Household Financial Planning

Rs. 1,000 per month to be invested till Age 60 (10% p.a.

compounded monthly)
Age- 55 Age- 40 Age- 30
Rs. 60,000 Rs. 240,000 Rs. 360,000

Age- 60 Age- 60 Age- 60

Rs. 78,000 Rs. 766,000 Rs. 2,280,000

(1.3 times) (3.2 times) (6.3 times)
A total investment of Rs. 60,000 (10% p.a. compounded
monthly)
Age- 55 Age- 40 Age- 30
Rs. 1,000 per month Rs. 250 per month Rs. 165 per month

Age- 60 Age- 60 Age- 60

Rs. 78,000 Rs. 191,000 Rs.380,000

(1.3 times) (3.2 times) (6.3 times)
 Financial Planning
• Three step process
– Family budgeting
– Self analysis
– Options available
Family Budgeting
 Advantages
• Expenses always increase at a higher rate than income
• Difficult to manage expenses even with a rising income level
• The long term impact of this is we keep on thinking about ongoing expenses
and do little planning about future events like retirement, house building,
insurance etc.
• The only solution to this is financial planning which starts with budget
tracking
• Helpful in pinpointing expense control areas
• May help initiate planning for longer term needs
• May help avoiding cash flow problems for current period as well as for
future
• Gives control over your life
 How to go about it?
• Expense Monitoring
• Categorize expenses into Fixed and Variable:
o Fixed Expenses- Cable, Education fees
o Variable Expenses- Clothing, Entertainment
• It is difficult to avoid or minimize fixed expenses, however, steps can be
taken to control variable expenses
• Set a threshold over which all expenses will be recorded
• Start noting down expenses on a daily basis
• Make budgets at the start of the month and compare it with the actual
expenses at the end of the month
• Once you start keeping track of current expenses start thinking about
future expenses and assume some amount for it while budgeting
• Need vs. Want
• Status symbol
• Reasonable quality of life
 How to go about it?
• Income Monitoring
• Categorize your sources of income
• Salary
• Profit from business
• Income from investments
• Compare your income with the expense budgets in order to
determine your savings. Keep some amount for contingencies
and think about where to invest the remaining amount
 Key to success
• Make budget on a regular basis and follow it strictly
• To start- make saving targets for each month
• Have a savings target and keep reviewing each month.
Push yourself to cut down expenses so as to save more
• Identify areas of expense cut down and work on it
• Involve all your family members including children
– Will create saving habits in children
– Create sense of ownership among all members
– If you expire they will follow your foot steps and spend
wisely
Self Analysis
 Self Analysis
• Once you have an idea of your savings you need to look for where to
invest. The first step will be defining your objectives
• Where are you know. Where do you want to be.
• Objectives
• Retirement Planning
• Children Education
• Children Marriage
• Starting a small business
• Buying a car/ motor cycle
• House Buying/Building
• Categorize goals
• Short-term
• Medium-term
• Long-term
• The category of goals will be one of your key considerations for
selecting the asset class
• Write your goals and see which ones are the most important. Prioritize
it.
 Self Analysis
Formulate strategies against each goal

Objective Time Horizon Priority Amount per

month
Children Education 3 Top Priority 500

Children Marriage 5 Second 1,000

Home Buying 10 Third 5,000

 Things to Remember
• Don’t put all your eggs in one basket. Diversify your
investments to mitigate the risk
• Asses yourself- how much risk you can take on. This
will help you determining the asset class to invest in
• Generally men and women have different perspective on investment
• Varies with age

• Determine your investment horizon

• Make sure that you have all the information to make
the decision
 Conclusion

Objective

Family
Budgeting
Investment Options
 Low Risk
• The following can be categorized as low risk investments:
• National Saving Schemes
• Banks Saving Schemes
• Income/Money market Mutual Funds
• National Saving Schemes
• Are considered the safest investments
• Provide guaranteed principle and income
• Can be encash on a very short notice
• Income is lower
• Don’t provide protection against inflation
• Certificates Types
• Defense Saving Certificates
• Special Saving Certificate
• Regular Income Certificate
• Bahbood Savings Certificate
 Low Risk- National Saving Schemes
Particulars Defence Saving Special Saving Regular Income Bahbood Saving

