Cash

Debt

Equity
Sequence of Presentation
Asset Allocation

Live Example

Querries
 Why Financial Planning

• Cost of education and medical

Inflation increasing exponentially.

Rising Life • Expected to increase from 64

Expectancy to 75 years in coming decade.

Protect Lifestyle
• Protection against uncertainty.
of Family

Balanced Asset
• Investment and protection.
Allocation
 Asset Allocation Models

High

Balanced Growth
Risk

Preservation
Low

Income
of Capital
 Recent Regulatory Developments in
Indian Financial Sector
 SEBI Act 1972.
 Screen based trading.
 T+2 trading cycle.
 Derivatives trading.
 Demutualization.
 Depositories act.
 Indian capital market
 Primary
 Secondary.
 Equity brokerages.
 Industry outlook.
 Objective
Optimum
portfolio mix

Asset
Risk appetite Investor
of investor Allocation behavior
Model

Obtain maximum
returns with
minimum risk
 Model Methodology
Goal Setting.

Inflation Adjustment.

Saving Plan & Required Return.

Asset Allocation Decision.

Fitting the Portfolio for Investor.

 Goal Setting

For same
Amount Equals to
quality of
required at Goal
life at
retirement Amount
present
 Inflation Adjustment

Inflation
Goal
Amount
Inflation
compounding adjusted
amount
Saving Plan & Required Return

Goal
Amount
Savings No of
Plan Years

Required
rate of return
Asset Allocation Decision
Equity Allocation
• High Risk
• Approx return 20% per year.

Debt Allocation
• Medium Risk
• Approx return 10% per year.

Cash Allocation
• No Risk
• 5% in short term FDs.
 Fitting the Portfolio
Direct
Equity
Equity
Diversified
Equity MF

Govt /
Corporate
Total Debt
Bonds
Assets Income
Funds

Short Term
FD
Cash
Saving
Balance
Asset Allocation
Model in Excel
 Risk Appetite & Age
80

70
70

60

50

40
40 25-35
35-45
45-55
30

20
20

10

25-35 35-45 45-55

 Debt Equity Distribution
120

100

80

60 Cash
Debt
Equity

40

20

25-35 35-45 45-55

 Results and Findings

Young & Retirement

Mid Career
Early Threshold
High risk Medium No risk
appetite risk appetite

Dependent Maximum
No liability
Family savings

Maximum Balanced Protected

equity assets portfolio
 Recommendations
Annual rebalancing of
portfolio.

Avoid market timing.

Moderate mix of debt and

equity as per risk profile.

Growth stocks for young and

value stocks for old investor.