Smt. Chandibai Himathmal Mansukhani College

• Class: T.Y.BFM• Subject: Portfolio Management• Semester: V• Date: 28/06/2012

Submitted to: Prof. Hema Manwani

•Harsha Matta Roll No.21•Yashoda Gehani Roll No.27•Anil Manghnani Roll No.29•Kunal Tharwani Roll No.30•Girish Kanjani Roll No.31•Uma Keswani Roll No.55

Group Members

Planning & Goal Setting

Planning for Your Future!

SMT CHANDIBHAI HIMATHMAL MANSUKHANI COLLEGE

Portfolio Management

Why do we need Planning?

To fund our future needs through right mix of investments

To protect our future from unforeseen contingencies

To maintain the same standard of living even after retirement

To enable risk management through diversification

To choose assets commensurate with the investors’ life and wealth stages

To beat the ravages of inflation

Can you do your own Financial Planning?

• Will your family be financially secure in the event of your unfortunate illness / demise?

• Will the stream of cash flows arising from your asset holdings be sufficient to match the expected liability structure?

• Are your finances inherently tax efficient?

• Have you made adequate provisions for your children’s education and marriage?

• Are you confident enough to enjoy your post-retirement life?

If your answer is NO to any one or all of the above questions, you need a specialist to handle your finances...

Need Of Portfolio Managers

• Understands clients needs

• Diversify risk and return

• Skilled and knowledgable person

Significance of Asset Allocation

Significance Of Asset AllocationDeterminants of Portfolio Performance: “Asset Allocation helps explain over 93% of a portfolio’s performance”.

Financial Planning and Asset Allocation

Asset Allocation Strategies

Conservative

50%

30%20% Equities

Bonds

Cash/MoneyMarket

Moderate10%

45%

45% Equities

Bonds

Cash/MoneyMarket

Aggressive

75%

10%15%

Equities

Bonds

Cash/MoneyMarket

How to do Asset Allocation?1. Determine the Current financial situation.

2. What you wish to achieve? Your Financial Goals.

3. How much risk you wish to take? Your Risk Profile.

Financial SituationFinancial GoalsRisk profile

1) Find out Net saving available for Investment.2) Wealth accumulated till today. ?

Mandatory Goals:-

(1) Children education(2) Children marriage(3) Retirement Planning. Pension.Optional Goals:-

(4) Luxury Car.(5) Purchase of Luxury items at Home.(6) Vacation Abroad.

Financial Capacity(7) Income status, more important Net Saving status.(8) Age:- Younger the age higher is risk taking capacity.(9) Dependents in family, Liabilities, Loans taken. Mental capacity – Temperament.How will you react to temporary fall in value of your

investment?

(10) Risk averse , Conservative.(11) Moderate risk taking personality.(12) Aggressive investor.

On What Basis Allocation Is Done?

Financial Planning and Asset Allocation

Asset Classes to Invest

Mutual Funds

FINANCIAL PLANNING FOR THE FUTURE……...

Birth & Education Earning Years Retirement

35 yrs25 yrs Over 25 - 30 yrs

Housing

Child’s Education

Child’s Marriage

Phase IDependant Phase

Phase IIIDistribution Phase

Phase IIAccumulation phase

Incom

e

Age

Marriage

Children

22 yrs 60 yrsAge

Financial Planning and Asset Allocation

FEW EXAMPLES OF

ASSET ALLOCATIONS

Financial Planning and Asset Allocation

INVESTOR PROFILE

Mona, Joydeep ( Age 28 years )

Financial Goals•Planning to purchase a house in the next 5 - 8 years•Planning for family in 2 years time.•Creating long-term wealth for retirement

Investment Strategy

Stocks75%

Short-term10%

Aggressive Growth PortfolioBonds15%

Financial Planning and Asset Allocation

INVESTOR PROFILE

Sheela, Shekhar ( Age 37 years ) and two kids

Financial Goals•Has a housing loan•Providing for children education (7-10 years)•Planning for child’s wedding •(15 - 20 years)•Take care of old parents•Planning for retirement

Investment StrategyBalanced Portfolio

Stocks60%

Short-term15%

Bonds25%

Financial Planning and Asset Allocation

INVESTOR PROFILE

Maura & Akash Chaudary

Financial Goals

RetiredRegular IncomeMedical Costs

Investment StrategyConservative Portfolio

Stocks15%

Bank Deposits40%

Bonds45%

Financial Planning and Asset Allocation

Inflation erodes the value of your money

What’s the need of planning?

