financial planning for an investor with kotak mahindra babk by roomlata bhagel

1

PROJECT

ON

“FINANCIAL PLANNING FOR AN INVESTOR”

FOR

KOTAK MAHINDRA BANK,

EAST STREET, PUNE

MASTER OF BUSINESS ADMINISTRATION (FINANCE)

SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENT

FOR AWARD OF

MASTER OF BUSINESS ADMINISTRATION OF

TILAK MAHARASHTRA UNIVERSITY, PUNE.

SUBMITTED BY:

ROOMLATA GYANSINGH BAGHEL

PRN: 07208013250

OF

PAI INTERNATIONAL CENTRE FOR MANAGEMENT EXCELLENCE,

PUNE.

Guided By Mr Prashant Gundawar

TILAK MAHARASHTRA UNIVERSITY.

GULTEKDI, PUNE 411037.

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ACKNOWLEDGEMENT.

It is common knowledge that a guide plays the role of light in a maze of

darkness.

I would like to thank, Kotak Mahindra Bank at East Street Branch Pune for

having given me an opportunity to undergo summer training in their company.

My deep-rooted respect and sincere gratitude to Mr. Amul Sharma (Regional

Manager) ,Mr.Sachin Vaze (Branch Manager ), Mr.Dinesh Shendkar

(Relationship Manager-Business Banking) and Mr Prashant Gundawar (Internal

Guide) who in spite of their busy schedule listened to my problems and

suggested prompt solutions.

I am also thankful to Prof. R.Ganeshan (Director) for his constant support

throughout the duration of the project, a Special thanks to Ms. Shikha Khare and

our staff member Ms.Saumya Mehta, who helped me during the study.

Once again, I would like to thank all the staff members and my friends

who during the course of my training helped me with my learning objectives.

I hope that I have been successful in my endeavour. Discrepancies,

mistakes, if any, are solely mine.

Roomlata Baghel

MBA (PICME).

3

TABLE OF CONTENTS

S.NO. CONTENT PAGE NO.

1. Rationale of the Study. 1-2

2. Objective of the Study. 3-5

2.1 Title of the Project.

2.2 Objective of the Study.

2.3 Scope of the Study.

3. Profile of the Company. 6-17

4. Review of the literature. 18-19

5. Research Methodology. 20-24

6. Theoretical Background. 25-32

6.1 Introductory Chapter.

6.2 Planning Process.

6.3 Formation of Goals.

6.4 Benefits of Financial Planning.

7. Data Analysis and Practical Representation of the Plan. 33-52

8. Conclusion. 53-54

9. Suggestion and Recommendation. 55-56

10. Appendix 57-63

11 Bibliography. 64-65

4

RATIONALE OF

THE STUDY

5

RATIONALE OF THE STUDY1.

The rapid growth of capital markets in India has opened up new investment avenues for

investors. Keeping this in mind the Financial Institutions provide number of services to its customer

with a wide spectrum of investment opportunities. In order to retain their customers they provide

them with special services besides traditional services.

The invention of new technology and services by financial institutions has given the

consumers a wide range of investment avenues to invest in. One of the special services brought out

by them is „FINANCIAL PLANNING SERVICES‟ which aims at identifying a person‟s financial

goals, evaluating existing resource and designing the financial strategies that help the person to

achieve those goals and enables him to earn maximum returns at minimum level of risk.

The stock markets have become attractive investment options for the common man. But the

need is to be able to effectively and efficiently manage investments in order to keep maximum

returns with minimum risk.

Financial Planning helps you to give direction and meaning to your client‟s financial decisions. It

allows him to understand how each financial decision affects other areas of finance. For example,

buying a particular investment product may help your client to pay of his mortgage faster or may

delay his retirement significantly. By viewing each financial decision as a part of a whole, you may

help your client consider the long term and the short term effects on his life goals. You will help

them feel more secure and more adaptable to life changes, once they can measure that they are

moving closer to the realization of their goals.

In near future a proper financial planning is required to invest money in all type of financial product

because there is good potential in market to invest.

The main objective of this project on FINANCIAL PLANNING is to review the real meaning of

Financial Planning, its objectives, role, framework, responsibilities of Financial planner and the

study of various other issues related to Investment planning, Tax planning, Asset allocation and

Retirement planning.

I am inclined to this topic, as it has given me actual knowledge of this service along with its

working and how the financial planner plans and manages the portfolio. Moreover, it has guided me

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to understand this so called complex world of investment and financial planning and also increase

my knowledge to such extent. I hope it will prove beneficial to me in developing my further career.

OBJECTIVE

OF THE

STUDY

7

OBJECTIVE OF THE STUDY2.

A. TITLE OF THE PROJECT

“FINANCIAL PLANNING FOR AN INVESTOR”

IN KOTAK MAHINDRA BANK, EAST STREET, PUNE.

B. OBJECTIVE OF THE STUDY

To take an overview of the client‟s in short and long term goals.

To have the client‟s current financial strengths and weaknesses and implications of financial

plan.

To study the client‟s financial objectives anchored to current resources.

To give a detailed summation of all recommendations.

To suggest appropriate financial plan for mutually selected recommendations.

To also give comprehensive economic overview of the client‟s financial plan, supported by

financial statements.

To follow step-by-step implementation and monitoring plan.

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C. SCOPE OF THE STUDY

Personal Financial Planners are not just for wealthy people. Every individual can benefit

from objective help to create, grow, accumulate and utilize wealth to fulfil one‟s personal goals,

family goals and other lifestyle objectives systematically without any anxiety. Financial planners

can guide individuals to achieve their ultimate aim of spending retired life peacefully without

compromising living standards. A Qualified financial planner will provide advice on.

Systematic Savings

Cash Flow Management

Debt Management

Assets Allocation for Investment

Managing Risk through Insurance Planning

Tax Strategies to increase investible surplus

Distribute residual wealth through estate planning

Financial Planning is a profession for people with good communication skills combined

with knowledge of how financial service industry works. As a Financial Planner one could work for

a bank, insurance company, a brokerage house or have own practice. Most important is to

understand that the suitability of products you are guiding people to purchase is based on their Risk

Appetite, Age and Time Frame of Goals and Objectives. Financial Planners need to update

themselves constantly on new products, services and tax laws that might be good for their clients.

This is a field that requires a life time of continuing education. A Trusted Financial Planner can play

an important role in people‟s lives helping them to achieve dreams such as owning a home, seeing

their children‟s education and enjoy an active retirement.

9

PROFILE OF

THE

COMPANY

10

PROFILE OF THE COMPANY 3.

Overview

The Kotak Mahindra Group:-

Kotak Mahindra is one of India's leading financial organizations, offering a wide range of financial

services that encompass every sphere of life. From commercial banking, to stock broking, to mutual

funds, to life insurance, to investment banking, the group caters to the diverse financial needs of

individuals and corporates.

The group has a net worth of over Rs. 6,523 crore and has a distribution network of branches,

franchisees, representative offices and satellite offices across cities and towns in India and offices in

New York, London, San Francisco, Dubai, Mauritius and Singapore. The Group services around 6.2

million customer accounts.

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History:-

The Kotak Mahindra Group was born in 1985 as Kotak Capital Management Finance Limited. This

company was promoted by Uday Kotak, Sidney A. A. Pinto and Kotak & Company. Industrialists

Harish Mahindra and Anand Mahindra took a stake in 1986, and that's when the company changed

its name to Kotak Mahindra Finance Limited.

