Professional Documents
Culture Documents
PROJECT REPORT
ON
SUBMITTED BY
AJAY PATEL
ROLL NO:-A/73
(2009-2011)
UNDER GUIDANCE OF
PROF.ADITI RODE
1
CERTIFICATE
This is to certify that Ajay Patel has completed the Project “Financial
Planning of An Individual Investor-A Case Study” under the guidance of
Prof. Aditi Rode in partial fulfillment of the requirements for the award of
Post Graduate Diploma in Management for the academic period 2009-11.
Place: Mumbai
Date:
2
Acknowledgement
gratitude to my guide Prof.Aditi Rode and Prof.Hansraj Chappar for mentoring me and
Mr.Pramod Kabade ,Mr.Ravi Gaikwad and Karvy Stock Broking Ltd. for providing me with
the infrastructure and valuable information for the project and ensuring support and
guidance.
contributed in their own individual capacity, however miniscule it may be, in the project
work.
AJAY PATEL
ATHARVA SCHOOL OF BUSINESS
PGDM
(2009-2011)
3
DECLARATION
Place-
Ajay Patel
4
EXECUTIVE SUMMARY
5
will be helpful for him to achieve his Financial Goals and with the
systematic investment approach recommended in the Plan one can
understand the effectiveness of Finacial Planning that helps a person to
create wealth.
TABLE OF CONTENTS
PARTICULARS
PAGE NO.
Chapter 1: Introduction of the Project
…………………....7
1.1: Introduction to Financial Planning
……………………….8
1.2: Need For Financial Planning
………………………9
1.3: Study of various factors
……………………….9
1.4: Comman Financial Mistakes ..
……………………..10
1.5: Project Objectives
……………………… 11
1.6: Significance of Study
……………………. 11
Chapter 2:Financial Planning in India
………………………….. 12
6
3.3: Understanding Risk Profile
………………………17
3.4: Asset Allocation
………………………..18
3.5: Implementation of Plan
……………………….20
3.6: Reviewing
……………………….20
7
Chapter 1 : Introduction to Financial
Planning
1.1 Introduction
Financial Planning is the process of meeting life goals through the proper
management of finances. Financial planning is a process that a person
goes through to find out where they are now (financially), determine where
they want to be in the future, and what they are going to do to get
there.Financial Planning provides direction and meaning to persons
financial decisions. It allows understanding of how each financial decision
8
a person makes affects other areas of their finances. For example, buying
a particular investment product might help to pay off mortgage faster or it
might delay the retirement significantly. By viewing each financial decision
as part of the whole, one can consider its short and long-term effects on
their life goals. Person can also adapt more easily to life changes and feel
more secure that their goals are on track.
Today in India financial planning means only investing money in the tax
saving instruments.This has led to a situation where people invest money
without really understanding the logic or the rationale behind the
investments made. Further the guiding force in investment seems to be the
‘rebate’ they receive from the individual agents and advisors.The more the
rebate an agent gives, the more smug person are in the belief that they
have made an intelligent decision of choosing the right agent who has
offered them more rebate. In the process what is not being realized is the
fact that the financial future is getting compromised.
9
Financial Planning is a process through which an individual can chart a
roadmap to meet expected and unforeseen needs in life. It is taking
necessary steps to ensure that the individual is equipped to accomplish
what he has set out to achieve and is prepared to deal with contingencies
as well. The importance of financial planning (especially in the present
scenario) cannot be overstated.
Risk Tolerance: Every individual should know what their capacity to take
risk is. Some investments can be more risky than others. These will not be
suitable for someone of a low risk profile, or for goals that require being
conservative. Crucially, one’s risk profile will change across life’s stages.
As a young person with no dependants or financial liabilities,one might be
able to take on lots of risk. However, if this young person gets married and
has a child, person will have dependants and higher fiscal responsibilities.
So persons approach to risk and finances cannot be the same as it was
when they were single.
