1. Investment Planning for college Students

2. Agenda Need for a Financial Plan What is Financial Planning? SMART Goals How to achieve financial goals? Risk Vs. Return The Power of Compounding Inflation Effects on Investments Savings vs. Investments Loans vs. Investments Investment Vehicles Investment Strategies How not to lose money?

3. Need for a Financial Plan Golden Rule – The more early you begin to manage your money the better it is. Objective –  To cut overspending  To learn to save  To achieve future financial goals Benefits –  Long time horizon to achieve goals  One can manage portfolio across time  One can invest in different products to suit different needs

4. What is Financial Planning? Financial planning means to plan your finances in which you identify your financial needs and objectives and then make investments accordingly to meet your requirements. It is important that one understands his financial needs or objectives and then plan how he can achieve these objectives or goals by making investments or by borrowing funds. Benefits –  You can prepare your monthly budget which will help you decide what investments you can make.  You can allocate savings efficiently to meet your financial needs.

5. Preparing your Monthly Budget Step 1:Specify all the possible sources of income you receive per month Step 2:Specify all the possible sources of expenses you incur per month Step 3: Now subtract your expenses from your income amount RESULT - If your income is greater than your expenses, you are planning your finances adequately. However, if your balance is negative, you need to start planning your finances right away. INCOME (in Rs.)EXPENSES (in Rs.) Pocket money1000College fees2000 Part-time assignment200Party expenses500 Prize100EMI1500 Stipend2500Lunch100 Cash gifts, if any-Travel Expenses500 Total3800Total4600 Balance- 800

6. Process of Financial Planning Step 1: Gather your financial data Step 2: Identify your financial goals Step 3: Identify financial issues or gaps Step 4: Prepare your financial plan Step 5: Implement your financial plan. Points to remember –  It is never too late to start.  Be honest to yourself while declaring your income and expenses  Learn to differentiate between your wants and needs  Identify your financial goals based on your needs  Reduce unnecessary expenses and save for your future  Do not overuse credit cards

7. SMART Goals Financial Goals have to be S - Specific M - Measurable, Motivated A - Achievable R - Realistic, Resource-based T - Time-bound, Traceable.

8. SMART Goals GOALSINCORRECT APPROACHCORRECT APPROACH Specific I need money to pay my college fees in a year’s time I will save the money of Rs. 50,000 to pay my fees at college MeasurableI will pay off my debts to my friends In the next six months, I will return Rs 3000 to my two friends for lending me their money. Achievable I will save money. I will save Rs. 2,000 each month by cutting down on eating out and partying. RealisticIf I save money I will be rich. If I save regularly, need not borrow more money, I can pay off my debts by next year and will have enough savings till I begin to earn. Time-boundI will save money for my vehicle I will save Rs.10000 a year for the next 2 years for my vehicle.

9. How to achieve financial goals? Typical Long-Term Goal Name: Pratik Age: 19 Profession: Student GoalsFor ? Target Date Amount Needed (Rs. in lakhs) How to Achieve? EducationFor selfDec 202105Loan + Cash Two-wheelerFor SelfDec 2022Savings + Investments MarriageFor selfDec 202410Plan through investments HouseFor selfJan 202830 Loan + investments and savings Total Amount--45

10. Risk vs. Return Points to remember –  The level of your returns depends on the level of risk you take.  Take necessary measures to manage your risk.  Monitor your investments  Update yourself about various market developments  Check the potential risks when quoted returns are unusually high Risk return profiles MeansChoice of Investments Conservative You take minimal risks ensuring your funds are secure Post office deposit schemes, bank fixed deposits, government bonds, Income funds Moderate You are willing to take some risks Balanced funds, blue-chip stocks Aggressive You are willing to take high risks Equity schemes Commodities, Corporate Bonds

11. The Power of Compounding Example 1: Suppose Anirudh (20) starts to invest Rs. 1000 every year. He stops to invest by the age of 30. How much can he expect to earn when he is 60? Example 2: Suppose Sunil (30) starts to invest Rs. 1000 every year till he turns 60. How much can he expect to earn when he is 60? Given that, the post-tax return per annum earned on their investments is 10%

12. The Power of Compounding – Who wins? Example 1: Suppose Anirudh (20) starts to invest Rs. 1000 every year. His total investment in 10 years would be Rs. 20000 Total Earning on Investment would be Rs. 355694 Total Rs. 335694 The growth on initial investment is 18 times Example 2: Suppose Sunil (30) starts to invest Rs. 1000 every year. His total investment in 30 years would be Rs. 30000 Total Earning on Investment would be Rs. 200138 Total Rs. 170138 The growth on initial investment is 6 times

13. Inflation Effects on Investment  Inflation is the rise in prices of a given basket of goods.  Let’s say the rate of petrol changes from Rs 40 to Rs 45, with no change in quality. Then the price difference indicates inflation Example: Mr. Shyam holds an investment portfolio worth Rs. 5, 00, 000 and expects to make returns close to 10% at the end of one year. At the end of one year, the price rise or inflation rate is at 8%. Compute the returns made after adjusting for inflation. Value of investment portfolio Rs. 5,00,000 Returns at rate of 10% eq. to Rs. 50, 000 Applicable Income tax rate (say higher tax bracket)30% eq. to Rs. 15, 000 Adjusted returns on portfolioRs. 35, 000 Rate of inflation08% eq. to Rs. 40, 000 Total adjusted returns on portfolio Rs. 5, 000 So, even though Mr. Shyam made a return of 10% on the portfolio, he makes a negative return of Rs. 5. 000. eq. denotes equivalent to.

14. Savings vs. Investments  Savings mean the funds you keep aside in safe custody like bank saving accounts  Investing means to purchase various financial instruments which will pay you a return on some future date  Savings is simply idle cash while investments help your funds to grow over a period of time  One can meet their short term needs with savings but to meet long term goals we need to make investments

15. Loans vs. Investments While Investing or purchasing a loan one should remember the following points –  It purely depends on your financial strength and other factors.  Credit card debts and personal loans are very costly  If you wish to apply for a loan check out interest rates and tax benefits  Choose the right investment products.

16. Investment Vehicles Choice of investment product must be dependent on your financial needs and objectives There are a number of investment vehicles available for investors -  Equity products – (shares of company, dividends, shareholder rights)  Debt products – (Subscription through primary markets, influenced by Interest rates)  Mutual funds – (diversification, professional management, SIP)  Insurance products – (cover against uncertain events) Every product differs from the other in terms of risk-return payoff, capital appreciation, liquidity for product in market, market operations etc.

17. Investment Strategies Investors should carefully plan their investments -  Every product differs from the other in terms of risk-return payoff, capital appreciation, liquidity for product in market, market operations etc.  Investors can implement a number of investment strategies to protect their portfolio from price risk like investing in financial derivatives  Investors should maintain liquid assets in case of emergencies and meeting short term needs  Investors should not get lured by rumors and peer pressure  Investors should understand the risks of investing in financial markets  Investors should carefully understand the business of the company before investing in the company’s investment products

18. How not to lose money? Investors can make it a point to remember the following aspects -  Updating oneself with the current happenings is a must for every investor  You should make a habit of analyzing your investments, valuing your investments and rebalancing your portfolio  In case of equity products you can keep a watch on stock prices and company fundamentals and performance  If you are investing in mutual funds, you can keep a watch on the daily NAV (Net asset value) of the particular fund  You can analyze your investments by looking at financial statements of the companies  Monitor your investments from the time of entry till the time of exit

19. Thank you for your attention Any questions?