Kuwait India extends extends A Hearty Welcome A Hearty Welcome to to Engineers/Members of the I.E.I (Kuwait Chapter) Engineers/Members of the I.E.I (Kuwait Chapter) Monday, May 10, 2010 Monday, May 10, 2010

Personal Financial Planning & Investment Strategy …. a presentation by R.Kuppanna, General Manager, Kuwait India International Exchange Co. May 10, 2010

Save, Invest & Grow Wealth How does one save, protect savings, plan finances, invest, build wealth? How does one save, protect savings, plan finances, invest, build wealth? Principles & Framework Principles & Framework Process : long term, systematic, patient, disciplined Process : long term, systematic, patient, disciplined A public opinion poll is no substitute for thought - - Warren Buffett

Risk – Return Graph

The Power of Compounding A sum of Rs. 100 invested would add up to: A sum of Rs. 100 invested would add up to: CAGR (%)/ YEARS Compounding, says Einstein, is “the eighth wonder of the world”

Investing Framework--Equities Intelligence vs. Independence Intelligence vs. Independence Top Down vs. Bottom-Up Approach Top Down vs. Bottom-Up Approach Preparation: Preparation: > generate alternatives > eliminate alternatives > eliminate alternatives > construct portfolio > construct portfolio Margin of Safety Margin of Safety Investor or Speculator? Investor or Speculator? ==================================================== Warren Buffet’s Rules :1. Do not lose money 2. Do not forget rule # 1

Qualitative Aspects Manage Greed & Fear Manage Greed & Fear Avoid emotional attachment Avoid emotional attachment Avoid actions based on hearsay/rumours/sentiments Avoid actions based on hearsay/rumours/sentiments Avoid over-leveraging Avoid over-leveraging Don’t try to time the market Don’t try to time the market An investment in knowledge always pays the best interest ……… Benjamin Franklin

Mutual Funds Suitable for those who: --don’t have wherewithal for research --don’t have wherewithal for research --have limited resources --have limited resources --have little time and --have little time and --still would like to benefit from equities --still would like to benefit from equities

Mutual Funds Not an alternative investment option to stocks/bonds Not an alternative investment option to stocks/bonds Pools monies of several investors and invests in stocks/bonds/other securities Pools monies of several investors and invests in stocks/bonds/other securities Owner of a mutual fund gets a proportional share of fund’s gains/losses/income/expenses Owner of a mutual fund gets a proportional share of fund’s gains/losses/income/expenses Derives the benefits of professional management, diversification, liquidity, affordability, convenience, flexibility, variety Derives the benefits of professional management, diversification, liquidity, affordability, convenience, flexibility, variety

Mutual Funds OBJECTIVEINVESTMENTS Equity (Growth) Stocks/Shares Debt (income) Fixed Income Securities Money Market Short-term Liquid Instruments Balanced Partly Stocks/Partly Fixed Income

Mutual Funds Types of Funds: Types of Funds: > Open-Ended (can enter/exit fund) > Open-Ended (can enter/exit fund) > Close-Ended (exit after scheme period) > Close-Ended (exit after scheme period) > Interval-Fund (entry/exit at periodical > Interval-Fund (entry/exit at periodical intervals (quarterly/half-yearly etc.) intervals (quarterly/half-yearly etc.)

Exchange Traded Funds (ETFs) What? –Investment Schemes whose units are listed on stock exchanges: after listing, traded like equity stocks What? –Investment Schemes whose units are listed on stock exchanges: after listing, traded like equity stocks ETFs have some underlying security or group of securities (like an index), commodities (like gold or oil) ETFs have some underlying security or group of securities (like an index), commodities (like gold or oil) Underlying securities determine the value of ETFs Underlying securities determine the value of ETFs

Gold ETFs Has gold as the underlying security Has gold as the underlying security Advantages: owning gold without the hassles of physically holding them—avoiding expenses, bank vault charges, insurance etc. Advantages: owning gold without the hassles of physically holding them—avoiding expenses, bank vault charges, insurance etc. No concerns of quality—gold backing from LMBA and stored in vaults; fund house takes care of all risks of storage and safety; minimal expense ratio No concerns of quality—gold backing from LMBA and stored in vaults; fund house takes care of all risks of storage and safety; minimal expense ratio Buying/Selling : Very Easy Buying/Selling : Very Easy

Typical Portfolios Depending upon one’s ability to take risk, portfolio compositions will vary. Table below captures these aspects. Illustrative only. Depending upon one’s ability to take risk, portfolio compositions will vary. Table below captures these aspects. Illustrative only. Risk Taking/ Asset Mix (%) High High Medium Medium Low LowEquity Debt SB/Liquid Funds Gold (ETFs,Bars)

Caveats All investments carry risk All investments carry risk Be clear about objectives of investing Be clear about objectives of investing Take informed decisions Take informed decisions No substitute for learning No substitute for learning Long-term orientation (systematic,disciplined) Long-term orientation (systematic,disciplined) Invest only savings that can be put away for a longer period Invest only savings that can be put away for a longer period Consult, seek advice….but act according to own judgment Consult, seek advice….but act according to own judgment

The Broken Window The art of economics consists in looking not merely at the immediate but at the long effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups – Henry Hazlitt The art of economics consists in looking not merely at the immediate but at the long effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups – Henry Hazlitt

The Trader Principle There is no conflict of interests among men who do not desire the undeserved, who do not make sacrifices nor accept them, who deal with one another as traders, giving value for value. The principle of trade is the only rational ethical principle for all human relationships, personal and social, private and public, spiritual and material. It is the principle of justice. The principle of trade is the only rational ethical principle for all human relationships, personal and social, private and public, spiritual and material. It is the principle of justice. -- Ayn Rand

Conclusion On a lighter note: On a lighter note: OCTOBER: This is one of the peculiarly dangerous months to speculate in stocks. The other months are July, January, September, April, November, May, March, June, December, August, and February. OCTOBER: This is one of the peculiarly dangerous months to speculate in stocks. The other months are July, January, September, April, November, May, March, June, December, August, and February. - Pudd'nhead Wilson's Calendar - Pudd'nhead Wilson's Calendar There are two times in a man's life when he should not speculate: when he can't afford it and when he can. There are two times in a man's life when he should not speculate: when he can't afford it and when he can. - Following the Equator, Pudd'nhead Wilson's New Calendar - Following the Equator, Pudd'nhead Wilson's New Calendar (Both quotes from Mark Twain)

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