Financial Planning

for

Happy Retirement

by

Rajesh Ladda

Email : retireby49@gmail.comMobile: 91 93710 89359

www.retireby49.com

Investment Philosophy

Types of Investments

Agenda

Risk

Types of Insurance

DisclaimerThe speaker is ‘NISM-Series-XVII: Retirement Adviser Certified’. The topics & theviews shared in this presentation are his personal. Please understand the individualgoals, risk appetite before investing into any financial products.

Investment Philosophy

Investment Philosophy Investment should be as regular as you take lunch & Dinner

Don’t try to invest in one go for tax planning i.e. beginning or end of the year

Invest on monthly or weekly basis (Minimum 1 and Maximum 5 instalments every month)

The More Conservative You Are In Your Investments Choices, The More You Need to Save!

Lending money

If you lend money little bit above the rate of inflation,

you can’t make much money

Using money to buy ownership

in land or businesses / companies (Only ownership

helps you to grow your money)

Types of Investment

Staying Invested For Long Term Can Increase Better

Returns

Inflation V/s Debt V/s Business (Equity)

How Inflation impacts the cost of living? E.g.

1.In 2008 , Engineering Fees was ~5 Lakhs

2.In 2018 , it is ~10 Lakhs

3.With above equation ,in 2028 it will be ~20 Lakhs. It is indicating that fees double every 10 years

Rule of – 72

How Rule of 72 works? Simple, divide 72 with Inflation or Interest Rate % (e.g. 72 / 6 = 12), amount will be doubled in 12 years!

FD V/s Business income returns

1.Banker will borrow money from customers in the form of Fixed Deposits (FD) @ 7.25%

2.Banker will lend this money @ Avg 11 to 12% to businessman so they can generate profit and return 7.25% back to lenders

3.Business has to generate 11-12% + 4 % (15 – 16%) to replay loans and generate profit from business, hence business returns will be in range of 15 to 16%

Inflation

Below example shows how FD & Business income returns works

Bank FD

Rate of Interest# Years FD Amount Maturity Amount

7.25% 10 10 Lakhs 20 Lakhs

Education Fees (A) 20 Lakhs

Life Style Upgrade from 2018 – 2028 (B) 2 Lakhs

Total Requirement (A+B) = C 22 Lakhs

Tax out go on FD 3.1 Lakhs

Net Amount in Hand (D) 16.90 Lakhs

Total Deficit / Surplus ( D - C) - 5.1 Lakhs

Business Income Return %

# YearsInvestment

AmountMaturity Amount

14.5% 10 10 Lakhs 40 Lakhs

Education Fees (A) 20 Lakhs

Life Style Upgrade from 2018 – 2028 (B) 2 Lakhs

Total Requirement (A+B) = C 22 Lakhs

Tax out go 10 % (LTCG) from 1st Apr, 2018 3 Lakhs

Net Amount in Hand (D) 37 Lakhs

Total Deficit / Surplus (D - C) 15 Lakhs

Inflation V/s Debt V/s Business (Equity)

• Moral of the story; FD is safe but it cannot beat the inflation and life style changes• Business investments are risky but we can mitigate risk by staying in business investment for 8+ years and beat inflation & life style changes• Here, I am not trying to say invest 100% in either option. There are universal formulae for every age group. We will see this in next slide• In above case, if we have invested 50% each in FD & Business , still we could have made ~27 Lakhs. That means, we have generated 25%

more than required amount (22 Lakhs) by distributing the risk

Investment Rules

Case Study Mr. X Age:30Salary: 48000

including PF, NPS etc

Money Out flow of MR X should be

EMI 40% 19200In the form of various EMIs (Housing loan, Car loan etc.)

Saving 30% 14400 Debt + Equity

Day to Day Expenses

30% 14400Regular Expenses which you spend every month

Saving DistributionAge = 30

Debt = 30%

100-30 = 70

Equity = 70%

100 – 30 (Assume your Age is 30) = 70% should

be invested in Equity & rest 30% in Debt

Day-to --day

expenses

Various EMIs (Home, Auto, Personal Loan

etc..)

