. Financial planning is process that helps a person work out where he or she now, what
he or she may need in the future & what he or she must do to reach the defined goals. The
process involves gathering relevant financial information., setting life goals , examining the
person’s current financial status & coming up with a strategy & plan for how the person can
meet his or her goals given the persons current situation and future plans.

13


3.1 DEFINITION & SCOPE, NEEDS

Financial planning is a highly personalized service where you need to understand not
only the total picture of client’s financial position but also his behavior attitude & risk profile.

Definition’

Financial planning is process of –

• -Identifying person’s financial goals
• -Evaluating existing resources current financial position
• -Designing the financial strategies that help the person achieve those goals

Financial planning includes investment planning, retirement planning, estate planning, tax
planning, risk mgmt. Financial planning is a highly personalized service where you need to
understand not only the total picture of client’s financial position but also his behavior attitude &
risk profile.

AIMS OF FINANCIAL PLANNING

The first & basic aim of the financial planning is,
To protect the wealth & also create & make a growth in the client’s wealth
Some other goals of financial planning are education planning, retirement planning, foreign tour
planning, wedding planning, tax saving etc.

14


Fundamentals of Financial Planning

Financial planning is the process of solving financial problems and achieving financial goals by
developing and implementing a personalized "game plan." In order to be effective this "plan"
must take into consideration an individual’s overall picture. It must be:

• Coordinated
• Comprehensive
• Continuous

Financial planning is like all other phases of life; it involves choices

Spend now or save for later? Pay off existing bills or increase retirement savings?
Focus savings money on short term or long-term goals?

A true financial plan does not focus one aspect or product, but instead seeks to take all areas of
planning into consideration when making financial decisions.

What is Included?

• Cash Flow Management

This aspect of planning deals with the day to day allocation of income; and its effective
use in paying for current living expenses and in accumulating assets which will be used
in meeting financial goals.

• Tax Planning and Management

This area focuses on the understanding of and application income tax law, estate and
inheritance taxes; and, when possible, minimizing these taxes.

15


• Risk Planning and Management

This area of planning deals with the risk of losing life, income, or property. It includes
the use of insurance products and strategies.

• Investment Planning and Management

Almost everyone has accumulation goals for which investments must be made and
managed. These could include buying a home; planning for college; or providing for
retirement.

• Retirement Planning and Management

By far the most common accumulation goal is the ability to become financially
independent. Retirement strategies encompass the understanding of the employer-
sponsored retirement plans; and personal savings accumulation plans.

• Estate Planning and Management

The final phase of planning is for the transfer of assets to our heirs with minimization of
taxes and other costs.

Task of financial planner

Task of financial planner is to make a good client planner relationship, assist the client to
develop his goals, collect all related financial data, analyses the data, Develop & suggest various
alternatives, strategies to archive client’s goals, evaluation of various alternatives & selection of
appropriate alternative. After selecting appropriate alternative, implementation of the financial
plan is take place. After implementing the plan the monitoring & regular preview of the plan is
done. The modifications as per the market conditions as & when required are implemented

16


Planning By Keeping Life Stages In Mind

Single Family Retirement

Leaving Earner Marriage Buying Providing Retirement
School House For
Family

Student 1st Job Marriage House Kids Retirement
Education

17


Process of financial planning

• Establishing & defining the client planner relationship
• Gather client data including goals
• Analyze & evaluate your financial status
• Develop & present financial planning recommendation
• Implement the financial planning recommendation
• Monitor the financial planning recommendations

Benefits of financial planning

• Security through future planning
• Analyses every aspect of your financial situation
• Identified weaknesses & suggest improvements
• Reduces stress
• Proper documentation for audit available
• Prepares everyone to defeat inflation

Financial planning is beneficial for secure the future of the client through planning his future
goals, financial status.
It analyses your financial status, identify your weaknesses & suggest improvements.
Financial planning makes available the proper documentation for audit .all this process reduces
stress of the client

18


Meaning of Portfolio
A Portfolio is a combination of different investment assets mixed and matched for the purpose
of achieving investor’s goal(s). Items that are considered in the portfolio can include any asset,
shares, debentures, fixed deposits, mutual fund units to items such as gold, silver and even real
estates etc. However, for most investors a portfolio has come to signify an investment in
financial instruments like shares, debentures, fixed deposits and mutual fund units.

Diversification of Portfolio
It is a risk management technique that mixes a wide variety of investments within a portfolio. It
is designed to minimize the impact of any one security on overall portfolio performance.
Diversification is possibly the best way to reduce the risk in a portfolio.

Advantages of having Diversified Portfolio

• A good investment portfolio is a mix of a wide range of asset class.
• Different securities perform differently at any point in time, so with a mix of asset types,
your entire portfolio does not suffer the impact of a decline of any one security.
• When your stocks go down, you may still have the stability of the bonds in your
portfolio.
• There have been all sorts of academic studies and formulas that demonstrate why
diversification is important, but it’s really just the simple practice of “NOT PULLING
ALL YOUR EGGS IN ONE BASKET.”
• If you spread your investments across various types of assets and markets, you will
reduce the risk of your entire portfolio getting affected by the adverse returns of any
single asset class.

19


What is investing?

Investment refers to a commitment of funds to one or more assets that will be held over
some future time period. Almost all individuals have wealth of some kind, ranging from
the value of their services in the workplace to tangible assets to monetary assets.
Anything not consumed today and saved for future use can be considered an investment.
For our purposes, investment will mean a measurable asset retained in order to increase
one’s personal wealth.

Why invest?

We invest to improve our future welfare. Funds to be invested come from
assets already owned, borrowed money, and savings or foregone consumption. By
foregoing consumption today and investing the savings, we expect to enhance our future
consumption possibilities. Anticipated future consumption may be by other family
members, such as education funds for children or by ourselves, possibly in retirement
when we are less able to work and produce for our daily needs. Regardless of why we
invest we should all seek to manage our wealth effectively, obtaining the most from it.
This includes protecting our assets from inflation, taxes and other factors.

What Process Do We Use to Invest?

The financial planning process consists of six steps that help you take a "big picture"
look at where you are financially. Using these six steps, you can work out where you are
now, what you may need in the future and what you must do to reach your goals. These
six steps are:

20


1. Establishing and defining the client-planner relationship.

The financial planner should clearly explain or document the services to be provided
to you and define both his and your responsibilities. The planner should explain fully
how he will be paid and by whom. You and the planner should agree on how long the
professional relationship should last and on how decisions will be made.

2. Gathering client data, including goals.

The financial planner should ask for information about your financial situation. You
and the planner should mutually define your personal and financial goals, understand
your time frame for results and discuss, if relevant, how you feel about risk. The
financial planner should gather all the necessary documents before giving you the
advice you need.

