Investment Planning for college Students

Agenda

Need for a Financial Plan

What is Financial Planning?

SMART Goals

How to achieve financial goals?

Risk Vs. Return

The Power of Compounding

Inflation Effects on Investments

Savings vs. Investments

Loans vs. Investments

Investment Vehicles

Investment Strategies

How not to lose money?

Need for a Financial Plan

Golden Rule –

The more early you begin to manage your money the better it is.

Objective –

To cut overspending

To learn to save

To achieve future financial goals

Benefits –

Long time horizon to achieve goals

One can manage portfolio across time

One can invest in different products to suit different needs

What is Financial Planning?

Financial planning means to plan your finances in which you identify your

financial needs and objectives and then make investments accordingly to

meet your requirements.

It is important that one understands his financial needs or objectives and

then plan how he can achieve these objectives or goals by making

investments or by borrowing funds.

Benefits – You can prepare your monthly budget which will help you decide

what

investments you can make. You can allocate savings efficiently to meet your financial needs.

Preparing your Monthly Budget

Step 1: Specify all the possible sources of income you receive per monthStep 2: Specify all the possible sources of expenses you incur per monthStep 3: Now subtract your expenses from your income amount

RESULT - If your income is greater than your expenses, you are planning your finances adequately. However, if your balance is negative, you need to start planning your finances right away.

INCOME (in Rs.) EXPENSES (in Rs.)

Pocket money 1000 College fees 2000

Part-time assignment 200 Party expenses 500

Prize 100 EMI 1500

Stipend 2500 Lunch 100

Cash gifts, if any - Travel Expenses 500

Total 3800 Total 4600

Balance - 800

Process of Financial Planning

Step 1: Gather your financial data

Step 2: Identify your financial goals

Step 3: Identify financial issues or gaps

Step 4: Prepare your financial plan

Step 5: Implement your financial plan.

Points to remember –

It is never too late to start.

Be honest to yourself while declaring your income and expenses

Learn to differentiate between your wants and needs

Identify your financial goals based on your needs

Reduce unnecessary expenses and save for your future

Do not overuse credit cards

SMART Goals

Financial Goals have to be

S - Specific

M - Measurable, Motivated

A - Achievable

R - Realistic, Resource-based

T - Time-bound, Traceable.

SMART Goals

GOALS INCORRECT APPROACH CORRECT APPROACH

SpecificI need money to pay my college fees

in a year’s timeI will save the money of Rs. 50,000

to pay my fees at college

Measurable I will pay off my debts to my friendsIn the next six months, I will return

Rs 3000 to my two friends for lending me their money.

AchievableI will save money.

I will save Rs. 2,000 each month by cutting down on eating out and

partying.

Realistic If I save money I will be rich.

If I save regularly, need not borrow more money, I can pay off my

debts by next year and will have enough savings till I begin to earn.

Time-bound I will save money for my vehicleI will save Rs.10000 a year for the

next 2 years for my vehicle.

How to achieve financial goals?

Typical Long-Term Goal

Name: Pratik Age: 19Profession: Student

Goals For ?Target

Date

Amount Needed

(Rs. in lakhs)

How to Achieve?

Education For self Dec 2021 05 Loan + Cash

Two-wheeler For Self Dec 2022 Savings + Investments

Marriage For self Dec 2024 10 Plan through investments

House For self Jan 2028 30Loan + investments and

savings

Total Amount - - 45

Risk vs. Return

 

Points to remember –

The level of your returns depends on the level of risk you take. Take necessary measures to manage your risk. Monitor your investments Update yourself about various market developments Check the potential risks when quoted returns are unusually high

Risk return profiles

Means Choice of Investments

ConservativeYou take minimal risks ensuring your funds are

secure

Post office deposit schemes, bank fixed deposits, government bonds, Income

funds

ModerateYou are willing to take some

risksBalanced funds, blue-chip stocks

AggressiveYou are willing to take high

risksEquity schemes Commodities, Corporate

Bonds

The Power of Compounding

Example 1: Suppose Anirudh (20) starts to invest Rs. 1000 every year. He

stops to invest by the age of 30. How much can he expect to earn when he

is 60?

