WORKSHOP WORKSHOP ON ON

FINANCIAL EDUCATION FINANCIAL EDUCATION FOR FOR

YOUNG INVESTORSYOUNG INVESTORSSUJITH KUMAR S H ASST. PROFESSOR

BIET-MBA PROGRAMME, DAVANGERE(M)+91-9986029529

E:Mail: shsujith@yahoo.com

What is Money ?

What is financial Planning ?

Financial Planning is a plan to save and spend future income.

Why? Today people are Beyond Means Credit card Debt Irresponsible things

BUDGETINGBUDGETING

ExerciseExercise

Cash flow calculator

Identify GoalsIdentify Goals

Prepare the financial planPrepare the financial plan

SMART SMART GOALSGOALS

GOALSGOALS

IMPLEMENTINIMPLEMENTINGG

THE PLAN, THE PLAN,

THE REAL THE REAL CHALLENGECHALLENGE

RISK AND RETURNRISK AND RETURN

Risk and ReturnRisk 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

Risk v/s returnsRisk v/s returns

Risk category

Instruments

Low risk Cash, bank FDMedium risk Debentures, bonds,

fixed income mutual funds

High risk Equity shares, equity mutual funds

Introduction about capital marketIntroduction about capital market

For starting any Business, an entrepreneur needs investments in the form of capital.

Depending on the size of the project, the amount of capital varies.

Entrepreneur cannot go for investing his own money in the business, so he has to go for borrowing.

borrowing has many problem such as paying interest monthly, that too if it is a long term project, he won’t be able to give interest regularly.

Paying Interest has some advantage over taxation.

Banks/Financial Institution may demand a security for their loans in the form of collaterals, the promoter may choose to raise the capital by issuing shares to public making them a offering on future.

DefinitionDefinitionCapital Marketing is defined as “the process of increasing the major part of financial capital required for starting a business through issue of shares to public”.

The issue may be Shares, Debentures , Bonds, etc.

Capital market is a market for long term debts and equity shares.

Classification of Capital MarketingClassification of Capital Marketing

CAPITAL MARKET

PRIMARY MARKET

PUBLIC ISSUE

RIGHT ISSUE

BONUS ISSUE

PRIVATE PLACEMENT

SECONDARY MARKET

STOCK MARKET

Primary MarketPrimary MarketIn Primary Market, Securities are offered to the public for subscription, for the purpose of raising the capital or funds.The issue of securities in the primary market is subjected to fulfillment of a number of pre-issue guidelines by SEBI and compliance to various provision of the Company Act.

An unlisted issuer making a public issue i.e. (making an IPO) is required to satisfy the following provisions:

The Issuer Company shall meet the following requirements:

(a)Net Tangible Assets of at least Rs. 3 crores in each of the preceding three full years.

(b) Distributable profits in at least three of the immediately preceding five years.

(c) Net worth of at least Rs. 1 Crore in each of the preceding three full years.

(d) The issue size does not exceed 5 times the pre‐ issue net worth as per the audited balance sheet of the last financial year

Dematerialisation and Dematerialisation and Demat AccountDemat Account

It is an account opened with depository institutions to dematerlise securities certificates.

Demat A/C opened with NSDL OR CDSL

DepositoryDepository

A depository is like a bank wherein the deposits are securities (viz. shares, debentures, bonds, government securities, units etc.) in electronic form.

There are two types of Depository in our country

NSDL

CDSL

Classification of IssuesClassification of Issues

Issues

Further Public Offering

Fresh Issue

Initial Public Offering

Private placement Right

Public

Offer for sale

Offer for sale

Fresh Issue

PUBLIC ISSUE :-

It involves raising of funds directly from the public and get themselves listed on the stock exchange in case of new companies ,the face value of the securities is issue at par, andin the case of existing companies, the face value of securities are issued at premium

Initial public offer (IPO): When an unlisted company makes either a fresh issue of securities or offers its existing securities for sale or both for the first time to the public, it is called an IPO. This paves way for listing and trading of the issuer’s securities in the Stock Exchanges.

Further public offer (FPO): When an already listed company makes either a fresh issue of securities to the public or an offer for sale to the public, it is called a FPO.

RIGHT ISSUE:-

Right issue is the method of raising additional finance from existing members by offering securities to them on pro rata bases.

The rights offer should be kept open for a period of 60 days and should be announced within one month of the closure of books.

BONUS ISSUE:-Companies distribute profits to existing shareholders by way of fully paid bonus share in lieu of dividend. These are issued in the ratio of existing shares held. The shareholders do not have to make any additional payment for these shares

PRIVATE PLACEMENT:•Private Placement is an issue of shares by a company to a select group of persons under the Section 81 of the companies act 1956. It is a faster way for a company to raise equity capital.

