DEV BHOOMI UTTARAKHAND UNIVERSITY

DEHRADUN, UTTARAKHAND, INDIA

PROJECT REPORT
On

Role of Financial planning in

achieving life goals

Submitted for partial fulfilment of

the requirement for the award Of

BACHELORS OF BUSINESS
ADMINISTRATION

Batch 2021-24

SUBMIT BY :

NEERAJ KUMAR BHARTI SUBMITTED TO :

MISS SWATI UNIYAL
CERTIFICATE

This is to certify that MR. NEERAJ KUMAR of B.BA. (FINANCE) -

Semester VI (2021 – 2024) has successfully completed the project on
FINANCIAL PLANNING under the guidance of Miss.Swati
Uniyal .The information submitted is true and original.
.

_______________________ _____________________
Project Guide External Examiner
(Miss.Swati Uniyal)
DECLARATION

I, MR. NEERAJ KUMAR BHARTI OF DEV BHOOMI

UTTARAKHAND UNIVERSITY COLLEGE Of SOMC [Semester
VI] hereby declare that I have compiled this project on
FINANCIAL PLANNING in the academic year 2021 – 24. The
information submitted is true and original to the best of my
knowledge.

DATE: 23/03/2024

Signature of student
(NEERAJ KUMAR)
Roll No. – 21BBA0035
SOMC
ACKNOWLEDGEMENT

I would like to thank Dev Bhoomi College & the faculty

members of somc for giving me an opportunity to prepare a project
on "FINANCIAL PLANNING". It has truly been an invaluable
learning experience. Completing a task is never one man's effort. It
is often the result of invaluable contribution of number of
individuals in direct or indirect way in shaping success and
achieving it.

I am grateful to Miss Swati Uniyal for giving me permission

to work on this project. My deepest thanks and appreciation must to
the Miss Swati Uniyal, who helped me with this project’s research.
Throughout the project, working with her and learning from her has
been a terrific experience. I want to express my gratitude to
everyone my coworkers that helped me out and supported me
anytime I needed it. I would want to thank everyone who made it
possible for me to finish this project study.

RESEARCH METHODOLOGY
A. RESEARCH OBJECTIVE
• Understanding of the key elements of financial planning;
• Finding education of financial planning ideas;
• Researching the financial planning process
• To comprehend how financial planning affects

B. RESEARCH SCOPE
The various aspects of financial planning for college students are
presented in this project. Making a financial plan is crucial for
everyone. Achieving your future financial goals will be easier if
people understand its importance early on. You can invest in
many goods that will suit your needs.

C. DATA COLLECTION
Secondary Sources:
Secondary Data is the data collected by someone other than the
user. A common source of secondary data includes
organizational records and data collected through qualitative
methodologies or qualitative research.
The data for the study has been collected from various sources:
• Books
• Internet
• Financial magazines

D. LIMITATIONS TO THE STUDY

Due to time constraint, a detailed study could not be done

SR.NO PARTICULARS PAGE

NO.
1 INTRODUCT 2
ION.
2 SCOPE. 3
3 SMART GOALS. 4
4 HOW TO ACHIEVE 5
YOUR GOALS?

5 RISK AND 8
RETURN.
6 SAVINGS VS 9
INVESTMENTS.
7 LOANS VS 10
INVESTMENTS.
8 THE POWER OF 12
COMPOUND
ING.
9 INVESTMENT 13
VEHICLES.

10 OTHER IMPORTANT 16
CONCEPTS.

11 INSURANCE 21
PLANNING AND
RISK
MANAGEMENT.
12 INVESTMENT 29
PLANNING.

13 TAX 36
PLANNING.
14 RETIREMENT 57
PLANNING.

15 ESTATE 63
PLANNING.
16 SUMMARY. 71
Source: financialplannerfl.com

Source: mortgagefactoryltd.com
1
1. INTRODUCTION
Planning of finances is essential for each and every one, be it a school-
going kid or a retired citizen. The more early you begin to manage
your money the better it is. Financial planning is a dynamic process
that involves charting an individual's financial goals. A financial plan
is a comprehensive evaluation of an individual's current pay and future
financial state by using current known variables to predict future
income, asset values and withdrawal plans. This often includes a
budget which organizes an individual's finances and sometimes
includes a series of steps or specific goals for spending and saving in
the future. This plan allocates future income to various types of
expenses, such as rent or utilities, and also reserves some income for
short-term and long-term savings.
A financial plan is sometimes referred to as an investment plan, but in
personal finance a financial plan can focus on other specific areas such
as risk management, estates, college, or retirement.
Financial planning is a process that involves charting an individual's
financial goals and long-term objectives in conjunction with ways and
means of achieving those long-term goals and objectives. This includes
elements of protection, wealth creation, planning for contingencies and
emergencies as well as planning for specific milestones in life.
Importantly, an individual's financial plan should be reviewed to be in
sync with his different life stages and the various requirements that are
specific to a certain stage in life.
A financial planner is a professional who prepares financial plans for
people. These financial plans often cover cash flow management,
retirement planning, investment planning, financial risk
management, insurance planning, tax planning and estate planning.
This project on financial planning presents various aspects of financial
planning for college students. Financial planning is very important for
every individual. If people understand its significance at a younger
age, achieving your future financial goals becomes more convenient as
you can invest in different products to meet your needs.