Term 10 years 3 years 5 years 10 years

End of term or early Semi – Annual basis Monthly Basis Monthly basis
Profit Payment encashment

Based on Number of 9% p.a. for first 5, 10.5%

Profit rate 9.45% 11.64%
Completed years for last installment

Early No profit if encashed No profit if encashed - -

Encashment within 5 yrs within first 6 months

Available Rs. 500, 1000, 5000 Rs. 500, 1000, 5000 Rs 50,000, 100,000 Rs. 5,000, 10,000
Denomination Rs 10,000, 50,000 Rs 10,000, 50,000 Rs 500,000 & 1000,000, Rs 50,000, 100,000
Rs 500,000 & 1000,000 Rs 500,000 & 1000,000 Rs. 5,000,000 & 10,000,000 Rs 500,000 & 1000,000

Service Charges
on early No No No No
encashment

Tax exempted if total investment does not exceed Rs. 10% withholding tax
Tax Status applies on profits in No tax is applied
150,000. Else a withholding tax 10% applies on profit
any case
Low Risk- National Saving Schemes
Income/Profit
Special Saving
Defense Saving Certificate
Certificate Year Value
Year Value 1 109,000 Year
1 107,000 2 118,000
2 116,000 3 127,750
3 126,000 Regular Income
4 138,000 Certificate
5 151,000 Year value
6 166,000 1 109,540
7 184,000 2 119,080
8 206,000 3 128,620
9 232,000 4 138,160
10 263,000 5 147,700
Bahbood Saving
Certificate
Value
1 111,640
2 123,280
3 134,920
4 146,560
5 158,200
6 169,840
7 181,480
8 193,120
9 204,760
10 216,400
 Low Risk- National Saving Schemes
• Service Charges

Regular Income Certificate Bahbood Saving Certificate

No of years from Service Charges No of years from Service Charges
purchase date (% of face Value) purchase date (% of face Value)

Less than 1 2.00% Less than 1 1.00%

1 -2 1.50% 1 -2 0.75%
2–3 1.00% 2–3 0.50%
3–4 0.50% 3–4 0.25%
4+ 0.00% 4+ 0.00%
Low Risk- Bank Saving Schemes (Soneri Bank)
Particulars Soneri Saving Soneri Sarmaya Golden Deposit
Certificate Certificate Certificates

Term 3 years 5 years 5 years

Semi – Annual basis End of term or early Monthly basis
Profit Payment encashment

10.0% Based on Number of

Profit rate 10.25%
Completed years

Early If encashed within

Encashment three months, no profit
payable
Available Multiple of Rs. 10,000 Multiple of Rs. 10,000
Denomination
Service Charges
on early No. However actual No. however profit will
encashment profit will be less than be lower than what was
originally contracted originally contracted