3. Analyzing and evaluating your financial status.

The financial planner should analyze your information to assess your current
situation and determine what you must do to meet your goals. Depending on what
services you have asked for, this could include analyzing your assets, liabilities and
cash flow, current insurance coverage, investments or tax strategies.

4. Developing and presenting financial planning recommendations and/or
alternatives.

The financial planner should offer financial planning recommendations that address
your goals, based on the information you provide. The planner should go over the
recommendations with you to help you understand them so that you can make
informed decisions. The planner should also listen to your concerns and revise the
recommendations as appropriate.

21


5. Implementing the financial planning recommendations.

You and the planner should agree on how the recommendations will be carried out.
The planner may carry out the recommendations or serve as your "coach,"
coordinating the whole process with you and other professionals such as attorneys or
stockbrokers.

6. Monitoring the financial planning recommendations.

You and the planner should agree on who will monitor your progress towards your
goals. If the planner is in charge of the process, she should report to you periodically
to review your situation and adjust the recommendations, if needed, as your life
changes.

Common Mistakes.

It may be helpful to be aware of some common mistakes people make when approaching
financial planning:

1. Don't set measurable financial goals.
2. Confuse financial planning with investing.
3. Neglect to re-evaluate their financial plan periodically.
4. Think that financial planning is only for the wealthy.
5. Think that financial planning is for when they get older.
6. Think that financial planning is the same as retirement planning.
7. Wait until a money crisis to begin financial planning.
8. Expect unrealistic returns on investments.
9. Think that using a financial planner means losing control.
10. Believe that financial planning is primarily taxed planning.

22


INVESTMENT OPPORTUNITIES IN INDIA

From the Investment point of view following are the main opportunities available for Investment in
India, each of these schemes fulfills the objectives of investors and these schemes having its own
advantages and disadvantages but by combining all these major investment schemes we can make the
best portfolio for investor which fulfills the expectation and financial goals of the investor. These
Investment opportunities include –

I. Stock Market.

II. Mutual Fund.

III. Insurance.

IV. Postal Schemes for Investment.

V. Debt market.

VI. Real Estate.

23


I. Stock Market –
Stock markets refer to a market place where investors can buy and sell stocks. The price at
which each buying and selling transaction takes place is determined by the market forces (i.e.
demand and supply for a particular stock).

Example for a better understanding of how market forces determine stock prices. ABC Co. Ltd.
enjoys high investor confidence and there is an anticipation of an upward movement in its stock
price. More and more people would want to buy this stock (i.e. high demand) and very few
people will want to sell this stock at current market price (i.e. less supply). Therefore, buyers
will have to bid a higher price for this stock to match the ask price from the seller which will
increase the stock price of ABC Co. Ltd. On the contrary, if there are more sellers than buyers
(i.e. high supply and low demand) for the stock of ABC Co. Ltd. in the market, its price will fall
down.

Advantages of investing in Stock/Share market by Long Term Investment –
• One can expect assured returns of 25-30% p.a. if invested for long term in the growing
companies.
• Investor can receive the benefits of dividend or bonus shares.
• Today the INFLATION rate is around 12%, in this scenario investment in the stock
market is able to give you the handsome returns compared to other investments.
• In the capital market there is no capital gain tax on the profit made by selling of shares
after one year by the investor.

Disadvantages of investing in Stock/Share market -
• Share market is very sensitive and highly volatile so there is high risk involved.
• If the investment is made without having proper knowledge, the chances of
suffering losses become very high.
• As discussed earlier that the stock market is very sensitive and volatile so any political,
commercial or global news can affect the market.

24


II. Mutual Fund -

Mutual fund is a trust that pools money from a group of investors (sharing common financial
goals) and invests the money thus collected into asset classes that match the stated investment
objectives of the scheme. Since the stated investment objectives of a mutual fund scheme
generally form the basis for an investor's decision to contribute money to the pool, a mutual
fund cannot deviate from its stated objectives at any point of time.
Every Mutual Fund is managed by a fund manager, who using his investment management
skills and necessary research works ensures much better return than what an investor can
manage on his own. The capital appreciation and other incomes earned from these investments
are passed on to the investors (also known as unit holders) in proportion of the number of units
they own.

When an investor subscribes for the units of a mutual fund, he becomes part owner of the assets
of the fund in the same proportion as his contribution amount put up with the corpus (the total
amount of the fund). Mutual Fund investor is also known as a mutual fund shareholder or a unit
holder.
Any change in the value of the investments made into capital market instruments (such as
shares, debentures etc) is reflected in the Net Asset Value (NAV) of the scheme. NAV is
defined as the market value of the Mutual Fund scheme's assets net of its liabilities. NAV of a
scheme is calculated by dividing the market value of scheme's assets by the total number of
units issued to the investors.

For example -
If the market value of the assets of a fund is Rs.100, 000
The total number of units issued to the investors is equal to 10,000
Then the NAV of this scheme = (A)/(B), i.e. 100,000/10,000 or 10.00
Now if an investor 'X' owns 5 units of this scheme
Then his total contribution to the fund is Rs.50 (i.e. Number of units held multiplied by the
NAV of the scheme)

25


Advantages of Mutual Fund for an Investor –
• Portfolio Diversification
• Professional Management
• Less Risk
• Low Transaction Costs
• Liquidity
• Choice of Schemes
• Transparency
• Flexibility
• Safety

Disadvantages of Mutual Fund for Investor –
• Costs Control Not in the Hands of an Investor
• No Customized Portfolios
• Difficulty in Selecting a Suitable Fund Scheme

26


III. Insurance

Insurance is a basic form of risk management, which provides protection against
possible loss to life or physical assets. A person who seeks protection against such loss is
termed as insured, and the company that promises to honor the claim, in case such loss
is actually incurred by the insured, is termed as Insurer. In order to get the insurance, the
insured is required to pay to the insurance company (i.e. the insurer) a certain amount,
termed as premium, on a periodical basis (say monthly, quarterly, annually, or even one-
time).

Concept of Insurance / How Insurance Works
The concept behind insurance is that a group of people exposed to similar risk come
together and make contributions towards formation of a pool of funds. In case a person
actually suffers a loss on account of such risk, he is compensated out of the same pool of
funds. Contribution to the pool is made by a group of people sharing common risks and
collected by the insurance companies in the form of premiums.

INSURANCE COVERS

Depending on the circumstances, you may need insurance in the following areas:

• Life
• Health
• Home
• Motor
• Personal Liability
• Professional Liability
• Business
• Disability

27


LIFE INSURANCE:

Life insurance is a risk sharing mechanism whereby a policy owner (the insured) agrees to
invest some money with an insurance company that obligates itself to pay money to a
beneficiary on the insured’s death. It is a legal contract between an insurance company and
policy owner.