2. Scope

Financial planning should cover all areas of the client’s financial needs
and should result in the achievement of each of the client's goals as
required. The scope of planning would usually include the following:

• Planning for insurance and risk management

Using insurance and smart risk management strategies to minimize

cash flow risks

• Planning and Investing Challenges

Planning, establishing, and maintaining capital accumulation to
provide future cash flows and capital for spending and reinvestment, as
well as management for the risk-ad and inflation

. Making Retirement Plans

Making plans to guarantee your financial security when you retire.

Financial Scheduling

Arranging to have tax obligations reduced and financial flows released

for other uses

. Planning an estate

Organizing the development, gathering, preservation, and allocation of

resources

3. SMART Objectives
Being able to build up SMART financial targets is an essential first
step in managing your finances. Your objectives must be:

 S (specific),
 M (measurable, motivated),
 A(Attainable,
achievable),,
 R (realistic,
resource-based),
 T (time-bound).
Many people make the mistake of setting general goals that, more
often than not, will not materialize.
Source: sebi.gov.in

4. HOW TO ACHIEVE GOALS.

Process
.

Step 1: Establishing and defining the client and personal financial

planner relationship

The first step in the financial planning process is to establish and

define the advisor-client relationship. This normally begins at the first
client meeting, although it can start prior to this meeting through
telephone interactions or other contacts with the client. The first client
meeting is essential for establishing the framework for a successful
advisor-client relationship. This meeting is where you begin to build
trust with the client and create a relationship with the client that (it is
hoped) will span the client’s entire financial life.
Establishing the advisor-client relationship when the client is a couple
is a more complex challenge because you must build trust and rapport
with both parties.

Step 2: Gathering client data and determining goals and expectations

This stage may start at a special meeting later on in the planning

process, or it may start during the first meeting. Sometimes, in order to
collect client information and talk about financial objectives, you
might conduct a remote interview with the customer (by phone and
internet) or through a series of correspondences.Typically, clients
voice concerns about a wide range of issues, such as qualified plan
payouts, taxes, early mortality, disability, retirement income, and
funding for their education. While clients can sometimes identify clear,
focused goals, their more common presentation is a transparent list of
concerns that shows frustration and fear rather than guidance. Your job
is to assist your client in turning these emotions into objectives
.

Step 3: Analyzing and evaluating the client’s financial status

Analyze the information you receive to assess client’s current situation
and determine what you must do to meet your goals. At this stage of
the process, planner will take all of the info you have provided and sift
through it to start developing a plan for you.
Depending on what services you have asked for, your planner may
analyze your assets, liabilities, cash flow, education
funding, insurance coverage, investments, tax strategies,
retirement plan, estate plan, and anything else relevant. Most planners
will evaluate and help you plan for as much or as little as you would
like.

Step 4: Developing and presenting the financial plan

The next task is to create a workable financial plan that will enable you
to help the client reach his objectives while he moves from his current
financial situation. Since no two clients are the same, every successful
financial plan needs to be modified to the individual, taking into
account all of your suggested methods based on the needs, capabilities,
and objectives of each unique client. The plan should be created for
your client’s needs rather than being biased or influenced by your
product offerings or salary scheme. Typically, there are multiple
approaches to help a customer reach their financial objectives. In such
a situation, you want to provide the client several different approaches
and describe the benefits and drawbacks of each approach. Techniques
that will aid in achieving several objectives ought to be stressed

Step 5: Implementing the financial planning recommendations

A financial plan is useful to the client only if the plan is put into action.
Therefore, part of your responsibility is to make sure that plan
implementation occurs according to the schedule agreed on with the
client.
Implementation requires a clear statement of duties by the advisor and
the client.
Duties will vary based on the advisor’s business model.