Savings

40%

30%

30%

Formula

Types of Investments

Types of Investments

Debt Equity

(Bonds) (Stocks / Mutual Funds )

What is a Bond (Debt)?Bonds are nothing but giving loans to a company

You loan your money, and you get some interest paid

You get back the principal with interest sometime in the future

The risk is very low hence, the money you make is very little

This is how bond works and you act as a Banker

Debt Investments Options

EPF / VPF / PPF

If horizon is long term(Longer lock in period),Interest earned is taxfree

RD

If horizon is of 3 yearsand requirement is forspecific cause (To Buyhome, car)

Debt Mutual Funds / FMP

Good for one timeinvestment. Need to

invest for 1 - 2 years

FD

One time InvestmentIf possible avoid as Interestearned is taxed

Liquid Funds

If time frame is notknown / < 6 months /emergency corpus

Investment in Insurance Products –Try to Avoid

Gold / Gold ETF / Gold Bonds

If required in future toconvert to Jewelry elseinvest only 10% of totalsavings

Equity Investment Options

Stocks

Stocks are nothing but buying parts of the company

You become a silent owner of a company.

If the company makes money (a profit) and you sell your shares at higher than your purchase cost,

you make money

If the company is underperforming and

you sell your shares, you will be at loss

The risk is higher

Expense ratio is less than 1%

You have the opportunity to make more money if you

are very good at stock analysis

If shares are sold after 366

days, the total profit is tax ed at 10% else 15% 1

2

3

4

5

6

7 8

Equity

Diversified

Mutual Funds

Equity based mutual funds

are also buying parts of the companies

You become a silent owner of many companies

Stocks are picked by financial professionals based on the research, experience and under

guidelines of SEBI

The risk is higher

You have the opportunity

to make more money

Expense ratio is

between 2- 3% per annum

Exit and entry loads are

applicable from case to case ( 1 - 4 %)

Taxation rule is same as equity for equity based mutual funds 1

2

3

4

5

6

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Personal View – If you are not very good at equity analysis, Mutual funds are safer than owning shares (stocks) of individual companies becausehere not all your eggs are in one basket and managed by Financial experts and professionals

Types of Mutual fundsMutualFunds

▪ Monthly income plan(MIP) - Low Risk/Low Returns

▪ Fixed MaturityPlan (FMP) - Low Risk/Low Returns

▪ Equity Diversified - High Risk/ High Returns• (Large Cap, Blue Chip, Small & Medium)

▪ ELSS - Invest only if require for 80C (Tax Saving Purpose) else avoid

▪ Thematic Funds - High Risk/ Avg Returns - Avoid

▪ Gold MutualFunds - Low Risk/Low Returns – Not More than 10-12% of Total Portfolio

▪ New Fund Offer (NFO) - Low Risk/Low Returns- Avoid

▪ Hybrid/Balanced Funds - Avg Risk/Avg - Above Avg Returns

▪ Debt Funds - Low Risk/Low Returns

▪ Debt Fund : Gilt Short Term - Low Risk/Low Returns

▪ Index Fund - Avg Risk / High to Avg Returns

▪ Funds Of Funds - Avoid

Dividend Options

▪ Dividend Payout- Avoid

▪ Dividend Re-Investment - Avoid

▪ Growth Plan & Direct Plan

National Pension System (NPS)

Pros Cons

• 80CCD (2) - Only Product to save ₹50,000/-

• Eligible for both Tier 1 or Tier 2 account holders

• Investment Flexibility – Maximum 50% is allowed in equity and only in Large caps (Top 200 companies)

• Entire amount is not Tax Free – 20% of withdrawal is taxed as per individual tax bracket

• For Tier 1 account holders additional tax benefits of 10% of basic pay (e.g. If basic is 500,000/-, additional 50,000/- amount is eligible for Tax rebate

• Annuity – 40% of corpus need to be reserved to buy annuity , in general annuity returns are less than Fixed Deposits

• No assured Guaranteed returns

Real Estate Investment Option

Flat Value ₹ 80,00,000 Investment Head FD /RD Amount Maturity Amount

Cost of Flat ₹ 50,00,000 Total Rent for 5 Years ₹ 8,25,000 Initial amount Investment in FD ₹ 17,10,000 ₹ 25,12,551

20% Down Payment, Processing fee &

Property Taxes ₹ 15,10,000

Total Tax Benefit in 5 years - Only 24D section

*Assuming 80C is already consumed ₹ 3,10,000 RD instead of EMI for 5 Years ₹ 42,768 ₹ 31,63,334

