Submitted By:

Akshdeep S Kalra (2323709)

Anish Sharma (2323711)

Japleen Kaur Bindra (2323734)

Class: 4 BBA FIB A

Subject: Securities Analysis and Portfolio Management

CIA 1A Topic: Goal Based Financial Planning

Submitted to: Dr. Mallika B K

Submission Deadline: 10th December 2024

1
 Declaration

We, Akshdeep S Kalra (2323709), Anish Sharma (2323711), Japleen Kaur Bindra

(2323734), hereby declare that the usage of Artificial Intelligence in this CIA 1(A)

of Securities Analysis and Portfolio Management is limited to only taking inspiration

about the project and all the content is written by us and have not been copied from

any other sources except where clearly stated in the report. All the sources of

information and references used in this assignment have been properly checked.

Akshdeep S Kalra (2323709)

Anish Sharma (2323711)

Japleen Kaur Bindra (2323734)

Date: 10th December 2024

2
 Table of Contents

Title Page Number

Chapter 1 4-5
1) Introduction to the CIA 5

Chapter 2 6-16
2) Case Study 7-8

3) Investment Ideas for Professionals Earning ₹10,00,000–₹20,00,000 8

4) Financial and Investment Goals 9-14

5) Assets and Liabilities 15-16

Chapter 3 17-33
6) Investment Budgeting 18-20

7) Age 25-35: Building a Strong Foundation 20-24

8) Age 35-45: Growing Wealth 25-29

9) Age: 45-60s: Pre-Retirement Preparations 30-33

Chapter 4 34-43
10) Risks Involved while Investing 35-37

11) Our Strategies for Risk Mitigation 38-39

12) Recommendations 40-41

13) Conclusion to the CIA 42

14) References 43

3
Chapter 1

4
1) Introduction to the CIA

• This CIA 1A of Securities Analysis and Portfolio Management mainly focuses on

developing comprehensive financial plans tailored to specific life objectives.

• We thought that in order to take a real-life financial plan, instead of making it for an

imaginary person let us assume ourselves and make our own financial plans for the

next 40-50 years.

• That is the real reason why we assumed Mr. Sharma, a person who just joined the

corporate world as an Associate Manager at South Indian Bank (SIB) in Bangalore at the

age of 24, as it completing both BBA and MBA at the same time would take around 5 years.

• This assignment really helped us in creating a realistic financial plan making us familiar

with topics like financial planning, including budgeting, investment strategies, risk

management, and retirement planning.

• We believe that such topics will definitely help us in our future because we all will be

joining the corporate world soon which will make us financially independent from our

parents, so we need to have a clear set of financial goals where all this knowledge will

come in play.

• This assessment helps understand where you stand financially and provides clear steps to

improve and secure your financial future. It’s not just about numbers; it’s about aligning

your finances with what matters most to you.

• In short, making such financial plans helped us in understanding many things like new

investment instruments, which were not very familiar to us. We leant a very important

lesson while working on this CIA, i.e., Good financial planning is about making your

money work for you so you can live the life you want—now and in the future

5
Chapter 2

6
2) Case Study

• At 24, Mr. Sharma is starting a promising career as an Associate Manager at South

Indian Bank (SIB) in Bangalore.

• With an annual income of ₹22,00,000 (before Tax), he knows that financial well-being

is a lifelong journey.

• These are the new tax slabs for the year 2024-2025 (Reference Link 1).

• Taking these new tax slabs along with other deductions like Provident Fund into accounts,

we can expect an in-Hand Salary of around ₹15,00,000.

• To ensure he stays on track, Mr. Sharma has worked with his portfolio manager to create

a simple yet effective investment plan that matches his goals and lifestyle.

• As a young professional in the financial hub of Bangalore, Mr. Sharma is ambitious and

focused on growth. He expects an annual salary increase of 10% and dreams of

becoming Managing Director before he turns 40.

• Coming from a financially stable family, he has no loans or debts to worry about, allowing

him to focus fully on building his future.

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 • On a personal level, Mr. Sharma has clear goals:

I. Start a family by the age of 34

II. Give his children access to excellent education

III. Save enough to enjoy a comfortable and stress-free retirement.

IV. Becoming Managing Director before the age of 40.

V. Majorly not depending on loans or debts as the sources of financing.

• To help him achieve these goals, Mr. Sharma’s investments are divided into different stages

of his life, ensuring they match his changing needs and responsibilities.