Step 6: Monitoring the financial plan and the financial planning

relationship

Measuring the effectiveness of the implementation vehicles—such as

investments and insurance contracts—should be part of the review
process. Second, if the client's financial or specific circumstances have
changed, updates should be provided. Third, the customer should be
consulted of any changes to his financial, tax, or economic
circumstances. Reviewing other areas of financial planning will
probably be part of the monitoring domain. Even the most thorough
and detailed financial plan will eventually need to be modified as a
client age since their needs will change. If there are any major changes,
new suggestions will be made and shared with the client; these
recommendations may involve different communication strategies than
in previous years.
5. RISK AND RETURNS

Everybody has the ability to take risks. Your degree of risk tolerance is
reflected in your risk-return profile. Your risk would be higher if you
invested in a high-risk company, such as a start-up. Depending on
where you get your money from and the investments you make, you
may fit under one of three risk return profiles. They are as follows:

1. Conservative i.e. you take minimal risks ensuring your funds are
secure. You prefer investing in post office deposit schemes, bank fixed
deposits, government bonds

2. Moderate i.e. you are willing to take some risks and prefer investing
in mutual fund schemes.

3.Aggressive i.e. You enjoy making high-risk investments in the stock

and commodity markets, and you can even be making returns-seeking
ideas. A key concept in investing states that the amount of risk you
take will determine the size of your rewards. It is essential that you
take the necessary safety measures to manage your risk while you
remain invested. After making an investment in any asset class, you
should keep an eye on your money and be informed about changes in
the market to prevent making mistakes.
When quoted returns appear exceptionally high, always investigate the
possible risks.

6. SAVINGS V/S INVESTMENTS

Saving money and investing money are two totally different things,
which many new investors fail to realize. They perform specific
purposes and have various places in your financial plan. Savings are
the money you save away and store in a secure location, such as a bank
savings account. Meanwhile, investment entails buying different
financial assets that are going to provide a return at a later time. The
distinction between saves and investments is that it are just collections
of idle cash, while the latter enable your money to increase over time.
Our money can cover our short-term requirements, but we must make
investments if we want to achieve our long-term objectives. Though
investments allow us to make returns on our capital, savings aid in
protecting our principal. A certain level of risk-taking and the desire to
see your money grow over time are prerequisites for investing. When
done right, investing is a method of managing your finances that aims
to accumulate the money you require. It requires careful planning and
preparation. Developing an investment strategy also requires time and
discipline. According to productive assets like equities, bonds, real
estate, mutual funds, etc. are typically the greatest places to invest.

7. LOANS VS INVESTMENTS.

People always are confused whether they should avail a loan or build
investments to achieve their financial goal. Both of the options are
different and should be availed appropriately. The following points are
worth remembering:

• It purely depends on your financial strength and other factors.

• Credit card debts and personal loans are very costly
• If you have a loan with a low interest rate and tax benefits as in the
case of home loans, it is advantageous to go for a loan. If you have an
investment plan where you can make good return, and then you may
opt for long term investment.
• You have to be sure that the investment is not risky and will not
affect your family if you lose the money.
For example, you are investing huge sums in share market, instead of
closing the existing debts, that is too much risk.

Advantages of Loans

1. Credit cards come with a variety of benefits, such as cash back,

holiday gift cards, and other discounts when you use your credit card
to make purchases.

2. Using a credit card allows you to avoid carrying cash when you
travel.

3. Credit cards are simpler to use because they provide cash in

advance.

Disadvantages

1. In return for the credit that credit cards offer, they come with a
number of extra fees, such as interest rates and service costs. Before
applying for a credit card, many people overlook to read these terms.
2. Because credit cards provide the security of repayment later, they
frequently encourage people to spend more even when they are
strapped for cash right now.

3.People tend to purchase more credit cards so as to extend their

income and later end up piling huge sums of debt.

It is advised that people learn how to budget their money and save.
Spend less money anytime possible and give it some thought before
purchasing anything other than essential. Individuals your age are big
fans of technology and want to spend their money on the newest
models available. However, you are unaware of how expensive these
devices may be, placing that kind of stress on your finances that you
would be unable to afford to pay for your education. Why taking on
more debt when you already have debt to pay off? It won’t improve
your financial situation. Instead, you ought to put money into ventures
that will both sustain and enable you to pay back the debt.

CONCLUSION

• Know the importance of financial planning.

• Set financial short and long-term goals

• Prepare an investment plan and monitor your progress.

• Invest for income and let it mature properly for your income to rise
with inflation.

• Differentiate between needs and wants.

• Adjust your living standards if your after-tax income will not be able
to meet your expenses.

• Plan how to manage all your financial resources together.

• Stay informed about issues that may affect your investments like
inflation, taxes etc.

• Keep track of how your investments are doing, changing needs for
income, how financial markets and products are changing, and how
income might help you achieve your goals.

