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Investment and financial planning for retail investor Page 1


I, Nitin Indraprakesh Singh of the Chetana’s H.S. College Of Commerce And

Economics, Bandra (E), hereby declare that I have completed the project entitled
“ in partial fulfillment of the requirement for the third year of the bachelor of
financial markets course for the academic year 2013-2014.

I further declare that information submitted by me is true and original to the best of
my knowledge.

DATE: _______





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This to certify that Mr. Nitin I Singh of T.Y.B.F.M. ( Semester V), has
successfully carried out work on the topic of “INVESTMENT ANS
the curriculum laid down by the University of Mumbai for the Academic Year

This is a bonafide project work and to the best of my knowledge, the information
presented is true original.

Internal Examiner Co-coordinator

External Examiner Principal


Place:__________ College Seal

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Apart from the efforts of me, the success of my project depends largely on the
encouragement and guidelines of many others. I take this opportunity to express
my gratitude to the people who have been instrumental in the successful
completion of this project. I would like to show my greatest appreciation to prof.
MADHAVI MULEEK I can’t say thank you enough for this tremendous support
and help. Without her encouragement and guidance this project would not have

I also wish to express my gratitude to Chief coordinator PROF. SHIVAPRASAD

for providing me an opportunity to do my project work. The special thanks to all
COM. AND ECO.” For their kind co-operation to the completion of my project

The guidance and support received from all the professors of Chetana’s who
contributed towards this project is vital for the success of the project. I am grateful
for these constant support and help. Last but not least I wish to avail myself of this
to thank my parent for their manual support, strength and help for everything.



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Chapter no. Topic Pg. No.

 Introduction To Financial Planning And Investment 09
1 1.1Important Term Used In Investing 09
1.2Benefits Of Financial Planning 12

 Process of financial planning 14

2.1 The planning process 14
2.2 Formulation of goals &need assessment 18
2.3 Investor profile & behaviour 21
2.4 Conducting risk assessment 22
2.5 Need for financial planner 25
 Financial plan 27
3.1 Cash flow management 27
3.2 Insurance planning 27
3 3.3 Investment planning 30
3.4 Retirement planning 32
3.5 Income tax planning 34
3.6 Estate planning 35
 Financial And Investment Product 39
4.1 Life insurance product 39
4 4.2 Mutual fund 43
4.3 Investment in equity 43
4.4 Fixes income security 45
 Research methodology 47
5.1 Objective 47
5.2 Scope 47
5.3 Limitation 48
5.4 data collection 48
5.5 annexure 48

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6 6.1 Conclusion 54

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The investment & financial planning is increasing and also developing economies. While taking
up this project gradual changes found in investment is show how the strategic management can
be. It talks about the investment and financial planning and its overall impact on market. The
consumer also faces a wide array of complex choices a plane. These choices are so complex that
most people, including highly educated professionals in nonfinancial areas, cannot make all the
needed financial decisions correctly or even in a timely way in many cases. One result of this
burden is that many middle- and upper-income Americans seek counsel to assist their decision

They may find this counsel at the nearest bank, it may come over the phone from a securities
dealer, it may be delivered in the home by a life insurance agent or, with increasing frequency in
recent times, and it may come on a home computer. it consider a few of the decisions Indian face
as they mature from being a young adult, to middle age, and then on to old age. Of course, not
every person must make each of these decisions, but most Indians will make some or all of the
following choices.

How much money should be saved and how should savings be held. How survivors should be
protected from the effects of a premature death. How a house should be financed the most
efficient way. How a child’s education should be financed. how should a family be protected
from loss of income caused by accident or illness all this are financial planning are important .I
always had curiosity to know how investment & financial planning creates inorganic growth in
financial market. Thus this research will determine the outcome of success rate takeover on

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In this project report there are many facts which say whether an investor should invest in
financial planning in India or not. For the conclusion on this part, we have analyzed economic,
industry as well as company

In the Economic Analysis we can see that economic is booming after 2009 and current position
shows that this is the good time to invest after the recession because GDP growth rate is
increasing. And overall economy is growing. In the market here we can see Growth in the
financial planning, demand & supply is rising fast.

Financial planning is having much profit and on the other side investment growth has increased
very much so investor should invest carefully. In the market but if investor want to invest in the
market for long term than he can have a good profit because financial market is growing rapidly
in terms of returns and this research will help me to know the outcome of success rate takeover
on market.

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Introduction to Financial Planning and Investment


Financial planning is not just investing. it is a process. It allows you to manage your finances in
such a way that you link it to your goals. Making a standalone investment in a life insurance
product means nothing if you do not know the amount of cover you need, or whether the
maturity proceeds are adequate, or whether you need a life cover.

In India everybody earns money with an objective to fulfill one or many of one’s life goals.
People use money for purposes as simple as funding their daily household expenses to buying
exotic luxuries for a better life. Money can be saved, accumulated and grown to fund various
financial goals of a person. Such as education, marriage, house purchase, retirement and even
passing on as legacy to the next generation. So money earned is either used to fund some of the
immediate expenses or some goal in distant future. When money earned in to fund one of the
future goals, it needs to be invested in an optimum way to give maximum returns taking into

The individual’s risk profile and time horizon of the goal and the taxation Aspects related to
personal finance. Financial to investors by way of various products that they offer. Contrary to
popular belief, mutual funds are not an asset class. They are vehicles that allow you to execute
your financial plan. Since in 2012 the financial planning is increasing day by day.

1.1 Important Term Used In Investing:-

In investment it is very important to understand that money is put to use wisely. Customers
always want to invest money in such a way that they earn more that the rate at which prices of
goods increase. Some of the important terms to remember are:

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 Investing

In financial terms, Investing is:

 Commitment of money or capital in a business, project or enterprises to gain a profit after

thoroughly analyzing the past performance and future prospects of business, project or

 Stocks, bonds, cash equivalents and mutual funds are the most common form of

 Stocks, bonds, mutual funds and certificate of deposits are commonly termed as

 Investments in each of these securities is possible either through the primary or the
secondary market route through financial intermediaries and distributors such as
investment banks, brokerage house and now banks as well.

 Speculation
 Speculation implies the act whereby people make an investment in a risky asset, hoping
to obtain profits from future changes in the prices of the asset. This hope could be based
on reports that people may have heard but they may not have checked the credentials of
the assts.

 Investors speculate every time they money to something they do not understand. We have
learnt that investment making involves understanding the financial strength, future
prospects, expected returns and the corresponding risk. The detailed analysis helps in
taking a considered view.

