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Financial HealthTAKE CHARGE OF YOUR

UTI Mutual FundUTI Mutual Fund

IS YOUR INCOMEAT RISK?

The first principle in financial planning is to cushion a household's future by creating an

investment portfolio that can generate additional income. Mutual funds offer a range

of investment products to meet this need.

Last month, the

newspapers reported her

tragic death - alone,

penniless and abandoned

at her old age.

Our income may also be at risk. Even a salaried person with steady income faces the risk of the retirement income

being lower. The reduction in income at any time in future is a risk. We need to use our current income to create assets

that will generate future income for us. When we save, we set aside money; when we

invest in assets, we put that money to work. SAVING AND

INVESTING ARE

OUR TOOLS TO

PROTECTING

OUR INCOMES

FROM RISK.

Sitara did not see that her stardom would not last forever. Her income was high, but carried

a high risk of her going out of jobs. But her expenses were driven by her habits. She took too

long to curb her expenses. She survived by selling her assets, reducing herself to the penniless situation at death.

Sitara was a hugely successful

film star and earned an eye-

popping income. She had an

impressive fleet of cars,

expensive clothes and

jewellery and lived in a palatial

mansion. That was during her

peak of popularity.

ARE YOU READY TO RETIRE?

The purpose of creating wealth is to ensure we have cushioned our income. To plan for

retirement, early as in Amit's case or even later, we need to have built enough wealth. This

accumulated wealth can then generate income for us. We need to get to a point where our

investment income equals or surpasses our regular income.

INCOME IS

WHAT WE EARN,

WEALTH IS

WHAT WE KEEP.

Amit began as a bank officer

when he was 23 years old.

Not a career he chose, but

took up to earn a steady

income. He loved travel and

touring. He dreamt of being

a tour operator taking people

to exotic places and regaling

them with stories.

Amit was determined to

chase his dream.

He worked very hard in his

early years, when he had the

time and energy. He acquired

new skills that enhanced his

employability and income. He

sincerely set aside a chunk of

his earnings. This he invested

wisely to build himself a

corpus.Now at 48, Amit is

ready to retire and chase his

dream career.

Our skills are our biggest assets which earn us income in our early years. We need to

save and accumulate wealth choosing growth products, so that the financial asset

makes up lesser earnings in the future.

ARE YOUR ASSETSFLEXIBLE ENOUGH?

Tarun has always been ambitious and hard working. He has to pay EMIs for his

house and car, care for his elderly parents and provide for his wife and kids. He

is a regular saver. Everything seemed fine, until he suffered an unexpected

heart attack at an early age of 42 .

The income of Tarun's household which looked stable and adequate is now under risk,

until he gets well and resumes work. The family needs support to get back on its feet. They may also have to

manage with a lower income, should Tarun have to take it easy because of health reasons.

Tarun fell back on his investment portfolio, built through his careful savings. He partly liquidated his stocks and

mutual funds and repaid the loans, so the family is not burdened with the EMI. The lower

income would not affect the household, since there are no EMIs to pay. Tarun is confident

of building back his portfolio through savings.

UNEXPECTED

EVENTS

DEMAND

HIGHER

FLEXIBILIT Y

FROM OUR

INVESTMENTS

Every household should ensure that a good portion of the investments are in assets that can

be easily utilized to reduce loans and liabiltiies. Most mutual fund products are highly liquid

and readily convertible into cash.

Saurabh's pension seemed to get

smaller and smaller over time, with

inflation. The interest income from

his saving was not enough and

Saurabh could not find any part-time

occupation to increase his income.

Saurabh worries about outliving his savings.

He also has to make life style changes to fit his

reducing purchasing power.

Saurabh cannot work back the clock to increase his accumulated savings, nor can he risk his savings by chasing high

return investments. He can rebalance his assets, selling off what he does not need to realise some value. He can also

drawdown his capital carefully. Pension income that does not outpace inflation is a big risk for retired investors.

INFLATION CAN DRAMATICALLY

REDUCE THE PURCHASING POWER

OF FIXED INCOMES OVER TIME.

ARE YOUPROTECTEDFROMINFLATIONRISKS?