8. THE POWER OF COMPOUNDING

When making investments, time is an important factor. Your returns are

decided by the times at which you enter and exit. When implemented
properly, compounding is a concept that yields major benefits. However,
better rewards are produced when funds are compounded over longer time
periods. Thus, compounding is a system that lets you grow your money
rapidly over time. Because of this, the longer you live, the more money you
can make, which is precisely why financial planning is so important. By
using a postdated check or direct debit procedure to pay the regular
investment amount, you can put your compounding plan into practice more
quickly. SIPs and recurring deposits can help you with this.

Compounding, in short, means earning interest on previously earned

interest.

9. INVESTMENT VEHICLES

In addition to extra structured products, Indian markets offer a variety of financial

instruments, including loans, stocks, mutual funds, currencies, and commodities. But,
based on the investor's level of risk tolerance and other investment horizon, their
selection ought to be suitable.
Because the investment horizon is long, students can invest in products that offer
growth or financial gain. Before making an investment, one should always make sure
they have set up money for their urgent basic needs.

Equity Products:
These are company-sponsored instruments like shares or stocks of the
company’s capital. These instruments offer the investor with shareholder
rights where in investors can participate in the annual general meeting and
have the right to vote
Mutual Funds:
A mutual fund is generally a professionally managed pool of money
from a group of Investors. These products may range from asset class
specific portfolio or a mixed group of asset classes. But the choice of
scheme or plan should depend upon your investment objective.
Investing in mutual funds helps in diversifying your portfolio and thus
reduces the risk in your portfolio. These products are considered to be
ideal for beginners who lack the necessary expertise to manage their
funds.

Insurance products:

Insurance is not so much an investment opportunity as it is a safety

measure. We purchase insurance to protect ourselves against unforeseen
events such as death, mishaps, theft of valuables, etc. The term "risk" refers
to the potential for financial loss in the context of insurance and financial
planning.

Real Estate:
Real estate is any real property of this kind, or more broadly, any building
or focusing in general, as well as the land and the buildings on it, as well as
any natural resources such as crops, minerals, or water. The profession of
purchasing, selling, or leasing land, buildings, or homes is also included in
the real estate industry.

Bank Deposits:
Traditionally banks in India have four types of deposit accounts,
namely Current Accounts, Saving Banking Accounts, Recurring
Deposits and, Fixed Deposits. However from the point of view of
financial planning, bank deposits are worth for short term goals and
risk free which does not help the client to create wealth in long run.

Gold:

Gold is the most often used precious metal for financial purposes.
Purchasing gold is typically done by investors to diversify their risk,
particularly when using derivatives and futures contracts. Like other
markets, the gold market is subject to speculation and volatility. Gold
offers the best cross-national hedging and safe haven characteristics when
compared to other precious metals used for investment.
Source: surantarun.com

11. INSURANCE PLANNING AND RISK

MANAGEMENT

There are two types of risk: speculative risk and pure risk. Insurance is a method used to
manage pure risks, which are divided into three categories: liability, property, and
personal risks. The financial planning process is then used to examine ways that can
help individuals and families in managing with the likelihood of financial loss
connected with pure risks. This helps to clarify how similar the financial planning
process is to risk management and needs analysis.

Defined in this way, risk falls into two categories:

• Pure risk—involves only the possibility of financial loss
• Speculative risk—involves both the possibility of financial loss and
the possibility of financial gain

Pure and speculative risks both carry the danger of monetary loss. But when it comes to
pure risk, there is really no chance of profit; instead, there is only the option of losing
money or not losing any (no change). A client who owns a property may act as an
example of the difference between pure and speculative risk. There is always a chance
that a fire will cause harm or maybe ruin to the house. What are the possible results?
Either there is no fire and everything changes or is lost, or there is a fire and damage
that results in a loss. On the other hand, there is a speculative risk that the home's
market value will increase or decrease.

Two additional points are important in fully understanding what risk is:
• Risk and uncertainty are not the same.
• Risk is not the probability of loss.

Although risk can give rise to uncertainty, risk is not the same as
uncertainty. Unlike uncertainty, which is a state of mind characterized
by doubt, risk exists all around us as a condition in the world.
TYPES OF PURE RISKS
As mentioned earlier, insurance is a technique for dealing primarily
with pure risks—risks involving a chance of loss or no loss. Pure risks
can be categorized as personal risks, property risks and liability risks.
These three types of pure risks can be described briefly as follows:
1. Personal risks—involve the possibility of a loss of income-earning
ability because of
a) Premature death
b) Disability
c) Unemployment or Retirement
a. Extra expenses associated with accidental injuries, periods of
sickness, or the inability to perform safely some of the activities of
daily living (bathing, dressing, transferring from bed to chair, etc.)