Since then it's been a steady and confident journey to growth and success.

1986 Kotak Mahindra Finance Limited starts the activity of Bill Discounting

1987 Kotak Mahindra Finance Limited enters the Lease and Hire Purchase market

1990 The Auto Finance division is started

1991 The Investment Banking Division is started. Takes over FICOM, one of India's largest

financial retail marketing networks

1992 Enters the Funds Syndication sector

1995

Brokerage and Distribution businesses incorporated into a separate company - Kotak

Securities. Investment Banking division incorporated into a separate company - Kotak

Mahindra Capital Company

1996

The Auto Finance Business is hived off into a separate company – Kotak Mahindra Prime

Limited (formerly known as Kotak Mahindra Primus Limited). Kotak Mahindra takes a

significant stake in Ford Credit Kotak Mahindra Limited, for financing Ford vehicles.

The launch of Matrix Information Services Limited marks the Group's entry into

information distribution.

1998 Enters the mutual fund market with the launch of Kotak Mahindra Asset Management

Company.

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2000

Kotak Mahindra ties up with Old Mutual plc. for the Life Insurance business.

Kotak Securities launches its on-line broking site (now www.kotaksecurities.com).

Commencement of private equity activity through setting up of Kotak Mahindra Venture

Capital Fund.

2001 Matrix sold to Friday Corporation

Launches Insurance Services

2003 Kotak Mahindra Finance Ltd. converts to a commercial bank - the first Indian company

to do so.

2004 Launches India Growth Fund, a private equity fund.

2005

Kotak Group realigns joint venture in Ford Credit; Buys Kotak Mahindra Prime

(formerly known as Kotak Mahindra Primus Limited) and sells Ford credit Kotak

Mahindra.

Launches a real estate fund

2006 Bought the 25% stake held by Goldman Sachs in Kotak Mahindra Capital Company and

Kotak Securities

Our Corporate Identity

13

The Journey So Far:-

14

Group Structure:-

15

* Includes direct and indirect holdings

Board of Directors: Subsidiaries as on 31st March 2009

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Sr. No. Name of the Company Directors

1

Kotak Mahindra Capital Company

Limited

Uday Kotak (C)

Falguni Nayar (MD)

Shanti Ekambaram

Dipak Gupta

Jaimin Bhatt

2 Kotak Securities Limited

Uday Kotak (C)

C. Jayaram

Narayan S.A. (MD)

Falguni Nayar

Vikram Sud

D.Kannan ( Executive Director & Chief

Operating Officer )

3

Kotak Mahindra Prime Limited

(formerly known as Kotak Mahindra

Primus Limited)

Uday Kotak (C)

Dipak Gupta

C. Jayaram

Chandrashekhar Sathe

17

Shanti Ekambaram

Jaimin Bhatt

Mohan Shenoi

4

Kotak Mahindra Old Mutual Life

Insurance Limited

Uday Kotak (C)

Gaurang Shah (MD)

Shivaji Dam

Dipak Gupta

Hasan Askari

Paul Hanratty

Vineet Nayyar

Pallavi Shroff

S.S. Thakur

Pankaj Desai (Whole-time Director)

Andrew Cartwright - Alt. to Paul Hanratty

5

Kotak Mahindra Asset Management

Co. Limited

Uday Kotak (C)

R.C. Khanna

Sukant Kelkar

18

C. Jayaram

Narayan S.A.

Bipin R. Shah

6 Kotak Mahindra Trustee Company Limited

Amit Desai (C)


Girish Sharedalal

Tushar Mavani

Anirudha Barwe

7

Kotak Mahindra Trusteeship Services

Limited

Shailesh Haribhakti (C)

K.M.Gherda


Berjis Desai

Shivaji Dam

Vikram Sud

8 Kotak Forex Brokerage Limited

Uday Kotak

Dipak Gupta


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9 Kotak Mahindra Investments Limited

Dipak Gupta

Jaimin Bhatt

Shanti Ekambaram

R. Sundarraman

C. Jayaram

Jaideep Hansraj

10 Kotak Mahindra (International) Ltd.

Ashraf Ramtoola

Ravi Lochan Pola

Sow Man Ah Yuk Shing

Louis Didier Merle

Ashish Nanda

Somer Massey

Shyam Kumar Syamasundaran

Viswanathan Varadarajan

Bilal Sassa

11 Kotak Mahindra (UK) Limited

Abhishek Bhalotia


20


Paul Parambi

C. Jayaram

Hasan Askari

Ruchit Puri

12 Kotak Mahindra Inc.

Ravi Lochan Pola


Shyam Kumar

Paul Parambi

C. Jayaram

13

Global Investment Opportunities

Fund Ltd.

Abdool Azize Owasil

Sow Man Ah Yuk Shing


Didier Merle

Ravi Lochan Pola

Riad Aubdool

21

14 Kotak Investment Advisors Limited

C. Jayaram

Shanti Ekambaram

Jaimin Bhatt

Falguni Nayar

S. Sriniwasan

Nitin Deshmukh

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REVIEW OF LITERATURE4.

REVIEW OF

LITERATURE

23

This project was undertaken to know what exactly is the Financial Planning, How it is

carried out ,Who carries it out, Why it is carried out, When it is carried out ,and the most important

What is the benefit of carrying it out. Below my question were answered. Basically Financial Planning is the process of meeting life goals through the proper

management of your finances. There is a need for financial planning because the financial situation

in the country has changed in the last few years, this has changed in such a manner that it will be

difficult for one to maintain a decent standard of living with the current means this requires

financial planning and in addition there are also several individual specific factor that has to be

fulfilled. Financial planning provides direction and meaning to one‟s financial decisions. The

process involves gathering relevant financial information, setting life goals, examining customer

current financial status and then coming up with a plan for customer on how he can meet with his

goals.

The process that is followed by the Kotak bank is the planner first discuss the general

recommendations with the client informally, this allows the clients to indicate their preferences and

opinions on the options that have been designed. Once the planner and the client agree on the

recommendations, a concise written proposal is prepared along these lines:

An overview of the clients short and long term goals.

The client‟s current financial strengths and weaknesses and implications of financial plan.

The client‟s financial objectives anchored to current resources.

A detailed summation of all recommendations.

The financial plan for mutually selected recommendations.

A comprehensive economic overview of the client‟s financial plan, supported by financial

statements.

A step-by-step implementation and monitoring plan.

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RESEARCH METHODOLOGY5.

RESEARCH

METHODOLOGY

25

DEFINITION:

Research refers to „a search for knowledge‟. It can be defined as a scientific and systematic

search for pertinent information on a specific topic.

Research comprises defining and redefining problems, formulating hypothesis or suggested

solutions; collecting, organizing and evaluating data; making deduction and reaching conclusions;

and at last carefully testing the conclusions to determine whether they fit the formulating hypothesis

– Clifford Wood.

RESEARCH METHODOLOGY

It is a way to systematically solve the research problem. It may be understood as science of

studying how research is done scientifically. In it we study the various steps that are generally

adopted by the researcher in studying his research problem along with the logic behind them. In

general methodology is an optional framework within which the facts are placed so that the

meaning may be seen more clearly. The sources of data shown that designing of a research plan

calls for decision on the data sources are research approaches (primary and secondary data) research

instruments (observation survey experiment) sampling plan and contact methods (personal

interviews).

