Financial Wellness Enhancement Program

Welcome to the Program

Pre-Workshop Questionnaire

Wellness

Wellness Habits Tests & AssessmentsPhysical Wellness 1. Eat Right

2. Exercise Regular1. BMI2. Diabetes3. BP4. ECG

Career Wellness Steven Covey’s 7 Habits1. Be Proactive2. Begin with an end in mind3. Put first things First4. Think win-win5. Seek first to understand

then be understood6. Synergize7. Sharpen the saw

1. Performance Rating2. Certifications & Awards

Social Wellness 1. Regular Communication 1. Size of the network2. Invitation to attend gatherings and

functions

Emotional Wellness 1. Having High Self Esteem2. Accepting Failures

1. Feedback from peers/subordinates

Spiritual Wellness 1. Meditation 1. Minutes spent in a week

How to define Financial Wellness?

Unique 5 level Financial Wellness Enhancement Approach

Level 5: Enough wealth accumulated for next generation. Investments are done for generating jobs for society

Level 4: Savings are enough to take care Self + Spouse expenses till 80 years of age. Investments are being done for benefit of next generation

Level 3: Savings have reached a stage one is saving more than Rs 2,00,000 + 10% of Monthly Income. One is now saving & investing to meet aspirational needs like Home, Children’s College Education, Marriage etc

Level 2: Makes full use of Sec 80 C savings and save Rs 2,00,000 in EPF, ELSS, NPS

Level 1: One is able to comfortably meet normal financial needs even if pay cheque is delayed up to 3

months.

Level 0: Even if salary is delayed by one day, one is put to a lot of stress, due to committed monthly cash

outflow like Insurance Premium, mortgage EMI, etc.

Expected benefits of Financial Wellness Enhancement

Measuring Wellness and taking action to enhance wellness

www.imoneyplant.com

Check your Financial Wellness

Wellness = Habits

But, How to habits form?

Knowledge

1. 3% Increase in Return2. A=P (1+r)n

3. Stock Market and Gold has always been higher after 10th year

Skills

1. Buying Financial Products online

2. Automating Investments

Attitude

1. Income – Savings = Expenses

2. Investment Purpose is more important than product

3-Powerful Habits

1. Savings before spending

2. Automate and transact

Online

3. Invest with Purpose – Make

Retirement Savings the most

important purpose

Enhancing Financial Wellness

Foundation for successful habit formation for Financial Wellness

•Knowledge

•A= P (1+r)n

•How Economy works

•Skills

•Ability to apply knowledge and take right decisions

•Automating Financial Transactions

•Attitude

•Income – Savings = Expenses

•Review Regularly and course correct

3 – Powerful habits for financial Wellness enhancement

• Save Before Spending

• Save 30% of Income

• Pay 25% of Income as EMI for Home

• Indentify Priority and Invest with purpose

• Short term needs (mobile, gadgets, festivals, family functions, travel, other discretionary spending)

• Retirement

• Aspirations (Home, Children’s higher education, Children’s marriage, Etc)

• Map Priority to Financial Product automate the Investments and forget

• Save only through ECS

• If you have bulk money invest only in Fixed Deposits or Govt Bonds

Knowledge

Finance Basics for Successful Investing

If you have not filled up the pre-workshop questionnaire

Pre-Workshop Questionnaire

Fixed Deposit doubles in 9 years –What is the return?

•What is the formula for calculating returns ?

• A = P(1+r)n

•There is no other formula in Money Management

If money is doubling – Apply Rule of 72

72

---------------------- = r where n= No. of years taken to double money

n

Why Returns are important?

