Welcome!

What is this workshop about?

Keep it Simple!

1. Term Life insurance 2. Emergency insurance 3 Health insurance 4. Accident insurance 5. Inflation insurance 6. Action Plan insurance

Cannot/ Don’t want to DIY? Avoid conflict of interest. Avoid anyone who gets a commission Seek out a SEBI registered investment advisor and invest in commission free products. Pay a flat fee! Ignore media reports, amc reports, bloggers AIFW, wealth coaches, wealth doctors etc. Work with the advisor regularly

Solutions for 20-somethings What % of your take-home pay is left after monthly expenses? Can you spare 5-10% of your take-home pay for an investment that will not touch? Save the rest for short-term needs and have fun!

Products-last Approach

A Personal Timeline ~ 5 years Invest Save Recurring Needs Non-recurring Needs ~ 5 years Save Invest

Step 1: Goals are different from dreams! “Get maximum returns!” I need something after 10 years. Today it costs Rs. 5 lakhs. After 10 years, I expect it to cost ~ Rs. 13 lakhs. How much should I invest each month and where should I Invest it, so that I have at least Rs. 13 lakhs (after tax) in about 8-9 years.

Source: ICICI Bank

What is an asset class? Stocks or equity - ownership Gold/Silver/Oil – commodities Fixed income: Bonds –deposits or debt Real Estate Cash Forex

Asset Allocation When should I invest in what asset class? What to expect from each asset class? What is the percentage exposure to each asset class necessary to achieve a certain financial goal? “Deciding on asset allocation for a financial goal”

Asset Allocation: The linchpin of an investment portfolio

Incorrect Risk vs Return Relationship! Standard Deviation

All Mutual Funds Debt + Equity

Equity: Sensex Annual Returns Increasing order

Higher risk does not imply higher return! Standard Deviation

Higher risk does not imply higher return! Short-term debt funds Gilt funds Equity mf Return Gold Risk Standard Deviation

ETFs trump active large-cap funds May 11 - HBL http://www.thehindubusinessline.com/markets/stock-markets/etfs-trump-active-largecap-funds/article9693628.ece

The Truth!

“The news is completely manipulated “The news is completely manipulated. Everything you hear, every single day is designed by corporate media to do one thing only. To keep you living in fear.”

Sensex Total Returns Index: 1979 to 2017

Why not have some equity exposure? Is not 5 years long-term?! A primer on volatility Annual Returns Year 1 Year 2 Year 3 Year 4 Year 5 10%

A lump sum investment in ICICI Top 100 Rs. 10,000 invested on 1st Jan 2003 would have grown to Rs. 1.19 Lakhs on Dec 31st 2014. Return = 22.91%

Annual Returns of ICICI Top 100

Understanding the 22.9% CAGR = 22.9%

Annual Returns of ICICI Top 100 Average: 29.3% Standard Deviation: 38.6%

What can I expect from ICIC Top 100? Average: 17.5% Stdev: 13.7% 17.5% +/- 13.7%

Illustration: Volatile Compounding Year 1 Year 2 Year 3 Year 4 year 5 CAGR 10% 10.00% Year 1 Year 2 Year 3 Year 4 year 5 CAGR 25% 7% 10.05% Year 1 Year 2 Year 3 Year 4 year 5 CAGR 25% -25% 7% 2.81% Year 1 Year 2 Year 3 Year 4 year 5 CAGR -25% 21% 9.96% Year 1 Year 2 Year 3 Year 4 year 5 CAGR -25% 7% -0.34%

Sensex Total Returns Index: 1979 to 2017 0% 10-30% 50-70%

Asset Allocation has to change with time 0% 10-30% 50-70% Financial Goal Planner with Flexible Asset Allocation

Sensex Staircase

Journey of a Mutual Fund SIP  Oct 2001, after 6+ years and 74 SIP installments, FIBCF had an XIRR of …..0%

A Mutual Fund SIP is Hope, Not a Strategy!

Anatomy of a bull market

Risk is inseparable from Returns

Asset Allocation When should I invest in what asset class? 0 -5 Years: Equity is too volatile and therefore risky. 100% - fixed income. 0-3 years: RD/FDs 3+ years: debt mutual funds

Asset Allocation When should I invest in what asset class? 5 -10 Years: Equity is still too volatile and therefore still too risky. 100% - fixed income. 30% Equity, 70% fixed income 40%+ Equity, rest fixed income

Asset Allocation When should I invest in what asset class? 10 Years +: Equity will always be volatile but risk can be managed with minimal effort. 100% - fixed income. 60% -70 Equity, 40%-30 fixed income. 100% equity

Asset Allocation What to expect from each asset class? Equity: 10% -12%. Max 14% +/- 4% (15Y +) Fixed income: 6-8% (post tax) Gold: 6-8% (post tax) (10Y +)

Expected Portfolio Return 60% Equity (12% return), 40% fixed income (7% return) (12% x 60%) +(7% x40%) =10% (post tax) … for a 10Y+ goal “Deciding on asset allocation for a financial goal”

A minimalist portfolio

Minimalist equity portfolios 1 large cap mutual fund + 1 mid/small cap fund 1 large and mid-cap fund 1 equity-oriented balanced fund

You cannot choose the right mutual fund! Do we have a review strategy in place?

Portfolio Management 101

Portfolio Management 201

Eight Steps to a healthy portfolio

Suggestion to 20-somethings Do not check your portfolio for first 3-5 years. Invest systematically and leave it be

It takes time!!

Check your portfolio only once a year! Get rid of that Moneycontrol app. It is evil! Avoid star ratings Avoid peer comparison

Review your portfolio once a year What is the net return of your portfolio? What is the net return of each asset class in the portfolio? What is the accumulated corpus worth? Are course corrections necessary? After a while returns do not matter!

Star Ratings

How to review a mutual fund SIP? XIRR Tracker

How to review a mutual fund SIP?

Have a de-risking strategy in place 1: Correct significant deviations from asset allocation once a year initially and then twice a year: Rebalancing

Annual Returns of ICICI Top 100

Rebalancing

Rebalancing

Asset Allocation Time Frame Conservative Moderate Risky Mad-Max < 5 Years FD/RD ~ 10% Eq 30-40% Eq > 60% Eq 7 Years 10-20% Eq 40-50% Eq >60% Eq 10 years 40% Eq 100% Eq Time Frame Conservative Moderate Risky Mad-Max < 5 Years FD/RD ~ 10% Eq 30-40% Eq > 60% Eq 7 Years 10-20% Eq 40-50% Eq >60% Eq 10 years 40% Eq 100% Eq 10-15 Years <40% Eq 60% Eq 80% Eq FD/RD 100% Eq >15 Years < 60% Eq 10-15 Years <40% Eq 60% Eq 80% Eq FD/RD 100% Eq >15 Years < 60% Eq

2 Asset Allocation has to change with time Financial Goal Planner with Flexible Asset Allocation

15 Years 40% Equity + 60% Fixed income 60% Equity + 40% Fixed income 1.5 years 5% Equity + 95% Fixed income 1.5 years 3 years 15 Years

Cannot/ Don’t want to DIY? Avoid conflict of interest. Avoid anyone who gets a commission Seek out a SEBI registered investment advisor and invest in commission free products. Pay a flat fee! Ignore media reports, amc reports, bloggers AIFW, wealth coaches, wealth doctors etc. Work with the advisor regularly

All that Glitters is not Gold!

View all price charts in log scale

Gold is extremely volatile!

Gold Bonds: 8-year rolling returns

Gold INR = Gold USD + Ex-rate