2. Property risks—involve the possibility of

a. Direct losses associated with the need to replace or repair damaged or
missing property
b. Indirect (consequential) losses, such as additional living expenses that
are required due to a direct loss
3. Liability risks—involve the possibility of
a. Loss from damaging or destroying the property of others
b. Loss from causing physical or personal injuries to others
Examples include the potential for family members to lose money in the event
of an early death, disability, or retirement of a client. In addition, one kind of
personal risk is the potential for higher costs related to health and long-term
care.
Ownership of both physical and personal property exposes clients to risks
related to property. The client's home and any related buildings are considered
real property, whereas personal property include things like clothes, cars, and
household goods. Many dangers (causes of loss) can result in direct losses to
an individual's real or personal property, such as fire, windstorm, theft, flood,
earthquake, and auto accidents. The loss of use of property that results from a
direct loss is known as an indirect loss. Expenses associated with clearing
debris, lost rental income, and demolition losses are some examples of
consequential losses in addition to the indirect loss known as additional living
expenses.

A consumer’s first priority should be securing adequate insurance. No

amount of budgeting and money management skill can get one through
a crisis like a serious medical emergency if there is no medical
coverage. Similarly, one should have a Motor accident occur without
proper liability coverage.
Risk management is your first order of business, and that means
securing adequate insurance. Insurance protects you by transferring the
risk of huge losses to an insurance company. By paying a relatively
small amount each year to the company, you can protect yourself from
the risk of losing a lot of money in the future. There are two kinds of
insurance: legacy and indemnity.
Legacy is insurance, like life insurance, which replaces income in the
event of a claim.
Indemnity (General Insurance) replaces or “makes whole” in the event
of a loss, like a theft or accident.

WHAT TYPE OF INSURANCE IS APPROPRIATE?

 Term Plan: If you pass away, a term insurance policy will provide
coverage. You purchase the insurance for a specific period of time,
such as ten, thirty, or more years.
 A kind of life insurance policy known as "term insurance" offers
protection for a specific amount of years, or a "term" of time. A
death benefit will be paid if the insured passes away within the
policy's defined time frame and the policy is still in effect.

 Whole Life – A whole life insurance policy adds an investment to the

policy. More expensive than term insurance, whole life policies might
include a money market account, bonds or stocks. Over time, as you pay
your premiums, the whole life policy builds value, which you can cash
out at the end of the life of the policy. Whole life insurance, or whole of
life assurance (in the Commonwealth of Nations), sometimes called
"straight life" or "ordinary life," is a life insurance policy which is
guaranteed to remain in force for the insured's entire lifetime, provided
required premiums are paid, or to the maturity date.

WHAT’S THE RIGHT AMOUNT OF INSURANCE TO HAVE?

Keep in mind that many insurance policies are meant to provide income in the
event of a death or disability. Therefore, a child's life insurance coverage doesn't
need to be very large because it won't be replacing any income. The "final
expenses" of a child's life insurance policy should include burial costs and the loss
of the parent's earnings from missing work. Larger life insurance policies for
parents are necessary to cover these expenses as well as the estimated future
income of the parents. While everyone has a different threshold for the appropriate
quantity of insurance, it is generally recommended to carry enough coverage to
cover certain debts:

Funeral expenses

Education

Debt

Unexpected events Charges

Income
Source: www.iciciprulife.com (term plan)
Source: www.iciciprulife.com (term plan)

WHY LIFE INSURANCE SHOULD BE THE FIRST STEP IN

FINANCIAL PLANNING?

 Life insurance becomes increasingly important in the face of rising

prices, the trend to family units, and changed lifestyle choices. When
handling other aspects of financial planning, it is crucial for each person
to obtain sufficient life insurance to safeguard their dependents'
finances.
 The dynamic process of financial planning involves setting out a
person's long-term financial goals and objectives along with the
strategies and tactics for reaching them. This covers aspects of wealth
growth, protection, emergency and contingency planning, and planning
for life milestones. A person's financial plan should be reviewed to
ensure that it aligns with his or her numerous life stages and the
requirements that are unique to each period.
 Events such as marriage, home ownership, and kid education require the
financial plan to adjust in order to achieve these goals within the
specified time frame. When it comes to financial planning, an individual
has a wide range of options available to them these days. It has been
noted that individuals frequently overlook or compromise the
"protection" component of financial planning in favor of the "wealth
creation" component. Even though the family's primary provider's death
is irreversible, having enough insurance ensures that the dependents will
receive the necessary funds to become financially independent and
helps the family stay on track with their financial plans without
sacrificing their standard of living.
 However, in the unfortunate event of the demise of the family
breadwinner, only life insurance will provide succor to the family of the
policyholder. There are many complex calculations as well as simple
rules of thumb to estimate the quantum of insurance needed for an
individual. A simplistic way is to calculate life insurance as about 20
times of the individual's annual income.