2015 100000

2023 200000

2031 400000

2039 800000

2015 100000

2021 200000

2027 400000

2033 800000

2039 1600000

Return on Investment – 9%

Years taken to double – 8 years

What happens to Rs.1 lakh investment In 24 years

Return on Investment – 12%

Years taken to double – 6 years

What happens to Rs 1 lakh investment In 24 years

Or

Every 3% decrease in Returns makes one poorer by half

Every 3% improvement in Return doubles wealth

Comparing Returns

SBH Deposits offering to double in 87 months with a yield of 13.84% or Other deposit offering 10% compounding interest

Property bought in 2001 for 40 lakhs and value of Rs 1.6 Crore in 2015 or property bought for Rs 10 Lakhs in 1997 and value of Rs 80 Lakhs in 2015

Investment Amount No of Years Maturity Amount Benefit

Rs 1 Lakh per year 10 Rs 20 Lakh Investment doubled

Rs 1 Lakh per year 15 Rs 30 Lakh Investment doubled

Rs 1 Lakh per year 20 Rs 40 Lakh Investment doubled

But, are they same?

Compare returns only by calculating annual %

Investment Amount

No of Years Maturity Amount Benefit Returns

Rs 1 Lakh per year 10 Rs 20 Lakh Investment doubled 14.69%

Rs 1 Lakh per year 15 Rs 30 Lakh Investment doubled 9.3%

Rs 1 Lakh per year 20 Rs 40 Lakh Investment doubled 6.8%

3% reduction in return makes us poor by half

Caveat Emptor

1. Fine Prints while buying Financial products

2. 0% EMI

3. Guaranteed Returns in short time

4. Promise of high returns in excess of 12%

What we do with money?

Earn Invest

Spend Borrow

If Earning - Spending > 0 Surplus Invest

If Earning – Spending <0 Deficit Borrow

Income – Expenses : Impact

How to increase Earnings?

Earn1. Enhance Skills2. Monetise Hobbies3. Income from Investments4. Save Tax

Invest

Spend Borrow

Save Tax or Increase Net IncomeTax

BracketAllowances 80 C (upto Rs

2,00,000)80 D Interest on Loans

10% 1. HRA2. LTA3. Medical4. Transport

1. EPF2. ELSS3. Rs 50,000

extra from NPS

Rs 20000 for Sr. Citizen Parent

1. Education Loan

20% 1. HRA2. LTA3. Medical4. Transport

1. EPF2. ELSS3. Principal

Repayment on Home Loan

4. Rs 50,000 extra from NPS

Rs 20000 for Sr. Citizen Parent

1. Unlimited interest paid on rented property

30% 1. LTA2. Medical3. Transport

1. PF2. PPF or ELSS3. Principal

Repayment on Home Loan

4. Rs 50,000 extra from NPS

Rs 20000 for Sr. Citizen Parent

1. Upto Rs 2,00,000 interest on Self Occupied House

2. Unlimited interest on rented out property

3. Education Loan for Children’s higher Education

Create wealth by borrowing

Earn1. Enhance Skills2. Monetise Hobbies3. Income from Investments4. Save Tax

Invest

Borrow

Home Loan

Education Loan

Today’s cost : Rs 60 Lakh

Expected appreciation : 12%

Invest Rs 10

Lakh own money

Invest Rs 50 Lakhs

By taking home loan @ 10%

Returns on Own investment Returns on Borrowed Investment

A = P (1+r)n

A = 1000000 (1+.12)n

?

Today’s cost : Rs 60 Lakh

Expected appreciation : 12%

Invest Rs 10

Lakh own money

Invest Rs 50 Lakhs

By taking home loan @ 10%

Returns on Own investment Returns on Borrowed Investment

A = P (1+r)n

A = 1000000 (1+.12)n

?Principal = 0 (because not own money)

(1+r)n = A/P

Since P = 0 r = ∞

And not as we think Net Return = 12% - 10% = 2%

Note on Borrowing

• Borrowed money gives ∞ Returns

• And also ∞ Risk (if EMI not paid, entire asset may be lost)

• So Limit EMI to 25% of Income

• Borrow only for Appreciating Asset

• If Borrowed for depreciating asset the returns are -∞

• So, No car loan, Personal Loan, Credit card loan

Insurance is an Expense (most important)

Earn1. Enhance Skills2. Monetise Hobbies3. Income from Investments4. Save Tax

Invest

Spend1. Insurance Premium (Less than 5% of Net Income)

1. Life Insurance (6 times Net Income)2. Accident Insurance (6 times Net Income)3. Health Insurance (Upto Rs 5 Lakh)4. Critical Insurance (Age > 35, 20 Lakhs)5. Motor Insurance (depending on vehicle)

Borrow

Home Loan

Education Loan

What are the Investment Products ?