Saurabh retired after a long stint as

a senior government official. He

enjoyed a relaxed and laid back

retired life, travelling, and indulging

his hobbies. He has accumulated a

decent amount of assets and

savings and has his monthly

pension. The comfort however

began to wear off when he crossed

70 years of age.

Our need for income and our ability to generate what we need changes

over time. If retirement depends on income from accumulated wealth, we

need to build it using growth products such as diversified equity funds.

By using her credit card, Mythili was spending accomplished as there is no money left after

tomorrow's income today. Most of us cannot match expenses. Expenses need thought and planning.

expenses to income efficiently. Some expenses are Loans and credit cards have to be repaid, after adding

routine (utility bills); some are ad-hoc (school fees). interest charges. They can be used to make

Some expenses are small (movies); some are large temporary adjustments in income and expense, but

and need planning (replacing the fridge). Some not as a tool to spending more than we can afford.

expenses can be expected (monsoon illness); and

some are unexpected (critical illness.)

Many households find that they run out of their

income too soon. Saving is intended but seldom

WHEN WE SAVE,WE SPEND ON OURSELVES.

WHEN WE SPEND,WE ENHANCE SOMEONE

ELSE'S INCOME.

TOMORROW'S INCOME TODAY?

Mythili never made a monthly budget, like most of us,

knowing that her income level is comfortable. When there

were unplanned expenses, she used her credit card.

She had not worried about this until her credit card bills

mounted up. She could either pay the dues or have

enough money to spend, but not both.

ARE YOU SPENDING

The more we spend, the less we save, and higher the risk to our future income. Mutual funds foster saving by

offering a simple folio that can be opened for a small investment amount, into which we can invest whenever we

can, how much ever we can .

Salim is keen to buy a house. He is tired of the increasing rents he

pays every month and the bother of shifting addresses. Buying a

house in his city requires about eight times Salim's current annual

income.The expense is too large to fit into a routine income and

needs a large lump sum amount. Salim chooses to take a home loan.

WHEN DOES MAKE SENSE?A LOAN

When Salim takes a loan, he allocates some of his future income to pay for it. In the process he acquires a house

which is an appreciating asset over the long run. Salim will be a happy owner of the house once his loan is repaid.

But the same is not true for his car, which only depreciates in value. He needs to understand that the loan he takes

for the car is only for the benefit of paying off in installments.

We need to recognise the problem when we overdo the facility of spending using a loan. Personal loans that are

taken for large expenses and holidays; credit card loans taken for excessive expenses; and loans from friends and

others for routinely overshooting income, are all loans that have to be checked.

They carry the danger of eating up a large part of our income leaving too little to

spend or save.

A LOAN THAT

HELPS US FUND A

LONG TERM ASSET

HOLDS THE

APPEAL OF A

FORCED SAVING.

A loan helps us incur large expenses within the confines of our limited income.

We can build appreciating assets with loans, over the long run. Mutual funds are

accepted by lenders as a collateral and can enable us get a better rate on the loan.

However, he is unable to save

regularly, because of some

unexpected expense or the other

coming in his way. As a young

household, Fernandes' family has

higher aspirations for a better lifestyle,

and he ends up paying for family

outings, gadgets, holidays and gifts,

leaving little for savings.

Fernandes thinks that the only way he will be able to save is by ensuring that some of his

income is set aside for saving, even before it is available to spend. He decides to enroll into a systematic investment

plan, that will debit his bank account and directly convert it into an investment.

DO YOU GENERATEREGULAR SURPLUSES?

Fernandes has been a

disciplined spender.

He ensures that his

loans do not take up

too much of his salary.

IT IS SMARTER

TO SAVE FIRST,

EVEN BEFORE WE

BEGIN TO SPEND

OUR INCOME.

Many households do not generate a regular saving, even with the best intentions.

Without saving, investments for the future are a non-starter. Cutting back on spending

is desirable but somewhat painful to most. The simplest way to ensure disciplined

saving, when expenses are tough to control, is a systematic investment.

If we think we lack the discipline to save regularly, it is easier to create a system that automatically allocates some of

our income to saving, even before we begin to spend. Systematic investment plans of mutual funds are tools to

achieving this discipline .

Arun earns well and lives

comfortably, but has no savings.

Somehow he ends up spending

all that he earns. His friend

offers an advice - buy a nice

plot of land with a bank loan.