 Speculation involves taking a short term view based on the volatilities of the market in
order to benefit from the price movements. A speculator works on the assumption of
favourable price movements which may or may not be happen. A speculator may use
technical charts and analysis to predict price movement but the same will lack scientific

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 Gambling
 It may mean taking a pot-shot that may or not yield result. There is no real basis for
taking such actions except for some sort of hunch or tip and without any kind of in-depth
analysis of the company or its shares. A dart board investment style will fall under this

 This is an interesting story to share. A group of people tested this in 1967 through the
Forbes magazine in New York. They threw darts at the stock markets quotations page
and picked in all 28 shares. A notional equal amount was invested in each of the selected
shares. Fifteen years after the experiment, it was found that their notional portfolio had
outperformed the stock market average.

 Shorting
 There is time lag between the deal for sale and the delivery (say of shares), this allows a
person to sell something that he or she does not possess. During the time lag, the investor
buys the requisite quantity and if able to do so at a cheaper price that that of the sale
price, he or she is able to book a profit. This transaction is called short selling or shorting.

 Hedging
 Every investment has an inherent risk and an investor takes steps to reduce this risk. This
technique is called hedging which may involve cover operations such as buying a call or
selling a put or taking forward cover against foreign exchange exposure etc.

 Another variation could be immunization. Especially in case of debt securities where the
investment may be balanced against liability such as loans by holding contra position.
This ensures that any movement in interest rates is automatically offset.

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 Diversification
 Diversified portfolio the return is the weighted average return but the risk of the portfolio
is lower as compared to the risk in the individual securities.

 Individual investment should be so chosen that there is not much correlation amongst
investment. It should be remembered that the diversification also reduces the probability
of making higher than expected returns.

 Arbitrage
 Arbitrage involves taking advantage of price differential in different markets. An
arbitrageur continuously monitors different markets with the help of sophisticated tools
and seeing an opportunity buys and sells in different markets to make large profits.

 Such price differentials tend to exist for every short period due to inefficiencies but
equally correct fast. However, such techniques are not as risk free as they may appear due
to timing and settlement differences.

1.2 Benefits of Financial Planning:-

Financial Planning helps you give direction and meaning to your financial decisions. It allows
him to understand how each financial decision affects other areas of finance. For example,
buying a particular investment product may help your client to pay off his mortgage faster or
may buying a particular investment product may help your client to pay off his mortgage faster
or may delay his retirement significantly. By viewing each financial decision as a part of a
whole, you may help your client consider the long term and the short term effects on his life

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 Tips to achieve the best results from your financial planning:-
 Set measurable financial goals:-

Set specific targets of what you want to achieve and when you want to achieve results. E.g.
Instead of saying you want to be "comfortable" when you retire or that you want your
children to attend "good" schools, you need to quantify what "comfortable" and "good"
mean so that you'll know when you've reached your goals.

 Understand the effect of each financial decision:-

Each financial decision you make can affect several other areas of your life. E.g. an
investment decision may have tax consequences that are harmful to your estate plans. Or a
decision about your child's education may affect when and how you meet your retirement
goals. Remember that all of your financial decisions are interrelated.

 Re-evaluate your financial situation periodically:-

Financial planning is a dynamic process. Your financial goals may change over the years
due to things like an inheritance, marriage, birth, house purchase or change of job status.
Revisit and revise your financial plan to stay on track with your financial goals.

 Start planning as soon as you can:-

People who save or invest small amounts of money early and often tend to do better than
those who wait until later in life. By developing good financial planning habits such as
saving, budgeting, investing and regularly reviewing your finances early in life, you will be
better prepared to meet life changes and handle emergencies.

 Be realistic in your expectations:-

Financial planning won’t change your situation overnight; it is a lifelong process. Remember
that events beyond your control such as inflation or changes in the stock market or interest
rates will affect your financial planning results.

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Introducing Financial Planning Process:-

Most of us would like to look at life as a continuum from the cradle to the grave where all phase
of life are joyful and well taken care of financially. While most people spend to satisfy their
immediate needs, they would also like to save and invest so as to take care of their future needs
and emergencies. People also desire to have a reasonable return and create a corpus.

However, different people have different perceptions of risk in investing. Some people are
aggressive investors, whereas, other people may be moderate or conservative investors. As the
needs evolve or undergo a change through various phases of life, the financial behavior of people
too undergoes corresponding changes.

 Some of the needs of people at different phase of life are:

 Protection against premature Death.
 Retirement planning.
 Protection form disability and is health.
 Education and marriage of children.
 Wealth creation.
 Wealth Preservation.

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 Steps involved in Planning Process:-

The various stages in the process of planning are as follows:

1. Goal setting:

 Plans are the means to achieve certain ends or objectives. Therefore, establishment of
organizational or overall objectives is the first step in planning. Setting objectives is the
most crucial part of planning. The organizational objectives should be set in key areas of

 They should be verifiable i.e., they should as far as possible be specified in clear and
measurable terms. The objectives are set in the light of the opportunities perceived by
managers. Establishment of goals is influenced by the values and beliefs of executives,
mission of the organization, organizational resources, etc.

 The objectives must be clear, specific and informative. Major objectives should be
broken into departmental, sectional and individual objectives. In order to set realistic
objectives, planners must be fully aware of the opportunities and problems that the
enterprise is likely to face.

2. Developing the planning premises:

 Before plans are prepared, the assumptions and conditions underlying them must be
clearly defined these assumptions are called planning premises and they can be identified
through accurate forecasting of likely future events.

 They are forecast data of a factual nature. Assessment of environment helps to reveal
opportunities and constraints. Analysis of internal (controllable and external
uncontrollable) forces is essential for sound planning premises are the critical factors
which lay down the bounder for planning.

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 They are vital to the success of planning as they supply per tenant facts about future.
They need revision with changes in the situation. Contingent plans may be prepared for
alternate situations.

3. Reviewing Limitations:

 In practice, several constraints or limitations affect the ability of an organization to

achieve its objectives. These limitations restrict the smooth operation of plans and they
must be anticipated and provided for.

 The key areas of Imitations are finance," human resources, materials, power and
machinery. The strong and weak points of the enterprise should be correctly assessed.

4. Deciding the planning period:

 Once the broad goals, planning premises and limitations are laid down, the next step is to
decide the period of planning. The planning period should be long enough to permit the
fulfillment of the commitments involved in a decision.

 This is known as the principle of commitment. The planning period depends on several
factors e.g., future that can be reasonably anticipated, time required to receive capital
investments, expected future availability of raw materials, lead time in development and
commercialization of a new product etc.

5. Formulation of policies and strategies:

 After the goals are defined and planning premises are identified, management can
formulate policies and strategies for the accomplishment of desired results. The res-
ponsibility for laying down policies and strategies lies usually with management. But, the
subordinates should be consulted as they are to implement the policies and strategies

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 Alternative plans of action should be developed and evaluated carefully so as to select the
most appropriate policy for the organization. Imagination, foresight, experience and
quantitative techniques are very useful in the development and evaluation of alternatives.