Earn1. Enhance Skills2. Monetise Hobbies3. Income from Investments4. Save Tax

Invest1. Banks (FD, RD)2. Retirement (EPF, PPF, NPS)3. Mutual Funds (Debt Funds, Index Funds, Equity

Funds, Gold Funds)4. Real Estate (Flat, Land, Commercial Property)5. Metals (Gold, Silver etc)

Spend1. Insurance Premium (Less than 5% of Net Income)

1. Life Insurance (6 times Net Income)2. Accident Insurance (6 times Net Income)3. Health Insurance (Upto Rs 5 Lakh)4. Critical Insurance (Age > 35, 20 Lakhs)5. Motor Insurance (depending on vehicle)

BorrowHome Loan

Education Loan

Let’s Understand Investment Products

• Recurring Deposits

• Fixed Deposits

• PPF

• NPS

• Stock Market

• Stock

• ELSS (Equity Linked Savings Scheme)

• Gold

• Real Estate

Investment Fundamentals

• If higher returns promised It will have higher risk

• Higher Return with Lower Risk Not possible

• But at the same time – Taking higher risk does not automatically guarantee

higher return

• Investment Risk if ignored – Capital Loss

• Investment Risk if avoided - No Return

• Investment Risk if Managed – Positive Returns

Fixed Deposits and PPF

Fixed Deposits

Interest Rate 8.75%

Tax on Interest 30%

Tax Paid 2.63%

Inflation 6.3%

Real Return -0.18%

PPF

Interest Rate 8.7%

Tax on Interest 0%

Tax Paid 0%

Inflation 6.3%

Real Return +2.4%

Why PPF gives higher return?

• PPF has Higher Return It must have Higher Risk

• Is it Riskier than FD ?

• If so, what are the Risks ?

• Blocked for 15 years

• Interest Rate not guaranteed during tenure

• Liquidity Risk, Interest Rate Risk

• Higher Return Higher Risk (It is not possible to get higher return

without taking more risk)