Intermediates in issue in the Intermediates in issue in the Primary MarketPrimary Market

Book Running Lead Managers(BRLM):

A Merchant banker possessing a valid SEBI registration in accordance with the SEBI Regulations,1992 is eligible to act as a BRLM to an issue.

Cut Off Price:

In the book-building issue, the issuer is required to indicate either the price band or a floor price in the RHP. The actual discovered issue price can be any price in the price band or any price above the floor price. This issue price is called as the Cut Off Price.

And the other intermediates are

Merchant Banker

Registrars to the Issue

Bankers to the Issue

Underwriters

Secondary MarketSecondary MarketSecondary Market refers to a market where securities are traded after being initially offered to the public in the primary market and/or listed on the stock exchange.Secondary market comprises of Equity market and Debt market.It is the trading avenue in which the already existing securities are traded amongst investors.Banks facilitate secondary market transactions by opening direct trading and demat accounts to individuals and companies.

Secondary Market

STOCK EXCHANGES IN INDIA India can boost of being one of oldest stock markets of

Asia.Nearly 200 years ago,trading in securities used to take place.

The first stock exchange,however, came to be established in 1875 in Bombay.

Popularly known as "BSE", it was established as "The Nativ

e Share & Stock Brokers Association" in 1875.

Gradualy spread to other cities like Ahmedabad,Kolkatta,Madras etc – lead to formation of Securities contracts(Regulation) act 1956

BSE – BOLT : Bombay Online Trading. NSE – NEAT : National Stock Exchange Automated Trading

System.c

At present 23 stock exchanges are there in india.

Stock ExchangeStock Exchange

MeaningIs capital market of stocks and securities where in they can be exchanged (purchased & sold) through the brokers (members of stock exchanges) under certain rules & regulations.

It represents the organised secondary capital market

Einstein called Compounding …………… ?

THE POWER OF THE POWER OF COMPOUNDINGCOMPOUNDING

The eighth wonder - The eighth wonder - compoundingcompounding

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

Compounding

Power of EquityUnbelievable

but it has happened

Just imagine…How much can you make in 26 years by just investing Rs.10,000 initially in any of financial instruments ?

Take a wild guess ???

Let us look at the real example…

If you have subscribed in 100 shares of ________ company with a face value of Rs. 100 in 1980…•In 1981 company declared 1:1 bonus = you have 200 shares•In 1985 company declared 1:1 bonus = you have 400 shares•In 1986 company split the share to Rs. 10 = you have 4,000 •In 1987 company declared 1:1 bonus = you have 8,000 shares•In 1989 company declared 1:1 bonus = you have 16,000 shares•In 1992 company declared 1:1 bonus = you have 32,000 shares•In 1995 company declared 1:1 bonus = you have 64,000 shares•In1997 company declared1:2 bonus= you have 1,92,000 shares•In 1999 company split the share to Rs. 2 = you have 9,60,000 •In 2004 company declared 1:2 bonus = you have 28,80,000 •In 2005 company declared 1:1 bonus = you have 57,60,000

At the end of 2005…You have 57,60,000 shares of the company

Any guess about the company ? (Hint : Its an Indian company)

Any guess about the present valuation ?

The result of ‘Power of Compounding’

Your valuation as on 2005Rs. 200 Cr.+

Today’s Valuation is In 2010 Company declared 2:3 bonus = you have

86,40,000 and Value is 380,24,64,000

The company is ‘WIPRO’

Other such examples…

CIPLA

Investment of Rs. 10,000 in 1979 will fetch Rs. 95 cr.+

INFOSYS

Investment of Rs. 10,000 in 1992 will fetch Rs. 2.5 cr.+

RANBAXY

Investment of Rs. 10000 in 1980 will fetch Rs. 1.9 cr.+

THE RULE OF 72THE RULE OF 72

Retirement PlanningRetirement PlanningStart early and retire peacefullyPlan wiselyTrack and review your planDon’t dip into your retirement

savings

No. of years after which you will retire

30 Years

Amount of expenses of required at the time of retirement

43219.00

Amount required at the time of retirement (80%)

34575.00

Corpus amount required if lives 20 years after retirement

6846077.45

At 10% interest requires per month

Rs. 2525.23

RETIREMENT CALCULATION

Retirement Calculator

WHAT IS INFLATION?WHAT IS INFLATION?