5 10 15 20 25

55,839

41,727

31,18023,300

74,726

0

10000

20000

30000

40000

50000

60000

70000

80000

No of Years

Futu

re V

alue

The slide illustrates the value of Rs 1 Lakh at different stages assuming an average inflation rate of 6%

Current Situation Profile:Based on the information provided and the risk profiling test conducted, we conclude the following:

1) Your current Net worth is Rs 2.99 CRORE2) Current asset allocation of your investments (Rs1.14 crore) is 19.6% in equities, 12.4% in debt, 8.4 % inAlternative Assets and 59.6% in Cash3) You have accrued gratuity benefits of Rs 18 lakh (as of June 2010)4) You have a current insurance cover of Rs 74.7 lakhs (including Sum assured of about Rs62.7 lakhs and accrued bonus of Rs 11.9 lakhs

Recommendations:a) Invest Rs 45 lakh from current cash balance in recommended debt investmentsb) Additional Life insurance of Rs 1.8 crore for a 10 year term

CURRENT ASSET ALLOCATION

Your priority life goals:

a) Bobby's Higher Education (2013- 2019)b) Seema's Higher Education (2019-2023)c) Retirement expense (2026-2046)d) Mrs. Indu Khanna’s expenses (2047-2051)e) Property purchase (2013)f) Health Care fund to meet your and Mrs.Khanna’s medical expenses (from 2031)g) Car for Bobby (2013)

Your secondary life goals:

a) Bobby's Marriage (2024)b) Seema’s Marriage (2025)c) Annual Holiday (from today)d) Car after retirement (2026)e) Estate (2046)

PERSONAL INFORMATION

•The corpus for all goals except education has factored in inflation @ 7% p.a. Education goals factor in inflation at 10 % p.a.•*Bobby’s and Seema’s Education goal has been evenly distributed over six and four years respectively.

The following assumptions were made to conduct the analysis:• Inflation @ 7% for all expenses and goals except education• Mrs.Khanna’s yearly expenses between 2047 and 2051 are Rs4,00,000 in today’s terms• Income growth assumed to grow at 7% till retirement• Return on Alternative Investments (Gold and others) assumed at 10%• Return on Cash @ 2%• Emergency fund of 6 months living expenses (including insurance commitments)• Portfolio is rebalanced every year to maintain the current asset allocation (equity, debt, cash andalternative investments)• Incremental savings ploughed back from 2010 till retirement to maintain current asset allocation• Corpus for Goals mature at the end of the year stated.• Savings and other cash inflows are reinvested at the end of the year.• Post-tax returns applied as effect of Direct tax code likely to impact aggregate rate of return especiallypost-retirement.• Gratuity and SBI Life Insurance policies have been assumed to mature and be available for the plan atretirement in 2020• For the estate goal we have assumed that real estate holdings of Rs 75 lakh in present value termswill grow at a rate of 8 percent per annum to meet the estate goal in 2046

ASSUMPTIONS

In view of current economic conditions we recommend you maintain a six month emergency fund in Cash. In thenext 12 months you have no significant liquidity requirements. Based on your projected expenses andcommitments over the next 12 months we recommend maintaining a cash balance of Rs 23 lakh.

CASH FLOW MATCHING ANALYSIS

INSURANCE REQUIREMENTS

* Protection needed has been estimated by adjusting future goals, expenses at a 7% discount rate** Please note that the Total Assets plus Life Insurance does not include value of residential home, jewelry andInsurance policies of other family members.

PROPOSED ASSET ALLOCATION

REVIEW & MONITORING

Class Equity Debt Balanced Total

Amount Invested 200000 400000 400000 100000

Amount In % 20% 40% 40% 100%

Interest Earned 15% on 2000000 10% on 25% Nil

Amount With Interest

230000 440000 500000 1170000

In% 20% 40% 40% 100%

Current Amount 2340000 4680000 4680000 1170000

Asset Allocation -4000 -28000 +32000

STRESS TESTING