2. Whose Money is It Anyway?

3. Winning in personal finance 1 2 3

4. Personal Finance Approaches Tax-savings first Product-first Returns-first Needs first Products-last Tax-planning incidental Goal-based investing

5. What is goal-based investing?

8. Permanent loss in capital

10. We cannot expect more because we cannot invest enough!

11. With 8% inflation 12% return  5000 monthly investment 6% return  ~10,000 monthly investment What if I invest 10,000 pm in an instrument that offers a real chance to beat inflation?

12. Returns do not matter!

13. Your Retirement Other long-term goals Accident insurance Term Life insurance Emergency insurance Health insurance Inflation insurance

14. Cash Flow Analysis: Creating a Zero-based budget Zero-based budget: “One in which every dollar is assigned a role” – Dave Ramsey No money left at the end of the month! Live ‘hand to mouth’ because of investing! No lump sums allowed!

15. Zero-based budget Step 1: List all sources of income Step 2: List all monthly expenses Step 3: List all annual/recurring expenses Step 4: List present and future liabilities Step 5: List present investments (incl EPF) Step 6: Determine amount available for investment (incl EPF)

18. Power of non-compounding Power of compounding does not matter for ~ 5Y or less

19. Inflation in India: Some Real Numbers Jan 1995 to May 2014

20. Why not have some equity exposure? Is not 5/7 years long-term?!

21. Year 1Year 2Year 3Year 4Year 5 10%9%8%7%6% Year 1Year 2Year 3Year 4Year 5 10%

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

23. Liquid Mutual Funds Savings bank account linked to bond market Invests in short-term bonds (4- 91 days) Sensitivity to interest rate change: low Risk of default: low Least volatile among volatile asset classes

24. xxxx Liquid Fund

25. Average Arithmetic average ~ 7% Standard deviation ~ 2% CAGR ~ 7% (12 year) Difference ~ 0.02% xxxx Liquid Fund

26. 200220032004200520062007200820092010201120122013 7.14.964.365.36.58.128.95.295.158.89.569.28 5.644 5.848 6.636 6.822 6.792 7.252 7.54 7.616 Discrete Rolling Return Understand risks before investing

27. Continuous Rolling Return- 2Y 2048 Two year intervals bet April 3rd 2006 to Dec 4th 2014 April 3 rd 2006 to April 2 nd 2008 April 4 th 2006 to April 3 rd 2008 April 5 th 2006 to April 4 th 2008

28. Continuous Rolling Return- 2Y

29. Debt oriented balanced funds ( 65% equity) AMC suggests investment horizon 3-5 years

30. 1 year rolling returns

31. 3 year rolling returns

32. 5 year rolling returns

33. 7 year rolling returns

34. 10 year rolling returns

35. Asset Allocation Time FrameConservativeModerateRiskyMad-Max < 5 YearsFD/RD~ 10% Eq 30-40% Eq> 60% Eq 7 YearsFD/RD10-20% Eq40-50% Eq>60% Eq 10 yearsFD/RD40% Eq>60% Eq100% Eq Time FrameConservativeModerateRiskyMad-Max < 5 YearsFD/RD/Debt~ 10% Eq 30-40% Eq> 60% Eq 7 YearsFD/RD/Debt10-20% Eq40-50% Eq>60% Eq 10 yearsFD/RD/Debt30-40% Eq>60% Eq100% Eq

36. Understanding the nature of stock market returns

38. Sensex Total Returns Index: 1979 to 2013

40. 5%

41. S&P 500 Total Returns Index: 1871 to 2013 Source: http://www.moneychimp.com/features/market_cagr.htm 12%

42. Sensex Total Returns Index: 1979 to 2013

43. Higher risk does not imply higher return! Return Risk Standard Deviation

44. Higher risk does not imply higher return! Return Risk Standard Deviation FD Debt mfEquity mf Gold

45. How Important is Mutual Fund Selection?

46. Large Cap Funds Computed with SIP calculator, thefundoo.com

47. Large Cap & Large/Mid-Cap Funds Computed with SIP calculator, thefundoo.com

48. Large Cap, Large/Mid-Cap & Mid/Small-Cap Funds Computed with SIP calculator, thefundoo.com

49. Lump sum returns

50. Essentials of a good portfolio Minimalist : We must be able to justify the presence of each asset class or instrument. Minimum number of asset classes Minimum number of stocks, equity funds or debt products This will typically make the folio diversified among and within asset classes