3) Investment Ideas for Professionals Earning ₹10,00,000–₹20,00,000

If you earn in this range, like Mr. Sharma, here are some strategies to consider:

I. In Your 20s and Early 30s

Take more risks and invest in high-growth options like stocks or equity mutual funds.

This is the best time to grow your wealth.

II. In Your 30s and 40s

Balance your investments by mixing high-return options with safer ones like fixed

deposits or bonds. This ensures stability as your responsibilities grow.

III. Closer to Retirement

Focus on low-risk options like pension plans or fixed-income investments to protect your

savings and ensure a steady income.

8
4) Financial and Investment Goals

4.1) Short-Term Financial and Investment Goals (Age 25-35):

1. Building Emergency Funds:

o Goal: Maintain a reserve covering 3-6 months of living expenses.

o Purpose: Provide financial stability during unforeseen circumstances (job loss,

medical emergencies).

o Amount: ₹2-4 lakhs.

2. Investing for Career Growth:

o Goal: Allocate funds for certifications, higher education, or skill development

programs.

o Purpose: Enhance professional opportunities and income potential.

o Amount: ₹1-2 lakhs over 3-5 years.

3. Lifestyle Upgrades:

o Goal: Save for travel, gadgets, or other discretionary spending.

o Purpose: Ensure a balanced work-life dynamic without compromising financial

goals.

o Amount: ₹1-1.5 lakhs annually.

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4.2) Long-Term Financial and Investment Goals (Age 25-35):

1. Homeownership Planning:

o Goal: Save for a down payment on a house.

o Purpose: Transition from renting to owning property.

o Timeline: 8-10 years.

2. Retirement Planning:

o Goal: Initiate contributions to retirement accounts (EPF, PPF, NPS).

o Purpose: Ensure a secure and comfortable retirement.

3. Wealth Creation:

o Goal: Build a diversified investment portfolio combining equity, debt, and

alternative instruments.

o Purpose: Achieve financial independence and long-term wealth accumulation.

o Amount: ₹10-15 lakhs over 10 years.

4. Children’s Education Fund:

o Goal: Begin allocating funds for future education expenses.

o Purpose: Reduce dependency on loans for higher education.

o Timeline: 8-12 years.

o Amount: ₹3-5 lakhs.

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4.3) Short-Term Financial and Investment Goals (Age 35-45):

Building Emergency Funds:

• Goal: Maintain a reserve covering 3-6 months of living expenses.

• Purpose: Ensure financial stability during unforeseen circumstances like job loss, medical

emergencies, or unexpected life events.

Health and Insurance Planning:

• Goal: Upgrade health and life insurance to provide adequate coverage for the family.

• Purpose: Safeguard against medical expenses and protect financial goals in case of health

emergencies.

• Amount: ₹1 lakh for premiums.

Lifestyle and Family Upgrades:

• Goal: Save for major family expenditures, including vacations, upgrading to a larger home,

or significant purchases (cars, gadgets).

• Purpose: Ensure financial comfort and happiness without neglecting future goals.

• Amount: ₹2-3 lakhs annually.

Investment in Child’s Education:

• Goal: Start saving systematically for children's higher education expenses.

• Purpose: Avoid loans for college expenses and ensure a secure financial future for

children.

• Amount: ₹2-3 lakhs annually.

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4.4) Long-Term Financial and Investment Goals (Age 35-45):

Homeownership and Real Estate:

• Goal: Save for the full or partial payment for a new house or investment property.

• Purpose: Invest in rental properties for passive income.

• Timeline: 10-15 years.

Retirement Planning (Aggressive Growth):

• Goal: Increase contributions to retirement accounts (EPF, NPS, PPF, Mutual Funds).

• Purpose: Build a robust retirement fund to ensure financial independence post-retirement.

Wealth Accumulation through Diversified Investments:

• Goal: Continue building a diversified portfolio (equity, debt, real estate, and alternative

investments).

• Purpose: Accumulate wealth for long-term goals like children’s marriage or early

retirement.

Children’s Higher Education Fund:

• Goal: Increase investment towards children’s higher education fund, especially for their

college or university fees.

• Purpose: Ensure that there is sufficient capital to avoid taking loans for higher education.

• Timeline: 10-12 years.

• Amount: ₹10-15 lakhs.

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4.5) Short-Term Financial and Investment Goals (Age 45-60):

Building and Maintaining Emergency Funds:

• Goal: Ensure an emergency fund that covers 6-12 months of living expenses.