When the repayment goes out

of your salary, it is a forced

saving. When the loan is

repaid, the land is yours.

Arun likes the idea. He stretches his

repayment capability and buys a

large piece of land. All was well

until Arun needed a large amount

for a family ceremony. Arun did

not want to disappoint his wife,

but how could he find the

money? The bank was unwilling

to make a further personal

loan over and above his large

land loan.

Many of us overdo the forced saving bit. We lock up a large part of

our income into an asset that cannot be sold easily, let alone in parts

as our need for money arises. We do not realise that we need to have

liquidity to support a sudden expense. We then end up with a large

home and a household that runs on rolled-over credit card debt.

HAVE YOU UNKNOWINGLY LOCKED YOUR MONEY UP?

OUR BASIC INVESTMENT

CHOICES SHOULD BE LIQUID

ENOUGH TO SUPPORT OUR

UNEXPECTED NEEDS FOR CASH.

Our choice of investments must support our need for liquid cash. Our investment in illiquid assets like property should be

made only after we have a cushion of liquid investments such as mutual funds to fall back on.

NET WORTH?DO YOU KNOW YOUR

Mumtaz was stuck. The house, her car and jewellery had lost value and were worth

lesser than what she had to pay the bank.

Our financial transactions have to consider our net worth. The total of what we own as

ours has to be higher than what we owe to others. Balancing the two such that assets

have a higher value than loans is important. Higher net worth cushions us and

ensures that we do not fall into a debt trap and end up borrowing more to repay loans.

TAKING LOANS

REDUCES NET

WORTH, BUILDING

ASSETS

INCREASES IT.

Mumtaz has just moved into her new home. Her new car is

parked at her porch and her lockers are brimming with jewellery.

She had inherited the ancesteral home from her father. She sold

it off and bought herself things that she always wanted. Except

that the wish list went a bit too far.

She bought a large new house and then mortgaged it and bought the

car and the jewels with a loan. She could pay the EMIs with her salary

easily, she thought. The downturn brought the value of her house

down, and she also lost her job.

Funding an asset completely with a loan is risky. We need some of our own money invested in it, so that even if the

asset loses value, we are not forced to sell off to repay a loan. Buying investment products with borrowed money is a

risky proposition.

When her son decides to

go abroad to study, she

decides to dip into her

savings. And she is in

for a shock.

HAVE YOU DEFINED YOUR FINANCIAL GOALS?

Fatima has been working for the last twenty years and

has been putting money aside in her provident fund.

Every year she also buys some insurance to save tax.

She thinks that saving regularly is a good habit and it

must help her family have a secure future.

Every investment decision must have a clearly defined objective. It is like choosing the correct train after deciding

what our destination is. We should spend time trying to see the uses to which we will put our savings. If Fatima had

estimated many years ago that she may need money for her son's education, she could have chosen her

investments with that goal in mind.

She can withdraw some money from her PF, but that is not enough. Her insurance agent tells her that she needs to

wait for a few more years to realize the money; and the policies that she likes to surrender are leaving her with a big

loss. Fatima has made a mistake that many of us do - saving and investing without a proper definition of the goals.

TO SET

FINANCIAL GOALS

IS TO PROVIDE

A PURPOSE

TO OUR SAVING

AND INVESTMENTS.

The return we have to earn on our investment depends on how much we will need and

when; how big the investment should grow into will depend on the purpose it has to

serve. Choosing a product based on our objective is a good way to choose from

multiple investment options.

HAVE YOU ESTIMATED YOUR

GOAL GOALPOST(YEARS FROM NOW)

VALUE INTODAY’S MONEY

ASSUMED INFLATION RATE

APPROX. VALUE ATGOALPOST

Car

Holiday

House

Education

2 years

3 years

4 years

8 years

400000

500000

2000000

500000

6.5%

6.5%

6.5%

6.5%

450000

600000

2500000

825000

Alex is keen to build

his investments with a

target in mind.

If Alex can list some of the large expenses he needs to fund, those are his goals.

financial goals.