Liquidity Needs: When does money is needed to meet the goal and how
quickly one can access this money. If investment is made in an asset and
expects to sell the asset to supplyfunds to meet a goal, then it needs to be
understood how easily one can sell the asset.Usually, money market and
stock market related assets are easy to liquidate. On the otherhand,
something like real estate might take a long time to sell.
10
Inflation : Inflation is a situation where too much money chases a limited
number of goods. This leads to a fall in the value of money. It is also
expressed as a rise in the general price level. For example, a product that
costs Rs 100 at present would cost Rs 105 a year from today, assuming
that prices rise at 5%. This is the impact of rising prices over one year; over
a 30-Yr period, assuming that inflation continues to rise at 5%, the same
product will be available at Rs432! Financial planning can ensure that one
is equipped to deal with the impact of inflation, especially in phases like
retirement when expenses continue but income streams dry up.
- Overspending
- Insurance follies
- Not creating Contingency fund
- Putting Off Financial Planning
- Not starting savings early and not realizing power of compounding
11
1.6 Concept & Significance of the Study
Financial Planning is an integral part of any individual life, especially in this
modern world where value of everything is expressed in terms of money.
The active working span of human life is short as compared to the life
span. This means people will be spending approximately the same number
of years in after retirement what they have spent in their active working life.
Thus it becomes important to save and invest while working so that person
will continue to earn a satisfying income and enjoy a comfortable lifestyle.
12
Chapter 2:Financial Planning in
India
13
Insurance Agents Insurance Policies
Indians have been making investment through such agents which was
restricted to a particular product.Apart from the above agent friends and
professionals like Chartered Accountant played an important role in
investment decisions. This is how for few decades investors have been
doing their Financial Planning.
However, financial services, especially on the retail side, have undergone a
major transformation and financial consumers are demanding a holistic &
comprehensive approach to their personal finance. Various factors have
catalyzed this change like privatisation of insurance and mutual fund
sectors has increased product options for the investor.
From the above table we can see that there is huge requirement of
professional financial planners in India who can honestly plan individuals
financial plan. CFPs are certified by Financial Planning Board of India.
14
15
Chapter 3 :Financial Planning
Process
3.1.Self assessment:
Clarify present situation, this is a preliminary step someone has to
complete prior to planning their finance. Doing a self assessment enable a
person to understand their present wealth status and responsibilities. Self
assessment should contain following
One should identify their wealth status prior to move with financial
planning.
16
the common needs that most individuals would have are creating enough
financial resources to lead a comfortable retired life,providing for a child's
education and marriage, buying a dream home, providing for medical
emergencies, etc. Once the needs/ objectives have been identified, they
need to be converted into financial goals. Two components go into
converting the needs into financial goals. First is to evaluate and find out
when it is needed to make withdrawals from investments for each of the
needs/ objectives. Then person should estimate the amount of money
needed in current value to meet the objective/need today. Then by using a
suitable inflation factor one can project what would be the amount of
money needed to meet the objective/ need in future. Similarly one need to
estimate the amount of money needed to meet all such objectives/needs.
Once person have all the values they need to plot it against a timeline.
IN A NUTSHELL
Once goals and current situation are identified, the short fall to achieve the
goal can be assessed. This short fall need to be covered over a period of
time to fullfill various need at different life stages. Since future cannot be
predicted, all the contingencies should be considered while doing financial
planning. A good financial plan should hedge from various risk. A flexible
approach should be taken to cater to changing needs and should be ready
to reorganize our financial plan from time to time.
17
product how much return it can generate that is shown but the risk factor
related to it is not disclosed and also the investment opportunities that are
shown are misleading.So it becomes very much important for an investor
to quantify his risk profile and accordingly one should invest in such
products.
• If one can afford to see significant erosion in his investments (say upto
50% of investments) in order to achieve the target return then that
makes him a High risk investor.
• If one is of the type, who can tolerate a dip in his investments only upto
a certain level (say upto 10%), then he is Low risk investor.
