Financial Planning
Financial planning is important to ensuring that a household has adequate income or resources to meet current and future expenses and needs. The regular income for a household may come from sources such as profession, salary or business. Now a days, inflation ratio is increasing day by day and it is directly affected to meet daily expense and needs. Hence, need to earn money from different income sources or make smart planning of whatever is earn in monthly or daily basis income.
The current income of the household must also provide for a time when there will be no or low income being generated, such as in the retirement period. There may be unexpected expenses which are not budgeted, such as a large medical expense, or there may be needs in the future that require a large sum of money, such as education of children or buying a home, all of which require adequate funds to be made available at the right time.
Mutual Fund
Mutual fund is mechanism which pool money from investors, to invest in different markets and securities, in line with the investment objectives agreed upon between mutual fund scheme and investors. In mutual fund there is a fund manager or investment manager who manages the fund of investors to earn return on invested money. Investment manager do deep research about market what is the trend? Is it bearish or bullish? Which position need to take either buy or sell in the market to manage portfolio? All these questions are very important and normally investment manager follow this process.
Now a days, in India mutual fund services are availed by more people because it gives good return than bank FD that’s why number of investors attract towards mutual fund. Normally mutual fund earns 12% to 15% return annually this is safe investment to investors than investing in share market, here in mutual fund investment manager handle portfolio with his/her owe trading and investment strategies. There are many banks and companies entered in market with their own mutual fund scheme and they provide good return to their investor on whatever amount they have invested in the scheme.
Normally mutual fund gives good return in only long-term not in short-term like 15 to 25 years, planning for retirement, children’s education planning, daughter’s marriage, wealth creation or to take house and property. In mutual fund scheme Investor can put large amount in one time or can make SIP (systematic investment plan) on monthly basis, second option is better hence many of the people choose SIP. And can get tax benefit as well by the investing mutual fund this is major benefit of inventing money in mutual fund services.
Mainly there are two types of mutual funds,
Open ended mutual fund
Open ended mutual fund is open for investor to enter or exit at any time, even after the NFO. When existing investors acquire additional units or new investors acquire units from the open-ended scheme, it is called a sale transaction. It happens at a sale price which equal to the NAV. NAV is a Net Asset value it is a real value of a unit. In mutual fund Unit means the investment that an investor makes in a scheme is formed in to a certain number of ‘Units’ in scheme. Thus, an investor in scheme is issued units of the scheme, just like Share in share market it is Unit in mutual fund.
Close-ended mutual fund
Close-ended mutual fund has a fixed maturity. Investors can buy units of close-ended scheme, from the fund only during its NFO (New Fund Offer). The fund makes arrangements for the units to be traded post NFO in a stock exchange.
Investment Products
A. Equity Market
Equity market is the market where Trader can do trading in shares like Intraday and positional trading for profit and Investor can invest their money in shares for short term and long term to earn return and extra income like dividend. Investors can buy and sell equity shares on exchange like BSE and NSE and it is called as secondary market. Equity share or ordinary share means part ownership in the particular company, equity shareholders are owner of the company and they have voting right on every important decision in AGM. Equity shareholders gets dividend on their share yearly or annually but after preference shareholders, and it’s not fixed.
I. Primary Market:
Primary Market is the plat form where company issues their shares and bonds to public to raise long term capital through IPO. In primary market transaction happens between investor and company. Primary market is play very important role in financial market, provides facility to company for business expansion with the help of raising long term capital.
IPO Analysis:
Initial public offering is a very important part of primary market. IPO is the process by which a private company can go public by issuing its stock to general public, company offer their share to public to raise long term capital or to achieve future financial requirements. It could be a new, young company or an old company which decides to be listed on an exchange and hence goes public. When the first time the company is offered share to the public is called as ‘IPO’. Here transaction made between investor and company. To invest in IPO is very safe there is no any high risk if the company is fundamentally sounds good It can give multiple returns in a week means can get listing gain on listing date.
II. Secondary Market:
Secondary Market is where buyer and seller buying and selling shares/securities through exchange BSE and NSE. Secondary market is the place where transaction happens between buyer and seller exchange is intermediator, company doesn’t involve.
B. Fixed Income Instrument
The Indian debt markets are largely wholesale markets dominated by institutional investors.There are however a few retail products that are offered from time to time. Some bonds are offered to retail investors but do not have a liquid secondary market. Therefore, retail investors do not participate in such bond issues or end up buying and holding the bonds to maturity.
I. Government Securities
II. Sovereign Gold Bond Scheme, 2015
III. Inflation-Indexed Bonds
Public Provident Fund (PPF)
Senior Citizens’ Saving Scheme (SCSS)
National Savings Certificate (NSC)
Post Office Schemes and Deposits
Kisan Vikas Patra (KVP)
Sukanya Samriddhi Account
Retirement Planning
Retirement planning is really very important to ensuring that there is adequate income to meet the expenses in the retirement stage of an individual’s lifecycle. Because in this stage body cant support to work and earn money for survival. The primary income at this stage will be a pension drawn from the employer, or the income drawn from the retirement corpus that has been created during the earning period of the individual’s life, or a combination of the two. To have income security in retirement, a portion of the current income has to be saved and invested over the working life of the individual to create the corpus required.
Retirement planning is the process of making an estimate of the expenses in retirement and the income required to meet it, calculating the corpus required to generate the income, assessing the current financial situation to determine the savings that can be made for retirement and identifying the products in which the periodic savings made will be invested so that required corpus is created, and the products in which the corpus will be invested at retirement to generate the required income in retirement. Retirement planning is required for overcome on inflation.
There are two distinct stages in retirement: the accumulation stage and the distribution stage. The accumulation stage is the stage at which the saving and investment for the retirement corpus is made. Ideally, the retirement savings should start as early as possible so that smaller contributions made can also contribute to the corpus significantly with the benefit of compounding. In the initial years, the contributions made account for most of the value of the corpus. Over time, the earnings form a greater proportion of the final value. This is the benefit of compounding, which accrues to an investment only with time.
- Estimating the Retirement Corpus
- Income Replacement Method
- Expense Protection Method
- Determining the Retirement Corpus
- Impact of Inflation