Effects of Effects of InflationInflation

Item Price in 2001-02

Price in 2009-10

Sugar (1 kg) Rs. 16 Rs. 40Cooking oil (5 liters)

Rs. 290 Rs. 500

Rice (1 kg) Rs. 14 Rs. 35Petrol ( 1 liter) Rs.

33.46Rs. 48.83

Inflation calculator

Basics of Savings and Basics of Savings and InvestmentInvestmentSavings

Short termValue remains

stableLower returns

over long term

Investing◦Long term◦Value moves up and

down in short term◦Potentially higher

returns over long term

Price of procrastinationPrice of procrastinationTwin brothers: Anil and SunilAnil saved from the age 25 years till 35 years. He did not withdraw till 60

Sunil started saving at 35 years, but continued till 60 years

Both saved Rs. 50,000 per year and earned 10% p.a. on their investments

Price of procrastinationPrice of procrastinationTwin brothers: Anil and SunilAmount accumulated at 60 years

Rs. 86 lacs

Rs. 49 lacs

CHOOSING THE RIGHT CHOOSING THE RIGHT INVESTMENT OPTIONSINVESTMENT OPTIONS

LOANS V/S INVESTMENTS

Before you borrow:◦Financial strength◦Credit card debt and personal loans

◦Low interest rates◦Tax benefits◦Loan for investments

THE THE PRODUCTSPRODUCTS

Savings & investment related Savings & investment related productsproducts

Bank depositsSmall savings schemesBonds / debenturesCompany fixed depositsMutual fundsEquity shares

Why Insurance Planning ?

Insurance is like a parachute.

If it isn't there the first time, chances are you won't need it the

second time!

Insurance is protection for the person and his

family

Protection Related Protection Related ProductsProducts

InsuranceLife insurance

Term life insurance

Endowment policies

Annuities / Pension plans

ULIPs

Health insuranceComprehensive health insurance

Hospitalisation policy

Critical illness plan

Specific condition coverage

Borrowing Related Borrowing Related ProductsProducts

Personal loansHome loansReverse mortgageLoan against securitiesCredit card debt

Financial planning pyramidFinancial planning pyramid

Tax Saving Options Tax Saving Options Section 80C gives rebate upto

Rs. 1,00,000 for select investments like life insurance premiums, housing loan principal, PPF, ELSS, etc.

Long Term Capital Gains are not taxable for equities

80D (medical insurance), 80G (donations) and 24D (Housing loan interest repayment) are other important sections

Steps to avoid excess debt:◦Set debt limits◦Shop carefully for debts◦Don’t give into temptation◦Automatically have money go towards your bills

HOW NOT TO LOSE MONEY

Ponzi schemesPonzi schemes

• Ponzi schemes promise high returns and low riskInitial investors may get high promised returns

• Money from initial investors is given to new investors – thus it is only rotation of funds, not investment of funds If its too good to be true – its probably not true.

• It’s a Ponzi!

Investment philosophiesInvestment philosophiesEvaluate risk of every investmentDecide the investment based on needsDo not invest in any scheme that you do not

understandDo not invest on trust. Have everything backed

up by documentsTake into account tax implication of every

incomeDo not blindly follow market tips and rumoursAnything that appears unnaturally high or low

will have some “catch” disguisedDo not follow schemes where you may protect

the interest but lose the principal Invest with knowledge after understanding the

product well

PURCHASING PURCHASING FINANCIAL PRODUCTSFINANCIAL PRODUCTS

Selection of intermediarySelection of intermediary

Registration with regulator or a body approved by regulator, e.g. AMFI or stock exchange

Steps to become securities market Steps to become securities market investorinvestor

Know Your Client (KYC) form and documentsPAN CardPersonal identification proofAddress proof

Demat accounts & trading accounts required for equity investing

For investing in MF, demat is optional

RegulatorsRegulators

Various regulators in Indian financial markets are:◦Securities & Exchange Board of

India (SEBI)◦Reserve Bank of India (RBI)◦Forward Markets Commission (FMC)◦Insurance Regulatory &

Development Authority (IRDA)◦Ministry of Corporate Affairs (MCA)◦Ministry of Finance (MoF)

Advantages of Financial Advantages of Financial EducationEducation

• Helps build a secure financial future

• Prepared for financial emergencies

• Protection from marketing gimmicks

• Feeling a sense of accomplishment

• Disciplined approach to money

• Awareness of questionable practices

• Setting a good example for your family

• Benefit other aspects of your life

THANK YOU!THANK YOU!

SUJITH KUMAR S HSUJITH KUMAR S HASST. PROFESSOR ASST. PROFESSOR

BIET-MBA PROGRAMMEBIET-MBA PROGRAMMEDAVANGEREDAVANGERE