• Purpose: Safeguard against unexpected events like job loss, medical emergencies, or

sudden changes in life circumstances.

Health and Medical Expenses Planning:

• Goal: Upgrade and maintain comprehensive health insurance for self and family.

• Purpose: Prepare for rising medical costs as age increases.

• Amount: ₹1-2 lakhs for premiums.

Lifestyle Expenses (Pre-Retirement):

• Goal: Save for travel, leisure, or significant lifestyle changes (vacations, hobbies).

• Purpose: Enjoy the fruits of your labor while maintaining financial stability.

• Amount: ₹3-4 lakhs annually.

Investments for Children’s Education or Marriage:

• Goal: Finalize savings for children’s education or marriage, reducing reliance on loans.

• Purpose: Ensure financial independence for children’s future, especially for higher

education or marriage expenses.

• Amount: ₹5-7 lakhs annually.

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4.6) Long-Term Financial and Investment Goals (Age 45-60):

Retirement Planning:

• Goal: Maximize contributions to retirement accounts (EPF, NPS, PPF, and mutual funds).

• Purpose: Accumulate a substantial retirement corpus to sustain post-retirement lifestyle

and ensure financial independence.

• Timeline: 15-20 years.

Wealth Preservation and Estate Planning:

• Goal: Protect and preserve wealth for the next generation.

• Purpose: Ensure a legacy is built and transferred efficiently to heirs with minimal tax

liabilities.

Real Estate and Investment in Alternative Assets:

• Goal: Diversify portfolio with real estate and alternative investments (gold, commodities,

fixed income).

• Purpose: Balance growth and stability in the investment portfolio as retirement

approaches.

Finalizing Children’s Future Fund:

• Goal: Ensure children’s educational or marriage expenses are fully covered.

• Purpose: Avoid relying on loans for major life events like education or marriage.

• Amount: ₹10-15 lakhs.

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5) Assets and Liabilities

Particulars Amount

Assets 15,00,000

• Emergency Funds (Cash/Bank Balance) 4,00,000

• Car 10,00,000

• Personal Fixed Assets 70,000

(For Instance: Furniture, Electronics)

• Prepaid Expenses 30,000

(Like 1 Rent Paid in Advanced)

• Assuming no investments till now -

• Assuming no Personal Property

-
(Rented a house instead of purchasing it)

Liabilities -

• Coming from a financially stable family, he

has no loans or debts.

• Credit Card Bills

(Short Term Liability)

• Looking at the Assets and Liabilities of Mr. Sharma, its clearly visible that his current

financial position seems to be good.

• He is having no current loans or debts because as he is coming from a financially stable

family, there is no student loan or any such loan.

15
• Credit Card Bills is paid on time to maintain his credit score.

• He maintains an emergency funds of 6 months amounting to be around ₹4,00,000.

• His personal Fixed Assets amounts to ₹70,000 which include bed, fridge, microwave etc

which are essential for survival.

• He currently lives on a rented property, so no house loan. He pays 1 month rent

amounting to ₹30,000 rent in advance.

• He is currently 24 years old and he will be starting making his investment next year and

invested all the amount earned in purchasing a car worth ₹10,00,000 making his car

free from any loans.

16
Chapter 3

17
6) Investment Budgeting

6.1) Assumed increment in the Salary

• Current Annual Income (Age 24): ₹15,00,000

• Average Annual Increment expected: 10%

Age Projected Annual Income

24 15,00,000

25 16,50,000

26 18,15,000

27 19,96,500

28 21,96,150

29 24,15,765

30 26,57,342

31 29,23,076

32 32,15,384

33 35,37,922

34 38,91,714

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 6.2) Assumed Yearly Expenses

1. Housing/ Rent

• Since Mr. Sharma is living in Bangalore, rent is a significant expense.

• Estimated Rent: ₹30,000/month (for a 1-2 BHK apartment)

o Annual Rent: ₹30,000 x 12 = ₹3,60,000

2. Utilities (Electricity, Water, Internet, etc.)

• Electricity, Water, Gas: ₹3,000/month

• Internet, Phone Bills: ₹1,500/month

o Annual Utilities: (₹3,000 + ₹1,500) x 12 = ₹54,000

3. Groceries & Household Items

• Estimated Monthly Grocery Expenses: ₹8,000/month

o Annual Grocery Expenses: ₹8,000 x 12 = ₹96,000

4. Transportation

• Petrol/ Car Maintenance: ₹6,000/month

o Annual Transport Expenses: ₹6,000 x 12 = ₹72,000

5. Personal Expenses (Shopping, Dining Out, Entertainment, etc.)

• For personal and lifestyle expenses such as dining out, shopping, and entertainment.

