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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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CHAPTER 1
INTRODUCTION
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
making.
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
market.
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
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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 consideration.
The individual’s risk profile and time horizon of the goal and the taxation aspects related to
personal finance. Finance 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 from year 2012, financial planning is increasing day by day.
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 have the investor’s current financial strengths and weaknesses and implication of
financial plan.
To also give comprehensive economic overview of the investor’s financial plan, supported
by financial statements.
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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. 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 a field that requires a life time continuing education.
RESEARCH METHODOLOGY
Data Collection:
Primary data: Data collected by the investigator himself/ herself for a specific purpose.
(In movies) The hero is directly told by the heroine that he is her “ideal man”.
Primary Data: The primary data for the study was collected by conducting a survey on
investor’s investment objectives and risk profile with help of Google form (sample size is 30).
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Secondary data: Data collected by someone else for some other purpose (but being utilized by
the investigator for another purpose). Examples: Census data being used to analyze the impact of
education on career choice and earning.
Secondary Data: The secondary data includes information obtained from various sources which
includes Books, Magazines, Newspapers, websites etc.
LIMITATIONS OF STUDY
Limitation of investor in investing in particular kind of asset based on his / her age.
Time limitation.
LITERATURE REVIEW
Kahneman and Amos Tversky (1979) originally described “Prospect Theory” and found that
individuals were much more distressed by prospective losses than they were happy by equivalent
gains. Some economists have concluded that investors typically consider the loss of $1 twice as
painful as the pleasure received from a $ gain. Many investors do not have data analysis and
interpretation skills. This is because, data from the market supports the merits of index investing,
passive investors are more likely to base their investment choices on information received from
objective or scientific sources. Investor fund selection behaviour influences marketing decisions
of fund management and has captured the attention of researchers
Woerheide (1982)2 conducted a study on “investor response to suggested criteria for mutual
funds” in which he tested the effect of different factors. It was proved that factors like size of
fund, effectiveness of marketing programmed and past return of funds have great impact. Among
these the effectiveness of marketing programmed has strong impact. De Bondt and Thaler
(1985)3 while investigating the possible psychological basis for investor behavior, argue that
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mean reversion in stock prices is an evidence of investor over reaction where investors
overemphasize recent firm performance in forming future expectations.
Suguna G (1986)4 studied an investors attitude towards saving pattern in Coimbatore. There
exists poor positive savings are increasing when the income increase but in the same perception.
There exists high positive correlation between income and tax indicating that the tax are
increasing when the income increases most of the bank executives expressed the view that due to
insufficiency of income they were not able to contribute to savings scheme like public provident
fund, post office time deposit
Shanmugam (1990)5 studied a group of 90 investors to examine the factors affecting investment
decisions. The study focused its analysis on investment objectives and the extent of awareness of
factors affecting investment decisions. The study concluded that the investors were high risk
takers, then interested in capital gains and current dividend income. Investors possessed adequate
knowledge of govt. regulations, monetary and fiscal policy.
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CHAPTER 2
RETAIL INVESTORS
A retail investor is an individual investor in the Indian Securities market whose subscription
to securities is of a value less than Rs. 2 lack.
It does not matter how much is that individual’s existing shareholding in the market or what his
present net worth is. The only condition is that at the time of subscription or bidding for shares
or securities he/she should not be bidding for more than Rs. 2 lack worth of securities.
This term “retail investor” is defined in Section 2(zf) of the SEBI (Issue of Capital & Disclosure
Requirements) Regulation, 2009.
The category of retail investors has been identified to target tax incentives, concessions and price
discounts to them.
For instance, in public issues retail investors are given “reservations on competitive basis”
i.e. they are allotted securities in the reserved quota, in proportion to the number of securities
they applied for to the total number of such reserved securities.
At least 35% of the net offer to the public should be allotted to retail individual investors, in
case the company is making the public issue through voluntary book building process. In
case of compulsory Book-Built Issues it is 10%. If the public issue is not through book
building route (i.e., if the securities are issued at a fixed price) then minimum 50% has to be
offered to retail investors.
Only the retail investors have the option of bidding at 'cut -off’. i.e., they can tick the cut-off
option which indicates their willingness to subscribe to shares at any price discovered within
the price band. Even if price indicated by applicant is lower than the price discovered, the
cut-off bids always remain valid for the purpose of allotment, unlike price bids (where a
specific price is indicated).