RESEARCH DESIGN

A research design is the determination and statement of the general research approach or strategy

adopted for the particular project. It is the heart of the planning. If the design adheres to the research

objectives, it will ensure that the client need will be served.

26

Research design is a plan structured and strategies of investigation. It is the arrangement of

condition and analysis of data in a manner to combine relevance to the research purpose with

economy in procedure.

In order to achieve the objective it was necessary to talk to the customers and public to

draws the conclusions regarding the objective.

For visiting the customers and publics to collect the relevant information; a questionnaire

has to be designed. The questionnaire was designed in such a manner to achieve the

objective of the research.

The sample size taken is 100 customers and publics.

TYPE OF RESEARCH

In this project Descriptive Research has been used.

Descriptive Research:

This is kind of research structure which is concerned with describing the characteristics of

the problem. In this way the main purpose of such a research design is to present a

descriptive picture about the marketing problem on the basis of actual facts. For this it is

important to obtain the complete and actual information about the subjects.

Research Objective:

The Financial Planning is vast in nature. It is intended to provide a bird‟s-eye view of the client‟s

assets. The Financial planner has to have bottomless knowledge of markets, funds etc. Considering

this fact, the scope of the study is defined to satisfy following objectives:

Understand the necessity of financial planning,

Study and apply the financial planning process,

Identify various investment alternatives that can fit in client‟s profile, and

Provide the client in an appropriate asset allocation mix based on certain factors like time

horizon, risk tolerance etc.

27

This project consist of Quantitative as well as Qualitative data as data collect for preparing plan is

both the types

Gathering Data

There are two types of data to gather from the client

- Quantitative

- Qualitative.

Quantitative Data

Quantitative data provides specific information concerning a client along with numerical details

Concerning his/her financial status. It also provides the basis for the many financial analyses that the

financial Planner needs to perform.

Examples of quantitative data include the following:

General family profile

Names, addresses, and phone numbers of family members

Assets and liabilities

Cash inflows and outflows

Insurance policy information

Employee benefit and pension plan information

Tax returns for the last three years

Details on current investments

Retirement benefits available

Client-owned business information

Copies of wills and trusts

Qualitative Data

Qualitative information provides general information concerning a client's goals, lifestyle, health

status, risk tolerance level, employment status, hobbies, attitudes, and fears. Knowing a client's specific

goals, such as planning to move when retiring at age fifty-five, funding a child's college education and

expenses, starting an expensive hobby just before retirement, or traveling extensively during retirement,

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is important to the success of any financial plan.

Examples of qualitative data include the following:

Goals and objectives

Health status of client and family members

Interests and hobbies

Expectations about employment

Risk tolerance level

Anticipated changes in current/future lifestyle

Other planning assumptions.

Data Sources:

SECONDARY DATA:

The secondary data includes information obtained from various sources which includes

Kotak Mahindra Bank, Books, Business Newspapers, Websites, etc

LIMITATIONS:

1. The project work is mainly based on the above mentioned sources of information.

2. Limitation of client in investing in particular kind of asset based on his age.

3. Time limitation

29

THEORITICAL BACKGROUND6.

THEORITICAL

BACKGROUND

Introductory Chapter:-

Definition:-

30

Financial Planning is the process of identifying a person‟s financial goals, evaluating

existing resources and designing the financial strategies that help the person to achieve those goals.

Process of Financial Planning:-

Financial planning is a highly personalized service. It is not a product. It is a cyclical

service that constantly repeats as client needs change over time. Preparation and implementation

of the financial plan is a long-term relationship and not a one-off exercise.

For the success of the financial planning exercise, it is essential that the prospective client

should have complete confidence in the financial planner‟s capabilities. Confidence is built when

the planner can demonstrate adequate knowledge, technical depth and complete dependability.

Also remember that financial planning is a two-way interaction between the client and the

planner. It is not and should not be treated as a one-way prescription which is to be given by the

planner to the client. Both the planner and the client have certain responsibilities to make the

exercise a success.

The Planning Process:-

The preparation of the financial plan is a multi-dimensional process. It requires the

planner to collect as much information as possible about the current resources, assets and

liabilities of the client. The planner needs to analyze the collected information from a number of

different aspects to develop an optimal financial plan. To prepare and implement a comprehensive

and effective financial plan, the Financial Planning Standards

Board recommends the following 6-step process:-

Let us look at the above steps in more detail.

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1. Establish the Client-Planner Relationship

Before approaching a client, it is important for the financial planner to clearly understand his own

role. The role of the financial planner is not to suggest get-rich-quick schemes. Rather, it is to

evaluate and study the clients' needs, gather and analyze data and prepare a financial plan for now

and for the future. Preparation and implementation of the financial plan is a long-term relationship

and not a one-off exercise.

A financial planner has to prepare a plan that helps his clients:-

Organize their finances

Improve their cash flows

Lower their personal income taxes

Plan for their retirement

Improve their investment performance

Lower their investment risk

Insure themselves appropriately and reduce insurance costs

Minimize their estate settlement costs

To achieve this, the planner needs to answer the following questions:

What is the most immediate concern of the client?

What is the client‟s current financial situation?

What are the client‟s immediate and long-term needs?

What is the gap between the client‟s needs and the current financial situation?

What services can you apply to the client‟s needs?

How would the client benefit from your service portfolio?

What is the estimated time frame to complete the plan and accomplish goals?

Is your role likely to be of an adviser, motivator, teacher, or director?

Client agreements and confidentiality clauses

When a client utilizes the services of a financial planner, he/she shares financial and other

personal information with the planner that is normally not shared with anyone else. The client-planner

relationship presupposes a very high level of trust between the two parties. Consequently, the planner is

under obligation to maintain utmost confidentiality of this information. To prevent unnecessary litigation

and disputes in the future, it is recommended that the financial planner should enter into a client

32

agreement which formalizes the relationship with the client and establishes the basis on which the service

would be provided. Such an agreement is also referred to as the 'Letter of Engagement.'

2. Gather client’s data and determine goals and expectations

The next step involves researching and collecting information that will help the financial planner

design and implement a successful financial plan. There are two aspects to this exercise:-

(a) Understanding the client's current financial position.

(b) Getting to know the client's financial goals, objectives and requirements.

The first helps the financial planner understand where the client is at the moment and the second helps,

the financial planner understands where the client wishes to go.

Formulation of Goals

Financial goals are the milestones that the client hopes to reach with the help of his financial

resources.

These milestones could be concerning different aspects of life like:-

Saving for marriage / childbirth

Buying a new car / house / electronic equipment

Creating a corpus for retirement

Creating a corpus for children's education

Adequately insuring self and family

Creating cash reserves for emergency usage etc.

The financial planner should ensure that the goals are:

Specific;

Realistic;

Measurable / Quantifiable in money terms; and

To be achieved within a specific time period

Once the client has stated clear, quantifiable goals for financial planning, the next step is to

rank those goals in order of importance. This is necessary because most clients do not have the

resources to fulfil all their goals. The financial planner must make it clear to the client that less

important goals must be sacrificed or postponed to achieve the more important ones.This done, the

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financial planner needs to work out the amount of money available for achieving these goals. To

achieve most financial goals, the client would need to start saving and investing appropriately.

Therefore it is important for the financial planner to know where the money to invest will be

coming from.