• Estimated Monthly Personal Expenses: ₹12,000/month

o Annual Personal Expenses: ₹12,000 x 12 = ₹1,44,000

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 Rent 3,60,000

Utilities 54,000

Groceries 96,000

Transportation 72,000

Personal Expenses 1,44,000

Miscellaneous Expenses and Emergency Funds 74,000

Total Expected Annual Expenses 8,00,000

• Therefore, remaining ₹7,00,000 will be put into investments and insurance.

(15,00,000 – 8,00,000 = 7,00,000)

7) Age 25-35: Building a Strong Foundation

Budgeting:

• At this stage, the emphasis is on laying a robust financial foundation. A detailed budget

is crafted, encompassing living expenses, short-term goals and financial goals.

• A dedicated emergency fund, covering 3-6 months of living expenses has been

established.

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Investment Strategies:

• A diversified investment approach is adopted, emphasizing low-cost index funds and

ETFs.

• Given the longer time horizon and risk tolerance, a higher allocation to equities should

be considered.

• Regular portfolio reviews and rebalancing ensure alignment with financial objectives.

Risk Management

• Insurance coverage is acquired, including health, life, and disability insurance.

• Periodic reviews of risk tolerance are conducted to ensure the ongoing suitability of

the financial plan.

Retirement Planning:

• Setting a retirement goal is essential, and contributions to tax-advantaged retirement

accounts are maximized. Consideration is given to a Roth IRA for tax diversification.

Some of the investment options that should be considered and advisable at this stage are:

1. Equity Mutual Funds: (Reference Link 3)

• Given the longer investment horizon, equity mutual funds offer the potential for high

returns.

• Choose a mix of large-cap, mid-cap, and small-cap funds for diversification. SIPs

(Systematic Investment Plans) can help in disciplined investing, especially when the

budget is limited.

21
2. Employee Provident Fund (EPF): (Reference Link 4)

• These government-backed schemes provide a safe and tax-efficient way to

accumulate wealth over the long term. Contributions to EPF are deducted at source.

• They provide a mix of safety, tax benefits, and consistent returns, complementing the

higher-risk equity investments.

3. Low-Cost Index Funds and ETFs: (Reference Link 5)

• These passively managed funds provide broad market exposure at a lower cost

compared to actively managed funds.

• Given the long-time horizon, they offer diversification and the potential for steady

growth. The low expense ratios help maximize returns, especially important during the

early accumulation phase.

4. Gold ETFs or Sovereign Gold Bonds: (Reference Link 6)

• Including a small allocation to gold provides diversification and acts as a hedge against

inflation and economic uncertainties. Gold ETFs or Sovereign Gold Bonds are

efficient ways to invest in gold without the need for physical possession.

5. High-Interest Savings Account or Fixed Deposits: (Reference Link 7)

• While not high-risk investments, these provide liquidity and act as an emergency fund.

Allocate a portion of the budget to these instruments for short-term goals and as a safety

net.

22
6. Term Insurance: (Reference Link 8)

• At this stage, term insurance is a cost-effective way to ensure financial protection for

dependents. It's essential to have adequate coverage relative to income and future

financial responsibilities.

• Term insurance ensures financial security for dependents in case of an unfortunate event.

The earlier it's secured, the more cost-effective it tends to be.

Type of Investment Amount Invested Assumed Interest on Investment

Annually

Equity Mutual Funds, Index ₹3,00,000 (20% of Assume an average annual return of
Funds, ETFs ₹15,00,000) 12%

EPF Contribution ₹1,80,000 (12% of Assumes an annual interest rate of

₹15,00,000) 8.5%

Sovereign Gold Bonds ₹50,000 annually 2.5%

(recurring investment)

Fixed Deposits ₹1,50,000 (10% of average annual interest rate of 6%

₹15,00,000)

Insurance Premium ₹20,000 annually -

TOTAL 7,00,000 -

23
Benefits of this Strategy:

• Balanced Growth: By investing in high returns and high-risk instruments along with
investing in stable instruments like PPF and gold, which are less risky.

• Risk Protection: Adequate insurance coverage reduces uncertainties.

