Monday, August 27, 2012

Financial Planning


What is Financial Planning?
Financial planning is the process of establishing personal and financial goals and creating a way to reach them by beating Inflation (Purchasing power eater). The financial goals can include buying a house, saving for your child’s education / marriage or planning for your retirement or simply creating a wealth in future.   
 
Benefits of Financial Planning
  1. Knowing & understanding your financial needs / goals
2    Achieving your goals with optimum use of resources
3    Understanding impact of investment choices
4    Adapting to changes in personal & financial situations

5    Peace of mind – ensuring that your goals are not compromised

 

Effect of inflation (Prices of commodities)

 

Items

1957

1982

Present

 

2025

A Kg of Rice

0.30 paisa

Rs 4

Rs 30

 

Average 7% to 8% Inflation

82

A Kg of Tur Dal

0.50 paisa

Rs 8

Rs 70

190

A liter of Milk

0.50 paisa

Rs 2

Rs 30

82

A Liter of Petrol

0.25 paisa

Rs 3

Rs 75

204

A Kg of Sugar

0.15 paisa

Rs 3

Rs 35

95

What are available investment option

 

Opportunities

Indicative Returns

Indicative Risk

Indicative holding period

Fixed income

Bank FD / RD, Postal RD / MIS, PPF, Debt Mutual fund

 

8% to9% ( Pre tax)

No

Ad per Desired holding period

 ( 1to 3 years)

Equity ( Stocks /MF/ PE )

 12% to 20%

High

Easy liquidity ( 5+ years)

Metals ( GOLD ETF / MF)

 10% to 15 %

Moderate

Easy liquidity  ( 3 to 5 years)

Real Estate

15% to 18%

Moderate

Not liquid  (5 + years )

 

Performance of various Assets since 2000 to 2010 If Rs 100000 invested in Jan 2000 

Assets

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Average

Maturity value

Equity

-20.60

-17.87

3.52

72.89

13.08

42.33

46.70

47.15

-52.45

75.5

16.7

20.63%

Rs 787061

Gold

0.10

0.33

14.00

4.50

14.00

2.60

3.30

15.5

20.00

23.00

23.80

13.71%

Rs 410946

Debt

10.8

22.46

15.68

9.95

-3.15

3.47

0.76

5.29

20.78

-5.5

8.4

8.09%

Rs 235310

Equity is more volatile than others & also gives more returns than other assets over longer period investment.

So considering INFLATION, 

  Fixed income option – This can only preserves the investment value.

  Equity (MF) & Gold can create wealth.

 


Goals

Investment period

Suggested Asset class

Rate of returns

Emergency Funds

No lock in OR

Up to 1 year

Bank SB a/c

MF Liquid schemes

 4%

7 to 9%

Child Education    OR

Child Marriage

1 TO 3 Years

3 to 5 years

5 years & above

Bank FD / MF Debt schemes

MF Hybrid / Gold schemes

MF Equity / Gold schemes

7 to 9 %     / 7 to 12%

9 to 15%

12 to 18%

Retirement

5 years & above

MF Equity / Gold schemes

12 to 18%

We have use these assets based on our goals and investment period

 Others goals ( Dream House, Four Wheeler, Foreign tour etc)  can be set as per available investment period.

 

15 YEAR SIP RETURNS FOR SIP OF Rs 10000 PER MONTH

115 DIVERSIFIED EQUITY SCHEME CONSIDARED

 



   YEAR STARTED

2009

2007

2005

2002

2000

1997

Invested Amount

360000

600000

840000

1200000

1440000

1800000

YEARS

3

5

7

10

12

15

MAX RETURNS %

15.76

18.21

15.41

24.01

27.28

26.79

MAX RETURNS Rs

454746

944927

1454739

4276954

8580924

17450539

Average Returns %

1.73

7.73

8.64

17.84

19.94

20.29

Average Returns Rs

369687

729187

1142390

3064256

5228736

9802547



                      Data source    NJ SIP WATCH   August 2012

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