12. INVESTMENT PLANNING

There are two main categories of assets that people purchase: investment assets
and personal assets. The main reason people purchase personal belongings is for
their use and creature comforts. These consist of things like clothing, automobiles,
and homes. Buying an asset with the hope that it would yield a return
commensurate with its risk is known as investing. Investment assets are those that
are obtained for investing.
Income, price appreciation, or a combination of the two provide returns (gains). In
the case of stocks, income typically takes the form of dividends; in the case of
bonds, it takes the form of interest; and in the case of rental properties, it takes the
form of rents.
It's not always easy to tell personal assets from investment ones.

The term "growth" in the context of investing refers to an investment's potential for
growth; if this occurs, you may be able to sell it for a higher price than you
originally paid (of course, if an investment loses value, you could lose capital).
Regular financial payments provide income. Earnings on a savings account
constitute revenue. In the same way as dividends on stocks, interest from bonds,
and interest on certificates of deposit.
The third possible goal of an investment is to safeguard your initial
investment. An investing strategy that prioritizes stability focuses more on
preventing value loss than it does on growing the investment's worth. We can't
have it all, much as we would like to. Growth, income, and the stability of our
investments are all interrelated. You might have to make more compromises
with regard to the other two when one of those areas becomes more crucial.
To optimize your overall returns at a risk that you can tolerate, it's important to
customize your investments based on your goals and strike a balance between
stability, income, and growth
Basic considerations
• What kind of retirement do you want?
To a large extent, maintaining financial independence in retirement
depends upon the lifestyle you want.
• When do you want to retire?
The earlier you retire, the shorter the period of time you have to
accumulate funds, and the longer the period of time those dollars will
need to last.
• How long will be your retirement?
Keep in mind that life expectancy has increased at a steady pace over
the years, and is expected to continue increasing. For many of us, it's
not unreasonable to plan for a retirement period that lasts for 25 years
or more.

4 steps to creating your plan

1. Set specific and realistic goals
For example, instead of saying you want to have enough money to
retire comfortably, think about how much money you’ll need. Your
specific goal may be to save Rs.50,000,000 by the time you’re 60.

2. Calculate how much you need to save each month

If you need to save Rs.50,000,000 by the time you’re 60, how much
will you need to save each month? Decide if that’s a realistic amount
for you to set aside each month. If not, you may need to adjust your
goals.

3. Choose your investment strategy

If you’re saving for long-term goals, you might choose more
aggressive, higherrisk investments. If your goals are short term, you
might choose lower-risk, conservative investments. Or you might want
to take a more balanced approach.

4. Develop an investment policy statement

To help you with your investing decisions, draft an investment policy

statement. Your investing policy statement, if you have one, will list the
guidelines you want your advisor to adhere to when managing your portfolio.

Your investment policy statement should:

Describe your time horizon and expected return, your investment goals and
objectives, and the tactics that will help you achieve them. Provide a thorough
description of the level of risk you are ready to accept, as well as rules for the
kinds of investments that should comprise your portfolio, the requirements for
access for your funds, how your portfolio will be tracked, and when and why
it should be rebalanced.

WHAT SHOULD ONE CONSIDER WHEN SELECTING AN

INVESTMENT?

There are several factors a consumer must consider, and some of the
most important are: • Risk
• Rate of Return
• Marketability and Liquidity
• Diversification
• Impact of Taxes on Return Risk:
It is the potential for value to be lost or not gained. When investing, there are
several risks to take into account, some of which you may find more
significant than others. You can determine which of the following risk
categories relates to your own investment portfolio after you are aware of
what each one includes.
Economic risk, particularly buying power risk, is linked to the state of the economy
as a whole. Changes in an economy's overall price level may lead to uncertainty
about the future buying power of an investment's principle and income.

Interest rate risk, often known as inflation risk, refers to the possibility that the
price of fixed-income investments (bonds, CDs, etc.) will fluctuate in response
to fluctuations in interest rates. As a result, market prices for current securities
typically decrease in response to increases in interest rates, and vice versa.

Rate of Return:

The possibility of a future return big enough to meet your financial objectives as a
consumer is the reason to invest. A consumer needs to be aware of the various
methods a return can be obtained, including interest, dividends, business earnings,
rental income, and capital gains, in order to better support those objectives.
The actual measure of investment performance or earnings is called "Total
Return," and it consists of two primary components:
Capital gains are the rise in your investment's market value, which are sometimes
not realized until the asset is sold.

Current Income: Over the course of an investment's existence, current income

(such as interest, rent, or dividends) is received on a regular basis.