• Early Retirement Planning: Early planning will ensure sufficient funds for retirement.

• Tax Savings: Optimizes tax benefits through investing in EPF, PPF etc.

• Emergency Funds: Under this investment plan, sufficient emergency funds covering 3-6

months of expenses are kept aside.

24
8) Age 35-45: Growing Wealth

Budgeting:

• As income grows, savings are increased.

• The budget is adjusted to accommodate changing life circumstances, with a focus on

family expenses.

• Investments in real estate is considered, and a portion of savings is saved for children's

education.

Investment Strategies:

• Diversification is expanded, including international exposure.

• Individual stocks are explored, but a majority of investments remain in diversified funds.

• Contributions to retirement accounts are increased to accelerate wealth growth.

Risk Management:

• Insurance coverage is reviewed, and long-term care insurance may be considered.

• Regular assessments of risk tolerance are conducted to align with evolving financial

circumstances.

Retirement Planning:

• Retirement goals are reviewed, and adjustments are made to savings strategies.

• Additional investment instruments, such as taxable brokerage accounts, may be

explored.

25
Budget Allocation:

• With the increase in salary of Mr. Sharma, expecting it to be around 45 lakhs without

taxes and taking in account the salary deductions based on the current tax slabs, in

hand salary will be around 30 Lakhs.

• There would be an increase in the expenses too with more family members. Assuming

this to be around 15 lakhs annually including Children Education and Emergency

Funds of 3-6 months.

• Remaining 15 lakhs left for investment. Out of this ₹8,00,000 will be allocated to new

investments and ₹7,00,000 will continue to be invested in the old investment

options.

• Insurance Premium increased according to family expenses by ₹80,000 (10% of

8,00,000).

Advised Investment Options are:

1. International Mutual Funds: (Reference Link 9)

• Investing in international mutual funds provides exposure to global markets,

diversifying the portfolio beyond domestic equities.

• This is especially beneficial for risk mitigation and tapping into growth opportunities

in other economies.

2. Sector-Specific Funds: (Reference Link 10)

• These funds focus on particular sectors like technology, healthcare, or energy, allowing

for targeted exposure to areas with growth potential.

26
3. Public Provident Funds: (Reference Link 11)

• PPF contributions are eligible for tax deductions under Section 80C of the Income

Tax Act in India (Reference Link 2), up to a specified limit.

• PPF offers a fixed and guaranteed interest rate, which is set by the government

periodically.

• This provides stability and predictability in returns, making it a reliable option for long-

term wealth accumulation.

• The interest earned and the maturity amount are also tax-free.

4. Certificates of Deposit (CDs) or Fixed Maturity Plans (FMPs): (Reference

Link 12)

• For individuals seeking low-risk fixed-income options, Certificates of Deposit or Fixed

Maturity Plans can be considered.

• These instruments offer predictable returns with a fixed maturity date.

5. Real Estate Investments: (Reference Link 13)

• With increased financial capacity, consider diversifying into real estate. It could be in

the form of physical property or Real Estate Investment Trusts (REITs).

• Real estate can act as a hedge against inflation and provides the potential for rental

income.

27
 Type of Investment Amount Invested Assumed Interest on
Investment Annually

International Mutual Funds ₹2,40,000 (30% of 10%

₹8,00,000)

Sector-Specific Funds ₹1,20,000 (15% of 8%

₹8,00,000)

PPF Contribution ₹80,000 (10% of ₹8,00,000) 7%

Certificates of Deposit ₹80,000 (10% of ₹8,00,000) 6%

(CDs) or Fixed Maturity
Plans (FMPs)

Real Estate Investments ₹2,00,000 (25% of 5%

₹8,00,000)

Insurance Premium ₹80,000 (10% of 8,00,000) -

TOTAL ₹8,00,000 -

Existing Investment ₹7,00,000 Assuming Existing

Options Returns

28
Reasons for investing in these specific investment options:

• Diversification: The additional investment options aim to further diversify the

portfolio, spreading risk across different asset classes and strategies.

• Liquidity and Income: Options such as taxable brokerage accounts, debt mutual funds,

and systematic withdrawal plans provide liquidity and potential income generation,

contributing to a more well-rounded financial strategy.

• Global Exposure: Including international mutual funds allows for exposure to global

markets, capturing opportunities beyond domestic boundaries and mitigating risks

associated with regional economic fluctuations.

29
9) Age: 45-60s: Pre-Retirement Preparations

Budgeting:

• Budgets should be reviewed and refined based on changing priorities, ensuring

sufficient funding for children higher education.