 Available alternatives should be evaluated in the light of objectives and planning

premises. If the evaluation shows that more than one alternative is equally good, the
various alternatives may be combined in action.

6. Preparing operating plans:

 After the formulation of overall operating plans, the derivative or supporting plans are
prepared. Several medium range and short-range plans are required to implement policies
and strategies.

 These plans consist of procedures, programmers, schedules, budgets and rules. Such
plans are required for the implementation of basic plans. Along with the supporting,
plans, the timing and sequence of activities is determined to ensure continuity in

7. Integration of plans:

 Different plans must be properly balanced so that they support one another. Review and
revision may be necessary before the plan is put into operation. Moreover, the various
plans must be communicated and explained to those responsible for putting them into

 The participation and cooperation of subordinates is necessary for successful

implementation of plans. Established plans should be reviewed periodically so as to
modify and change them whenever necessary.

 A system of continuous evaluation and appraisal of plans should be devised to identify

any shortcomings or pitfalls of the plans under changing situations.

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Formulation of Goals

Financial goals are the milestones that the client hopes to reach with the help of his financial

1. These milestones could be concerning different aspects of life like:-

 Saving for marriage / childbirth

 Buying a new car / house / electronic equipment
 Creating a corpus for retirement
 Creating a corpus for children's education
 Adequately insuring self and family
 Creating cash reserves for emergency usage etc.
 The financial planner should ensure that the goals are:

• Specific.

• Realistic.

 Measurable / Quantifiable in money terms.

 To be achieved within a specific time period.

Once the client has stated clear, quantifiable goals for financial planning, the next step is to rank
those goals in order of importance. This is necessary because most clients do not have the
resources to fulfill all their goals. The financial planner must make it clear to the client that less
important goals must be sacrificed or postponed to achieve the more important ones. This done,
the financial planner needs to work out the amount of money available for achieving these goals.
To achieve most financial goals, the client would need to start saving and investing
appropriately. Therefore it is important for the financial planner to know where the money to
invest will be coming from.

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2. Analyze investor objectives, needs and current financial situation
Preparation of the investor's Personal:-

Financial Statements Preparation of the Cash flow Statement and the Budget Prioritizing Goals,
The next step is to prioritize the financial goals of the client and work out the amounts that are
required to be invested towards achieving these goals Evaluate Qualitative Factors.

Qualitative factors have a significant bearing on the financial plan for a client. The client's
Tolerance towards risk, investment preferences, current health status etc. need to be kept in mind
while evaluating alternative Strategies.

3. Developed appropriate strategies and present the financial plan:-

A financial planner needs to develop appropriate strategies for the client in the following areas:-

 Cash flow management

 Insurance planning
 Investment planning
 Retirement planning
 Income tax planning
 Estate planning
 Need Analysis

Identifying needs of protection, retirement, health, wealth creation, and preservation. In this step,
growth of the economy and the progress of the society are essential for all round development of
an individual. Individuals invest in various financial instruments, which in turn reap returns not
only from the individual investments but also from the overall economic growth.

Inflation is one of the major concerns of a central bank while formulating monetary policies of
the country. Among its many adverse influences, inflation can take away gains from any
investment. An investor would like to gain more than the inflation rate to have a real return from
the investment.

Another concern is longevity and after retirement life spans, coupled with small nucleus family
norms. Therefore, any financial plan has to take care of this concern, which is a crucial need. Of

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course, a wise financial planner would always first take care of the general and life insurance
needs of an individual before commencing financial planning for other needs and investment.

 Planning the investment involves lot of Preparation Before investors invest

their money, they need to answer the following questions:-
 What are their investment goals? Do they expect short term benefits or long term benefits?
 For how long they want to invest or what is the time horizon of investment? Is it 3 years, 5
years or 10 years?
 How much money do they have to invest? Can they realistically achieve their investment
goals without any strain?
 Do they have any short term financial needs, for example a housing loan, whereby they may
not be able to invest as much as they would like?
 Do they need to live off the return on their investments, in later years? If yes, will the
investments provide enough profits for them to live comfortably?
 Should they invest in stocks, bonds, mutual funds or pension funds?

Saving too little money or investing erratically is a drain on the investor’s financial resources. A
wise investor would introspect before saving or investing. When investors have completed the
initial plan, they should decide on specific goals. For this they should consider if their investment
would pay for their goals.

 Some of the common goals of investor are:-

 Children’s education
 A down payment for a house
 Retirement

 The answer to the preceding goals would lead to information related to:-
 How much money they require?
 How much time do they have to get there?
 What are the investment vehicles that they may be appropriate for them?
 What are the kinds of returns they can expect?

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The more specific are the investors, the more likely they can plan and achieve reasonable goals


Motive of investor both rational and irrational are considered under the behavioral fiancé as
defining the long run price formation in the financial markets. The traditional finance on the
other hand seeks to understand the financial markets by using models based on rational behavior
of the investors.

It is expected from rational investor that they update their beliefs correctly on receiving new
information and make choices in tune with expected utility. A crucial component of any model
of financial markets is a specification of how investors form expectations. Some of these are:

 Optimism and wishful thinking:-

Most people display unrealistically rosy views of their abilities and prospects.

 Representativeness:-
People try to determine the probability if an item belongs to a set or a model generates a
data set.

 Conservatism:-
People may be reluctant to search for evidence that contradicts their beliefs, they tend to
treat such evidence with excessive scepticism, and they may misinterpret evidence that goes
against their hypothesis.

 Belief perseverance:-
People often cling to their beliefs tightly and for too long.

 Anchoring:-
People often start with an initial, possibly some arbitrary value or belief and then adjust
away from it.

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 Availability bias:-
When judging the probability of an event, people often search their own memories for
relevant information.


 Assessment of risk is conducted by:-

 Risk profile
 Recommending appropriate asset allocation

The planner needs to understand the risk appetite of the investor. Generally, investors are
asked to fill in a form to ascertain their risk appetite. This helps to categories the investor
into aggressive, moderate and conservative investors based on their risk profile.

There is always a correlation between the risk appetites of the investors and the returns they
expect. Higher the risk, higher is the return expected. This is known as risk return trade off.
Concepts such as portfolio, diversification, risk and return and techniques for reducing and
hedging risk are some of the tools for financial planning.

For example:- equity shares by their nature are riskier as compared to a fixed deposit or
government securities. Higher returns are expected from the equity shares.

Therefore, keeping a portion of the surplus in the form of fixed deposits or government
securities reduces the risk of the portfolio comprising equity share (though it may also
lower returns).