Life insurance needs analysis:

The first in determining what type of insurance to buy is a ‘needs analyses. You need to
assess the financial impact on your family if the breadwinner should die. You can assess the in
different ways.
1. The Multiple Earning Method:

The amount of life cover you should buy should be 3 to 10 times of your gross
annual earnings. It completely ignores your financial resources and needs.

2. The ‘ Human Life Value’ Method:

This method values human life at the present value of all future earnings
potential. The steps for calculating the amount of cover under this method are as below:
• Deduct your personal expenses from your total income. This is the surplus that
you leave for your family and for your investments.
• Calculate the number of years left in your earning life
• (Retirement age-Current age)
• Project family expenses up to retirement, allowing for increases due to inflation
and other factors.
• Subtract any pension benefits that they might get at your death.
• Add non-recurring expenses like children’s marriage.
• Calculate the shortfall in the total expenses and income.
• Calculate the present value of the shortfall.

28


3. The ‘Needs’ Method:

This method tries to calculate the amount required by your family to maintain
their existing lifestyle and their financial goals. The amount of the life cover under this

Method is calculated by subtracting the total of your current financial resources from the
present value of your family’s projected expenses.

FORMS OF LIFE COVER:

Life insurance covers are availably three forms. Each form exists for a different
objective. These are:

1. Term Plan
2. Pensions Plan
3. Investment-cum-insurance products
• Endowment plans
• Money-back plans
• Whole life plans
• Unit linked insurance plans

1. TERM PLANS:

In the event of death in the policy period, your nominees receive
the amount of your cover i.e. the sum assured. You get nothing if you survive beyond
the policy period.

2. PENSION PLANS:

Pension plans are actually pure investment products. They provide
with an alternate income stream after your retirement.

29


3. ENDOWMENT PLAN:

They also offer some returns on the premiums paid by you. So if you
die during the policy Term, your nominee’s get the sum assured plus some returns.
Even if you survive the term, you still get back the sum assures and the returns.
However, the premium charged for endowment plans is 5-6 times higher than the
premium for term plan.

4. MONEY-BACK PLANS:

Money-back plans are a variant of endowment plans. In case of the
endowment plans, the survival benefits are disbursed at the end of the policy term,
while in money-back plans the payback is staggered through the policy period.

Money back policy is a policy opted by people who want periodical
payments. A money back policy is generally issued for a particular period, and the
sum assured is paid through periodical payments to the insured, spread over this
time period. In case of death of the insured within the term of the policy, full sum
assured along with bonus accruing on it is payable by the insurance company to the
nominee of the deceased.

4. WHOLE-LIFE PLANS:

The term plan, endowment plans and money back plan provide
cover only till a specified age. Whole life plan provides cover till end of life. The
insured has to pay premium till a specified age. On reaching that age, the insured has
the option to encash the maturity benefits pr continue the cover for his entire
lifetime.

5. UNIT LINK INSURANCE PLANS:

It can be considered as a combination of mutual funds and term plans. Part of
the premium paid is linked to the policy period and the sum assured and the rest is invested.

30


NON-LIFE INSURANCE

TYPES OF NON LIFE INSURANCE:

1. Personal-

Medical
Disability

2. Property-

Damage to property
Loss of income
Indirect losses

3. Liability-

Under statute
Under common law
Under contract

31


IV. DEBT

Debt is that parts of the total investment that will yield steady returns and provide an
element of stability to the whole portfolio of the individual. This is an important asset class as it
is not just returns but the nature of the portfolio that has to be taken into Consideration for
different individuals.

Features of debt

• The returns here are in the form of interest
• Coupon rate determines the interest received for investors
• The yield is another important factor to look at
• Yield measure the return of an instrument that is held till its maturity
• Yield changes at different points of time depending upon market conditions
• Yield is relevant for traded debt instruments
• This will give the total return for debt
• Investors can put their money into debt directly or through mutual fund
• They are quite steady in returns
• There are various debt instruments like bonds, debentures, and deposits.

Use of debt

• Used to bring in an element of stability in the picture
• Makes the investment a bit less risky than equity
• There is no cause for daily monitoring unless there is an intention to trade the
instruments
• There is an element of surety about the returns when held till maturity and there is not
credit default

32


Bonds
• A bond is a debt instrument issued for a period of one year or more.

• This is a more conservative investment.

• Bonds raise capital for the issuer by borrowing money from investors. With a bond note,
the issuer is basically promising to repay the principal along with interest on a specified
date, also known as the maturity date.

• The government, states, cities, corporations and many other types of institutions sell
bonds.

The various types of Bonds are as follows:

Zero Coupon Bond:
Bond issued at a discount and repaid at a face value. No periodic interest is
paid. The difference between the issue price and redemption price represents the return to the
holder. The buyer of these bonds receives only one payment, at the maturity of the bond.

Convertible Bond:

A bond giving the investor the option to convert the bond into equity at a fixed
conversion price.

Treasury Bills:

Short-term (up to one year) bearer discount security issued by government as a
means of financing their cash requirements.

33


V. Postal Schemes for Investment –

Following chart will explain some of the popular schemes of Postal Department for Investment –

Minimum Maximum
Interest
Scheme Investment Investment Features Tax Breaks
(%)
(Rs.) (Rs)

National Savings Section 80C
8.00a 100 No limit 6-year tenure
Certificate benefit

Public Provident Section 80C
8.00b 500 70,000 15-year term; tax-free returns
Fund benefit

Kisan Vikas Patra 8.41b 100 No limit Money doubles in 8 years, 7 months No tax benefit

Single A/c: 4.5
No tax benefit
Monthly Income lakhs
8.00 1,500 6-year tenure; monthly returns
Scheme Joint A/c: 9
lakhs

Time Deposits 6.25-7.50 200 No limit Available for 1, 2, 3, 5 years No tax benefit

Recurring
7.50c 10 No limit 5-year tenure No tax benefit
Deposits

Senior Citizens 5 year tenure; minimum age 55; also
9.00d 1,000 15 lakhs No tax benefit
Saving Scheme available with public sector banks

Single A/c: 1
Savings Bank lakh Any individual can open an account;
3.5 No tax benefit
Account Joint A/c: 2 Cheque facility available.
lakhs

Sec 80C benefit: Investments up to Rs 1 lakh in specified securities (maximum of Rs. 70,000 in PPF) qualify for deduction

A b c d
Compounded half-yearly Compounded yearly Compounded quarterly Payable quarterly

34


VI. Real Estate Investment

India Real Estate Investment is a significant feature of the Indian realty market under the
initiation of the investors and developers, leading to future real estate development in India. The
development of private ownership of property real estate in India has become a major area of
business with India Real Estate Investment playing the vital role. India Real Estate Investment
involves minimum risk for getting maximum return.