• Person between the above two condition has Moderate risk
profile,generally he can bear the erosion in investment upto 25-30%.
A person with High Risk Tolerance is generally advised by the experts with
following Asset Allocation
18
A person with Moderate Risk Tolerance is generally advised by the experts with
following Asset Allocation
19
A person with Low Risk Tolerance is generally advised by the experts with
following Asset Allocation
Following table shows the list of various investment options and risk
attatched to it.
Review of Investment Options
20
3.5 Implementation of Plan :
Until person put things into action everything is waste. Necessary steps
needs to be taken to achieve financial goals this may include gathering
necessary documents, open necessary bank, demat, trading account with
brokers and get started. In simple terms, start investing and stick to the
plan.
22
Savitri Gala Mother 4th April,1950 60 Yes
Financial Goals
23
Other Expenses 0
Other Deduction From Salary 0
Taxes -42,000
Total Expense 3,43,000
Excess (shortage) before 2,57,000
Savings
Savings
PF 0
Superannuation 0
Other Committed Savings(Towards 60,000
Charity)
Total 60,000
Discretionary Surplus 1,97,000
24
USE OF INCOME-Current Year
Commite Savings
Taxes
10%
7%
33% Living Expenses
NET WORTH
Total Net Worth is Rs.8,21,000.
ASSETS AMOUNT LIABILITIES AMOUNT
Liquid Assets Home Loans 0
Savings account 1,00,000 Vehicle Loans -4,08,000
Liquid funds 0 Education Loan 0
Financial Assets Personal/Credit Card 0
Loans
25
Cash value of life 1,76,000 Other Loans 0
insurance policies
Fixed interest 1,28,000 Total Liabilities -4,08,000
investments
Mutual funds 2,20,000
Others 0
Direct equity 25,000 Net Worth
Tangible Assets
Real estate 0
Other assets (eg. Art, 0
Coin and Stamp
Collections)
Gold 0
Personal Assets
Primary house 0
Vacation home 0
Car/Vehicle 0
Jewellery 3,60,000
Other personal assets 0
Retirement Assets Total Net Worth is Rs.8,21,000.