3. Analyze client‟s objectives, needs and current financial situation Preparation of the Client's Personal

Financial Statements Preparation of the Cash flow Statement and the Budget Prioritizing Goals

The next step is to prioritize the financial goals of the client and work out the amounts that are required

to be invested towards achieving these goals.

Evaluate Qualitative Factors

Qualitative factors have a significant bearing on the financial plan for a client. The client's tolerance

towards risk, investment preferences, current health status etc. need to be kept in mind while evaluating

alternative Strategies.

4. Develop appropriate strategies and present the financial plan

A financial planner needs to develop appropriate strategies for the client in the following areas:

Cash flow management

Insurance planning

Investment planning

Retirement planning

Income tax planning

Estate planning

Cash flow management

Cash flow management is the means for funding client‟s goals in other planning areas, therefore;

generally it is the starting point of the planning process. Once the cash flow management plan is in place,

the inflows have to be channeled in one of the three areas - expenses, reserves for emergencies and

capital accumulation.

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IncomeCash Flow

Management

Daily

Expenses

Emergency

Funds

Capital

Accumulated

Once your clients have planned to maximize income and minimize spending, they need the

planner's help to plan for their insurance, investment, education, income tax, retirement, and their

estate.

The Benefits of Financial Planning

Financial Planning helps you give direction and meaning to your client‟s financial decisions. It

allows him to understand how each financial decision affects other areas of finance. For example,

buying a particular investment product may help your client to pay off his mortgage faster or may

delay his retirement significantly. By viewing each financial decision as a part of a whole, you may

help your client consider the long term and the short term effects on his life goals. You will help

them feel more secure.

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Assessing your current wealth

Net worth: - Your assets are the things that you own. You probably own assets that have many

different forms, including cash, investments, personal property, real estate etc.

Definition:-

Your net worth is the difference between the totals of your assets and liabilities. In other

words, if you sold all your assets for the values stated and paid off all your debts, the amount left

over would be your net worth. The net worth of a person is a measure of a person‟s financial

position as of the date of the personal balance sheet.

This relationship is shown below:

Items of Value - Amounts Owed = Net Worth

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DATA ANLAYSIS &

PRACTICAL

REPRESENTATION OF

THE PLAN

38

DATA ANLAYSIS & PRACTICAL REPRESENTATION OF THE PLAN7.

Financial planning:-

Financial planning for Tarun Sharma:-

A personal financial assessment is designed to help you evaluate your current financial position and

your ability to achieve your objectives for the future.

Your ability to maintain your lifestyle objectives for the future is determined by your investment capital and

ongoing income. In analyzing your situation we need to consider what is achievable given your current

position, and how we can take best advantage of the assets you have accumulated.

This report has been prepared to assist in the analysis of your current financial position and to help you

identify steps that you can take to achieve your personal financial goals and objectives. Although great care

has been taken to ensure the accuracy of this report, it should be kept in mind that projections, by

their very nature, are based on a variety of assumptions and as such it is likely that the actual results achieved

will be somewhat different than illustrated. For this reason it is very important that you review your strategy

on a regular basis to ensure its relevance to your changing financial position.

Mr. Tarun Sharma Date prepared: **July 2009

Personal Details

Self Spouse Contact Details

Name: Mr. Tarun Sharma Name: Mrs. Seema Sharma Residential Address:

DOB: 24-Jun-1977; Age: 31 DOB: 23rd Apr 1978 1234, Sushant Lok 1

Employer: ABC Solutions Age: 30 Phone number:

Address: 4rth Floor, DLF Phase 2, 9999222111/0124-455111

Sector 25, Gurgaon

Family Members

Name Relationship Date of Birth Age (years) Dependant

Seema Wife 23-Apr-1978 30 Y

es Khushi Daughter 23-Oct-2005 3 Y

es Simran Daughter 24-Apr-2008 1 month Y

es Sanjay Sharma Father - 68 Y

es

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Financial Goals

The following table lists your individual goals in today's value, when you expect to meet them

and the expected rate of inflation.

Description

Frequency

Goal

(today's value)

Rs.

Inflation

rate

Start

Year

End

Year

Remarks

Retirement goal – Living

Expenses

Monthly 30,000 5% 2027 2056

Khushi's school

education goal

Annual 30,000 10% 2009 2022

Simran's school

education goal

Annual 30,000 10% 2013 2026

Khushi's college

education

Annual 48,000 10% 2022 2025

Simran's college

education

Annual 48,000 10% 2026 2029

Khushi's

professional

education

Single 10,00,000 10% 2026 2026

Simran's

professional

education

Single 10,00,000 10% 2030 2030

Khushi's marriage goal Single 4,00,000 5% 2028 2028

Simran's marriage goal Single 4,00,000 5% 2032 2032

Primary home Single 30,00,000 5% 2008 2008 15% will be

paid towards

down

payment of

the house

and

85% will be

funded by

bank loan

Vacation Every 2

years

20,000 5% 2009 2047 Every 2 years

till your age

7

0

40

Assumptions:

1. Life expectancy for Mr Sharma and Mrs.

Sharma is age 80.

2. Retirement age of Mr Sharma is 50 years.

3. An average annual inflation rate of 5% used

in the analysis.

4. Savings account is expected to earn a 3.5%

annual rate of return.

5. Liquid funds expected to earn an 6% annual

rate of return.

6. Debt funds are expected to earn an 8%

annual rate of return.

7. Large cap equity funds are expected to earn

a 12% annual rate of return.

8. Mid cap equity funds are expected to earn a

14 % annual rate of return.

9. Education expenses are expected to increase

at 10% per annum.

10. Salary income is expected to increase at

10% per annum. 11. Current living expenses are expected to

increase at 10% per annum.

Your Risk Level

Following our discussions regarding

your investment objectives and the

completion of the risk profile

questionnaire, you are estimated to

have a

Moderate Profile.

41

NET WORTH

Assets Amount Rs. % of Total

Liquid Assets

Savings account 121,000

Liquid funds 0

Total 121,000 18%

Financial Assets

Fixed interest investments 0

Mutual funds 206,089

Direct equity 60,260

Cash value of life insurance

policies

0

Employee stock option plan (ESOP) 0

Total 266,349 39%

Tangible Assets

Real estate 0

Other assets (e.g. Art, Coin and Stamp

Collections)

0

Total 0 0%

Personal Assets

Primary house 0

Vacation home 0

Car/Vehicle

Jewellery

Other personal assets 0

Total 0 0%

Retirement Assets

Provident fund 200,000

Superannuation 0

Gratuity 0

Public provident fund 100,000

Cash value of pension plan 0

Total 300,000 44%

Total Assets 687,349 100%

Liabilities and Net Worth

Outstanding Loan

Home loan 0 0%

Vehicle loan 198,712 29%

Personal/Credit card loan 163,709 24%

Education loan 0 0%

Total Liabilities 362,421 53%

Net Worth

(total assets-total liabilities)

324,928 47%

42

Projected cash flow-

Cash Flow

Current Amount (Rs) Recommended Amount (Rs)