• Higher Risk ≠ Higher Return

Real Estate Investment

2007 2012 2013 2014 2012 2013 2014

Hyderabad 100 85 84 95 -3% -3% -1%

Faridabad 100 217 202 211 17% 12% 11%

Patna 100 140 147 154 7% 7% 6%

Ahmedabad 100 174 186 213 12% 11% 11%

Chennai 100 309 303 355 25% 20% 20%

Jaipur 100 78 110 102 -5% 2% 0%

Lucknow 100 171 187 193 11% 11% 10%

Pune 100 200 219 241 15% 14% 13%

Surat 100 145 142 161 8% 6% 7%

Kochi 100 73 86 86 -6% -2% -2%

Bhopal 100 207 227 221 16% 15% 12%

Kolkatta 100 196 189 211 14% 11% 11%

Mumbai 100 197 221 233 15% 14% 13%

Bengalore 100 100 108 108 0% 1% 1%

Delhi 100 172 199 193 11% 12% 10%

Bhuwaneshwar 100 164 195 196 10% 12% 10%

Guwahati 100 159 147 159 10% 7% 7%

Ludhina 100 171 157 147 11% 8% 6%

Vijayawada 100 186 174 163 13% 10% 7%

Indore 100 203 184 187 15% 11% 9%

Chandigargh 100 191 175 11% 8%

Coimbatore 100 178 176 10% 8%

Dheradun 100 184 187 11% 9%

Meerut 100 181 159 10% 7%

Nagpur 100 168 187 9% 9%

Raipur 100 155 166 8% 8%

CAGR from 2007

RESIDEX - Returns on Home Investments in India

Index

Stock Market (NIFTY) Performance

1226 938 1009 1200 942 11831495

1100 1068 110015371537

2211

3150

43133896

4340

52515627

52785950

7637

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

94

-04

95

-05

96

-06

97

-07

98

-08

99

-09

00

-10

01

-11

02

-12

03

-13

04

-14

NIF

TY

Year

GOLD Performance

4598 4680 5160 4725 4045 4234 4400 4300 4990 5600 585058507000

840010800

1250014500

18500

26400

3179930221

28650

0

5000

10000

15000

20000

25000

30000

35000

94

-04

95

-05

96

-06

97

-07

98

-08

99

-09

00

-10

01

-11

02

-12

03

-13

04

-14

GO

LD P

er

10

gm

s

Year

It does not matter when investment was done, 10 years later Stock

Market and Gold Prices was always higher

Investment in Stocks

Investment in Stocks ≠ Investment in Stock Market

Buy Stock Market, not stocks

Best option to buy Stock Market

• EQUITY LINKED SAVINGS FUNDS (ELSS) – Mostly Index

stocks but proportion varies and hence higher risk –higher

return

• Why it is best ?

• Investments is considered for 80C deductions

• Easy to identify the scheme – Name “Tax” will be there

in the scheme

Making Stock market work

Year Stock Market

Amount Invested

Units Bought

1 10 10000 1000

2 8 10000 1250

3 5 10000 2000

4 2 10000 5000

5 1 10000 10000

6 2 10000 5000

7 5 10000 2000

8 8 10000 1250

9 10 10000 1000

10 12 10000 833

Total 1,00,000 (Total Invested in 10 years)

29333 (Total Units bought in 10 years)

Option 1 – Invest Rs 10000 every

year for 10 years

Value at the end of 10 years =

29333 * 12 = Rs 351996

Rs 100000 has become 3.5 times

Option 2 : Invest Rs 1 Lakh

lumpsum

Rs 1 Lakh will become Rs 1.2

Lakh

10 Year later stock

market will always

be higher

Always invest in small quantity, regularly –Automate through SIP

Max Amount to be invested in Stock Market every month – 20% of Monthly Net Income

10214897

2778056

0

2000000

4000000

6000000

8000000

10000000

12000000

1-J

an-0

0

1-J

an-0

1

1-J

an-0

2

1-J

an-0

3

1-J

an-0

4

1-J

an-0

5

1-J

an-0

6

1-J

an-0

7

1-J

an-0

8

1-J

an-0

9

1-J

an-1

0

1-J

an-1

1

1-J

an-1

2

1-J

an-1

3

1-J

an-1

4

Comparison of 80C Investment Options

ELSS

PPF

Endowment

ELSS – Rs 1 Cr

PPF – Rs 27 Lakh

Why ELSS gave 4 times ?

6% difference in return (8.75% vs 15%)

NPS

Central Gov Scheme

State Gov Scheme E (Tier 1) C (Tier 1) G (Tier 1) E (Tier II)

C(Tier II)

G (Tier II)

1-Jan-10 12.5618 10.4119 10.5564 10.7497 10.7716 10 10 10

1-Jan-15 19.788 16.9828 17.6984 18.5498 17.3051 16.3184 16.9971 16.5372

Returns 9.5% 10.3% 10.9% 11.5% 9.9% 10.3% 11.2% 10.6%

NAV’s mentioned are for SBI Scheme

NPS

Tier I

Returns 11%

Tax 80C BenefitAdditional Rs 50,000 benefit

Liquidity Can be withdrawn only after 60 years of age

Inflation 6.3%

Real Return 4.7%

Tier II

Returns 10%

Tax Less than 3 years –Based on Tax BracketMore than 3 years – Max 10%

Liquidity Unlimited withdrawal without penalty

Inflation 6.3%

Real Return 0.7% (for 30% Tax)