Compounding, or earning interest on interest, has the potential to have

an equally significant impact on the rate of return. The effect that
interest has when it is applied to both the initial amount invested and
the interest that the investment has already generated is known as
compounding. "The Rule of 72" can show how to compute a
compounding impact more simply. In general, the number 72,
Divided by your investments interest rate, will give you an estimate of
the number of years before you see the The rule of 72:
Number of years to double = 72 / Interest Rate

Marketability and Liquidity:

Liquidity is the ease at which an asset can be sold and turned into cash,
without loosing any of the principal invested. For example, a house
cannot be easily redeemed for cash, which is contrary to a blue chip
stock, due to the nature of the stock.
Even while having both qualities in an investment is ideal, there is
sometimes a trade-off that depends on the circumstances of the
customer. A checking account, for example, is extremely liquid but
lacks a market where it may be easily bought or traded. On the other
hand, a stock listed on the exchange typically has a high marketability,
but selling it could result in a principal loss, which is not the same as
pure "liquidity."

Diversification:
It is an important investment principle to consider when a consumer is
building a portfolio. Diversification is the distribution of assets
amongst a variety of securities (investments). By diversifying, you
avoid having all of your eggs in one basket, or allocating all your
money into one investment that may not perform well at a particular
time. By spreading the risk, it can be minimized, and is a wise decision
for most consumers.
In general, the fluctuations in price or value of different investments
are not congruent; they do not go up or down all at the same time or in
the same magnitude. Thus, an investor can protect at least a portion of
his/her investment assets by applying the principle of diversification.
Impact of Taxes on Returns: As the saying goes ‘it doesn’t matter what
you get, only what you get to keep!’ In similar nature, it is imperative
to differentiate between the return received from an investment and its
‘after-tax’ return. There are several considerations regarding this
impaction, and the following are simplified examples

1. An investment may yield income that is taxable as ordinary income,

such as certificates of deposit or corporate bonds. For this
investment, the after-tax yield will be less than its current yield
(interest rate).
This can be calculated in the following manner:
Current Interest Rate x (1- investor’s income tax rate) = after tax yield.
Example: A CD with a taxable interest rate of 5% would have an after
tax yield of 3.6% for someone in the 30% tax bracket.
5 x (1 - .30) =3.5
So the investor didn’t really make 5% on his investment, he made
3.6% yield, which is significantly less, because the rest went to pay
federal taxes.

2. If an investment yield is fully tax exempt, such as interest from

some municipal bonds, the after-tax yield equates the current yield
because there is no tax implication (the interest rate stays the same).

3. In some circumstances, an investment may yield returns that are

taxable only when realized as capital gains
For example, if a stock has paid no dividends, but increased in value
from Rs.200 per share to Rs.400 per share, the investor will not have a
taxable event until he/she sells the shares, therefore ‘realizing’ it’s
capital gain of Rs.200 per share.

Asset Allocation involves the mix of investments in your portfolio.

This might include a mix of stocks, bonds, cash and real property.
Stocks are typically the riskiest investment, but bring in the highest
returns. Bonds earn less interest but are more stable than stocks. Cash
savings, including savings accounts, CDs, treasury bills and money
market accounts, are the safest investments, but offer low returns in the
long run. Finally, holding real property, like gold & silver, is a very
stable and safe investment that typically works as a hedge against
inflation but doesn’t earn high returns. A crucial element of any wise
asset allocation strategy is diversification so that if one part of your
investment portfolio loses value, your entire retirement fund won’t be
devastated.

14. RETIREMENT PLANNING

Planning for retirement at a young age

Retirement has become significantly different due to improved expectations,

longer lifespans, and changing lifestyles. People look forward to busy, lively
retirements these days, when they can enjoy life and financial independence.

Retirement is considered by them as the rewarding stage of life rather than the
brief end stage. Furthermore, a sizable portion of the populace has developed a
growing desire to reach the level of financial independence that is currently
connected to retirement.
However, instead of waiting until one is middle-aged or older to start planning
for retirement, it is best for people to start planning when they are relatively
young. Getting younger people to take retirement planning seriously, however,
often requires some convincing. With this in mind, you may be able to
motivate younger clients to act by sharing the following information with
them:
Starting early can mean the difference between success and failure. Assuming
a 7 percent rate of return, saving Rs.5000 a month beginning at age 30 will
result in an accumulation of Rs.86,00,000(approx.) by age 65. With a start at
age 40, only Rs.8,20,000(approx.) is accumulated. This example dramatically
illustrates the power of compounding.

The majority of Indians are not saving nearly as much as what is required to
support even a modest retirement lifestyle.

Making backup plans is a necessary part of careful planning. Cuts to Social

Security, lower pension payments from companies, spikes in inflation,
increased tax rates, and forced early retirement are all plausible scenarios.

It might not be feasible to retire at 60 or earlier in the future.