Basic Interiors and Furniture ₹ 2,00,000

Interest Earned on Rental &

Tax savings invested in form of RD ₹ 2,60,000 Total ₹ 56,75,885

Rate of Interest 10% Total Money in Hand ₹ 93,95,000 Tax on Interest ₹ 4,33,945

EMI Per Month (40 Lakhs Housing Loan) ₹ 38,601

Property Tax Per Month ₹ 1,250 Principal Repayment to Bank ₹ 36,94,772 Total at Hand ₹ 52,41,940

Home Insurance - Per Month ₹ 417 Tax on Property Sale ₹ 1,25,000 (3062)

Maintenance Per month ₹ 2,500 Tax on Rental and Interest Earned ₹ 3,36,350

Total Monthly Outflow ₹ 42,768 Gross at Hand (Total Amount Minus Payables) ₹ 52,38,878

Net Difference by investing in Real Estate

Intrest Rate is considered as 8% for FD and RD

Tax Bracket as 30%

Cost Overhead Assumptions

Receivables @ end of 5 Years

Amount Payable at End of 5 Years

Traditional Investment @ end of 5 YearsWhen a Real Estate is Bought by Taking Home Loan

Portfolio Vision (Age of 30)

For 30 year old with standard risk

Avg. Annual Returns -Various Categories

Years compared are from 1995 till 2015

Taxation is considered at 30%

Values are rounded to the nearest Integer

Still Confused ?

Where should I invest and how?▪ Pre requisite to Invest into Mutual Funds?

o Know Your Customer (KYC) should be verified and Savings bank account along with Pan card

Systematic Investment plan (SIP)

▪ What is SIP?

o SIP is route to invest into Mutual Funds & Equity on regular defined interval

▪ How does SIP help?

o It helps in mitigating risk and ensure good returns in long term (7- 10 years)▪ What is right amount to invest in SIP?

o You can invest small amount, plan and decide how much you need for your future needs

▪ How many SIP’s I should take?

o Maximum 5, more than that may be difficult to mange and not good for long term

▪ What should be the period?

o More than 5 years, but review it after every year for performance

▪ Can I select all funds from same Fund House

o No, Minimum 3 and maximum 5 Fund houses

When to Withdraw

• For long term goals: withdraw 2 - 3 years prior to the targeted withdrawal point if invested in equities

01

02

03

• If the target is achieved: withdraw and move the proceeds to debt / safe funds

• Withdraw through Systematic Withdrawal Plan (SWP) and move to debt funds

Types of Insurance

Insurance : Term Insurance

What is term Insurance?

Zero returns with Good amount of life cover

If you are 30 Years old -You can get a life cover

worth 1 Crore for less than 12,000/- per annum for 30

years.

Why should I cover?

Cover your family from loss of Income caused due to loss of earning

member

How much cover should I take?

Liabilities (Home Loan , Personal Loan ) + 15-20

times of your Annual Income

Insurance : Health InsuranceCheck some of questions before you take any policy

:I am covered through my employer still why should I get health cover?

Either they are not sufficient and it is difficult to get Health cover after certain age

What all critical diseases are excluded?

Is there any Cap on Room / surgery etc.?

If I already have a claim, will my premium get increased?

Does I will be co-payer after certain age?

After how many years critical diseases will be covered?

Existing diseases will be covered after how many years?

Is it mandatory to be hospitalized for 24hours for claims?

For family floater policy, in case of demise of proposer, will policy remain active?

Our Services

Services Description Duration Fees

Personal Financial Counselling/ Planning#

Personal counselling to help individuals to plan their retirement. We recommend right mix of financial products to meet individuals needs in creating right portfolio

2 Hours 2500/-

Existing Financial Portfolio ReviewReview of existing financial products (e.g. Mutual Funds, Debt products, Insurance policies, real estate and other financial products) and provide alternatives if required.

1 Hour 1500/-

Personal Tax PlanningPersonal tax planning to help reduce tax burden and convert the savings to grow portfolio with low risk.

1 Hour 1500/-

Fundamental Analysis# A detailed session on fundamental Analysis of stocks/stock market 1 Hour 1500/-

Weekend Investing#A detailed session on technical Analysis of stocks/stock market to generate regular monthly income

1 Hour 2000/-

# This can be arranged as a group session or one-on-one session (For group session minimum 10 and maximum 40 participants)

Investment Tips by Great WB

Rajesh LaddaEmail: retireby49@gmail.comMobile: +91 - 93710 89359

www.retireby49.com

Let’s Plan