India Real Estate Investment has rising demand in every sector like commercial, residential,
retail, industrial and hospitality. But maximum demand is observed in the booming IT sector.
The India Real Estate Investment is facilitated by the liberal economic policies of the
government.

Factors Favoring India’s Real Estate Investment

• Increasing growth in residential properties due to lower interest rates, easy availability of
housing finance, rising income, better job prospects and increase of nuclear families.

• Growth of retail market in India due to increasing demand from retailers, higher
disposable incomes.

• Burgeoning IT and ITES industry

• Growing commercial property market

• Emerging hospitality or hotel industry due to the exceptional boom in inbound tourism
and the IT sector.
• Development of the special economic zones (SEZ).

35


3.2 Presentation of the information either in Tabular form and /
Graphical

What are Risk Analysis and Portfolio Planning?
Risk Analysis
Risk analysis is very important tool for portfolio planning, because each persons risk appetite is
different due to reasons like income level, age, mentality, financial goals and objectives. So
Portfolio planner must have to find out the risk appetite of the client with the help of RISK
ANALYSIS tool. By analyzing the risk of client the portfolio planner came to know whether the
client is AGGRESSIVE, MODERATE, and CONSERVATIVE.

Basic Types of Portfolios

In general, aggressive investment strategies - those that shoot for the highest possible
return - are most appropriate for investors who, for the sake of this potential high return, have a
high-risk tolerance (can stomach wide fluctuations in value) and a longer time horizon.
Aggressive portfolios generally have a higher investment in equities.

The conservative investment strategies, which put safety at a high priority, are most
appropriate for investors who are risk averse and have a shorter time horizon. Conservative
portfolios will generally consist mainly of cash and cash equivalents, or high quality fixed
income instruments. To demonstrate the types of allocations that are suitable for these strategies,
we'll look at samples of both a conservative and a moderately aggressive portfolio.

Note that the terms cash and the money market refer to any short-term, fixed-income
investment. Money in a savings account and a certificate of deposit (CD), which pays a bit
higher interest, are examples. (You can read more about the money market in the.)

36


1. Conservative portfolio: -

Conservative model portfolios generally allocate a large percent of the total portfolio to
lower-risk securities such as fixed-income and money market securities.

Your main goal with a conservative portfolio is to protect the principal value of your
portfolio. As such, these models are often referred to as "capital preservation portfolios".
Even if you are very conservative and prefer to avoid the stock market entirely, some
exposure can help offset inflation. You could invest the equity portion in high-
quality blue chip companies, or an index fund, since the goal is not to beat the market.

37


2. Moderately Conservative Portfolio: -

A moderately conservative portfolio is ideal for those who wish to preserve a large
portion of the portfolio’s total value, but is willing to take on a higher amount of risk
to get some inflation protection.

A common strategy within this risk level is called "current income". With this strategy,
you chose securities that pay a high level of dividends or coupon payments.

38


3. Moderately Aggressive Portfolio: -

Moderately aggressive model portfolios are often referred to as "balanced portfolios"
since the asset composition is divided almost equally between fixed-income securities
and equities in order to provide a balance of growth and income.

Since these moderately aggressive portfolios have a higher level of risk than those
conservative portfolios mentioned above, select this strategy only if you have a longer
time horizon (generally more than five years), and have a medium level of risk tolerance.

39


4. Aggressive Portfolio: -

Aggressive portfolios mainly consist of equities, so these portfolios' value tends to
fluctuate widely. If you have an aggressive portfolio, your main goal is to obtain long-
term growth of capital. As such the strategy of an aggressive portfolio is often called a
"capital growth" strategy.

To provide some diversification, investors which aggressive portfolios usually add some
fixed income securities.

40


5. Very Aggressive Portfolio: -

Very aggressive portfolios consist almost entirely of equities. As such, with a very
aggressive portfolio, your main goal is aggressive capital growth over a long time
horizon.

Since these portfolios carry a considerable amount of risk, the value of the portfolio will
vary widely in the short term.

41


Portfolio Planning

• After analyzing client’s risk appetite portfolio planner starts his actual work of Portfolio
Planning.
• Firstly portfolio planner finds out the goals and objectives of his clients for investing in
the right direction.
• Then he designs the investment of his client in stock market, mutual fund, insurance,
FD’s, realty investment and bonds etc. for making diversified portfolio.
• After designing the client’s portfolio, portfolio planner discussed his proposed
investment pattern with his client and after getting approval from him he actually invest
his money.
• After making investment, Portfolio Planner has the duty to keep regular watch on client’s
portfolio.

42


3.2Data Interpretation and Analysis

Sample Portfolio of different backgrounds, financial conditions, objectives and financial
goals –

To study the risk analysis, portfolio analysis and planning we need to study live cases to
understand how it works and beneficial in practical life. For this I decided to take live examples
of different persons with different objectives, financial conditions, objectives and goals.

Procedure for making Portfolio of the client –

• Fill up the Risk analysis and portfolio analysis of the client to know his/her personal and
financial details.
• Then analyze the Risk Appetite of the client.
• Then understand his/her financial goals.
• Then study the cash inflow and outflow pattern of the client.
• After this study the existing Investments of the client.
• Then prepare the Model investment Portfolio for client.
• After clients free consent for the proposed plan, invest his/her money according to that.
• After this keep regular watch on clients Portfolio and make necessary changes wherever
required.

43


Case.

________________________________

Personal Financial Plan

For

Mr. Satish Deshpande & Family

________________________________

44


Introduction
Goals and Objectives
Current Financial Situation

Assumptions

Cash-Flow Management
Risk management / Insurance planning
Education Planning
Retirement Planning
Investment Planning
Estate Planning
Tax Planning
Implementation / Action Plan
Appendix 1: Personal Data
Appendix 2: Personal Financial Fact-Finder

45


Introduction

Satish, you are 42 years old, married to Pushpa age 39 recently.

You are currently earning Rs. 1352000/- p.a. and main support for the family. Pushpa’s income
in mainly for her own savings and personal use. Within next 2-3 yrs she will stop her
consultancy and focus on your children’s education and home.

You are very keen on insurance part. And paying almost 200000/- premium p.a. Total 14
policies with sum assured Rs. 3815000. Majority of the policies are Endowment and few Term
Insurances.

Your Net worth analysis shows a net worth of Rs. 4590000/- Total Assets now in July 2008 are
Rs. 8182000/- and liabilities of Rs. 3592000/-

46


Your Objectives & Concerns

1. Cash Flow & Net worth Management
To have a significant cash flow surplus annually of around 15-18% of household
gross income in order to provide a funding source for all future wealth accumulation
targets. Any cash flow review should not significantly change your lifestyle.