Description

% of total

income Annual Monthly

% of total

income Annual Monthly

Income

Salary-Fixed(CTC) 10,00,008 83,334 10,00,008 83,334

Salary-Variable 0 0 0 0

Income from

business/profession 0 0 0 0

Pension 0 0 0 0

Rental income 0 0 0 0

Investment income 0 0 0 0

Other income 0 0 0 0

Total Income 100% 10,00,008 83,334 100% 10,00,008 83,334

Expenses

Living Expenses

Household expenses 4,03,200 33,600 4,03,200 33,600

House rent 0 0 0 0

Education expenses 0 0 0 0

Total Income 40% 4,03,200 33,600 40% 4,03,200 33,600

Loan EMI's

Home Loan 0 0 0 0

Vehicle loan 76,152 6,346 76,152 6,346

Personal loan/Credit card 1,18,656 9,888 1,18,656 9,888

Total 19% 1,94,808 16,234 19% 1,94,808 16,234

Insurance Premiums

Life insurance 26,647 2,221 49,839 4,153

Health insurance 3,575 298 3,575 298

Motor insurance 0 0 0 0

Home(content) insurance 0 0 0 0

Home(building) insurance 0 0 0 0

Other insurance 0 0 0 0

Total 3% 30,222 2,519 53,414 4,451

Other Expenses

Travel and vacation 0 0 0 0

43

Charity 0 0 0 0

Others 0 0 0 0

Total 0% 0 0 0% 0 0

Contribution to Emergency

Fund

Taxes

Salary-Fixed 75,822 6,319 75,822 6,319

Salary-Variable 0 0 0 0

Income from

business/profession 0 0 0 0

Pension 0 0 0 0

Rental income 0 0 0 0

Other income 0 0 0 0

Total 8% 75,822 6,319 8% 75,822 6,319

Excess(shortage)before savings

Savings

Contribution to Retirement

assets

PF(employer's contribution) 4% 42,001 3,500 4% 42,001 3,500

PF(employee's contribution) 4% 42,001 3,500 4% 42,001 3,500

Superannuation 0% 0 0 0% 0 0

Gratuity 2% 16,801 1,400 2% 16,801 1,400

PPF 0% 0 0 0% 0 0

Other Committed Savings

Excess (shortage)after Savings 20% 1,95,153 16,263 17% 1,71,961 14,330

Create and maintain an adequate emergency fund

You must ensure that you are adequately prepared for unexpected events in the short-term by creating an

emergency fund equal to three to six months of living expenses. This will enable you to pay for costs that

are not covered by insurance, as well as any kind of urgent expenses.

You have Rs. 1.21 lakh in your savings account. You are advised to maintain Rs. 50,000 (approximately one

month of your expenses) as an emergency fund. Though one must keep at least 3-6 months of living and

committed expenses in emergency fund. However, you have an immediate goal of house purchase in the

year 2008.

You are advised to build and maintain an emergency fund gradually (after you have acquired the

immediate goal – home purchase) to an equivalent amount of Rs. 1.50 Lakh over time.

44

Your emergency fund

Category Amount in

Rs. Total 1,21,00

0 Amount transferred from savings account to investment

portfolio

71,00

0 Savings account amount allocated to emergency fund 50,00

0

Investment Planning

Current Asset Allocation

Asset allocation is the cornerstone of good investing. Each investment included in your portfolio must be of an overall asset allocation strategy and this plan must be genetic (one-size-fits-all),but rather must tailored to your specific needs. Based on the information that have provided, the current asset allocation if your portfolio is:

Asset Class

Amount

(Rs)

% of total

asset

Cash 71,000 16.23%

Liquid funds 0 0.00%

Fixed interest

instruments 1,00,000 22.87%

Equity 2,66,349 60.90%

Total 4,37,349 100.00%

Expected Portfolio Return : 9.71%

Proposed Asset Allocation

Asset allocation is the cornerstone of good investing. Each investment included in your portfolio must be part of an overall asset allocation strategy and this plan must be genetic (one-size-fits-all),but rather must tailored to your specific needs. Based on the information that have provided, the current asset allocation if your portfolio is:

Asset Class %

Expected Portfolio Return : 10.80%

Liquid Funds 5%

Fixed interest

Instruments 25%

Large Cap Equity 65%

Mid Cap Equity 5%

Total 100.00%

Liquid Funds

Fixed interestInstruments

Large Cap Equity

Mid Cap Equity

Cash

Liquid funds

Fixed interest instrumentsEquity

Asset Allocation

45

Protection Planning

The purpose of the protection planning section is to examine existing insurance coverage and make

recommendations. The goal is to determine whether there is adequate coverage and/or if any additional

coverage that may be needed.

Life Insurance

Observation

Currently you are covered by different life insurance policies worth sum assured of Rs. 8 laky by LIC,

Max Life and ING Vyasa. You pay an annual premium of Rs. 26,647 per annum. (See life insurance

details, Annexure 1).

Life insurance need analysis requires that we look at what would happen in the event of your death. This

analysis is done using information you provided to us about your income, expenditure, assets and

insurance coverage.

We have computed the insurance coverage requirement for you based on a scenario that all household

expenses that will need to be incurred by your family and all other financial goals and liabilities are fully

met in the event of your death. As per our analysis you are under-insured by Rs. 1 crore. (See life insurance need analysis, Annexure 2)

0

2000000

4000000

6000000

8000000

10000000

12000000

Insurance Needs Vs Current Coverage

46

Recommendation

You are advised to buy an additional term life policy worth Rs. 1 crore. The annual estimated premium is

expected to be Rs.26, 192 for a term of 20 years. (Source: HDFC Term Life Insurance Policy).

Health Insurance

Observation

Currently, you are not covered for health by any private health plan.

You must have adequate health insurance coverage especially because of rapidly rising health care costs. In

addition to the employer provided plan, it is strongly advisable to keep a private health plan. This is

especially useful if you change jobs. Also, health insurers do not accept pre-existing diseases.

Recommendation

You must consider buying a family floater scheme worth sum assured Rs. 3 Lakh. This will cover you, your spouse and your child. The estimated annual premium is Rs. 3,575. (Source: Reliance Health Silver Plan)

Planning for Goal

Observation

You are planning to buy a new house of approximately Rs. 30 Lakh in the year 2008.

Analysis

Based on your current situation, you can meet the above mentioned goal to the extent as mentioned below: Amount in Rs. (in today's value)

Year Goal

Amount

Goal Amount

Purchase of new house

End of 2008

(Desired)

30 Lakh

(Achievable)

30 Lakh

Recommendation:

Funding available towards your home purchase goal

1. Down payment of 15% of the value of home through the Investment Portfolio

2. Bank loan for funding the balance of Rs. 25.50 Lakh.

1. Down payment of Rs. 4.50 Lakh through the Investment Portfolio as follows:

Savings account – Rs. 71,000 must be utilized

Mutual funds – Rs. 2.07 Lakh

Surplus of year 2008 – Rs. 1.71 Lakh

2. Bank loan for funding the balance Rs. 25.50 Lakh.

Description Year Annual Estimated EMI in Rs.

Annual Income 2009-2023 3.04 Lakh

Note: Please note that our analysis shows that in the year 2009, the annual income surplus is not expected to support the EMI in the year 2009 by Rs. 96,000. However, as you will get tax benefits under section 24(b) for the interest portion paid towards home loan, you will be able to meet the EMI expense by the Money saved on taxes.

47

Goal: Khushi’s Education

Observation

You need to plan for the following education expenses of Khushi's in today's value.

1. School education of Rs. 30,000 per annum starting in the year 2009 till the year 2021. This is

expected to

Grow at 10% per annum.