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 Types of Investors
As the investment option for each of the investor types is different, it becomes essential
to determine the style of investor before they invest.
The various investor types are:
 Aggressive investor: is an investor who likes to take risks to earn an extra but of

 Moderate investor: is an investor who is content and believes in earning slow and
steady gains and is not interested in making quick money. A long term investor is one
who does not mind taking some occasional risk so as to optimize returns and achieve
continuous growth

 Conservative investor: is risk adverse investor whose primary objective is capital

preservation. Such investors want a steady growth in income and are not capable of
taking shocks, in terms of losses in investment. In other words, they are passive

 Some of the high net worth individuals can be segmented as follows:-

 Wealth builders: are individuals, who are actively adding to their asset base, are fairly
risk seeking and expect the best possible returns for every unit invested, they have a high
current income and financial equipment.

Typically, they would be owners of business or top level employees in corporate. They
invest actively and are competitive, demanding and fickle-minded. On the other hand,
they also tend to be receptive to new ideas and schemes.

 Wealth preserves: are individual, whose main focus is to protect whatever wealth they
already have. They do not tend to try out new products until they have enough data on
its performance.

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Typically, they are at retirement stage or already retired with low current income, they
tend to be risk averse and relatively passive investors. They could also be inheritors of
wealth whose main objective is wealth conservation.

 Types of Variables for determining an investor style:

There are two major variables, which help the investors in determining their investment
 Risk tolerance
 Time

 Risk tolerance:-
Investors with distinct investment styles invest in different types of products having
varying risk return relationships. There are various degrees of risk across the investment
spectrum, from government savings bonds, which are the least risky to equities,
commodities and options which are the risk.

The former, carrying only sovereign risk are considered risk free because of the
government guarantees. Although the government of India saving bonds and bank fixed
deposits (FDs) are the safest, the returns offered are not very attractive.
Although stocks have historically increased in the price over the long term investment in
equities however could be volatile and very risky over a shorter-term period.

Investor should remember that they do not lose until they sell what they have invested in.
for example, if an investor in united states did not panic and sell his stocks in October
1987, he would have done quite well because the market rebounded in the subsequent

The same was true in the Indian market. If investors had not have panicked and sold post
the 800 points fall in a single day on may 17, 2004 at the Bombay stock exchange (BSE)
Sensex level of 4227.5, they would have done quite well because the market rebounded
sharply from its bottom to trade at 6000 level by mid November 2004.

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Therefore, when investors invest in the stock market, they should think long-term.
Investors should not invest in stocks any money that they would need in the short term.

 Time:-
The time the investors want to spend on investing determines how active they can be as
investors for managing their money. If they want to spend 15 minutes a month on
investing, then they should consider using passive strategies.

However, if they plan to set out eight hours a week to devote to investing, then they can
consider researching companies and pouring over financial statements to pick lucrative
individual stocks.


 Professional Financial Advisory:-

 Due to higher wealth creation, there is a big demand and growing appetite for offering
professional financial planning service in India expert advice is required because of the
shift in the investor attitude towards alternative investment options and the desire for
sophisticated and focused products.

 As investors have become well informed about financial markets financial planner have
to be knowledge and skilful, regulatory changes have also lead to higher competition
and service standards. Competition in the financial planning and wealth management is
expected to become more intense in future.

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 Need for Professional financial advisory:-
 In today’s scenario where there is a huge expansion of middle class with lot of
disposable income, there are financial institutions that are aggressively looking to
enhance the share of the wallet.

 The opening up of Indian market and the entry of the private players the product range
has widened and a lot of choice is available with the Indian consumer. For example
organizations such as insurance companies offer a wider choice of products today unlike
in past where only LIC was opening.

 For a consumer it is a difficult task to take an informed decision as he has neither

required knowledge not the time to continuously track the market. Thus there is a need
for professional financial advice to enable the consumer to choose the investment
product that suits his requirement and will enable him to need his goal in creation of

 Emergence of the new age financial planner:-

 The financial planning process for individuals gets redefined in the emerging scenario.
The financial planner of today needs to posses knowledge of the basic foundations
blocks of financial services sector. This should be backed by an in-depth understanding
of the various products and services, financial planning and wealth management process.

 Use of technology for this would enable the financial planner to be more productive on
the job. Most importantly the modern day financial planner needs to understand his/her
customer with respect to their financial position, their risk appetite and their future
financial needs to be able to recommend suitable investments.

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 Cash flow management is the process of monitoring, analyzing, and adjusting your
business' cash flows for small businesses.

 The most important aspect of cash flow management is avoiding extended cash shortages,
caused by having too great a gap between cash inflows and outflows. You won't be able to
stay in business if you can't pay your bills for any extended length of time.


Insurance is essentially the means to financially compensate for losses that life throws at
people, corporate, and otherwise. Insurance can be used as a tool to shield an individual
against potential risks like travel accidents, death, unemployment, theft, property
destruction by natural calamities, fire mishaps, etc.
Functions of Insurance

The functions of insurance can be categorized as:

 Primary Function:

The following are the primary functions of insurance:

 Provide Protection: The primary function of insurance is to provide protection against

future risk, accidents, and uncertainty. Insurance is actually a protection against economic
loss by sharing the risk with others.

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 Collective bearing of risk: Insurance is a means by which few losses are shared among
larger number of people. Insurance is a device to share the financial loss of few among
many others.

 Assessment of risk: Insurance determines the probable volume of risk by evaluating

various factors that give rise to risk.

 Provide certainty: Insurance is a device, which helps to change from uncertainty to

certainty. In the sense that the insured can make provisions against the happening of an
uncertain event and protect against the same.

 Secondary Function:-
The following are the secondary functions of insurance:

 Prevention of losses: Prevention of loss causes lesser payment to the assured by the insurer
by the insurer and this will encourage for more savings by way of premium. Reduced rate of
premiums stimulate for more business and better protection to the insured.

 Small capital to cover larger risk: Insurance relieves the businessmen from security
investments by paying small amount of premium against larger risk and uncertainty.

 Contributes towards the development of larger industries: Insurance provides

development opportunity to those larger industries having more risks in their setting up.

Investment and financial planning for retail investor Page 28

 Other Function:-

The following are the other functions of insurance:

 Means of savings and investment: Savings and investment through insurance is a

disciplined way of savings and it restricts the necessary expenses by the insured.

 Source of earning foreign exchange: The country can earn foreign exchange by way of
issue of marine insurance policies and various other ways.

 Risk free trade: Insurance promotes exports insurance, which makes the foreign trade risk
free with help of different types of policies under marine insurance cover.

 Characteristics of Insurance:-

The basic characteristics of insurance are:

 Pooling of losses: Spreading of losses incurred by a few over the entire group, so that in the
process, average loss is substituted for actual loss.