Financial goals are defined in terms of time and amount. Alex needs to

know when will the money be needed, how much will be needed. To

decide on 'how much' Alex has to factor in an assumed rate for

inflation. For example, if he needs Rs.20000 to run his home

today, if inflation is 6.5% he will need about Rs.50000, 15

years from now. Similar workings for some of the other goals

of Alex will yield these results:

Buying a new car, taking the family on a holiday, buying a house, planning for

the kids' education and marriage, ensuring adequate retirement income

are all

FUTURE GOALS?

FINANCIAL GOALS

HAVE TO BE DEFINED IN

TERMS OF FUTURE

DATE AND AMOUNT.

If we are able to define our future needs, even approximately, we know how

much we need to save and invest the savings to grow over time. Starting a

systematic investment plan to regularly save for the goal, is an easy route to

executing our plans.

DOES YOUR ENOUGH?

INVESTMENT WORK HARD

SHORT TERM

GOALS

NEED PROTECTION

OF CAPITAL AND

LONG TERM GOALS

NEED GROW TH.

Your investment choice needs to work for you. First, it has to cover the inflation

risk. Second, if your money runs fast, or earns a higher rate of return, you can

save a smaller sum to get the same end result. Third, investments need time to

even out the risks. Investing for a financial goal is about making these three

Maria knows the approximate future amount she needs. But she has been investing her savings at 6%, scared to

take risks. She cannot save more than she currently does, given household budgets. Maria needs to get her money

to work harder. She has time on her side and should choose a long term, higher return investment.

Maria and her husband have worked hard to get where they are today.

They have earned and saved well. Their daughter's wedding is one secret

desire for them, an opportunity to assert their social status in their

community. Maria's daughter is only 15, but planning ahead is

what appeals to Maria.

It is important to tune our investments to what we want to go, how long we have to

get there, and how fast we therefore have to run. Choosing funds based on our

needs, rather than where the stock markets are going, is a good approach.

A laptop, a cell phone, or a better car, have been on

his wish-list. But he thought he could not afford them,

until he met his friend Shankar.

ARE YOU READY FOR RISK?

Sitaram was happily retired, content with his pension and

tuition classes. He and his wife lived a simple life in their

own home.

Shankar had joined the newly opened finance Fantastic it turned out to be, soon after Sitaram had

company in town. His job was to collect deposits and deposited a hard-earned chunk of his life's savings.

pay out interest cheques. He earned a nice 4% The finance company folded up, taking away the

commission on deposits that he mobilized. Since his money of hapless depositors and leaving Shankar and

company was paying 18% on the deposits, and paying Sitaram in the lurch. If something is too good to be

depositors always on time, it was easy money for true, it cannot be true after all. Sitaram wanted his

Shankar. Sitaram's jaws dropped at the possibility of money to grow at a rate that satisfied his need, but

having his money growing at such a fantastic rate. failed to see that higher return meant higher risk.

RETURN IS ONLY HALF

THE STORY.

RISK IS THE

SIGNIFICANT OTHER.

Investment need to be chosen carefully after understanding the risks

involved. Some risks can be taken and managed, some are best avoided.

Mutual fund products offer a high level of transparency and information to

enable us to manage risks well.

IS RISK-TAKING AN ATTITUDE?

Albert is fun-loving and

adventure seeking. His

attitude seeped into his

investments, as he indulged in

on-line trading and speculating

with stock prices. When the

equity markets were moving

up, Albert made a lot of money.

But as the markets

crashed unexpectedly, he

lost so much that his

savings were wiped out.

Albert is a 27-year old graduate and knows very little about markets and investing.

Albert hardly has any savings, reducing his ability to bear losses. His income is hardly

stable with his limited educational background. Albert may like risk, but may not be well equipped to take it.

Risk is not just about attitude. It is about the ability to take on short term monetary losses. The amount of risk one can

take depends on the accumulated wealth, stability of income, ability to make informed decisions and ability to wait for

the long term. Our investments should reflect our goals and objectives as well as our realistic appetite for risk.

RISK TAKING IS ABOUT

ABILIT Y, RATHER THAN

MERE WILLINGNESS

TO ASSUME RISKS.

Wealthy investors tend to like high risk investments. The incremental risk may not

hurt their accumulated wealth. Investors beginning to build wealth should move

from low risk to high risk choices, only gradually, over time. Not every product suits

every investor.

HAVE YOU CONSIDEREDA FRIEND IN TIME?