2. Risk planning & Management
You want to have a complete family’s personal insurance program. This includes
covering all debts and having lump sums for generating income for the surviving
family members.

3. Education of both the children.
You have 2 sons. Your goal is to give them the Best quality of Education in best
colleges in India. By, retirement, you expect both of them to be independent and do
not need financial support.

4. Retirement Planning
You have some personal savings. Your goal is to retire at age 60. At that time you
want maintain the standard of living same as before retirement for yourself and
spouse. Lowering the standard is unacceptable. You are however not aware whether
the current recourses are adequate to provide retirement needs.

5. Investment Planning
Asset portfolio should grow at a rate, which supports the realization of the wealth
accumulation goals for financial freedom (retirement) and education for children.

47


6. Estate Planning
To have wills written for both husband and wife and to have a trust set up for the
child.

7. Tax Planning
To optimize tax savings under the Indian tax system. You are keen on using up all
personal tax relieves and rebates and to have good income reallocation planning.

Sub-Objectives

1. Good long term capital appreciation

2. Returns from investment should be tax free or with minimum tax

48


Current Financial Situation

Cash Flow Analysis

In-Flow Rs Out-Flow Rs.
Satish Income (after tax) 1,352,040 Tax Payment
Pushpa's Income (after tax) 165,000 Satish Tax 225,000
LIC Maturity 134,000 Pushpa's Tax 0
Dividend Received 20,000
Bank Interest 2,100 Subtotal 225,000
Standard of Living
Car loan installments (Honda City) 212,400
Car loan installments (Wagon R) 79,764
House loan installments 225,144
Personal Loan 235,392
Car maintenance 19,000
House maintenance 12,000
Credit Card payments 6,122
Eating out 48,000
Groceries 12,000
Travel 50,000
Utilities 60,000
Miscellaneous 69,500
Subtotal 1,029,322
Insurance Premium
Satish life insurance 108,264
Pushpa's life insurance 57,901
Vehicle Insurance 12,686
Other Insurance 21,000
Subtotal 199,851

Total 1,673,140 Total 1,454,173
Difference 218,967

49


Cash out Flow is

Satish's
Tax
Car loan installments
(Honda City)
Car loan installments
1% (Wagon R)
House loan
1% instalments
Personal
4% 15% Loan
7% Car
maintenance
5% House
maintenance
4% Credit Card
15% payments
3% Eating
1% out
Grocerie
3% s
5% Travel
0%
1% Utilitie
16% 15% s
1% Miscellaneo
us
Satish’s life
insurance
Pushpa’s life
insurance
Vehicle
Insurance
Other
Insurance

50


Net worth Statement – Current

Assets Rs. Liabilities Rs.
Liquid assets: Home Loan 1780000
Cash in hand 20000 Car loans 456000
Saving account 116950 Personal Loan 1356000
Fixed Deposits 0
Mutual Funds 776000

Sub Total 912950
Non-liquid assets:
Properties 3500000
Equities 200000
PPF 1005789
Cars 800000
Life insurance cash value 764053
Other Assets 1000000
Sub Total 7269842
TOTAL 8182792 TOTAL 3592000
NETWORTH 4590792

51


Net worth Statement – Current

Assets

0% Cash in hand
1%
Saving account
12% 9%
Mutual Funds
9%
Properties

Equities
10%
PPF
44%
Cars
13%
Life insurance cash
2% value
Other Assets

52


Risk Management/Insurance Planning

The current personal insurance summary is as follows:

Person Plan type Premium p.a. Insurance Cover
Mr. Satish Endowment + Term Insurance 92533/- 3815001/-
Mrs. Pushpa Endowment 56550/- 1142653/-
Master Umesh Unit Linked 6395/- 75000/-
Master Amey Unit Linked 6351/- 100000/-

The current property insurance summary is as follows:

Property Sum Assured

Current House Not Insured

Cars Adequately Covered

Other Household Assets Not Insured

53


Investment Planning

The following table lists out the portfolio of investment-grade assets currently owned and the
portfolio return rate:

Asset Rs Return Rate Weighted Return Rate
116,95
Saving Account 0 3.50% 0.14%
200,00
Equities 0 18.00% 1.26%
764,05
Life insurance Value 3 4.50% 1.20%
776,00
Mutual funds 0 15.00% 4.07%
1,005,78
PPF 9 8.00% 2.81%

2,862,79
Total: 2 Portfolio Return: 9.48%

Investments

4%
7%

35% Saving Account
Equities
27% Life insurance
Mutual funds
PPF

27%

54


Retirement Planning

There is currently no clear plan on retirement. You have not really focused on this aspect. It
seems that your major focus is on your current profession and you have not given a thought on
Retirement Planning.

Education Planning

It seems that you have not specifically allocated funds for education funding of your two sons.

Estate Planning

There is no arrangement of any nature including will and trust done, other than the nominations
done for Mutual funds and Insurance policies.

The other facts and data are collected in the “Personal Financial Fact-Finder” form as attached in
the Appendices.

55


Assumptions

Following are the assumptions based on the facts and discussions with you.

Your income will increase at the rate of 10 % per annum until age 60.

Spouse’s income will stop within next 3 years.

Rate of inflation at 7 % per annum based on government official rate on Consumer Price Index.
Equities investment rate of return at 18% p.a. on long-term basis.

Property investment rate of return at 10 % p.a. covering capital gain.

Investment-linked equities funds at rate of return of 15% p.a.

Investment-linked bond funds at rate of return of 7.5 % p.a.

Pre-retirement investment portfolio rate of return should be 12%

Post-retirement investment portfolio rate of return = 10%

56


Recommendations

Cash Flow Management

The current cash flow surplus is very low at around 2 Lacs per annum. Based on no change or
very minimal change in lifestyle, we have studied and done an analysis.

In recommending changes, we have kept in mind some basic principles:

Your lifestyle needs to be maintained as original as possible.
Any reshuffling of assets including paying off debts or loans must leave behind enough liquid
assets that cater to the 3-6 months’ of emergency buffer fund.

Our analysis and recommendations:

As you are living with your parents the household expenses are very much in control. We should
really appreciate that you don’t have any balance on credit card. In your routine outflow the
major contribution is of EMI of different loans. We will see any alternative available to reduce
the EMI contribution.

Car Loan (Honda City): - In this case the loan was taken in 2003. As it is higher end car the
loan rate is vary low. It comes out to be 6.7% only. So its better we should keep it as it is. The
loan will end in Aug 08

Car Loan (Wagon R): - This loan is also at lower side. Interest rate comes out to be 8%. Better
to continue this loan without any change.