2. College education expenses of Rs. 40,000 per annum (in today's value) between 2022 and 2025.

3. Professional education expense of Rs. 10 Lakh in today's value in the year 2026.

Analysis

Based on your current situation, you can meet the above mentioned goal to the extent as mentioned below:

Amount in Rs. (in future value)

Year Goal Amount Goal Amount

(Desired) (Achievable)

School education expenses

2009-2021 Rs. 30,000/year Rs. 30,000/year (grows at inflation rate of

10%)

College education expenses

2022-2025 Rs. 1.1 crore/year Rs. 1.1 crore/year (grows at inflation rate

of 10%)

Professional education expense

2026 Rs. 55.59 lakh Rs. 55.59 lakh

Recommendation

You should consider utilizing the following sources of cash to help you fund your goal as per our analysis.

1. Regular annual income surplus to fund the school education – We have treated the school and college

expense as a regular expense and deducted this from your cash flow every year. Your annual income

surplus during the years

2009-2025 is expected to support the education expenses as mentioned above.

2. Investment from the Annual surplus in the recommended portfolio to fund college and

professional education expenses

Description Year Amount to be invested (Rs.) Investment from 2011-2025 1.48 Lakh annual surplus

Note: The Investment is expected to be made in the recommended asset allocation which is expected to

generate

10.80% per annum

48

Observation

You need to plan for the following education expenses of Khushi's in today's value.

1. School education of Rs. 30,000 per annum starting in the year 2013 till the year 2025. This is

expected to grow at 10% per annum.

2. College education expenses of Rs. 40,000 per annum (in today's value) between 2026 and 2029.

3. Professional education expense of Rs. 10 lakh in today's value in the year 2030.

Analysis

Based on your current situation, you can meet the the above mentioned goal to the extent as mentioned

below:




School education expenses 2013-2025 Rs. 30,000/year Rs. 30,000/year (grows at inflation

rate of 10%)

College education expenses 2026-2029 Rs. 2.66 Lakh/year Rs. 2.66 Lakh/year (grows at inflation rate of 10%)

Professional education expense

2030 Rs. 81 Lakh Rs. 81 Lakh

Recommendation


1. Regular annual income surplus to fund the school education – We have treated the school and college

expense as a regular expense and deducted this from your cash flow every year. Your annual income

surplus during the years

2013-2025 is expected to support the education expenses as mentioned above.

2. Investment from the Annual surplus in the recommended portfolio to fund college and

professional

education expenses

Description Year Amount to be invested (Rs.)

Investment from 2010 88,782 annual surplus 2011 43,939

2012 1.24 lakh

2013 1.06 lakh

2014-2027 1.58 lakh

Note: The Investment is expected to be made in the recommended asset allocation which is expected to generate 10.80% per annum

49

Observation

Khushi's is expected to get married in 2028. You need to plan for the following expenses in today's value.

1. Marriage expenses of Rs. 4 lakh (today's value) in the year 2028.

Analysis




Marriage expenses

2028

(Desired)

Rs. 10.61 lakh

(Achievable)

Rs. 10.61 lakh

Recommendation


1. Regular annual surplus

Description Year Amount to be invested

(Rs.)

Annual Income Surplus 2015-2027 37,035

Note: The Investment is expected to be made in the recommended asset allocation which is expected

to generate

10.80% per annum

Observation

You need to plan for following expenses in today's value:

1. Domestic - You wish to spend Rs. 20,000 on vacation every 2 year.

Analysis

Amount in Rs. (in today's value)

Description Year Estimated Amount Inflation rate Goal Amount

Domestic

2009-2047

(Desired)

20,000

(Assumed)

5%

(Achievable)

20,000

50

Recommendation

In our analysis, we have taken the above expense as an annual regular expense and your cash flow is

supporting this

expense from your annual income surpluses from 2009-2047.

Observation

The probable year for your expected 2nd child to get married is 2032. You need to plan for the following

expenses in today's value.

1. Marriage expenses of Rs. 4 Lakh (today's value) in the year 2032.

Analysis





Marriage expenses on

2032

Rs. 12.90 Lakh

Rs. 12.90 Lakh


1 Regular annual surplus


(Rs.)

Annual Income Surplus 2014-2031 26,630

Note: The Investment is expected to be made in the recommended asset allocation which is expected to

generate 10.80% per annum

Observation

You intend to retire at age 50. After retirement you need to plan for the following expenses in today's value.

1. Annual household expenses of Rs. 3.60 Lakh in today's value between 2027(your retirement year)

and 2056 (life expectancy).

51

Analysis

Based on your current and projected financial situation you cannot meet the above mentioned goals due to

retirement at age 50.

Amount in Rs. (in today's value)


Annual household

expenses

2027-2056

(Desired)

Rs. 3.60 Lakh/year

(Achievable)

Rs. 3.60 lakh/year



Annual household

expenses

2027-2056

(Desired)

Rs. 9.55 lakh per annum

(Achievable)

Rs. 9.55 lakh per annum

Note: You are contributing every month Rs. 3,500 towards to Provident Fund and Rs. 1,400 per month

towards Gratuity. In our analysis, expected growth rate of PF and Gratuity is 8% per annum. Also there is a

contribution from your employer of Rs. 3,500 per month towards your Provident Fund account.

Recommendation

You should consider utilizing the following sources of cash to fund your retirement goal as per

our analysis:

1. Retiral assets

2. Insurance maturity proceeds

3. Annual income surplus to be invested in recommended asset allocation

1. Retiral assets

Description Year Estimated accumulated amount

Provident fund and

Gratuity fund

2027

52.42 lakh

52

2. Insurance maturity proceeds

Description Maturity Year Estimated maturity

proceeds

LIC Jeevan Anand 2029 5 lakh

Note: We have not taken the non-guaranteed portion i.e. bonus, we have only taken the

guaranteed part.

3. Annual income surplus to be invested in recommended asset allocation to fund the balance of retirement goal:


(Rs.) Annual income surplus 2014 10,970

2015 12,972

2016 117,725

2017 167,617

2018 290,647

2019 353,947

2020 498,710

2021 578,534

2022 670,463

2023 762,740

2024 1,295,626

2025 1,411,208

2026 1,970,708

2027 17,68,991 Note: All the above surpluses have been allocated towards your retirement goal, this is done after funding the other

goals such as Khushi's marriage, education, etc.

53

NEXT STEPS

Goal/Needs Next Step

Life Insurance You are advised to buy an additional term life insurance policy worth Rs.

1 crore. The annual estimated premium is expected to be Rs. 23,192 for a

term of 20 years. (Source: HDFC Term Life Insurance Policy).

Health Insurance You must consider buying a family floater scheme worth sum assured Rs.

3 Lakh. This will cover you, your spouse and your child. The estimated

annual premium is Rs. 3,575. (Source: Reliance Health Silver Plan)

Recommendation for

existing investment

Savings account to be used for maintaining an emergency fund

Current savings account balance is Rs. 1.21 lakh. You need to maintain

an emergency fund of Rs. 50,000 where the money is easily accessible

and liquid to meet any unforeseen contingencies. Balance must be

utilized towards the home goal.

Fixed interest investments:

Retain the PPF till its maturity date. Then, invest the maturity proceeds in

the recommended portfolio. We have allocated this investment towards

your retirement goal.

Mutual funds:

You may liquidate this and fund the down payment of the home goal in the

year 2008. If you are not liquidating this then you have to arrange

additional source of fund for the down payment of the house goal.