Investment Strategies:

• The investment portfolio will transition towards a more conservative asset allocation,

focusing on capital preservation while still generating growth.

• Income-generating investments are explored to enhance financial stability.

Risk Management:

• Estate planning documents are reviewed and updated.

• Consideration is given to long-term care options to safeguard against unforeseen

healthcare expenses.

Retirement Planning:

• A detailed retirement income plan is developed, assessing the timing of Social Security

benefits.

• Consideration of downsizing and potential relocation is included in the strategy.

30
Budget Allocation

• At this point of time, Mr. Sharma will be having an experience of 20+ years so there

are high chances of him working at a very high post, resulting in earning a very good

amount in return.

• But also noting that the expenses at this point of time will be at its peak because he

would also be investing in their children higher education, which might become his

major expense.

• He would also be maintaining the emergency funds for 3-6 months expenses while

also managing the usual daily expenses and other expenses like purchasing a car, house

and so on.

• So, keeping all this in mind, we are taking an investable income of around ₹15,00,000.

Investment Options:

1. Fixed Maturity Plans (FMPs): (Reference Link 15)

• FMPs offer capital protection and predictable returns with a fixed maturity date,
aligning with the goal of capital preservation.

2. Dividend-Paying Stocks:

• Selecting dividend-paying stocks from stable sectors can provide a source of

regular income.

• Blue-chip companies (Reference Link 14) with a history of consistent dividends

can contribute to both income and potential capital appreciation.

31
 3. National Pension System (NPS): (Reference Link 16)

• NPS is a long-term retirement-focused investment, offering a mix of equity,

corporate bonds, and government funds.

• It provides an additional avenue for retirement savings with the benefit of

compounding.

4. Real Estate Crowdfunding: (Reference Link 17)

• Real estate crowdfunding platforms allow for smaller investments in real estate

projects. This innovative option provides exposure to the real estate market

without the need for large capital and offers potential returns through rental

income and property appreciation.

Type of Investment Amount Invested Assumed Interest on

Investment Annually

Fixed Maturity Plans (FMPs) ₹5,00,000 (33.33% of 6%

₹15,00,000)

Dividend-Paying Stocks ₹4,00,000 (26.66% of 8%

₹15,00,000)

National Pension System ₹3,00,000 (20% of 7%

(NPS) ₹15,00,000)

Real Estate Crowdfunding ₹1,00,000 (6.66% of 5%

₹15,00,000)

Insurance ₹2,00,000 (13.33% of -

₹15,00,000)

TOTAL ₹15,00,000 -

32
Reasons for investing in these specific investment options:

• Diversification: The portfolio maintains a balance between fixed-income options

(FMPs, NPS) and equity-based assets for a diversified risk-return profile.

• Regular Income: Investments like Dividend-Paying Stocks provide regular income,

supporting pre-retirement financial needs.

• Capital Preservation: FMPs and NPS focus on preserving capital while providing

stable returns, aligning with the pre-retirement goal of safeguarding accumulated wealth.

• Innovative Investment: Real Estate Crowdfunding introduces an innovative element

to the portfolio, providing exposure to the real estate market with a smaller investment.

• Long-Term Retirement Focus: NPS, specifically designed for retirement planning,

complements the overall portfolio strategy.

33
Chapter 4

34
10) Risks Involved while Investing

Overall Risk Analysis:

• As individuals progress through different life phases, their financial and investment goals

evolve.

• However, they will always be subject to certain risks that can impact their financial

outcomes. Below is an analysis of risks across all phases (25-60 years):

1. Market Risk:

o Nature: The risk of losses due to fluctuations in the financial markets, affecting

investments in stocks, bonds, and other securities.

o Impact: Can result in short-term portfolio volatility, particularly with equity and

high-risk investments.

o High in Early Career (25-35) due to higher equity exposure but low in Pre-

Retirement (45-60) as the portfolio becomes more conservative.

2. Inflation Risk:

o Nature: The risk that inflation erodes the purchasing power of savings and

investments.

o Impact: Inflation reduces the real value of cash and fixed-income assets over time,

potentially hindering long-term financial goals.

o Present across all phases, especially in mid and later years when the focus shifts

towards fixed-income assets and retirement savings.