 Payment of fortuitous losses: A fortuitous loss is unforeseen, unexpected, and occurs as a

result of chance. This could be accidental and random.

 Risk transfer: Pure risk is transferred from insured to insurer, who typically is in a stronger
financial position to pay the loss than the insured.

 Indemnification: Insured is restored to his or her approximate financial position prior to the
occurrence of the loss.

Investment and financial planning for retail investor Page 29


 Definition:-

The placing of funds into the proper investment vehicles based on the investor's future goals,
time horizon, and priorities. This also takes into account the safety of the investments as well as
liquidity and level of return. Ideally, proper investment planning will allow the investor's funds
to produce financial rewards over time.

 Investment Plans: - Investment plans help beat inflation and build a large corpus. We at
Policybazaar.com help you compare investment plans offered by all life insurance companies
in India and select the best suited investment plan for you. An investment plan should be
selected keeping in mind 3 main goals:

 Risk Profile:-if you are a young customer and are willing to take financial risks, a ULIP is
better suited for you while if you’re a conservative investor, then a traditional endowment or
money-back plan will suite your needs.

 Investment Tenure:-Insurance plans offer a mid-to-long term investment horizon. Unit

Linked Insurance Plans or ULIPs are very good long term instruments.

 Final Goal:-you want to build the corpus for retirement or child’s education.

 Top Investment Product Categories in Insurance:-

 Unit Linked Insurance Plans:-the easiest way for a consumer to enter the stock market with
an added advantage of life cover. As these products provide tax benefits and market linked
returns, they are very good for long-term investment. ULIPs offer many investment funds to
choose from which allow you flexibility to shift between equity and debt, based on the
market conditions and risk profile.

Investment and financial planning for retail investor Page 30

 Traditional Endowment plans:-regular saving plans which help build a corpus and give
guaranteed maturity benefits along with bonuses. These products give you returns equivalent
to a fixed yield/deposit but also combine insurance risk cover and add-on riders to primarily
build the safety cushion in case something goes wrong.

 Money back Plans:-type of endowment plans which give periodic cash payouts to investors.
As they help build regular large capsules of fund; they are very useful for salaried class who
wish to save for buying large assets every 3-5years

Child Plans are saving instruments which help parents build a protected asset for their
child’s future. They also provide many insurance features which protect the intent or
reason for corpus building; primarily for child’s future education and expenses.

 Key things to remember while investing:-

 Set financial goals - both short term and long term.

 Maintain balance between risk and returns- allocate amount accordingly.

 Investments should be both liquid and fixed-This enables you to use them in emergencies
as well as avoiding overspending.

 Start small and gradually increase invested amount- Choose premium payment options
ranging from monthly to annual to single premium.

 Research a lot before investing- use help of financial planner if need be.

 Review portfolio each year and make changes accordingly.

Investment and financial planning for retail investor Page 31

 Ask questions - Resolve all your doubts before investing. Use investment calculator to
calculate exact premium before buying.

 Other Investment Options to choose from:-

 Mutual Funds:- This is a professionally managed trust in which investment is pooled

from retail investors. The accumulated amount is invested in different financial
instruments like shares, securities etc. As the income is earned on these instruments, it is
shared proportionally among investors. Mutual Fund is considered a very good investment
option due to its very low charge structure.

 Investments in Gold:- The value of gold has been appreciating steadily. Looking at the
last few years, there has been more than 22% annualized returns; this makes gold a very
good investment option. For people interested in investing in gold, there are various
methods which include physical gold, e-gold and gold ETF.

 Bank Fixed Deposits and Postal Schemes:- These 3 options are most suitable for making
safe investments. The interest rate on PPF account is presently at 8.8% per annum and
keeps changing every year; different banks offer different interest rates. There are also
many postal investment schemes which can be bought.


The main goal of a successful retirement planning is ensuring that one will have sufficient
financial resources to maintain or improve one’s lifestyle during his/her retirement years.
According to some financial experts, to do so, one will need to save enough.

Investment and financial planning for retail investor Page 32

 Ascertain requirements Post Retirements:-

 One popular approach to retirement planning starts by determining how much finance one
will need for their retirement.
 This is usually based on projected increase in cost of living, the no. of years one is likely to
spend in retirement.
 The years one spends in retirement may be more or less than one projected. The same may
go for the increase in cost of living.
 However a comprehensive outlook and some thought will help to provide realistic

 Steps to Retirement Planning:

 The longest of journeys start with single step. We are not sure who said that, but being in
the financial planning space, we think it most aptly describes what retirement planning is all

 Planning for retirement is one long journey but a resolute and systematic step by step
approach makes it a lot less laborious.

 Start early:-
 A well prepared approach towards any goal is usually the result of an early start.
Retirement planning is no different. We hear financial planners say that it’s never too early
to start saving for retirement and they are right.

 Make no mistake that an early start helps and one will surprised at just how much it helps.
A friend or colleagues, who started saving for retirement even five year earlier than another
with the same quantum of investment

Investment and financial planning for retail investor Page 33

 Even if one doesn’t have the requisite amount of money required to start, the key lies in
starting with whatever is available and making up for the deficit at a later stage.

 Implementing the plant:-

 Having an investment plan in place sets the ball rolling for an investor and the investment
advisor who will implement the plan by making investment in stock, mutual funds, bonds,
small saving schemes.

 The most important reference point for the investment plan is the objective to invest in
avenues that lower risk and maximize returns and do so in line with one’s risk profile.

 This is where the investment advisor’s expert advice will play a crucial role. Typically a
retirement portfolio should be well diversified across pension plans, mutual funds, equities,
EPF/PPF and fixed deposit.


One of the important considerations in making any investment choice across asset classes is
tax implication of investment decision. Tax planning plays an important role in portfolio
management especially in the current scenario of complex tax structure.

 Tax Planning has been described as a form of arrangement of a taxpayer’s financial affairs
in such a way that the tax liability is reduced. This is achieved by taking full advantage of
all the tax exemptions, deductions, concessions, rebates, relief, allowances and any other
benefits granted by the tax laws.

 Every person, whose total income of the previous year exceeds the maximum amount that
is not chargeable to income tax, is an assessed.

 An income can be taxed under the head “Salaries” where there exists an Employers-
Employee relationship between the payer and the payee.

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 The annual value of property consisting of any buildings or lands appurtenant thereto of
which the assessed is the owner shall be chargeable to income-tax under the head “Income
from house property”.

 The gain on sale of a capital asset is called capital gain. The following are various types of
capital gains:

- Capital gains arising on the transfer of short-term capital asset

- Capital gains arising on the transfer of long-term capital asset

3.6 Estate planning:-

Estate planning refers to the process by which an individual or his/her family arranges the
transfer of assets to the legal heirs in the event of death or disability of the individual.