Recommendation for

current annual surplus –

Year 2008

Current annual surplus for year 2008 is expected to be approx. Rs. 1.71

Lakh. This amount is expected to be directed towards the down payment of

the home goal. You must invest the monthly surplus for the next 6 months in

capital preservation funds as this is needed for down payment within 6

months.

Estate Planning We recommend that you must consider writing a Will within the next 1 year.

Car goal You are advised to avail the car lease option provided by your company

for a new car. You are having a car loan liability as of now. Your

Relationship Manager will discuss about the car lease facility in detail

vis-a-vis your existing car loan liability.

54

Annexure 1

Company

Name Insurer Term

Year of

Commence

ment

Sum

Assured

Annual

Premium

Remarks Type Policy No

Premiu

m

Paying

Term

Year of

Maturity

(Guarant

eed)

Mode of

Payment

LIC-Jeevan

Anand

Tarun

Sharma 2 2004

5,00,000

20,517

Plan 149 241268027 25 2029

Annual

Premium

MAX

Tarun

Sharma 65 2003

3,00,00

6,130

Whole Life 234256972 65 2068

Rs. 3,065 paid

semi

annually

ING Vyasa

Tarun

Sharma 10 2005

1,50,000

4,300

ULIP 11256985 10 2015 Annually

You have

discontinued

this policy,

still sum

assured

continues

Life Assured

Tarun

Sharma

Sum Assured

(Guaranteed)

Annual

Premium

Date of Birth 24th June 77 9,50,000 26,647

55

Annexure 2: Your Insurance Need Analysis

A Survivor’s Living Expenses 95,19,875

House Rent 0

Education 0

B Other Expenses

Vacation 0

Charity/Gift 0

Others 0

C Outstanding Debt to be Paid off

Home Loans 0

Vehicle Loan 1,98,709

Personal Loans/Credit Cards 1,63,709

D Protection for Goals

House/Land Purchase 0

Jewellery and Arts 0

Purchase of Car 0

Education 20,00,000

Marriage 0

Other goals 0

E Total Funds Needed to cover Expenses, Liabilities and Goals (A+B+C+D) 1,18,82,296

F Assets Currently Available to Support Family

Savings account 1,21,000

Liquid Assets 0

Financial Assets

Fixed interest investments 0

Mutual funds 2,06,089

Direct Equity 60,260

Employee stock option plan(ESOP) 0

Tangible Assets

Real estate 0

Other assets (e.g. Art, Coin and Stamp Collection)

Retirement Assets

Provident Fund 2,00,000

Superannuation 0

Gratuity

Public Provident Fund 6,87,349

56

G Total 0

H Other Regular Income 0

I Survivor’s Estimated Annual Income from Employment 6,87,349

J Total Available Funds to Cover Expenses, Liabilities and Goals (F+G+H) 1,11,94,948

K Life Insurance Coverage Required (E-I) 9,50,000

L Life Insurance Coverage Already Available 1,02,44,948

Additional Insurance Required (J-K)

Financial Glossary: Net Worth: Assets less Liabilities.

Cash Flow: Income less Expenses.

Monthly Budget: A way of tracking your monthly income and expenses.

Contingency Reserve Fund: Fund to meet any unforeseen immediate

Emergency/contingency need.

Large Cap Stocks: These are investments in the common stocks of well-

Recognized, large companies that are expected to produce relatively

Secure and stable earnings.

Mid Cap Stocks: These are investments in stocks of mid-sized companies

that are expected to provide a blend of growth and earnings.

Small Cap Stocks: These are investments in common stock

of r e l a t i v e l y small, low capitalization companies whose earnings

are expected to grow at an above-average rate.

57

CONCLUSION

58

CONCLUSION8.

The overall study about each and every aspect of this topic shows that Financial Planning is a

dynamic and flexible concept which involves regular and systematic analysis, proper management,

judgment, and actions.

It can also be concluded that client or Investors should start planning soon, set measurable

goals, Look at the bigger picture and should not expect unrealistic returns on the investments and value

of the plan lies in its implementation and it accurately reflects what you are personally trying to

accomplish.

It can also be concluded that with the combination of different stocks we can reduce the risk

and increase the returns of a portfolio. . By constructing portfolio we can only minimize the un-

systematic risk we cannot reduce systematic risk.

A proper Fundamental & Technical Analysis should be done before selecting any particular

stock for the portfolio. It minimizes the risk involved .

Financial Planning Service which was not so popular earlier as other services has gained lot of

importance and popularity & will gain more importance in future as people are now understanding the

importance of it.

Financial planning service is very important and effective investment tool for meeting your life

goals through the proper management of your finances.

59

SUGGESTIONS

& RECOMMENDATIONS

60

SUGGESTIONS & RECOMMENDATIONS9.

To the Client:

The most vital problem spotted is of ignorance. Investors should be made aware of the benefits.

Investors should be made to realize that ignorance is no longer a bliss and what they are losing by

delay in planning.

Set measurable goals:

Set measurable goals that you want to achieve with a specific time. For example

What should be your lifestyle after retirement, or that to send children to good

Schools

Start planning soon:

Delay in financial planning affects the whole big picture that he has in mind for

himself and his family. Developing good habits like saving, budgeting, investing and regularly

reviewing finances early in life, makes one better prepared to meet changes and handle

emergencies.

Be realistic in terms of expectations:

Financial planning is a commonsensical approach to managing finances to reach life goals. It is

a lifelong process. There are certain extraneous factors like inflation, changes in

macroeconomic policies or interest rates that may affect financial results.

Understand the effect of each financial decision:

To realize that each financial decision that is taken affect several areas of his life.

To The Planner:

The planner should target for more and more young investors. Young investors as well as

persons at the height of their career would like to go for advisors due to lack of expertise and

time.

The planner should try to highlight some of the value added benefits, such as tax benefits,

systematic transfer plan, etc. Investors could also try to increase the spectrum of services

Offered.

The most important reason for not availing the serves of planner was spotted to be expensive.

The planner should try to charge a nominal fee at the beginning. But if no then they could go

for offering more services and benefits at the existing rate.

61

Appendix

62

APPENDIX.10.

Questionnaire followed by the Kotak bank to identify investor‟s investment objectives and risk profile.

Customer Name: ___________________________

Investment Advisor: ___________________________

An important aspect of investment planning and analysis is to ensure that our clients‟

money is invested in a manner that reflects the individual attitudes and personal circumstances.

In order to achieve this we need a clear understanding of what your “risk profile” is. When

we refer to risk, we mean how much an investment is likely to go up or down in the short-term. To

achieve higher long-term returns, you have to be prepared to accept that the value of your

investment may fall significantly in the short-term. This is because investments that provide higher

returns are usually more volatile than those producing low returns. There is a trade-off between risk

and return.

Your risk profile will be affected by a number of factors including:

Investment experience

Time-frame

Professional management

Tax effectiveness

Income requirements

Completing the following questions will help us understand the individual attitude to investing.

This will enable us to recommend investments appropriate to your specific needs.

1. Which best describes how you keep up with financial and investment matters?

a. I don‟t.

b. I take notice of the financial report in the news or on television shows.

c. I read the investment section in the newspaper.

63

d. I read the WSJ more than three days a week.

e. I subscribe to several financial journals/investment magazines and read the

financial press each day.

