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