10% withholding tax 10% withholding tax 10% withholding tax

Tax Status applies on profits applies on profits applies on profits
 Low Risk- Bank Saving Schemes (Soneri Bank)
Income/Profit Special Notice Deposit Term Deposit
Account
Soneri Sarmaya Period Return (p.a.) Term Return
Certificate (p.a.)
Year Return 1 4.50%
(p.a.) 7 Days 4.00%
month
1 6.00% 30 Days 4.50%
3 5.00%
2 6.50% month
Soneri Savings Account
3 7.00% 6 5.50%
Balance Return
4 8.00% month
(p.a.)
5 9.50% 1 year 6.00%
Upto Rs. 25,000 1.00%
6 11.50% 2 year 6.25%
Rs. 25,000 to Rs. 1.0 4.00%
million 3 year 6.50%
Rs. 1.0 million to Rs. 10 5.00% 4 year 6.75%
million 5 year 7.00%
Over Rs. 10.0 million 6.00%
 Low Risk- Bank Saving Schemes (Soneri Bank)
Profit Adjustment for Golden Deposit Certificates
Golden Deposit Certificate
Duration from date of investment Return (p.a.)
Less than 3 months No profit is payable. Monthly profit already paid
to be adjusted from certificates proceeds
3 to 6 months 3 months term deposit profit less profit already
paid
6 months to 1 year 6 months term deposit profit less profit already
paid
1 year to 2 years 1 year term deposit profit less profit already paid
2 year to 3 years 2 months term deposit profit less profit already
paid
3 year to 4 years 3 months term deposit profit less profit already
paid
4 year to 5 years 4 months term deposit profit less profit already
paid
 Mutual Funds- Overview
– Common misconception- mutual funds have something to
do with the stock market
– Tax benefits
• Capital gains are tax exempted. So a return of 10% would effectively
mean a return of 11.11% (assuming individual tax rate 10%)
• Tax credit- lower of Rs. 300,000, 10% of taxable income, average tax
rate on the amount of actual cost of shares. However the condition is
shares have to held for a period of atleast 12 months
– Managed by professionals
– Offers a major advantage over other forms of investment. It
does not matter if you invest Rs. 1,000 or Rs. 1.0 million. The
return is the same. So especially beneficial for small investors
– Get access to money within three working days, so highly
liquid
– Regular statement/ text messages
 Mutual Funds- Considerations
– Fund’s ratings
• PACRA
• JCR-VIS
– Past performance- yield rate & dividends
• Past performance not a guarantee of future return but is an indicative
– Fund manager’s/ AMC rating
• Extremely important if fund is new and no track record
– Check variability in returns
– Peak-trough performance
• Worst period of results
• How long did it last
– Loads
• Bid offer spread
• Front end loads
• Back end loads
• Investment management charges
 Low Risk- Income/Money Market Funds
Dividend
Particulars Yield Management AMC Rating Fund Rating
Display
Rate Fee
(2006-07)

AMZ Plus Income 10.47% 1.25% 11.60% AM3+ JCR- VIS A(F) JCR – VIS
Fund
AKD Income Fund 9.99% 1.10% 3.19% AM3+ JCR- VIS Not Rated Yet
Faysal Saving Growth 9.81% 1.50% 1.25% AM3 JCR- VIS Not Rated Yet
Fund
Askari Income Fund 9.67% 1.50% 11.06% AM3 PACRA & A(F) JCR – VIS/ 5
JCR- VIS Star
KASB Liquid Fund 9.52% 1.30% 10.72% AM3+ PACRA Not Rated Yet
IGI Income Fund 9.42% 1.25% 1.95% AM3- PACRA Not Rated Yet
NAFA Cash Fund 9.40% 1.50% 10.50% AM2 JCR- VIS A(F) JCR - VIS
Alfalah GHP 9.32% 1.25% - AM3- PACRA Not Rated Yet
(Multiplier)
Dawood Money Market 9.29% 1.00% 10.91% AM3- PACRA 5 Star PACRA
Fund
MCB Dynamic cash 9.16% 1.50% 3.38% AM3- PACRA Not Rated Yet
Fund
 Medium Risk
• The following can be categorized as Medium risk
investments
• Asset Allocation & Balanced Mutual Funds
• Life Insurance Policies
• Investment in Gold
• Forex Investments
• Asset Allocation & Balanced Fund
Dividend Display
Particulars Management Fees Fund Rating
(2006-07)
NAFA Multi Asset Fund 2.50% 16.40% Not Rated Yet
Faysal Balanced Growth Fund 2.25% 18.00% 3 Star PACRA
Pakistan Capital Market Fund 3.00% 30.00% Not Rated Yet
Alfalah GHP Value Fund 2.50% 10.44% 5 Star PACRA
UTP (Balanced Fund) 2.00% 40.21% 5 Star PACRA
UTP Aggr. Asset Allocation Fund 3.00% 65.00% Not Rated Yet
 Medium Risk- Life Insurance
• Life Insurance
• Can provide protection against unforeseen events
• Can provide protection against inflation
• Can be encash on a very short notice
• Returns are generally more than lower risk assets