It includes the distribution of the real and personal property of an individual to his/her heirs. An
estate plan aims to preserve the maximum amount of wealth possible for beneficiaries and
flexibility for the individual prior to his death.

The objectives of estate planning are:-

 Asset Transfer to beneficiaries: Every individual wishes that his/her accumulated wealth
should reach the hands of the beneficiary of his/her choice. A beneficiary can be his/her
children, parents, friends, or any other person.

 Tax-effective transfer: To ensure least tax deduction on such transfer of wealth.

 Planning in case of disabilities: It ensures smooth functioning of asset management

within the family in case an individual gets disabled.

 Time of distribution can be pre-decided: Individuals having minor children may wish to
transfer the assets only after the children attain a certain age, to avoid misuse that may
happen due to lack of maturity and discretion.

Investment and financial planning for retail investor Page 35

 Business succession: organized succession or winding up can be defined in case of an
individual handling a business.

 Selection of the Trustee/Guardian or the executor: An individual needs to be appointed

to carry out the functions such as:

- Distribution of assets to the beneficiaries as per the individual’s wish.

- To pay testamentary and funeral expenses.

- Applying for a probate.

- Paying all the expenses and outstanding debts.

- Ensuring all the benefits due to the deceased, such as life insurance, pension, and
other benefits are received.

- Arranging for filing of tax returns.

 Tools of Estate Planning:

During the

Power of
Trust Gift Partition

 Trust: A trust is an entity created to hold assets for the benefits of certain person or entities.

 Power of Attorney: It is a formal arrangement by which one person gives another person
authority to act on his/her behalf and in his/her name.

Investment and financial planning for retail investor Page 36

 Gift: It is a relinquishment without consideration of one’s own right in property and the
creation of the right of another.

 Partition: It is the process by which the property held in undivided shares by joint tenants
or coparceners is divided among them. A partition does not involve transfer in law; hence
partition does not attract liability to tax on capital gains.

 Will: it is a legal document through which, one can allocate one’s assets and property to the
loved ones after death.

 Intestate Succession: The Indian Succession Act states that any attempt to set out the exact
share of each such person and its fluctuation depends on various factors. The share taken by
each sharer will fluctuate in different circumstances.

 Life Insurance: It is a good estate planning tool. The main reason for a life insurance is that
when the insured name his beneficiaries, the money passes to them directly, without probate.


Will Succession

Investment and financial planning for retail investor Page 37



Life insurance is essentially the means of financially compensate for losses that life throws at
people, corporate, otherwise. Insurance can be used as a tool to shield an individual against
potential risks travel accidents, death, unemployment, theft, property destruction by natural
calamities, fire mishaps etc.

The common products which are offered by life insurance companies can be categorized
 Term Insurance: It is provides for life insurance coverage for a specified term of years for a
specified premium. The sum assured is payable only if the death of the life assured occurs
within a specified period of time. There is normally no cash value or surrender value at any

Some of the term insurance products available in India are given below:

- HDFC Term Assurance

- Reliance Simple Term Plan

- LIC Jeevan Suresh

 Permanent Life Insurance: Permanent Life Insurance is life insurance that remains in force
until the policy matures, unless of course the owner fails to pay the premium when due and the
policy expires.

It is permanent in the sense that the policy cannot be cancelled by the insurer for any reason
except fraud in the applications. Also the cancellation must occur within a period of time defined

Investment and financial planning for retail investor Page 38

by law which is usually two years. It builds a cash value that reduces the amount at risk to the
insurance company and thus the insurance expenses over time.

 Whole Life Insurance: It is designed to cover the life assured for his whole lifetime the
individual generally pay the same premium amount throughout the lifetime.

 Universal Life Insurance: It is a relatively new insurance product offering low cost protection
of term insurance and a savings element like whole life insurance. It is intended to provide
permanent insurance coverage with greater flexibility in premium payment, altering savings
element, and even death benefits.

 Endowment Assurance: It is a life insurance policy that provides a sum of money either at the
end of the term of the plan or on the earlier death of the life assured.

It can be seen that an endowment combines protection with savings. It is paid out whether the
insured lives or dies, after a specific period or a specific age.

The whole life policy also guarantees payment of the sum assured but only at the time of
insured’s death as and when it occurs.

 Money Back Insurance: It is also known as Anticipated Endowment, is a variation of

endowment insurance which assures the return of a certain proportions of the sum assured as
cash payment at regular intervals.

The various money back plans available in India are:

- HDFC Money Back plan

Investment and financial planning for retail investor Page 39

- LIC Money Back plan

- Kotak Money Back plan

- Money Saver Plan (Tata AIG)

• Unit Linked Products: This policy represents a revolutionary change in the way in which life
insurance policies were designed. Various facilities available under a ULIP plan are premium
holiday, Top-up Premiums and withdrawals.

Some of the ULIP products available in the market today are given below:

- HDFC Young Star plan (Unit linked children’s plan)

- LIC Future Plus (Unit Linked Endowment Plan)

- ICICI Prudential Lifetime Pension (Unit linked Pension plan)

• Riders: Riders are additional add-on benefits that an individual can include in his policy over
and above what the policy may provide.

Some riders available in the market are:

- Accident Death Benefit Rider (ADBR): ADBR provides an additional amount in

case death occurs as a result of an accident.

- Term Rider: It provides an additional amount should death of the insured happens.

- Waiver of Premium (WOP): Waiver is designed to ensure that policy payments are
maintained and the benefits are preserved if the insured is unable to work due to total
and permanent disability due to accident, illness, or any other means.

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- Critical Illness Cover (CIC): It provides lump sum payment on the diagnosis of
one of the specified range of illnesses or medical conditions.

• Pensions and Annuities: These are investment products that help to build a nest age for
retirement. Under annuities you pay premium for a given number of years till your vesting age.

The various products available in India are:

- Aviva Life – Pension Plus

- Bajaj Allianz Swarna Vishranti

- HDFC Personal Pension Plan

- ICICI Prudential Forever Life

- ICICI prudential Life Link Pension

Pensions are a form of life assurance. However, whilst basic life assurance business includes an
amount of mortality risk for the insurer, for pensions there is a longevity risk.

An annuity is a contract with an insurance company whereby the purchase pays an initial
premium or premiums into a tax-deferred account, which pays out a sum at pre-determined


 A mutual fund is a type of professionally managed collective investment vehicle that pools
money from many investors to purchase securities while there is no legal definition of the
term "mutual fund" it is most commonly applied only to those collective investment
vehicles that are regulated and sold to the general public.
 They are sometimes referred to as "investment companies" or registered investment
companies. Most mutual funds are "open-ended," meaning investors can buy or sell shares
of the fund at any time. Hedge funds are not considered a type of mutual fund.

