Financial Planning: Presented by

Financial Planning
Presented by
Sundar Sankaran, Director

Advantage-India Consulting Pvt. Ltd
April 2002
D1 Advantage-India Consulting Pvt. Ltd

PRESENTATION STRUCTURE
¾Concept
• Life cycle & Wealth cycle
• Financial Planning Strategies
• Model Portfolios
Concept of FP
Financial Planning
is an exercise aimed to
ensure availability of
right amount of money at the right time
to meet
the individual’s financial goals

Concept of FP
Financial Goals
refer to the
dreams of the investor
articulated in financial terms.
Each dream implies a purpose, and
a schedule of funds requirements
for realising the purpose
Concept of FP
Asset Allocation
refers to the
distribution of the investor’s wealth
between different asset classes
(gold, property, equity, debt etc.)

Concept of FP
Portfolio Re-balancing
is the
process of changing
the investor’s
asset allocation

Concept of FP
Risk Tolerance / Risk Preference

refers to the
appetite of the investor for
investment risk
viz. risk of loss

Concept of FP
Financial Plan
Is a road map, a blue print
that lists
the investors’ financial goals
and outlines a strategy
for realising them

Concept of FP
• Steps to FP, recommended by Certified
Financial Planner – Board of Standards (USA)
– Define the Client – Planner relationship
– Define Client goals
– Evaluate Client financial status
– Recommend a financial plan
– Implement the financial plan
– Monitor the financial plan
Concept of FP
• Financial plan would depend on the prospect’s

– Financial goals
– Current wealth
– Likely future income
– Preferred asset allocation
– Risk Tolerance
– Tax
D 10 Advantage-India Consulting Pvt. Ltd

Quality of the Financial Plan
is a function of
how much information the prospect shares,
which in turn depends on
comfort that the planner inspires

• Concept
¾Life cycle & Wealth cycle
Life Cycle & Wealth Cycle
• Life Cycle
Childhood
Young - unmarried
Young – married – without children
Young – married – with young children
Married with older children
Impending Retirement
Retirement
• Wealth Cycle
Accumulation / Sowing
Transition
Reaping / Harvesting
Inter-generation transfer
Windfall / Sudden-wealth

Goal oriented investing
is an approach
where each financial goal is
viewed in isolation.
The alternative approach

is to
view all financial goals together
against the background of
the wealth cycle stage.
• Concept
¾Financial Planning Strategies
Financial Planning Strategies
• Compounding
• SIP / SWP / STP
– Rupee Cost Averaging
– Value Averaging
– Jacob’s approach
(mix of Aggressive growth fund & money
market fund)

• Strategic Asset Allocation

• Tactical Asset Allocation
• Fixed Asset Allocation
• Flexible Asset Allocation

Review of Investment Options
Return Safety Volatility Liquidity Convenience
Equity High Low High High Moderate
FI Bonds Moderate High Moderate Moderate High
Co. Debentures Moderate Moderate Moderate Low Low
Co. FDs Moderate Low Low Low Moderate
Bank Deposits Low High Low High High
PPF Moderate High Low Moderate High
Life Insurance Low High Low Low Moderate
Gold Moderate High Moderate Moderate Gold
Real Estate High Moderate High Low Low
Mutual Funds High High Moderate High High
Source - AMFI Mutual Fund Test - Workbook (2001)

Risk Hierarchy of Mutual Fund Schemes
Money Mkt. Gilt Debt Hybrid Equity
Funds Funds Funds Funds Funds
Aggressive
Growth Funds
Flexible Asset
Allocation Funds
R Growth Funds
I High Yield
S Debt Funds
K Diversified
Equity Funds
Index Funds
Value Funds
L Focussed
E Debt Funds
V Growth and
E Income Funds
L Equity Income
Funds
Balanced
Funds
Diversified
Debt Funds
Gilt Funds
Money Mkt.
Funds
Source - AMFI Mutual Fund Test - Workbook (2001)

Jacob’s recommendation –
• Low Risk Portfolio – 50% Government Securities Funds;
50% Money Market Funds
• Moderate Risk Portfolio – 40% Growth & Income Funds +
30% Govt. Bond Funds + 20% Growth Funds + 10% Index
Funds
• High Risk Portfolio – 25% Aggressive Growth Funds +
25% International Funds + 25% Sector Funds + 15% High
Yield Bond Funds + 10% Gold Funds

Fund Selection Parameters –
• Pedigree
• Track Record – Past performance
• Investor servicing record
• Size
• Expense Ratios
• Investor Concentration
• Investment Concentration
• Risk

Risk Measures –
• Standard Deviation
• Volatility
• Beta Co-efficient
• Duration
• Ex-Marks / R-Squared

Risk Adjusted Returns –
• Sharpe Ratio
• Treynor Ratio

• Concept
¾Model Portfolios
Model Portfolios
Investor in accumulation phase
Diversified equity, sector & balanced Funds 65 – 80%
Income & Gilt Funds 15 – 30%
Liquid funds & Bank Deposits 5%
Source – AMFI Mutual Fund Test – Workbook (2001)

Model Portfolios
Investor in distribution phase
Diversified equity & balanced Funds 15 – 30%
Income Funds 65 – 80%
Cash Funds 5%
Source – AMFI Mutual Fund Test – Workbook (2001)

Give the investor
a financial plan that will
help realise the financial goals
within the accepted risk tolerance.
If financial goals cannot be realised

mention it upfront to the prospect.
Monitor the progress

to ensure that the
financial goals
continue to be
Realisable.

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Financial Planning

Sundar Sankaran, Director

D1 Advantage-India Consulting Pvt. Ltd

• Life cycle & Wealth cycle

• Financial Planning Strategies

D3 Advantage-India Consulting Pvt. Ltd

D5 Advantage-India Consulting Pvt. Ltd

D6 Advantage-India Consulting Pvt. Ltd

Risk Tolerance / Risk Preference

D7 Advantage-India Consulting Pvt. Ltd

D8 Advantage-India Consulting Pvt. Ltd

• Financial plan would depend on the prospect’s

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how much information the prospect shares,

which in turn depends on

comfort that the planner inspires

¾Life cycle & Wealth cycle

• Financial Planning Strategies

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The alternative approach

• Life cycle & Wealth cycle

¾Financial Planning Strategies

D 17 Advantage-India Consulting Pvt. Ltd

• Strategic Asset Allocation

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Source - AMFI Mutual Fund Test - Workbook (2001)

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Risk Adjusted Returns –

D 24 Advantage-India Consulting Pvt. Ltd

• Life cycle & Wealth cycle

• Financial Planning Strategies

Income & Gilt Funds 15 – 30%

Liquid funds & Bank Deposits 5%

Source – AMFI Mutual Fund Test – Workbook (2001)

D 26 Advantage-India Consulting Pvt. Ltd

Income Funds 65 – 80%

Source – AMFI Mutual Fund Test – Workbook (2001)

D 27 Advantage-India Consulting Pvt. Ltd

If financial goals cannot be realised

Monitor the progress

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