NPS Tier II Vs Recurring Deposits

Investment Products

Return Vs Risk

Investment Products : Risk Vs ReturnProduct Return Tax After Tax Inflation After Inflation RISK

Bank FD-RD 9% 2.7% (30% of 9%) 6.3% 6.3% 0 Capital is protected uptoRs 1 Lakh only

PPF 8.7% 0 8.7% 6.3% 2.4% Interest Rate Varies, Money Blocked for 15 years

Index FundsNIFTY on 3 Jan 2000 – 1592

NIFTY on 1 Jan 2015 - 8284

ELSS

11.6%

15%

0

0

11.6%

15%

6.3%

CII 2000-1 :406

CII 2014-15 :1024

5.3%

8.7%

Variation in Returns Year on Year, Block for 15 years, small variation in capital in short term

Gold

2000 – 44002014 - 28500

13% Maximum 10%1.3%

11.7% 6.3% 5.4% Variation in Prices, Block for 10 years, Short term fluctuations in capital

NPS Tier 1

NPS Tier 2

11%

10%

0 – if commuted

10-30%

11%

7%

6.3%

6.3%

4.7%

0.7%

Variation in prices

Real Estate 8-20% Minimum 10% Tax 7% -18% 7% 0-11% Location RiskLegal RiskLiquidity RiskRental Risk

Ideal Investment products

• NPS

• ELSS

• Real Estate

How to plan and invest?

Invest with Purpose

Purpose is more important than product. So, Start with Purpose

Invest with Purpose and end goal in mind

No 1 Priority – Short term expenses (Mobiles, Appliances, Unexpected Travel, Medical, Impulse Buy)

No 2 Priority – Retirement Savings : No other Need is bigger

No 3 Priority Aspirations

Home, Education :

Vacations/Car/Celebrations

Short term needs

• Take “0” Risk “0” Return is OK

• Protect the Capital

• “0” Risk Investment – NPS Tier II – C

category

• Invest 10% of income every month

Retirement Savings in 20th and 21st Century

•20th Century

•Managed by company

•12%-12%-12%

Guaranteed pension for

life time

•21st Century

•Best Plan from company– 12%-12%-

8.5% (only 20% of companies offer)

•What 12% 8.5% means ?

•Employee has to double the contribution

-12% to 24%

•If company has no EPF Scheme – then

save 25% of Net Income on own every

month if EPF scheme available then 10%

of Net income every month

Year Annual Exp Year Annual Exp

2015 रु 360,000 2035 रु 1,393,086

2016 रु 385,200 2036 रु 1,490,602

2017 रु 412,164 2037 रु 1,594,945

2018 रु 441,015 2038 रु 1,706,591

2019 रु 471,887 2039 रु 1,826,052

2020 रु 504,919 2040 रु 1,953,876

2021 रु 540,263 2041 रु 2,090,647

2022 रु 578,081 2042 रु 2,236,992

2023 रु 618,547 2043 रु 2,393,582

2024 रु 661,845 2044 रु 2,561,133

2025 रु 708,174 2045 रु 2,740,412

2026 रु 757,747 2046 रु 2,932,241

2027 रु 810,789 2047 रु 3,137,497

2028 रु 867,544 2048 रु 3,357,122

2029 रु 928,272 2049 रु 3,592,121

2030 रु 993,251 2050 रु 3,843,569

2031 रु 1,062,779 2051 रु 4,112,619

2032 रु 1,137,173 2052 रु 4,400,503

2033 रु 1,216,776 2053 रु 4,708,538

2034 रु 1,301,950 2054 रु 5,038,135

Average Annual Expenses for Retired Couple Factors to be applied

Non Metro 0.75

Rented Home 1.3

Less than Rs. 5 LakhHealth Insurance

1.1

Example:

Today ‘s age : 40, Retiring at 60

Expected life : 80 years

Year of Retirement : 2035

Annual Expenses : 13,93,086

Corpus required : 20 * 13,93,086

= Rs 2,78,61,720

Assumptions – After retirement : ROI

= Inflation, current inflation = 7%, and

assuming no pension

Retirement Purpose

• Take maximum Advantage of Tax saving and

employment benefits schemes

1. 12% + 12 % EPF (or opt for NPS if option is there)

2. Rs 50,000 additional in NPS

3. If any gap in Rs 1,50,000 of 80c – ELSS

Purpose 3 - Aspirations

• Children’s education

• Home

• Car

• Children’s Marriage or Family Function

• Wealth for Next generation

Other Aspirations

Children’s Marriage

•Liquidity is important

• SIP in Index works best

• 10% of Salary in Index Funds

• If Time to marriage is less than 5 years – Avoid Index Funds and invest in NPS Tier II – C category

• If Time to marriage less than 2 years Choose - FD

Wealth for next generation

• Choose investment you like

•Real Estate\

• Equity Funds

Simplified Money ManagementEarn More

1. Enhance Skills2. Monetise Hobbies3. Income from Investments4. Save Tax

Invest Monthly1. Short term Aspirations (Mobile, Gadgets,

Festivals, India Travel) -10% of Net Income in NPS – Tier II

2. Retirement (Long Term) –Rs 2,00,000 for Tax Saving – EPF, ELSS, NPS

3. Aspirations (Medium Term) 10 % of Net Income in Investment which you like

1. Down payment for home2. Car, Vacation Abroad, Big Family Functions

Spend Less1. Insurance Premium (Less than 5% of Net Income)

1. Life Insurance (6 times Net Income)2. Accident Insurance (6 times Net Income)3. Health Insurance (Upto Rs 5 Lakh Sum

Assured)4. Critical Insurance (Age > 35, 20 Lakhs, Sum

Assured)5. Motor Insurance (depending on vehicle)

2. EMI or Rent3. Food & Clothing4. Bills5. Unplanned Expenses

Borrow Rightly (EMI to be Max 25% of Net Income)1. Home2. Education

Knowledge

1. 3% Increase in Return2. A=P (1+r)n

3. Stock Market and Gold has always been higher after 10th year

Skills

1. Buying Financial Products online

2. Automating Investments

Attitude

1. Income – Savings = Expenses

2. Investment Purpose is more important than product

3-Powerful Habits

1. Savings before spending

2. Automate and transact

Online

3. Invest with Purpose – Make

Retirement Savings the most

important purpose

Enhancing Financial Wellness

Unique 5 level Financial Wellness Enhancement Approach

Level 5: Enough wealth accumulated for next generation. Investments are done for generating jobs for society

Level 4: Savings are enough to take care Self + Spouse expenses till 80 years of age. Investments are being done for benefit of next generation

Level 3: Savings have reached a stage one is saving more than Rs 2,00,000 + 10% of Monthly Income. One is now saving & investing to meet aspirational needs like Home, Children’s College Education, Marriage etc

Level 2: Makes full use of Sec 80 C savings and saves Rs 2,00,000 in EPF, ELSS, NPS

Level 1: One is able to comfortably meet normal financial needs even if pay cheque is delayed up to 3

months.

Level 0: Even if salary is delayed by one day, one is put to a lot of stress, due to committed monthly cash

outflow like Insurance Premium, mortgage EMI, etc.

What Next?

1. Make your own plan by visiting www.imoneyplant.com

Financial Wellness Assessment Sheet

1. Automate Today (Participants either did on the same day or never did)

2. If you find it difficult to go as per the plan write to us at admin@imoneyplant.com or call 022 2529 8454 (same is mentioned in the book)

3. Fill up the feedback Form to receive 1 year subscription to our magazine ‘Financial Wellness” at your residence

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