Provident fund 2,20,000
Superannuation 0
Gratuity 0
Public provident fund 0
Cash value of pension 0
plan
Total Asset 12,29,000
FINANCIAL GOALS
RETIREMENT GOAL
Annual
Expense
Retirem during Annual Expense
ent Retirem retirement at the time of
Start ent End (In Today’s Retirement(Futu Corpus
Year Year Value) re Value) Required
2038 2060 1,05,000 536,72 11,807,
26
7 996
OTHER GOALS
Goal Inflatio Today's In Goal Priori
Name Year n Rate Value Year ty
Contingency
Fund 2010 0% 140,000 140,000 1
3
Purchase of 2, ,546,29 2
House 2016 6% 500,000 8
2
Child ,779,95 3
Education 2028 10% 500,000 9
5
Child's 1, ,111,68 4
Marriage 2039 6% 000,000 7
Risk Profile
Assumptions
27
2. Retirement age of Ritesh Gala is 58 years.
3. Current year's surplus for the remaining year is Rs.1,97,000.
Assumed growth rate for Asset/Fund Classes (Growth rates are based on
long term historical returns)
Asset/Fund Class Assumed Growth Rate (%)
Cash and money market 6.5
Debt Investments 8
Index Funds 11
Large Cap Funds 12.3
Mid Cap Funds 13.45
Diversified Equity 12.55
Balanced Funds 11.25
Sectoral Funds 15
Real Estate 15
Art 14
Gold 8
International Equity Investments 14
Commodity 14
Direct Equity 12.5
Source:Sykes & Ray Financial Planners
GOAL FINANCING
28
GOAL 1 : EMERGENCY
1. Description
Name Inflation Goal Today’s Value In
Rate(%) Year Value Goal
Year
Emergenc 2010 1,40,000 1,40,000
y
2. Goal funding
a. Existing Assets
Name Amount Year
Bank Savings 1,00,000 2010
Account
Mutual Funds 40,000 2010
TOTAL 1,40,000 GOAL MET
29
Name Inflation (%) Goal Year Today’s Value in Goal
Value Year
Purchase of 6 2016 25,00,000 35,47,500
House
2.Goal Funding
a.Existing Assets
Name Amount Year Value in
Goal
Year(At 9%)
Bank FD 1,26,000 2010
Mutual Funds 1,80,000 2010
Direct Equity 25,000 2010
Total 3,31,000 5,55,087
b.Loans
Start Date Tenure Amount EMI Interest(%)
1st Jan,2016 10 15,00,000 15,000 11
Cumulative
Growth
Contributi amount Contribution from
Year on @9%
2010 157600 157600
2011 173360 345144
2012 190696 566903
2013 209766 827690
2014 230742 1132924
2015 253816 1488704
surplus recurring
by 10% every year
3.Total Funding
30
Source Amount
Existing Assets growing at 9% 5,55,087
Loan for 10 yr from 2016 to 15,00,000
2026
Contribution From Surplus 14,88,707 Goal
Total 35,43,794 Met
31
Name Inflation(%) Goal Year Today’s Value in
Value Goal Year
Child’s 10 2028 5,00,000 27,79,959
Education
2.Goal Funding:
a.Existing Assets
NIL
b.Contribution From Surplus
Available
Surplus For Contribution Growth
Year Each Year From Surplus Amt@9%
2016 233,625 140000 140000
2017 255,276 140000 292600
2018 277,390 140000 458934
2019 299,894 140000 640238
2020 322,701 140000 837859
2021 345,703 140000 1053267
2022 368,775 140000 1288061
2023 391,767 140000 1543986
2024 414,504 140000 1822945
2025 436,782 140000 2127010
2026 458,364 140000 2458441 Goal
2027 478,975 140000 2819701
Met
32
1.Description
2.Goal Funding
a.Existing Assets
NIL
Available Contributio
Surplus Each n From Growth
Year Year Surplus @10%
205,70
2021 3 115000 115000
228,77
2022 5 115000 241500
251,76
2023 7 115000 380650
274,50
2024 4 115000 533715
296,78
2025 2 115000 702087
318,36
2026 4 115000 887295
338,97
2027 5 115000 1091025
498,30
2028 0 115000 1315127
515,97
2029 5 115000 1561640
531,58
2030 5 115000 1832804
33
724,65
2031 4 115000 2131084
734,64
2032 3 115000 2459193
740,93
2033 4 115000 2820112
742,83
2034 1 115000 3217123
739,54
2035 2 115000 3653835
730,17
2036 2 115000 4134219
713,71 Goal
2037 0 115000 4662641 Met
689,01
2038 6 115000 5243905
Recommended Portfolio 1
Direct Equity
5%
20%
30% Diversified
Equity Funds
Debt Fund
45%
Gold
34
Recommended Portfolio 2
Debt
20%
Large Cap
45% Funds