The increasing life of the population may lead retirement to last longer than
anticipated. It is reasonable to anticipate that a person retiring at age 65 will
remain in retirement for at least 20 years.

Clients must plan on surpassing their projected lives in order to ensure that
funds are not spent early.

While retirement planning is not a simple process, financial advisors who

undertake it need to be ready to respond to some challenging inquiries. A lot
of questions center on their function as retirement consultants, the quantity of
money their customers will require for retirement, the sources of retirement
income at their disposal, and methods for optimizing their customers'
retirement incomes.

Overcoming Roadblocks to Retirement Saving

An old rule of thumb, which has merit, is for clients to save a
minimum of 10 percent of their gross earnings for long-term financial
goals such as retirement. As with all rules of thumb, the client’s
personal situation may modify the rule. For example, if the client has a
physically demanding job that may require him to retire at age 55 or
60, he may need to save even more than 10 percent of earnings.
Furthermore, you should routinely recommend that as a client’s
income rises, the percentage spent on current living expenses should
decline. A second obstacle to retirement saving is unexpected
expenses, including uninsured medical bills; repairs to a home, auto, or
major appliance; and unforeseen periods of unemployment. Every
client should set up emergency funds to handle these inevitable
problems. Advisors typically recommend 3 to 6 months’ income to set
aside for this purpose. If a client’s salary is stable and other income,
such as dividends, is part of the individual’s income flow, then a 3 to 4
months’ income level in the emergency fund can be sufficient.
Many Indians remain uninsured or underinsured for life, disability,
health, and home or auto risks. Because clients cannot always recover
economically from such losses, an important element of retirement
planning is protection against catastrophic financial loss that would
drain existing savings and make future saving impossible.
Employees who have switched jobs a lot could possibly have little or
no pension when they retire. According to statistics, workers nowadays
are unlikely to work for one company their whole lifetime and will
usually hold seven full-time jobs. These workers typically don't work
for a business long enough to gain vested defined-benefit pension
benefits, therefore they are unlikely to accumulate any. Even in the
unlikely event that they did become vested, many of them have chosen
to spend the money they received as a distribution of their accumulated
pension fund upon quitting their employment rather than saving it or
rolling it over for retirement.

Other Reasons:
Roadblocks to Retirement Saving
1. Tendency to spend all income
2. Unexpected expenses
3. Inadequate insurance coverage
4. Divorce
5. No employer plan available
6. Frequent employment changes
7. Lack of financial literacy
8. Other accumulation needs
Strategies that you can recommend to accomplish this objective:
• Trading down to a less expensive home
• Pension maximization

Trading Down to a Less Expensive Home

The proceeds from the sale of a client's property, should she decide to
downsize to a smaller, less costly apartment, can be a significant source of
retirement income. For instance, in the event that a retiree sells her house
for Rs. 3Cr and purchases a new property for Rs. 2Cr, the Rs. 1Cr cash
difference can be used to fund an immediate annuity or other investment to
generate additional income. From a financial point of view, this is highly
desired since it allows retirees to take use of what is, for many of them,
their most valuable financial asset: their home.

Pension Maximization
Pension maximization refers to a strategy for choosing a payout option at
the time of your retirement. Employees near retirement age may be faced
with a rather difficult decision when presented with the retirement plan
payout options. The goal is to replace the spousal payout from the pension
with a death benefit that will at least equal the amount that would have
been paid out on an after-tax basis following the death of the retiree. The
retiree chooses to receive the single life payout and uses the differential
dollar amount between the single and joint life payout to purchase
permanent life insurance.

Generally, qualified plans specify the kind of distribution your client will
get. A joint-and-survivor benefit, which gives the survivor between 50 and
100 percent of the combined benefit sum, is the typical type of benefit for a
married customer. Choosing an alternative payment option from the
standard benefit form with the spouse's written approval is one tactic for
the married customer. A married client can substantially boost his
retirement income if he chooses to have a benefit paid in the form of a life
annuity. Securing the financial security of the spouse is also possible if life
insurance is obtained (or maintained) prior to retirement on the retiree/life
annuitant.

BIBLIOGRAPHY.

FINANCIAL MANAGEMENT by P.K. Jain and M.Y.

Khan THE FINANCIAL PLANNING WAY by Rajesh
Dalmia
www.cleartax.in/guide/section80deductions
www.caclubindia.com www.cfp.net
www.sebi.gov.in
www.theamericancollege.edu/assets/pdfs/fa262-
class1.pdf
www.credit.org/assets/ebooks/financialplanning.
pdf www.fpsc.ca www.rbi.org.in
www.amfiindia.com www.bankbazaar.com
www.fimmda.org.in www.nseindia.com
www.federalreserve.gov