• Currently there are six life insurance companies operating in

Pakistan
• State Life
• EFU life
• NJI life
• American Life
• Metropolitan
• Pak-Qatar
 Medium Risk- Life Insurance
• With profit vs. unit linked policies
• Regulatory restrictions on return illustrations
• Investment strategy option
• Life insurance as pure saving vehicles-
regular premium vs. single premium
• Bancassurance vs. direct sales force
 Medium Risk- Gold
• Good long term investment
• On average has yielded a return of 40% p.a. in the last two
years and around 20% p.a. in the last 10 years.
• Amount invested not guaranteed
• Due to security concerns, might have to keep it in vault
lockers which has a cost. However even there is a risk
• Quality issues
• IS IT A GOOD TIME TO BUY THIS?
 Medium Risk- Gold
• Following shows the prices at some dates
Date Gold Prices (Per 10
Grams)
1 - January 2006 Rs. 10,072
30 – June – 2006 Rs. 12,773
31 – December – 2006 Rs. 12,488
30 – June - 2007 Rs.13,043
31 – December – 2007 Rs. 15,750
11 – March - 2008 Rs. 19,885
 Medium Risk
• Forex Investment
• The principle is not guaranteed
• Risk- once freeze by govt.
• Returns not extraordinary
• Foreign currency accounts- don’t give good returns
• Following shows the prices at some dates

Buying Price (Pak Rupees)

Date US$ UK Pound Bahraini Dinar Euro
30 – June -2007 60.9 121.5 160.2 81.8
31 – December - 2007 61.4 121.6 161.0 89.4
11 – March -2008 62.8 126.2 165.9 96.4
 High Risk
• The following can be categorized as High risk investments
• Investment in Equity Market
• Real Estate

• Investment in Equity Market- two ways to do this

• Invest in Stock Market- this is considered the most risky
investment. For those who want to take the equity exposure it is
suggested to invest in Equity Mutual Funds.
• Equity Mutual Funds
o Returns are not guaranteed and are highly volatile
o Can provide protection against inflation increase
 High Risk
• Equity Funds- Top performers in last year
Dividend Display
Particulars Management Fees Fund Rating
(2006 – 2007)
Crosby Dragon Fund 2.50% 38.00% Not Rated Yet
NAFA Stock Fund 3.00% 22.60% Not Rated Yet
KASB Stock Fund 3.00% 9.74% Not Rated Yet
AKD Opportunity Fund 3.00% 10.00% Not Rated Yet
Pakistan Stock Market Fund 2.00% 50.00% Not Rated Yet
AMZ Plus Stock Market Fund 3.00% 19.00% Not Rated Yet
United Stock Advantage Fund 3.00% 22.30% Not Rated Yet
Atlas Stock Market Fund 3.00% 20.00% 3 Star PACRA
MCB Dynamic Stock Fund 3.00% 25.00% Not Rated Yet
UTP A 30+ Fund 1.50% 25.00% Not Rated Yet
National Investment Trust 1.00% 62.00% 3 Star PACRA
 High Risk
• Real Estate
• Returns are not guaranteed and are highly volatile
• Not easy to buy or sell on a short notice
• Can provide protection against inflation increase
• Maintenance & transaction (both buying and selling) cost
• False documentation
• No regular income- especially as the price increases
• Fear
 CONCLUSION

• Ask your self why is the investment giving higher return than
others
• When you seek investment advice, talk about risk involved in
this investment, don’t talk about expected returns
• Call sales representative and discuss with them why your
competitor is offering higher returns or lower returns
THANK YOU
QUESTION
&
ANSWER