2. How familiar are you with the capital and investment markets?

a. Very little understanding or interest.

b. Not very familiar.

c. Have enough experience to understanding the importance of diversification.

d. Understand that markets may fluctuate and that different market sectors offer

different income, value and taxation characteristics.

e. Understand all investment sectors, the risks, and understand the various factors

which may influence performance.

3. Which one of the following best describes how well you feel you are able to manage

your way through the complexities of investments?

a. I definitely need the help of a professional investment adviser.

b. I need a professional investment adviser to help me make decisions on investments.

c. I know what I want to do, but would prefer to have a professional investment adviser

to work with me in tailoring my investment plan and making the right decisions.

d. I prefer to make all investment decisions on my own.

4. For how long would you expect most of your money to be invested before you would need to

access it?

a. Less than 2 years.

b. Between 2 – 3 years.

c. Between 3 – 5 years.

d. Between 5 – 7 years.

e. Longer than 7 years.

5 What is your current income requirement (dividends plus interest) from your investments?

a. Less than or equal to 2%.

b. Greater than 2%, but less than or equal to 4%.

c. Greater than 4%, but less than or equal to 6%.

64

d. Greater than 6%.

6. Which investment balance do you feel most comfortable with?

a. Less than or equal to 2%.

b. Greater than 2%, but less than or equal to 4%.

c. Greater than 4%, but less than or equal to 6%.

d. Greater than 6%.

7. Other than your own home, how do you feel about borrowing to invest?

a. Would not do.

b. Very uncomfortable.

c. Comfortable.

d. Very comfortable.

8. Considering the annual returns of the six hypothetical investment plans below over the

last ten years. Based on the range of possible outcomes shown, which plan would be most

acceptable to you or best suit your investment philosophy?

a. Average annualized return: 4%, Best case: 5%, Worst case: 2%.

b. Average annualized return: 6%, Best case: 9%, Worst case: -2%.

c. Average annualized return: 8%, Best case: 12%, Worst case: -5%.

d. Average annualized return: 10%, Best case: 15%, Worst case: -8%.

e. Average annualized return: 12%, Best case: 18%, Worst case: -10%.

f. Average annualized return: 14%, Best case: 24%, Worst case: -12%.

1. A typical investment portfolio consists of both investments with high expected returns and

high risk (i.e., stock, options, derivatives, property) and those with low expected returns

and low risk (i.e., cash, money market, fixed income). Which of the following spread of

investments would you feel comfortable investing it?

a. 0% High Risk/High Return, 100% Low Risk/Low Return.

b. 30% High Risk/High Return, 70% Low Risk/Low Return.

c. 50% High Risk/High Return, 50% Low Risk/Low Return.

d. 65% High Risk/High Return, 35% Low Risk/Low Return.

e. 80% High Risk/High Return, 20% Low Risk/Low Return.

f. 100% High Risk/High Return, 0% Low Risk/Low Return.

65

10. If you didn’t need your capital for more than 10 years, for how long would you be

prepared to see your investment performing poorly before you cashed it ?

a. You would cash it in immediately if there was any loss in value.

b. Up to 3 months.

c. Up to 6 months.

d. Up to 1 year.

e. Up to 2 years.

f. More than 2 years.

Your risk profile:-

Extremely Conservative – Cash (0% High Risk, 100% Low Risk)

Your main concern is preservation of capital. You would prefer to take no investment risk and invest

in cash. The expected average return is 4.5% and the likelihood of a negative return is never.

Conservative – A very low risk taker (30% High Risk, 70% Low Risk)

You are a conservative investor. Risk must be very low and you are prepared to accept lower returns to

protect capital. The negative effects of tax and inflation w ill not concern you, provided your initial

investment is protected. The expected average return is 6.5% and the likelihood of a negative return is

once every 9 years.

Moderately Conservative – A low risk taker (50% High Risk, 50% Low Risk)

You are a moderately conservative investor seeking better than basic returns, but risk must be low.

Typically an older investor seeking to protect the wealth which you have accumulated, you may be

prepared to consider less aggressive growth investments. The expected average return is 8% and the

likelihood of a negative return is once every 6 years.

Balanced – An average risk taker (65 % High Risk, 35 % Low Risk)

You are a balanced investor who wants a diversified portfolio to work towards medium to long-term

financial goals. You require an investment strategy, which will cope with the effects of tax and

inflation. Calculated risks will be acceptable to you to achieve good returns. The expected average

return is 9% and the likelihood of a negative return is once every 5 years.

Moderately Aggressive – A high risk taker (80% High Risk, 20% Low Risk)

You are a moderately aggressive investor, probably earning sufficient income to invest most funds for

capital growth. Moderately aggressive investors are aiming to receive a significantly higher return than

cash over time and are therefore prepared to accept a reasonably high level of volatility. The expected

66

average return is 11.5% and the likelihood of a negative return is once every 4 years. A minimum

investment period of 5 years is advisable.

Aggressive – A very high risk taker (100% High Risk, 0% Low Risk)

You are an aggressive investor prepared to compromise portfolio balance to pursue potentially greater

long-term returns. Your investment choices are diverse, but carry with them a higher level of risk.

Security of capital is secondary to the potential for wealth accumulation. The expected average return

is 14% and the likelihood of a negative return is once every 4 years.

I/we acknowledge that after completing the attached “risk profile” that my/our risk profile

is:(please check)

Extremely Conservative

Conservative

Moderately Conservative

Balanced

Moderately Aggressive

Aggressive

Investment Objectives

Your Statement of Advice should take into consideration factors that are considered important

to you. In designing your Statement of Advice could you please rate the following objectives in their

order of importance to you. Please add any other financial objectives not in this list. Please rate each

item in order of their importance to you by placing a circle around the relevant number.

The numbers represent:

1. Not important

2. Slightly important 6

Use the last column to list the objectives in order of their priorities with “A” being the client’s

main priority.

Objective Importance: Priority

Generate more income 1 2 3 4

Invest for capital growth/wealth creation 1 2 3 4

Invest in tax advantaged investments 1 2 3 4

Invest to minimize the impact of inflation 1 2 3 4

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Invest in a regular savings and/or retirement plan 1 2 3 4

Flexibility 1 2 3 4

Security of capital 1 2 3 4

Retirement planning 1 2 3 4

Education planning 1 2 3 4

Investment/portfolio management 1 2 3 4

Asset Allocation 1 2 3 4

Diversification 1 2 3 4

Other 1 2 3 4

Other Objectives (Please provide details):-

Signed: ________________________________________________Date:__________________

68

Bibliography

69

Bibliography.11.

BOOKS, NEWSPAPERS and WEBSITES: -

I. BOOKS REFERED:

BOOK NAME AUTHOR NAME

1. Security Analysis & Bodie, Kane & Marcus

Portfolio Management

2. Financial Management I.M Pandey

3. Financial Planning Handbook - IMS Preschool.

II. NEWSPAPER REFERED:

1. Economic Times and

2. Financial Express.

III. WEBSITES USED:

1. www.equitymaster.com

2. www.cmlinks.com

3. www.nse.com

4. www.nymex.com

5. www.netashare.com

6. www.kotak.com

7. www.investopedia.com

8. www.esnips.com

http://www.equitymaster.com/

http://www.cmlinks.com/

http://www.myiris.com/

http://www.karvy.com/

http://www.sharekhan.com/

http://www.kotak.com/

http://www.investopedia.com/

http://www.esnips.com/

financial planning for an investor with kotak mahindra babk by roomlata bhagel

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