House Loan: - In this case the interest rate is almost same with other banks so there is hardly
any scope for debt arbitrage.

Personal Loan: - This is taken from 3 banks at different time and at different rate. The average
interest rate of all 3 loans comes out to be 16%, which is slightly on higher side.
This is the area where we can think of repaying it earlier.
Total outstanding amount is Rs. 1356000/-

57


We have various options available to repay this loan.

Your Insurance portfolio shows that majority of the policies are of Endowment type and few are
Term insurances. We have taken out the Loan quotation for all those endowment policies. Total
Loan available is around Rs. 587000/-. Loan interest rate is 9%

Current value of your investment in Mutual Fund & Shares is Rs. 976000/- we have a product
called Loan against Securities. (LAS) current interest rate for that is 13%. We can pledge all the
investment in those against which 50% loan will be available. i.e. Rs. 488000/- will be available
at 13% we will utilize Rs. 450000/- from that. Surplus of Rs. 38000/- will be available which we
will not utilize as LAS is fluctuating on market, so it will act as buffer to adjust the market
condition.

Currently PPF has much more amount getting 8%. We will withdraw Rs. 319000.

Adding above 3 (587000+450000+319000) we will get Rs 1356000/-

We can close the personal loan from above amount.

Another important point is in LIC loan interest payment is mandatory (4.5 % of loan amount
half yearly) LAS is CC loan. Hence we can adjust the principle repayment in both the loans as
per our wish.

Considering that we will repay the principle also then equivalent EMI will be 11338/-

58


If the above reductions are implemented, the new cash flow statement will look like the
followings:

Cash Flow Statement - Revised

In-Flow Rs. Out-Flow Rs.
1,352,04
Satish’s Income (after tax) 0 Tax Payment
Pushpa's Income (after tax) 165,000 Satish Tax 225,000
LIC Maturity 134,000 Pushpa's Tax 0
Dividend Received 20,000 Others
Bank Interest 2,100 Subtotal 225,000
Standard of Living
Car loan installments (Honda City) 212,400
Car loan installments (Wagon R) 79,764
House loan installments 225,144
LIC Policy Loan 69,192
Loan Against Securities 66,864
Car maintenance 19,000
House maintenance 12,000
Credit Card payments 6,122
Eating out 48,000
Groceries 12,000
Travel 50,000
Utilities 60,000
Miscellaneous 69,500
Subtotal 929,986
Insurance Premium
Satish’s life insurance 108,264
Pushpa's life insurance 57,901
Vehicle Insurance 12,686
Other Insurance 21,000
Subtotal 199,851

1,673,14
Total 0 Total 1,354,837
Difference 318,303

59


Revised Cash Out Flow

Satish’s Tax
2% Car loan installments (Honda City)
Car loan installments (Wagon R)
1%
House loan installments
4% LIC Policy Loan
17% Loan Against Securities
8%
Car maintenance
House maintenance
5%
Credit Card payments
Eating out
4%
Groceries
16%
4% Travel
Utilities
1%
M iscellaneous
4% Satish’s life insurance
6% Pushpa’s life insurance
0%
Vehicle Insurance
1% 5% Other Insurance
17%
1%
5%

60


The new net worth statement after debt arbitrage will be as follows:

Net worth Statement – Revised

Assets Rs. Liabilities Rs.
Liquid assets : Home Loan 1,780,000
Cash in hand 20000 Car loans 456,000
Saving account 116950 LIC Policy Loan 587,000
Fixed Deposits 0 Loan Against Securities 450,000
Mutual Funds 776000

Sub Total 912950
Non-liquid assets :
Properties 3500000
Equities 200000
PPF 686789
Cars 800000
Life insurance cash value 764053
Other Assets 1000000
Sub Total 6950842
TOTAL 7863792 TOTAL 3,273,000
NETWORTH 4,590,792

Here, we can see a dramatic change in the cash flow surplus. From Rs. 2.18 Lacs surplus, we
now have a surplus of Rs. 3.18 Lacs, which can be used to fund your goals and objectives in life.
This surplus is necessary to do the funding, as current assets may not be sufficient to do the task.

61


Revised Asset

0% Cash in hand
1%
Saving
13 10
account
% % Mutual
Funds
10 Properties
%
Equities
10
% PPF

44 Cars
9% %
3% Life insurance
Value
cash
Other
Assets

62


Risk Management/Insurance

Personal Insurance

You are keen to upgrade your family’s insurance program so as to meet the goal and objectives.

Calculations for Sanjay’s sum assured :

• Death & Total and Permanent Disability

As you are the breadwinner of the Family, there are certain responsibilities that you have to
complete,

There are 2 types of liabilities, which we should consider while deciding the Sum Assured.

1. Legal Liability
2. Moral Liability

1. Legal Liability

Head Amount
House Loan 1780000
Car Loan 456000
Other Loans 1356000

Total 3592000

63


2. Moral Liability
a. Maintaining same life style of the family
Based on principal liquidated basis:
Family should get at least Rs. 20000/- Monthly, which will cover the pension of
spouse also.
Rate of Return: 8% (Risk Free)
Inflation: 5%
Inflation Adjusted Rate of Return: 2.86%
Principle amount req. today = Rs. 6644000/-

b. Education of your children
Present value of Future requirement of Education of both the children is calculated
which comes out to be: Rs. 854200

Mr. Sanjay Rs.
Legal Liability 3592000
Moral Liability 7498200
Less: Current insurance 3815001
Less: Net worth of family on investment 2543792
assets only i.e. S/A, Equities, Mutual
Funds, PPF, Cash Value of Insurance

Additional insurance required 4731407

64


For wife, the need of wife will be arbitrary as if something were to happen to her,
husband will continue working and supporting the remaining family. Therefore, sum
assured of half of husband’s amount (Moral Liability) i.e. Rs. 3700000 should suffice.

Wife Rs.
Total basic sum assured needed 3700000
Less: Current insurance 1100000

Additional insurance required 2600000

For the children, death cover will not be an important need as the financial loss to the
parents will be minimal. However, disability cover is needed and it is recommended that
disability income of Rs. 4000/- per month per child be given. To generate this income
perpetually with 8% (risk free rate), a basic sum assured of = Rs. 600000/- is
recommended for both the children

Education Planning

Table of cost for the degree program for Children.