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 The term mutual fund is less widely used outside of the United States and Canada. For
collective investment vehicles outside of the United States, see articles on specific types of
funds including open-ended investment companies, SICAVs, unitized insurance funds, unit
trusts and Undertakings for Collective Investment in Transferable Securities which are
usually referred to by their acronym UCITS.
 Mutual funds have both advantages and disadvantages compared to direct investing in
individual securities. They have a long history in the United States. Today they play an
important role in household finances, most notably in retirement planning.
 There are 2 types of U.S. mutual funds: open-end and closed-end. The most common type,
the open-end fund, must be willing to buy back shares from investors every business day.
Open-end funds or unit investment trusts that trade on an exchange. Open-end funds are
most common.


Investment in Equity:

A Company or a person can plan their investment in terms of Equity:

Equity is nothing but the stock of company, which represents ownership in the company to the
extent of the amount of stock that you own. Investors typically tend to invest into equity to gain
from the potential upside it has to offer. The returns can be earned in two ways:

 By way of dividend income: Dividend is a portion of a company’s earning that it pays out
to its shareholders.
 By way of capital appreciation: it is an increase in the value of a company’s share price.

Identify winning stocks: Although there is no formula to identity winning stocks, there are
certain parameters that define the health of any company and therefore its ability to perform
better than its peers. Look for consistency in a company’s earnings. This gets reflected in the
stock price of a company. A stock with extreme volatility in its earnings will have huge

Investment and financial planning for retail investor Page 42

variations in its share price. There are certain basic ratios that can help you identify winning

Price to Earnings Ratio: Popularly known as the P/E ratio of a company, it is a measure of the
price paid for a share relative to the annual net income earned by the firm per share. The ratio is
primarily used for the purpose of share price valuation a higher P/E ratio means that investors are
paying more for each unit of net earnings. Similarly, a stock with a lower P/E ratio means it is
probably undervalued. This ratio should ideally be used to compare companies within the same

Price/Earnings To Growth (PEG) Ratio: The PEG is calculated by dividing the P/E by the
forecasted growth rate in the EPS (earning per share) of the company. A lower PEG means that
the stock is undervalued relative to the growth it offers and may be an attractive buy.

Dividend Yield: Dividend yield is calculated by dividing the annual dividend paid on each share
by the current price of a share. This tells you what percentage of earnings a company pays out to
shareholders in the form of dividends. Older, well-established companies tend to pay a higher
percentage than the newer companies.

Return on Equity: Return on Equity (ROE) is one of the important indicators used to ascertain
whether a company has been able to generate worth for its shareholders. It measures net profit as
a percentage of the total equity capital of a company. A higher Roe reflects the company’s
efficiency in utilizing investor money.


Fixed income securities are essentially of two types. These are:

 Tradable securities: It means they have a secondary market where they can be sold or
tradable securities. An example of tradable securities is debentures. The various types of
tradable securities are:

- Government securities

- Corporate bonds

Investment and financial planning for retail investor Page 43

- RBI relief bonds

 Non-tradable securities: The securities cannot be traded and have to be held by the
investor until the maturity. An example of non-tradable securities is bank deposits. Non-
tradable securities are of the following types:

- Post Office / Monthly Income Schemes

- N.S.C.

- P.P.F.

- Company deposits

 Features of Fixed Income Securities:

• Safety: Fixed income investments generally have two features associated with them. Return of
capital at the end of a specified period and/or a specified rate of return for a specified period.

• Income Expectation: With the exception of Floating Rate Securities, the coupon is set at
issuance and remains the same until maturity.

• Choice: The different fixed-income instruments in the market allow you to choose from a
range of credit ratings and maturity periods.

• Accessibility: Fixed-income securities provide the flexibility and liquidity needed to structure a
portfolio tailored to specific investment objectives.

• Risk Profile: The prices of debt securities display a lower average volatility as compared to the
prices of other financial securities. This does give fixed income securities a low risk profile.

Investment and financial planning for retail investor Page 44


5.1 Objective of study

This project was undertaken to know what exactly the Financial Planning is. How it is carried
out? Who carries it out? Why it is carried out? When it is carried out? And the most important
what is the benefit of carrying it out?

 To take an overview of the investor’s in short and long term goals.

 To have the investor’s current financial strengths and weaknesses and implication of
financial plan.

 To study the investor’s financial objectives anchored to current resources.

 To give a detailed summation of all recommendations.

 To suggest appropriate financial plan for mutually selected recommendation

 To also give comprehensive economic overview of the investor’s financial plan, supported
by financial statements.

 To follow step by step implementation and monitoring plan.

5.2 Scope of Study

Personal financial planners are not just for wealthy people. Every individual can benefit from
objective help to create, grow, accumulate and utilize wealth to fulfill one’s personal goals,
family goals and other lifestyle objective systematically without any anxiety. Financial planners
can guide individuals to achieve their ultimate aim of spending retired life peacefully without
compromising living standards. A qualified financial planner will provide advice on

 Systematic saving

 Cash flow management

 Debt management

 Assets allocation of investment

Investment and financial planning for retail investor Page 45

 Managing risk through insurance planning

 Tax strategies to increase inventible surplus

 Distribute residual wealth through estate planning

Financial planning is a profession for people with good communication skills combined with
knowledge of how financial service industry works. As a financial planner one could work for a
bank, insurance company, a brokerage house or have own practice. Most important is to
understand that the suitability of products you are guiding people to purchase is based on their
risk appetite, age an time frame of goals and objectives. Financial planners need to update
themselves constantly on new products, services and tax law that might be good for their clients.
This is filed that requires a life time continuing education. A trusted financial planner can play an
important role in people’s lives helping them to achieve dream such as owning a home, seeing
their children’s education-marriage and enjoy an active retirement.

5.3 Limitations of study

 The project work is mainly based on the mentioned sources of information.

 Limitation of investor in investing in particular kind of asset based on his / her age.

 Time limitation.

5.4 Data Collection:

Primary Data: The primary data for the study was collected by conducting a survey on
investor’s investment objectives and risk profile

Secondary Data: The secondary data includes information obtained from various sources which
includes Books, Magazines, Newspapers, websites etc.

