Investment Planning for Retirement

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Content

Investment Planning for Retirement
An initiative of SEBI & NISM

Agenda
Introduction  Retirement Plan  Financial Planning  SMART Goals  Saving and Investment  Loan v/s Investment  Personal Budget Calculator  Personal Net worth Calculator
       

Risk v/s return Compounding Inflation Effects on Investment Investment Commandments Investment Vehicles Avoid investment scams Estate planning

Need for financial education
 Deterioration

of personal finances  Proliferation of new and complex financial products

Retirement plan
Earn a satisfying income postretirement  Enjoy a comfortable life postretirement


Calculating the corpus
Retirement age (years) Current age (years) Life expectancy (years) Years after retirement Current annual expenses Average return on investment Inflation Inflation adjusted return Total retirement corpus required 60 58 83 23 Rs. 1.80 lacs (Rs. 15,000 per mth) 12% p.a. 5% p.a. 7% p.a. Rs. 21 lacs (approximately)

Action points for retirement plan
1.

2.
3. 4. 5. 6.

It is never too late to start Deposit everything you can into your retirement plan Reduce expenses Aim for good post-tax returns Refine your goals Sell assets that are not producing income or growth and invest in income producing assets

Financial planning


Financial planning is a process of meeting your life goals through proper management of your finances

Financial planning process

IDENTIFY GOALS

Goals are dreams with deadlines - Zig Ziglar



Savings or investments?



Loans or investments?



Preparing the budget

Importance of budgeting


Preparing a budget help:
◦ Keep track of all your incomes and expenses ◦ Control the expenses ◦ Make you aware of necessary and unnecessary expenses ◦ You get better control of your day-to-day life

Preparing a budget
Add up your income  Add up your expenses  Subtract expenses from income  Cut expenses  Increase income


 

What is your wealth? Correct measure of wealth is known as net worth



Net worth = assets – liabilities
◦ Assets = what you own ◦ Liabilities = what you owe

RISK AND RETURN

Risk and Return
 Risk

and investing go hand in hand  Risk increases as the expected potential return increases  No-risk, what’s that?  Manage the risks

 Year
1 2 3 4 5 20 25 30

The eighth wonder compounding
Simple interest @ 10% p.a. 1,10,000.00 1,20,000.00 1,30,000.00 1,40,000.00 1,50,000.00 3,00,000.00 3,50,000.00 4,00,000.00

Rs.1 lac invested @ 10%
Compound interest @ 10% p.a. 1,10,000.00 1,21,000.00 1,33,100.00 1,46,410.00 1,61,051.00 6,72,749.99 10,83,470.59 17,44,940.23

WHAT IS INFLATION?

Effects of Inflation
Item Sugar (1 kg) Cooking oil (5 liters) Rice (1 kg) Petrol ( 1 liter) Price in 2001-02 Rs. 16 Rs. 290 Rs. 14 Rs. 33.46 Price in 2009-10 Rs. 40 Rs. 500 Rs. 35 Rs. 48.83

Inflation Effects on Investments
Initial investment Interest on investment Value after a year Inflation Your expenses after a year Investment Rs. 1,000 5% p.a. Rs. 1,050 6% p.a. Rs. 1,060

Retirement Planning
 Start

early and retire peacefully  Plan wisely  Track and review your plan  Don’t dip into your retirement savings

Investment needed to create retirement fund

Investment commandments
    


    

Clear and reasonable goals All investments carry risk Diversify to reduce risk Select appropriate asset mix Recognise limits of your knowledge Do your homework Income-tax is payable on investment returns Avoid investing on basis of hot tips and rumours Don’t follow advice you do not understand Say “NO” if you are not convinced Don’t take risks you cannot afford or are not comfortable with

CHOOSING THE RIGHT INVESTMENT OPTIONS

Safety

Liquidity

Returns

Investment Vehicles and Insurance Products

Avoid investment scams

CONCEPTS OF ESTATE PLANNING

Power of attorney  Nomination  Will  Assignment of insurance policies


THANK YOU

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