65


Cost required for tuition fees and living expenses for degree course today’s is Rs.100000/- per
year & for Post Graduation is Rs. 200000/-
Considering 7% inflation in education amount required will be

Sr.no Year HE GR PG Umesh Amey Net req
1 2008 80000 100000 200000
2 2009 85600 107000 214000
3 2010 91592 114490 228980
4 2011 98003.44 122504.3 245008.6 98003.44 98003.44
5 2012 104863.7 131079.6 262159.2 104863.7 104863.7
6 2013 112204.1 140255.2 280510.3 140255.2 140255.2
7 2014 120058.4 150073 300146.1 150073 120058.4 270131.5
8 2015 128462.5 160578.1 321156.3 160578.1 128462.5 289040.7
9 2016 137454.9 171818.6 343637.2 171818.6 171818.6 343637.2
10 2017 147076.7 183845.9 367691.8 367691.8 183845.9 551537.8
11 2018 157372.1 196715.1 393430.3 393430.3 196715.1 590145.4
12 2019 168388.2 210485.2 420970.4 210485.2 210485.2
13 2020 180175.3 225219.2 450438.3 450438.3 450438.3
14 2021 192787.6 240984.5 481969 481969 481969

HE GR PG Total of EMI
For Umesh 202866 622724 761121

For Amey 248520 355663 932307

EMI for Umesh 4855 8041 4372 17,269/-

EMI for Amey 2533 2433 3372 8399/-
25608/-

Retirement Planning

Financial Independence by age 60
Retirement income projection by Expense Method:

66


From fact-finding discussion held with James, we list out all the expenses that they projected
they will incur when they retire. The amount of each expense is benchmarked at today’s price.
The future pricing is found by taking inflation into consideration at 7 % per annum. All the
figures are tabulated in the following table:

Retirement Income - Projection by Expense Method

Items needed when retired Today's annual cost Inflation rate Cost at age 60
Food 48000 6% 137008
Clothing 20000 7% 67598
Cars maintenance 19000 6% 54232
Personal maintenance 24000 7% 81118
Medical 10000 9% 47171
Groceries 12000 7% 40559
Travel 50000 6% 142716
Utilities 60000 5% 144397
Life insurance 200000 0% 200000
Entertainment 30000 7% 101397
Medical Insurance 20000 6% 57086
House maintenance 12000 5% 28879
Total 505000 2902161

The Expense Method is the more accurate method but relies quite heavily on the rate of
inflation.

67

50000
100000
150000
200000
250000

0
C Fo
od
ar C
Pe s
rs ma loth
on i i
al nte ng
m na
ai n
n t ce
en
an
M ce
ed
G i ca
ro
ce l
rie
s
Tr
av
Retirement

U el

68
Li
fe tili
in tie
Retirement

E n su r s
M t an
ed erta ce
H i c a i nm
ou l
se Ins ent
m ura
ai
n t n ce
en
an
ce


Finding the lump sum for retirement:

To find the lump sum to generate this projected retirement income is sufficient, we first select
the annual retirement income calculated from the Expense Method at Rs 2902161/-

Then we work into two scenarios on the length of time this income is needed.

Scenario 1: The principal intact scheme.
The Rs. 2902161/- annual retirement income is to be needed perpetually i.e. indefinitely. Here,
based on the inflation-adjusted discount rate I, we calculate the lump sum needed for such
inflation-adjusted income generation.

You need Rs 29021610/- to have this retirement income perpetually without liquidating any of
the principal amounts. The amount looks very high. In layman terms, this is the “deluxe
scheme”. The second scenario will be the “economy scheme”.

69


Scenario 2: Principal liquidation scheme.
The annual retirement income is to be needed for a certain number of years only – normally to
the end of the life span projected. Taking a life span of up to 80 years old + a safety margin of
10 years until age 90, we are taking a period of 30 years in which the lump sum accumulated at
retirement will be used up together with the interest income generated to provide the per annum
amount. Again here, based on the inflation adjusted rate of return i, we calculate the lump sum
needed for such inflation-adjusted income generation.

Assumptions: Rate of inflation, I = 7 %
Post-retirement rate of return in fixed income instruments, r = 10 %

We calculate the inflation-adjusted discount rate i = r – I / 1 + I
= 0.10 – 0.07 / 1 + 0.07
= 2.8037 %

Using financial calculator or table of values, where
n = 30
i = 2.8037 %
PMT = 2902161
FV = 0
Mode = BGN (as retirement income is needed at the beginning of each year)
PV = 59990371/-

Lump sum needed is about Rs. 59990371/-

70


Funding the entire lump sum

We now see if you can fund this amount within 18 years from now.

Funding the amount can come from 2 sources
Current net assets
Future cash flow surpluses

All the sources fund the accumulation phase as tabulated below:

Source Method Value 18 years
From now, at
11 % growth
rate
NOW – From revised net worth statement Amount is
Current net assets Rs. 2543792

16645437/-
(See Note 1 below)

Using calculator,
N = 18
I = 11 % M
PV =
Find FV

FUTURE a) Cash flow statement – revised with annual
surplus of Rs. 275000/- (After New Insurance
Coverage)

Using calculator,
N = 18 13858882/-
I = 11 %
PMT = 275000/-
Mode = End
Find FV N

TOTAL: (M + N) 30504319/-

Note: (1) The net value of cars is not taken into this figure, as cars are not investment grade
asset unless they are liquidated.

71


Our findings:

Satish will have 16645437 + 13858882 = Rs. 30504319/- by the time he retire.

Satish requires Rs. 66553950/- to fund by the “economy scheme” method based on current
situation.
Actual amount is short to meet the requirement, so the options are:

A higher post-retirement rate of return of higher than 10%. During retirement years, assets
should be invested in very low risk or zero-risk assets. So, this is not recommended.
Delay the retirement age from 60 to probably 63. However, this does not meet Satish original
objective and will be pursued only as a last resort.
Reducing the retirement income will meet the lower retirement lump sum.

Based on the risk profile questionnaire, Satish has that much risk appetite hence we recommend
the option (d) to adapt.

72


Investment Planning

To meet the desired retirement lump sum at age 60, the portfolio investment rate of return used
above is 12% for pre-retirement. However, based on the current portfolio, the portfolio return
rate is only 9.48%.

The portfolio needs to be restructured to the followings:

Asset Rs Return Rate Weighted Return Rate
Saving Account 116,950.0 3.50% 0.16%
Equities 1,346,000.0 18.00% 9.52%
Life insurance 764,053.0 4.50% 1.35%
Mutual funds - 15.00% 0.00%
PPF 316,789.0 8.00% 1.00%

Total: 2,543,792 Portfolio return: 12.03%

The recommendations are:

Based on the age and risk profile questionnaire, Satish has a moderate risk appetite. Hence the
Asset Allocation kept is:

Asset Class Amount %
Debt 1,197,792/- 47%
Equity 1,346,000/- 53%

As Equity portion has higher risk we suggest you to go for PMS activity, in which you will have
direct participation in equity market with professional advice.
As you have completed almost first 15 yrs in PPF and extended that account for next 5 yrs. You
will be able to withdraw Rs. 500000/-, which will invest in equity.
We will reallocate the mutual Fund amount to Direct Equity

73


The recommendations for Future Investment

Every year the surplus investment of Rs. 275000/- will be as below.

