investment planning for college students
DESCRIPTION
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 - PowerPoint PPT PresentationTRANSCRIPT
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?