35
3. Liquidity Risk:

o Nature: The inability to quickly convert assets into cash without incurring a

significant loss in value.

o Impact: During emergencies, such as job loss, health issues, or market downturns,

illiquid assets may not be easily accessed.

o Higher in Later Phases (35-60), especially with larger investments in real estate

or retirement plans, and low in the early phase (25-35) due to a focus on liquid

assets and emergency savings.

4. Income Risk:

o Nature: The risk of a reduction in income due to job loss, illness, or career setbacks.

o Impact: This affects the ability to save, invest, and meet financial obligations,

especially during critical years (35-45) as the family and financial commitments

increase.

o Higher risk during 35-45 but also a concern in 25-35, where job transitions are

more frequent.

5. Health Risk:

o Nature: The potential for significant medical expenses due to illness, injury, or

chronic conditions.

o Impact: Can deplete savings and interfere with long-term goals, especially in the

45-60 phase.

o More relevant from 45-60, with increased healthcare costs.

36
Risk-Return Tradeoff Across Phases:

• Early Career (25-35):

o High risk tolerance, more room for market volatility.

o Riskier investments in equities, mutual funds, and SIPs for long-term growth.

o Focus on building emergency savings and investing in education and career

growth.

• Mid-Career (35-45):

o Balancing career growth with the added responsibility of family and real estate

investments.

o Investment strategies shift to diversified portfolios combining equity, bonds, and

real estate.

o Wealth creation becomes a priority, but risk mitigation strategies are necessary as

the individual approaches significant family and housing costs.

• Pre-Retirement (45-60):

o A shift towards preserving capital and ensuring that retirement savings are on

track.

o More conservative approach, reducing exposure to high-risk assets like equities.

o Income generation becomes a key focus, ensuring that financial resources can

support retirement.

37
11) Our Strategies for Risk Mitigation

Across all phases, there are several strategies to manage and mitigate risks effectively:

1. Diversification:

• Strategy: Spread investments across various asset classes (equity, debt, real estate, and

alternative investments).

• Purpose: This reduces reliance on any single asset or investment type, minimizing the

impact of poor market performance in one area.

• Application: Start with a higher equity allocation in early phases (25-35), and shift

towards a more balanced portfolio of stocks, bonds, and real estate in mid-career (35-45).

In pre-retirement (45-60), focus more on fixed-income investments, with some equity

exposure to maintain growth.

2. Regular Portfolio Review and Rebalancing:

• Strategy: Periodically review the portfolio to ensure that it aligns with changing financial

goals, risk tolerance, and market conditions.

• Purpose: To stay on track towards long-term goals and make adjustments as needed.

• Application: Rebalance the portfolio annually or bi-annually to ensure the correct asset

allocation. Shift more assets into low-risk instruments as one approaches retirement.

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3. Building an Adequate Emergency Fund:

• Strategy: Maintain an emergency fund that covers 6-12 months of living expenses in

liquid assets (savings accounts, short-term debt instruments).

• Purpose: Provides financial stability in case of job loss, medical emergencies, or

unexpected financial needs.

• Application: Keep this fund liquid and easily accessible during all phases, but prioritize it

early on (25-35) to establish a solid financial safety net.

4. Health and Life Insurance:

• Strategy: Secure comprehensive health and life insurance coverage.

• Purpose: Protect against unexpected medical costs and income loss due to death or

disability.

• Application: Opt for term life insurance and comprehensive health insurance in the early

and mid-career phases (25-45), increasing coverage as family and health risks grow.

Focus on critical illness coverage in the 45-60 phase.

5. Gradual Shift to Lower-Risk Investments:

• Strategy: Gradually reduce exposure to high-risk assets as one gets closer to retirement.

• Purpose: To preserve capital and secure retirement funds, reducing the risk of significant

losses as one approaches retirement age.

• Application: Start with a higher risk tolerance (equities) in early years (25-35), shift to

diversified portfolios in mid-career (35-45), and transition to income-generating

investments (annuities, bonds) in pre-retirement (45-60) and retirement.

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12) Recommendations

1. Start Early and Prioritize Saving:

• It's important to start building financial security early in life.

• Prioritize building an emergency fund and investing in growth-oriented instruments

like equities, which can benefit from compounding over time.

2. Diversify Investments Across Asset Classes:

• As one's wealth grows, diversification becomes key to minimizing risk.

• Allocate investments across different asset classes like stocks, bonds, mutual funds,

and real estate to cushion against market volatility.