Asset Rs. Return Rate Weighted Return Rate
Saving Account 20,000.0 3.50% 0.25%
Time Deposits - 9.00% 0.00%
Equities 73,000.0 18.00% 4.78%
Mutual funds 72,000.0 15.00% 3.93%
Debt Funds 90,000.0 7.50% 2.45%
PPF 20,000.0 8.00% 0.58%

Total: 275,000 Portfolio return: 12.00%

This will keep the asset allocation same as required
We have added Debt Funds in your portfolio. They are almost liquid as saving account. But the
yield is almost double than the saving.

This restructured portfolio will give 12 % return in order to meet your accumulation goals.
However, such restructuring must meet the risk profile of you in which we have matched. If it
does not, the financial planner will need to discuss again with you again if they can arrive to
some acceptable conclusions which include but not limited to, making some changes to your
goals and objectives.

74


Restructured Existing Investment
Portfolio

12% 5%

0%
Saving Account
Equities
Life insurance
30% Mutual funds
53%
PPF

Future Investment
Portfolio

7% 7%

Saving Account
27% Equities
33%
Mutual funds
Debt Funds
PPF

26%

Asset Allocation

Debt

47%
53% Equity

75


Estate Planning

The need for estate planning centers more on will writing, trust creation and estate distribution.
A will is recommended to be written to instruct the trustees to distribute all wealth to the
beneficiaries as per the wishes of you should he be demised.

To ensure assets go to the right person(s), it is recommended that all nominations must be
properly done for all insurance policies and mutual funds.

76


Tax Planning

Tax relief & rebates

You are keen to maximize whatever relief and rebates you can get so that he can pay minimum
taxes.

You already have a taken a good care of Taxes
You have full advantage of Home loan interest repayment.
Life Insurance policies itself takes care of tax rebate u/s 80 C
As we have increased the Health Insurance premium you will be able to get full benefit u/s 80 D
Frequent Churning of shares used to generate Short Term Capital Tax. Now as per new
recommendation your equity portfolio will be handled by professionals, they will take good
stocks and hold them for at least more than a year. Hence Short Term Capital Tax will be
minimized.

77


Implementation/ Action Plan

What Who to do it Deadline
Apply for loan from LIC Client 1 July 08

Withdraw amount from PPF Client 1 July 08

Withdraw the amount from Mutual Client 1 July 08
Funds
Invest the amount in Equity Financial Planner 15 July 08

Apply for Loan against Securities Financial Planner 1 July 08

Complete the LAS Financial Planner 15 Sep 08

Repay the Personal Loan Client 20 July 08

To prepare and complete a Financial Planner 1 July 08
comprehensive insurance program for
the entire family
To review retirement planning goals Financial Planner + Client 10 July 08
and objectives
To restructure the current asset Financial Planner 15 July 08
portfolio from 9.48% to 12.0%
To get a will written and nominations Financial Planner 10 July 08
for others.
Review the portfolio Financial Planner + Client 15 Dec 08

78


Appendix 1

Personal Data

Area Satish Pushpa Umesh Amey

Birth date 1 Sep 1965 27 Mar 1967 19 Jan 1995 15 May 1998

Sex Male Female Male Male

Marital status Married Married Single Single

Address Same Same Same

Occupation Consultant Consultant Nil Nil

Employer Self Employed Self Employed Nil Nil

Income from Rs. 1352000/- per Rs. 165000/- per NA NA
employment annum annum

79


Chapter 4. Conclusion of the study

• Most of people unaware about Financial Planning.

• Mainly businessman & salaried person are more interested to do Financial Planning.

• Mutual fund advertisement not succeeds in creating awareness in the people.

• Most of investor does not know that how Portfolio Generate profit.

• People are more interested in investing in traditional Investment options like insurance,
FD, post.

80


Chapter- 5 Recommendations and suggestions

• Co. should have to increase awareness in the customers.
• Create a new tools and techniques which will easy to understand for clients.
• Co. has to use effective Medias that can appeal to the masses.
• Make those ads, which can educate customers about financial planning.

81


QUESTIONNAIRE

PERSONAL FACT FINDER
Date: 28-june-08

Name: - Satish Deshpande
Address

Phone No. Fax No.
Marital Marrie
Date of Birth 1-Sep-65 Status d

Relation Name Age Occupation
Spouse Pushpa 39 Self Employed
Child 1 Umesh 12 Education
Child 2 Amey 9 Education

Education Background B.E. MBA

Occupation Husband- Consultant
Wife- Consultant

Employer Self Employed

Q. Brief summary of your working experience?
Working as a Consultant from last 12 Yrs.

Q Personal legal Advisor Mrs. Godha
Q Personal Accountant Mr. Sandip Deshmukh
Q Personal Tax Advisor Mr. Sandip Deshmukh
Q Insurance Agent Mr. Deepak Kulkarni
Q Current Annual Income 1352000/-

Q Last 3 Years Annual Income
Year 2007-2008 1352000/-
Year 2006-2007 1217000/-
Year 2005-2006 1095000/-

Q What is the average annual increment rate?
10%

Q Average annual taxes paid in the last 3 years?
180000/-

Q Are income tax withheld appropriately from your employment income?

82


N/A

Q Are your income tax returns prepared by you or a professional accountant?
Professional Accountant

Q Do you file income tax jointly or separately with your spouse?
Separately

Q DO you have a personal retirement plan?
No

Q At what age do you want to retire?
60

Q What concerns you most about retirement?
Monthly Income

Q What does retirement mean to you?
Involving in Social Work, Traveling, Develop my personal hobbies

Q Do you expect to maintain, upgrade or reduce your pre-retirement standard
of living during retirement?
Maintain pre-retirement standard after retirement

Q Do you think your current retirement program provide adequately for your
Retirement income needs?
Don’t know

Are you willing to lower your standard of living during
Q retirement?
No

Q Do you have dependants you need to care for during retirement?
No

Q How much do you need now to maintain your current standard of living?
Minimum Rs 350000/- without considering loan repayment

Q What assets do you currently owned?
Two Cars
House

Q Are any property individually owned by you or your spouse?
Yes

Q What other investments have you invest in?
PPF, Shares, Mutual Funds

Q What is your opinion on the following investment?

83

financial planning in portfolio management

financial planning in portfolio management

Recommandé

Recommandé

Contenu connexe

Tendances

Tendances (20)

En vedette

En vedette (20)

Similaire à financial planning in portfolio management

Similaire à financial planning in portfolio management (20)

Dernier

Dernier (20)

financial planning in portfolio management