Retail investors can be offered up to 10% discount to the price at which securities are allotted
to other investors.
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In case of stake sale of already listed companies through Offer for sale route, minimum 10%
of the issue is reserved for retail investors and latter can also be given price discounts and
permission to bid at cut-off prices.
The retail individual investors may either withdraw or revise their submitted bids.
They are eligible for “safety net arrangements” provided by the issuer wherein the issuer of
securities offers to purchase back securities from the original resident retail individual allot
tees at the issue price, in case the post issue price of that security falls below some threshold
levels within a specified period of time (say six months).
While introducing the tax incentive named “Rajiv Gandhi Equity Savings Scheme” a new
section 80CCG on ‘Deduction in respect of investment under an equity savings scheme’ was
added in the Income tax Act, 1961 (vide Finance Act, 2012 and amended vide Finance Act,
2013), to give tax benefits to ‘New Retail Investors’. As per the provisions of this scheme, retail
investors are those with gross annual income less than or equal to Rs.12 Lakhs, and invest up to
Rs 50,000 in a single financial year, for three consecutive assessment years. Thus, for the
purposes of availing these tax benefits, retail investors are defined in terms of both investment
limit and annual income level.
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:
Representativeness:-
People try to determine the probability if an item belongs to a set or a model generates a
data set.
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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.
Availability bias:-
When judging the probability of an event, people often search their own memories for
relevant information.
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CHAPTER 3
INVESTMENT AND FINANCIAL PLANNING FOR RETAIL INVESTOR
Financial Planning
It is a process in which an individual sets long-term financial goals through investments, tax
planning, asset allocation, risk management, retirement planning and estate planning. Most of us
approach our financial lives like the disorganized traveler who gets to his destination eventually
and perhaps even enjoys the rough ride. We think we have a clear roadmap in mind, but our
financial lives are marked by ad-hoc decisions and capitulation to the temptations of the flavors
of the financial season.
Investment
The term "investment" can be used to refer to any mechanism used for the purpose of generating
future income. In the financial sense, this includes the purchase of bonds, stocks or real
estate property.
Additionally, the constructed building or other facility used to produce goods can be seen as an
investment. The production of goods required to produce other goods may also be seen as
investing
Investing
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Stocks, bonds, cash equivalents and mutual funds are the most common form of
investment.
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.
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
category.
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.
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.
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.
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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.
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.
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.
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.
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
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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.
Retirement planning.
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
operations.
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.
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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3. Reviewing Limitations:
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
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
Alternative plans of action should be developed and evaluated carefully so as to select the
most appropriate policy for the organization.
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.
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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
practice.
Formulation of Goals
Financial goals are the milestones that the client hopes to reach with the help of his financial
resources.
• Specific.
• Realistic.
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
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appropriately. Therefore it is important for the financial planner to know where the money to
invest will be coming from.
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.
A financial planner needs to develop appropriate strategies for the client in the following areas:-
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.
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?
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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?
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.
The more specific are the investors, the more likely they can plan and achieve reasonable goals
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.
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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.
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
return.
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
investors.
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Types of Variables for determining an investor style:
There are two major variables, which help the investors in determining their investment
style:
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.
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.
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private players the product range has widened and a lot of choice is available with the
Indian consumer.
INSURANCE PLANNING:-
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.
Primary Function:
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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.
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.
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.
Characteristics of Insurance:-
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.
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Indemnification: Insured is restored to his or her approximate financial position prior to the
occurrence of the loss.
INVESTMENT PLANNING
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.
Final Goal:-you want to build the corpus for retirement or child’s education.
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
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choose from which allow you flexibility to shift between equity and debt, based on the
market conditions and risk profile.
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.
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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.
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
projections.
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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
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
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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.
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
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.
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.
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
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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
as:
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 time. Some
of the term insurance products available in India are given are, HDFC Term Assurance, Reliance
Simple Term Plan etc
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 by law which is usually two years.
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.
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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:
• 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.
• Riders: Riders are additional add-on benefits that an individual can include in his policy over
and above what the policy may provide.
- Term Rider: It provides an additional amount should death of the insured happens.
• 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.
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 intervals.
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MUTUAL FUND
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.
INVESTMENT IN EQUITY
Investment in 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
variations in its share price.