51. Simple portfolio ideas Equity (60%)  10% return 1.Single Large Cap fund or 2.One large cap +one mid/small cap fund or 3.Single Large and mid-cap fund or 4.Single equity oriented balanced fund Debt (40%)  8% return (pre-tax) PPF for 15+ Y goals for options 1,2 & 3 (do not max!) Short-term debt funds for less than 15Y goals or Banking debt mutual funds Long-term goals (10+ years)

52. Simple portfolio ideas Equity (0-40%)  8% return 1.Single Large Cap fund or 2.One large cap +one mid/small cap fund or 3.Single Large and mid-cap fund or 4.Single equity oriented balanced fund or 5.Single debt oriented balanced fund Debt (100-60%)  8% return (pre-tax) Short-term debt funds for less than 15Y goals or Banking debt mutual funds Medium-term goals (5-10 years)

53. Simple portfolio ideas Equity (0-10%)  expect nothing! 1.Single Large Cap fund or 2.One large cap +one mid/small cap fund or 3.Single Large and mid-cap fund or 4.Single oriented debt balanced fund (5Y) Debt (100-90%)  6-7% return (pre-tax) FDs, RDs or Short-term debt funds for less than 15Y goals or Banking debt mutual funds Short-term goals (0-5 years)

54. Return expectation Equity allocation  60% Debt allocation  40% Equity expectation  10% (after tax) Debt expectation  6-7% (after tax) Portfolio expectation 10%(60%) + 7%(40%) = 8.8% (approx.) Investments are assumed to start simultaneously

55. Years to goal Present cost Inflation Post-tax rate of return of portfolio8.8.00% Future Cost Amt invested so far Post-tax rate of return on current investment Future value of curr. Inv. Annual increase in monthly invest. % Initial monthly investment required Annual increase in monthly invest. % Initial monthly investment required Goal Planner

56. How many funds should I hold? Minimum: 1 fund! (all goals combined into one) Maximum: No of long-term goals (10Y+) x (1 or 2)

57. How to select an equity mutual fund? Decide on the strategy. (1)Why are you investing? (2) What kind of portfolio will you be using?

58. Equity mutual funds: How to select/evaluate

60. Upside Capture ratio: When the benchmark has given a positive return (> 0), has the fund outperformed it? Higher (> 100%) the upside capture ratio, the better. UPC = 120% => 20% out-performance during up-market Downside Capture Ratio: When the benchmark recorded a loss, that is a negative return (< 0), did the fund record a lower or higher loss? Lower the downside ratio (<100%), the better. DCP = 85% => 15% out-performance during down-market

61. Equity mutual funds: How to select/evaluate

62. Source: http://thefundoo.com/welcome/articlepage/44/Are+you+invested+in+the+Ideal+Outperforming+schemes%3F

63. Rolling returns analysis 3Y Fund (blue) Vs benchmark 5Y

64. Retirement Planning

68. Corpus ~ 300 times current annual expenses Corpus ~ 38 times annual expenses at retirement

71. Invest as much as you spend each month for retirement!

73. Financial Goal Tracking Be obsessed over goal planning entries not over mutual fund corpus

74. Asset Allocation

76. Portfolio with 50% equity and 50% debt

77. Asset Allocation

78. Maximum Loss: worst case scenario

79. Asset Allocation Time FrameConservativeModerateRiskyMad-Max < 5 YearsFD/RD~ 10% Eq 30-40% Eq> 60% Eq 7 YearsFD/RD10-20% Eq40-50% Eq>60% Eq 10 yearsFD/RD40% Eq>60% Eq100% Eq 10-15 Years<40% Eq60% Eq80% Eq FD/RD 100% Eq >15 Years< 60% Eq60% Eq80% Eq FD/RD 100% Eq Time FrameConservativeModerateRiskyMad-Max < 5 YearsFD/RD/Debt~ 10% Eq 30-40% Eq> 60% Eq 7 YearsFD/RD/Debt10-20% Eq40-50% Eq>60% Eq 10 yearsFD/RD/Debt40% Eq>60% Eq100% Eq 10-15 Years<40% Eq60% Eq80% Eq FD/RD 100% Eq >15 Years< 60% Eq60% Eq80% Eq FD/RD 100% Eq

80. How to select a debt mutual fund? Understand risks interest rate risk  capital gain/loss credit risk  risk of default

81. How to select a debt mutual fund? Interest rate risk Credit risk Maturity period of bonds in portfolio

82. How to select a debt mutual fund?