Anita knows that she cannot earn a higher return without taking on a higher risk. She is

keen to save for the long term, for her children and for her retirement. She has chosen her

investment objective as growth. She has her salary for her income needs. What can she do

about risk that high return investments carry?

Anita can get time to work in her favour. An investment in returns that beat inflation, and enable every rupee to go

equity markets has the potential to grow at a higher rate over further. In finance we call such growth as compounding.

a long period of time. If her investment moves up and down This means, the habit of allowing returns to stay re-invested,

in the interim, but gets her long term growth, she would have without being pulled out, allows returns to compound over

achieved her goal. time. Anita can use this insight to choose risky assets that

help her build a better corpus for her financial goals.Given the time to grow, equity investments can generate

GIVEN TIME, OUR SAVING AND INVESTMENTS

CAN PLEASANTLY SURPRISE US.

When we invest for the short term, we focus on income and protection of our capital. When we invest for the long term, we

decide to take short-term risks in the interest of long-term growth. Open ended mutual fund products help us choose the

time period of our investment, with high flexibility.

LOOKING FOR THEBEST INVESTMENT CHOICE?

Solomon is in search of the right investment opportunity to finance his goals.

Holding bank deposits may be a safe idea, but the returns may not be the

highest; investing in equity may get a higher return, but with higher risk; and

investing in PPF is safe, but it can be locked-in for too long.

Solomon should know that different investment investment in deposits hold up; when deposit rates are

avenues offer different combinations of risk, return, not large enough, equity returns make that up. A

liquidity and time horizon. There is nothing that is best portfolio that holds various types of investments

for all times and all purposes. A better approach is enables managing risks sensibly. This strategy of

diversification. This means having a combination of earmarking our money into various investments in a

various investment options and balancing the benefits portfolio is called asset allocation. It is the most

and risk. important investment

dec i s ion tha t we The additional benefit of diversification is that it

could make.reduces risk. When the equity markets go down, the DIFFERENT

INVESTMENT

CHOICES SERVE

DIFFERENT

NEEDS.

TO DIVERSIFY IS

TO COMBINE

THEM SENSIBLY.

However good an investment opportunity looks, staking everything into it may be

risky. Just as a balanced meal helps nutrition and balance, diversification helps

investors manage risk and balance their returns. Mutual funds offer the simplest

route to holding diversified investment products.

YES

NO

Does your current household income represent the best possible under your circumstances?

Are you confident that your income will keep pace with inflation?

Have your estimated your family's income needs in good and bad times?

Are you building an investment corpus that can generate future income for you?

Do you always set aside money to save, before you spend?

Do you ensure that your expenses are within your current income?

If you have taken loans, are the EMIs less than 50% of your monthly income?

Can at least 50%of your investments be converted to cash if needed?

Have you put at least 20% of your own money, before taking a home loan?

Do you know if your net worth is positive?

Do you ensure that your saving is invested and not left idle?

Do you have a list of your future financial goals?

Do you have an investment plan to meet your financial goals?

Do you know that high return can be accompanied by high risk?

Do you choose an investment based on its return alone?

Do you hold a basket of investments spread across various choices?

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

12.

13.

14.

15.

16.

If your answers to more than half the above questions is “No” you need to see a financial advisor to plan for your investments and your financial future.

ANSWER

THESE

QUESTIONS

UTI Mutual Fund is among the largest mutual funds in India serving

over 1 crore investors. It offers over 70 products across asset classes

to enable investors to deploy their savings for wealth creation, into

professionally managed portfolios.

UTI Mutual Fund's investment philosophy is to deliver consistent and

stable returns in the medium to long term with a fairly lower volatility

of fund returns compared to the broad market.

UTI Mutual Fund is committed to adopt and maintain good fund

management practices and a process based investment

management.

www.utimf.com

Centre for Investment Education and Learning (CIEL)

was set up in 2007. CIEL addresses the educational needs of the

investment industry through e-learning modules, web-based

assessments, classroom training and certification programmes.

Several leading banks, mutual funds and investment distribution

companies are among CIEL's clients.

To know more about CIEL's certifications and training programmes,

email info@ciel.co.in.

www.ciel.co.in

This booklet is being distributed as part of UTI Mutual Fund's Investor

Education Program for promotion of investors' awareness and

protection of the interests of investors.