Investment and financial planning for retail investor Page 46

Questionnaire followed by Planner to identify investor’s investment objectives and risk profile
an important aspect of investment planning and analysis is to ensure that investor. Money is
invested in a manner that reflects the individual attitudes and personal circumstances. In order to
achieve this we need a clear understanding of what your “risk profile” is. When we refer to risk,
we mean how much an investment is likely to go up or down in the short-term. To achieve
higher long-term returns, you have to be prepared to accept that the value of your investment
may fall significantly in the short-term. This is because investments that provide higher returns
are usually more volatile than those producing low returns. There is a trade-off between risk and

Your risk profile will be affected by a number of factors including:

 Investment experience
 Time-frame
 Professional management
 Tax effectiveness
 Income requirements

Completing the following questions will help us understand the individual attitude to investing.
This will enable us to recommend investments appropriate to your specific needs

1. Which best describes how you keep up with financial and investment matters.

1. I don’t.
2. I take notice of the financial report in the news or on television shows.
3. I read the investment section in the newspaper
4. I read the WSJ more than three days a week.
5. I subscribe to several financial journals/investment magazines and read the financial press
each day

Investment and financial planning for retail investor Page 47

2. How familiar are you with the capital and investment markets.

1. Very little understanding or interest.

2. Not very familiar.
3. Have enough experience to understanding the importance of diversification.
4. Understand that markets may fluctuate and that different market sectors offer different
income, value and taxation characteristics
5. Understand all investment sectors, the risks, and understand the various factors which
may influence performance.

3. Which one of the following best describes how well you feel you are able to manage your
way through the complexities of investments?

1. I definitely need the help of a professional investment adviser.

2. I need a professional investment adviser to help me make decisions on investments.
3. I know what I want to do, but would prefer to have a professional investment adviser to
work with me in tailoring my investment plan and making the right decisions.
4. I prefer to make all investment decisions on my own.

4. For how long would you expect most of your money to be invested before you would need
to access it?

1. Less than 2 years.

2. Between 2 – 3 years.
3. Between 3 – 5 years.
4. Between 5 – 7 years.
5. Longer than 7 years.

5. What is your current income requirement (dividends plus interest) from your

1. Less than or equal to 2%.

2. Greater than 2%, but less than or equal to 4%.
3. Greater than 4%, but less than or equal to 6%.
4. Greater than 6%.

Investment and financial planning for retail investor Page 48

6. Which investment balance do you feel most comfortable with.

1. Less than or equal to 2%.

2. Greater than 2%, but less than or equal to 4%.
3. Greater than 4%, but less than or equal to 6%.
4. Greater than 6%.

7. Other than your own home, how do you feel about borrowing to invest?

1. Would not do.

2. Very uncomfortable.
3. Comfortable.
4. Very comfortable.

8. Considering the annual returns of the six hypothetical investment plans below over the
last ten years. Based on the range of possible outcomes shown, which plan would be most
acceptable to you or best suit your investment philosophy.

1. Average annualized return: 4%, Best case: 5%, Worst case: 2%.
2. Average annualized return: 6%, Best case: 9%, Worst case: -2%.
3. Average annualized return: 8%, Best case: 12%, Worst case: -5%.
4. Average annualized return: 10%, Best case: 15%, Worst case: -8%.
5. Average annualized return: 12%, Best case: 18%, Worst case: -10%.
6. Average annualized return: 14%, Best case: 24%, Worst case: -12%.

9. A typical investment portfolio consists of both investments with high expected returns
and high risk (i.e., stock, options, derivatives, property) and those with low expected
returns and low risk (i.e., cash, money market, fixed income). Which of the following
spread of investments would you feels comfortable investing it.

1. 0% High Risk/High Return, 100% Low Risk/Low Return.

2. 30% High Risk/High Return, 70% Low Risk/Low Return.
3. 50% High Risk/High Return, 50% Low Risk/Low Return.
4. 65% High Risk/High Return, 35% Low Risk/Low Return.
5. 80% High Risk/High Return, 20% Low Risk/Low Return.

Investment and financial planning for retail investor Page 49

6. 100% High Risk/High Return, 0% Low Risk/Low Return.

Your risk profile:-

 Extremely Conservative – Cash (0% High Risk, 100% Low Risk)

Your main concern is preservation of capital. You would prefer to take no investment risk and
invest in cash. The expected average return is 4.5% and the likelihood of a negative return is

 Conservative – A very low risk taker (30% High Risk, 70% Low Risk)

You are a conservative investor. Risk must be very low and you are prepared to accept lower
returns to protect capital. The negative effects of tax and inflation w ill not concern you,
provided your initial investment is protected. The expected average return is 6.5% and the
likelihood of a negative return is once every 9 years.

 Moderately Conservative – A low risk taker (50% High Risk, 50% Low Risk)

You are a moderately conservative investor seeking better than basic returns, but risk must be
low. Typically an older investor seeking to protect the wealth which you have accumulated, you
may be prepared to consider less aggressive growth investments. The expected average return is
8% and the likelihood of a negative return is once every 6 years

 Balanced – An average risk taker (65 % High Risk, 35 % Low Risk)

You are a balanced investor who wants a diversified portfolio to work towards medium to long-
term financial goals. You require an investment strategy, which will cope with the effects of tax
and inflation. Calculated risks will be acceptable to you to achieve good returns. The expected
average return is 9% and the likelihood of a negative return is once every 5 years.

 Moderately Aggressive – A high risk taker (80% High Risk, 20% Low Risk)

You are a moderately aggressive investor, probably earning sufficient income to invest most
funds for capital growth. Moderately aggressive investors are aiming to receive a significantly
higher return than cash over time and are therefore prepared to accept a reasonably high level of

Investment and financial planning for retail investor Page 50

volatility. The expected average return is 11.5% and the likelihood of a negative return is once
every 4 years. A minimum investment period of 5 years is advisable.

 Aggressive – A very high risk taker (100% High Risk, 0% Low Risk)

You are an aggressive investor prepared to compromise portfolio balance to pursue potentially
greater long-term returns. Your investment choices are diverse, but carry with them a higher
level of risk. Security of capital is secondary to the potential for wealth accumulation. The
expected average return is 14% and the likelihood of a negative return is once every 4 years.

Investment and financial planning for retail investor Page 51


The overall study about each and every aspect of this topic shows that Financial Planning is a
dynamic and flexible concept which involves regular and systematic analysis, proper
management, judgment, and actions.

It can also be concluded that client or Investors should start planning soon, set measurable goals,
Look at the bigger picture and should not expect unrealistic returns on the investments and value
of the plan lies in its implementation and it accurately reflects what you are personally trying to

It can also be concluded that with the combination of different stocks we can reduce the risk and
increase the returns of a portfolio. By constructing portfolio we can only minimize the un-
systematic risk we cannot reduce systematic risk.

A proper Fundamental & Technical Analysis should be done before selecting any particular
stock for the portfolio. It minimizes the risk involved.

Financial Planning Service which was not so popular earlier as other services has gained lot of
importance and popularity & will gain more importance in future as people are now
understanding the importance of it.

Financial planning service is very important and effective investment tool for meeting your life
goals through the proper management of your finances.

Everyone should start financial planning at early stage.

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Investment and financial planning for retail investor Page 53