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.
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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.
- 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
- 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:
- N.S.C.
- P.P.F.
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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.
• 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.
31
CHAPTER 4
DATA ANALYSIS AND INTERPRETATION
1. Age Group
13%
13%
13% 61%
Interpretation
Most of the respondent’s falls in Age group of 20-25 followed by different age groups.
32
2. Are you aware about the financial planning and investment
Awareness Percentage
Yes 90
No 10
Yes No
10%
90%
Interpretation
As many respondents, almost 90 percent are aware about the financial planning and
investment but still there are some who are not aware about it, mainly due to the lack of
financial literacy, which is mainly due to time constraint or they are not interested.
33
3. How familiar are you with the capital and investment markets.
Familiar Percentage
Very Little Understanding 32
Not very Familiar 29
Have enough experience 23
Understand all investment sector 16
16%
32%
23%
29%
Interpretation
Only few respondents have enough experience to understand the market but many of
them are lack the knowledge of capital market, it may be because of time constraint
because investment and capital market require considerable time to gain knowledge.
34
4. What are the sources of information for financial planning and investment
22%
39%
26%
13%
Interpretation
Mainly the source of awareness is the television among all other source, because it provide lot
information in a short span of time.
35
5. Do you have any De-mat account
De-mat Account Percentage
Yes 55
No 45
Yes No
45%
55%
Interpretation
Almost 55 percent respondent have De-mat account but there are still some respondent
who don’t, reason may be they do not have much information about the stock brokers in
the market
36
6. What is the preferable financial product for you investment
10%
29%
10%
51%
Interpretation
Mutual fund is the most preferable financial product among the respondents; it is mainly
due to its less risk and guarantees a regular and reasonable return
37
7. How do you make an investment decision?
32%
68%
Interpretation
As we many respondent taking the help of professional who help them in taking investment
decision. This mainly because capital market is very fluctuating and thus posses risk from time to
time, and these professional are up to date with the market conditions.
38
8. For how long would you expect most of your money to be invested before you would need to
access it?
3%
22%
23%
52%
Interpretation
Most of the Respondent wants their money within 2 to 3 yr and very less of them wait for 5 to 7
year
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9. What is your current income requirement from your investments?
13%
20%
37%
30%
Interpretation
Most of the respondent wants Greater than 6%, but less than or equal to 8%, mainly
because 4 percent are given the bank also.
40
10. Your risk profile
16%
19%
29%
36%
Interpretation
Most of the respondents are Moderately Conservative means they want same amount of risk
along with the same amount of return.
41
FINDINGS AND CONCLUSION
FINDINGS
Most of the respondent in my survey are those, who is 20-25 year old
People have knowledge regarding the capital market but they are not well aware about it.
Professional investment advisor play an important role, who help the people in making
correct investment decision
People like to invest with their own money rather go for external borrowing as it would
fetch more from them as compared to their original borrowing amount
Many people have De-mat account with them which help them to make investment in
capital market
Television shows play an important role in educating them about the investment and
financial planning
The minimum rate of return want by them is between 8 to 10 percent per Annam
Since many of them are not employed and have limited knowledge related to finance
field they want to bear minimum risk and reasonable return
For them return of investment is very important than the return o the investment
42
CONCLUSION
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 accomplish. 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.
43
RECOMMENDATIONS AND SUGGESTIONS
First and foremost thing is that, there is a great need to create a financial literacy among
those who want to come in the capital market for investment and financial planning.
People should be made more aware about the importance of capital market and their
facilities and this should be done by organising seminar & by conducting lectures etc on
capital market fundamentals
Also it require the effort from investor side that they are well updated with financial
information of day to day , by referring various sources
There are various people who have De-mat account and have considerable knowledge about
the investment but they do not invest mainly because of fear of losing money, thus this fear
can be removed only by educating them properly.
Financial planning should be encouraged; one of the myths regarding financial planning is
that only rich individuals and HNIs can undertake this. This perception exists because most
players in the market target these people, as they are very profitable customers. However,
anyone can use financial planning. In fact, individuals should use effective financial
planning to build their wealth over the years.
Unbiased Advisory is required, should enables the advisors to offer unbiased advise on the
entire spectrum of personal finance, keeping the clients interest foremost while doing so.
44
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BIBLIOGRAPHY
BOOKS
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