Investment Planning for Retirement

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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 post-
retirement
 Enjoy a comfortable life post-
retirement
Calculating the corpus
Retirement age (years) 60
Current age (years) 58
Life expectancy (years) 83
Years after retirement 23
Current annual expenses Rs. 1.80 lacs (Rs. 15,000 per mth)
Average return on investment 12% p.a.
Inflation 5% p.a.
Inflation adjusted return 7% p.a.
Total retirement corpus required Rs. 21 lacs (approximately)
Action points for retirement plan
1. It is never too late to start
2. Deposit everything you can into
your retirement plan
3. Reduce expenses
4. Aim for good post-tax returns
5. Refine your goals
6. 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

The eighth wonder -
compounding
 Rs.1 lac invested @ 10%
Year Simple interest
@ 10% p.a.
Compound interest
@ 10% p.a.
1 1,10,000.00 1,10,000.00
2 1,20,000.00 1,21,000.00
3 1,30,000.00 1,33,100.00
4 1,40,000.00 1,46,410.00
5 1,50,000.00 1,61,051.00
20 3,00,000.00 6,72,749.99
25 3,50,000.00 10,83,470.59
30 4,00,000.00 17,44,940.23
WHAT IS INFLATION?
Effects of Inflation
Item Price in
2001-02
Price in
2009-10
Sugar (1 kg) Rs. 16 Rs. 40
Cooking oil (5 liters) Rs. 290 Rs. 500
Rice (1 kg) Rs. 14 Rs. 35
Petrol ( 1 liter) Rs. 33.46 Rs. 48.83
Inflation Effects on Investments
Investment
Initial investment Rs. 1,000
Interest on investment 5% p.a.
Value after a year Rs. 1,050
Inflation 6% p.a.
Your expenses after a year 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
Returns Liquidity
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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