15% Diversified
Equity Fund
Balance Fund
20%
2. Goal Funding
a. Existing Assets
Illustration:-
35
paid
Total Funding
Endowment Plan 13,72,859
Contribution From
Total Surplus(MFs) 6,10,000
Total 19,82,859 Goal Met
36
GOAL 6 : RETIREMENT CORPUS
1.Description
2.Goal Funding
Contributi Cumulativ Contributio
on e n Cumulative
Recurring Growth@1 Recurring Growth@10
YEAR @ 10% 0% YEAR @ 10% %
2016 55000 55000 2031 229749 3675978
2017 60500 121000 2032 252724 4296300
37
2018 66550 199650 2033 277996 5003926
2019 73205 292820 2034 305795 5810114
2020 80526 402628 2035 336375 6727500
2021 88578 531468 2036 370012 7770262
2022 97436 682051 2037 407014 8954302
2023 107179 857436 2038 447715 1,02,97,448
2024 117897 1061076
2025 129687 1296871
2026 142656 1569214
2027 156921 1883057
2028 172614 2243976
2029 189875 2658249
2030 208862 3132936
Total Funding
Yearly 10% Recurring 1,02,97,448
Contribution
Contribution From Total 15,10,548
Surplus(MFs)as on 2038 Goal
Total 1,18,07,996
Recommended Portfolio
10%
20% Direct Equity
Equity MF
40% Debt
30% Gold ETFs
38
Recommended Portfolio Return:- 10%
Less:Commit
Ag Less:Total ed
Year e Salary CTC Exp Savings Cash Surplus
2010 30 600,000 343,000 60,000 197,000
2011 31 642,000 362,800 64,200 215,000
2012 32 686,940 384,580 68,694 233,666
2013 33 735,026 408,538 73,503 252,985
2014 34 786,478 332,892 78,648 374,938
2015 35 841,531 361,881 84,153 395,497
2016 36 900,438 576,769 90,044 233,625
2017 37 963,469 611,846 96,347 255,276
2018 38 1,030,912 650,431 103,091 277,390
2019 39 1,103,076 692,874 110,308 299,894
2020 40 1,180,291 739,561 118,029 322,701
39
2021 41 1,262,911 790,917 126,291 345,703
2022 42 1,351,315 847,409 135,131 368,775
2023 43 1,445,907 909,550 144,591 391,767
2024 44 1,547,120 977,905 154,712 414,504
2025 45 1,655,419 1,053,095 165,542 436,782
2026 46 1,771,298 1,135,805 177,130 458,364
2027 47 1,895,289 1,226,785 189,529 478,975
2028 48 2,027,959 1,326,864 202,796 498,300
2029 49 2,169,917 1,436,950 216,992 515,975
2030 50 2,321,811 1,558,045 232,181 531,585
2031 51 2,484,337 1,511,249 248,434 724,654
2032 52 2,658,241 1,657,774 265,824 734,643
2033 53 2,844,318 1,818,952 284,432 740,934
2034 54 3,043,420 1,996,247 304,342 742,831
2035 55 3,256,460 2,191,272 325,646 739,542
2036 56 3,484,412 2,405,799 348,441 730,172
2037 57 3,728,321 2,641,779 372,832 713,710
2038 58 3,989,303 2,901,357 398,930 689,016
40
2016 23 - 1400 - 55000 38
3,625 00 ,625 626250
2017 25 - 1400 - 60500 54
5,276 00 ,776 743651
2018 27 - 1400 - 66550 70
7,390 00 ,840 888856
2019 29 - 1400 - 73205 86
9,894 00 ,689 1064431
2020 32 - 1400 - 80526 102
2,701 00 ,175 1273049
2021 34 - 1400 11500 88578 2
5,703 00 0 ,125 1402479
2022 36 - 1400 11500 97436 16
8,775 00 0 ,339 1559066
2023 39 - 1400 11500 107179 29
1,767 00 0 ,587 1744559
2024 41 - 1400 11500 117897 41
4,504 00 0 ,606 1960622
2025 43 - 1400 11500 129687 52 1598778
6,782 00 0 ,095 *
2026 45 - 1400 11500 142656 60
8,364 00 0 ,708 1819364
2027 47 - 1400 11500 156921 67
8,975 00 0 ,054 2068354
2028 49 - - 11500 172614 325
8,300 0 ,686 2600876
2029 51 - - 11500 189875 326
5,975 0 ,100 3187064
2030 53 - - 11500 208862 322
1,585 0 ,722 3828492
2031 72 - - 11500 229749 494
4,654 0 ,906 4706247
2032 73 - - 11500 252724 481
4,643 0 ,919 5658791
2033 74 - - 11500 277996 462
0,934 0 ,938 6687608
2034 74 - - 11500 305795 437
2,831 0 ,036 7793405
2035 73 - - 11500 336375 403
9,542 0 ,167 8975912
2036 73 - - 11500 370012 360 1023366
0,172 0 ,159 2
2037 71 - - 11500 407014 306 1156372
3,710 0 ,696 5
2038 68 - - 11500 447715 241 1145085
9,016 0 ,301 0**
NOTE – * Rs.6,10,000 will be withdrawn to fund the Purchase of Car in the year 2025.