Example 2: Suppose Sunil (30) starts to invest Rs. 1000 every year till he

turns 60. How much can he expect to earn when he is 60?

Given that, the post-tax return per annum earned on their investments is

10%

The Power of Compounding – Who wins?

Example 1:

Suppose Anirudh (20) starts to invest Rs. 1000 every year. His total investment in 10 years would be Rs. 20000Total Earning on Investment would be Rs. 355694Total Rs. 335694The growth on initial investment is 18 times

Example 2:

Suppose Sunil (30) starts to invest Rs. 1000 every year. His total investment in 30 years would be Rs. 30000Total Earning on Investment would be Rs. 200138Total Rs. 170138The growth on initial investment is 6 times

Inflation Effects on Investment

Inflation is the rise in prices of a given basket of goods. Let’s say the rate of petrol changes from Rs 40 to Rs 45, with no change in quality. Then the price difference indicates inflation

Example: Mr. Shyam holds an investment portfolio worth Rs. 5, 00, 000 and expects to make returns close to 10% at the end of one year. At the end of one year, the price rise or inflation rate is at 8%. Compute the returns made after adjusting for inflation.

Value of investment portfolio Rs. 5,00,000Returns at rate of 10% eq. to Rs. 50, 000Applicable Income tax rate (say higher tax bracket) 30% eq. to Rs. 15, 000Adjusted returns on portfolio Rs. 35, 000Rate of inflation 08% eq. to Rs. 40, 000Total adjusted returns on portfolio Rs. 5, 000So, even though Mr. Shyam made a return of 10% on the portfolio, he makes a negative return of Rs. 5. 000. eq. denotes equivalent to.

Savings vs. Investments

Savings mean the funds you keep aside in safe custody like bank saving

accounts

Investing means to purchase various financial instruments which will pay

you a return on some future date

Savings is simply idle cash while investments help your funds to grow

over a period of time

One can meet their short term needs with savings but to meet long

term goals we need to make investments

Loans vs. Investments

While Investing or purchasing a loan one should remember the following points –

It purely depends on your financial strength and other factors. Credit card debts and personal loans are very costly If you wish to apply for a loan check out interest rates and tax benefits Choose the right investment products.

Investment Vehicles

Choice of investment product must be dependent on your financial needs and objectives

There are a number of investment vehicles available for investors -

Equity products – (shares of company, dividends, shareholder rights)

Debt products – (Subscription through primary markets, influenced by

Interest rates)

Mutual funds – (diversification, professional management, SIP)

Insurance products – (cover against uncertain events)

Every product differs from the other in terms of risk-return payoff, capital appreciation, liquidity for product in market, market operations etc.

Investment Strategies

Investors should carefully plan their investments -

Every product differs from the other in terms of risk-return payoff, capital

appreciation, liquidity for product in market, market operations etc.

Investors can implement a number of investment strategies to protect

their portfolio from price risk like investing in financial derivatives

Investors should maintain liquid assets in case of emergencies and

meeting short term needs

Investors should not get lured by rumors and peer pressure

Investors should understand the risks of investing in financial markets

Investors should carefully understand the business of the company

before investing in the company’s investment products

How not to lose money?

Investors can make it a point to remember the following aspects -

Updating oneself with the current happenings is a must for every investor

You should make a habit of analyzing your investments, valuing your

investments and rebalancing your portfolio

In case of equity products you can keep a watch on stock prices and

company fundamentals and performance

If you are investing in mutual funds, you can keep a watch on the daily

NAV (Net asset value) of the particular fund

You can analyze your investments by looking at financial statements of

the companies

Monitor your investments from the time of entry till the time of exit

Thank you for your attention Any questions?