3. Review and Rebalance Your Portfolio Regularly:

• Financial goals, risk tolerance, and market conditions change over time. Regularly

reviewing and adjusting your portfolio will ensure it aligns with your current goals.

4. Focus on Long-Term Goals in the Pre-Retirement Phase:

• As retirement approaches, the focus should shift from growth to income generation.

• Secure investments that offer stability and consistent returns to ensure you can sustain

your lifestyle during retirement.

5. Plan for Healthcare and Life Insurance:

• Healthcare costs rise as one ages, and ensuring adequate health and life insurance

coverage will protect against unforeseen financial burdens in later life.

6. Automate Savings and Investments:

• To ensure consistency in saving and investing, automate contributions to your

savings and investment accounts. This strategy ensures that you regularly invest,

regardless of market fluctuations or personal distractions.

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 7. Stay Educated on Financial Matters:

• Attending seminars, reading financial blogs, and even pursuing relevant

certifications will help you make informed decisions and adapt to changing financial

landscapes.

8. Maximize Tax-Advantaged Accounts:

• Take full advantage of tax-saving investment options such as PPF, NPS, EPF, and

tax-efficient mutual funds.

• In the long run, these instruments can significantly enhance returns by reducing tax

liabilities.

9. Maintain a Balanced Approach to Debt:

• Avoid high-interest debt that can derail your financial plans.

• While it may be necessary to incur debt for significant milestones (like purchasing

a home or funding education), it's crucial to manage it prudently and aim for a low

debt-to-income ratio.

10. Set Realistic Goals and Adjust as Needed:

• Life circumstances and financial markets change over time, so it’s essential to adjust

your goals as needed.

• Ensure your goals are realistic, and periodically reassess them based on your current

financial situation, lifestyle changes, and evolving aspirations.

By incorporating these recommendations into their financial plans, individuals can navigate the

complexities of their financial journey with confidence and security, ensuring financial

independence and a comfortable retirement.

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13) Conclusion to the CIA

• In this comprehensive analysis of financial and investment goals across different life

phases (25-60 years), we have explored the dynamic nature of financial planning, taking

into account the evolving needs, responsibilities, and risk appetites of individuals as they

progress through various stages of life.

• The early phase (25-35) is marked by a high tolerance for risk, focused on career

growth, wealth creation, and building a solid financial foundation. The mid-career phase

(35-45) shifts towards more balanced financial planning, with a greater emphasis on

family, homeownership, and long-term wealth creation. As individuals approach the pre-

retirement phase (45-60), the focus shifts to preserving wealth, ensuring income

generation, and preparing for a secure retirement.

• Throughout these phases, managing and mitigating risks such as market volatility,

inflation, liquidity, income instability, and health concerns is crucial.

• A diversified portfolio, regular portfolio reviews, building an emergency fund,

securing adequate insurance, and gradually shifting towards lower-risk investments

are key strategies to manage these risks effectively.

• By adhering to a structured financial plan and implementing appropriate risk management

strategies, individuals can achieve their short-term and long-term financial goals,

ensuring a secure financial future.

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14) References

1. https://www.bajajfinserv.in/investments/income-tax-slabs

2. https://www.bajajfinserv.in/investments/section-80c

3. https://www.amfiindia.com/investor-corner/knowledge-center/equity-funds.html

4. https://www.epfindia.gov.in/site_en/index.php

5. https://www.amfiindia.com/investor-corner/knowledge-center/etf.html

6. https://www.rbi.org.in/commonman/english/scripts/FAQs.aspx?Id=1658

7. https://www.bajajfinserv.in/investments/what-is-fixed-deposit

8. https://www.investopedia.com/ask/answers/08/term-life-insurance.asp

9. https://www.etmoney.com/mutual-funds/equity/international/50

10. https://www.bajajfinserv.in/investments/what-are-sectoral-mutual-funds

11. https://www.bajajfinserv.in/investments/guide-to-public-provident-fund

12. https://www.investor.gov/introduction-investing/investing-basics/investment-

products/certificates-deposit-cds

13. https://www.cfainstitute.org/insights/professional-learning/refresher-

readings/2024/real-estate-investments

14. https://www.investopedia.com/terms/b/bluechip.asp

15. https://groww.in/p/fixed-maturity-plans

16. https://www.nsiindia.gov.in/(S(2mdtrkqwhv5c4bbd1jgyz255))/InternalPage.aspx?I

d_Pk=27

17. https://www.investopedia.com/ask/answers/100214/what-real-estate-

crowdfunding.asp

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