** Rs.15,10,548 will be withdrawn to fund the Retirement Corpus in the year 2038.
41
The above Cash Flow shows the balance amount left after all the
contribution made to achieve the desired goals.The balance
amount need to be invested as per the recommended portfolio
to generate compounded return of 10% p.a.
Recommended Portfolio
Large Cap
15% Funds
Balanced Fund
45%
20%
Gold ETFs
20% Debt
Details Amount
Retirement Corpus 1,18,07,996
Surplus Amount/Portfolio Value 1,21,61,398
Amount Generated For Charity** 1,32,18,107**
Total 3,71,87,501
NOTE- **Amount Generated for Charity by investing 10% of salary every year into Debt
Fund,starting from 2010.
42
Chapter 5
Conclusion and Recommendations
1.Protection Planning
a.Life Insurance
Mr.Gala has taken Life Coverage of Rs.20,00,000
Based on the Financial Need Analysis(Annexure 2) Mr.Gala is
underinsured by Rs.14,00,000/- So,it is recommended to increase
the Life Coverage by taking additional Term Plan for the same.
b.Health Insurance
Based on the details provided by Mr.Gala it has been observed
that Mr.Gala has not taken Health Insurance Plan for his
mother,which may impact his Financial health in future.So it is
recommended to take health insurance for his mother.
43
ANNEXURE 1
RISK PROFILING QUESTIONNAIRE
Q1. I generally prefer to stay in a familiar situation, rather than take a
chance on a new situation.
Strongly agree Somewhat disagree
Somewhat agree Strongly Disagree
Q2. You have won a prize. It comes in three options. Which options would
you choose?
Rs. 10,000 in cash A 50% chance to win Rs. 50,000
A 20% chance to win Rs. 2,00,000
Q3.Which of the following statement describes your future income with
respect to expenses?
My income from my occupation is likely to increase substantially with respect
to my expenses comfortably in coming years
My income from my occupation is likely to meet my expenses comfortably in
the coming years.
My income in coming years, will just meet my expenses.
In coming years, my income will not be sufficient to meet my expenses.
Q4. A substantial part of your savings is in…
Shares. Bank deposits.
Mutual funds. No savings.
Q5. You prefer to invest in stocks that....
Rise slowly and steadily. Show a volatile behaviour,but give
high returns.
Q6. Describe your investment knowledge...
Excellent Good Average Poor
44
Q7. How much time do you spend monitoring your investments?
Almost Never Regularly
Occasionally When I need to sell assets to raise some
money
Q8. Time period after which major expenditure expected
Less than a year 1 to 3 years
3 to 5 years More than 5 years
Q9. How important is your income from investments, to pay your monthly
expenses?
Essential Somewhat Important
Very Important Not Important
Q10. How much of your income do you save each month?
None Under 5% 5 to 15% Above 15%
Q11. Apart from self, you are financially responsible for
None
Older parents
45
ANNEXURE – 2
46
Bibliography
Websites
http://www.itrust.in/financial-planning/article.action/What-Is-
Financial-Planning-India
http://wealth.moneycontrol.com/
http://www.arkfp.in/financial-freedom.aspx
http://www.ppfas.com/products-services/financial-
planning/index.php
http://myiris.com/mutual/riskProfile/masterindex.php
http://www.srefp.in/
http://www.personalfn.com/financial-planning/financial-planning-
overview.aspx
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