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Financial Education For College Going Students: An Initiative of SEBI & NISM

This document provides an overview of financial planning and investment strategies for college students. It discusses the importance of financial planning, the basic steps in financial planning including gathering financial data, setting goals, identifying gaps, and implementing an investment plan. It also covers key investment vehicles like mutual funds and equities, strategies like SIP, and concepts like risk tolerance, asset allocation, and diversification. The goal is to educate students about money management so they can make informed financial decisions.

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Bharat Mishra
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78 views

Financial Education For College Going Students: An Initiative of SEBI & NISM

This document provides an overview of financial planning and investment strategies for college students. It discusses the importance of financial planning, the basic steps in financial planning including gathering financial data, setting goals, identifying gaps, and implementing an investment plan. It also covers key investment vehicles like mutual funds and equities, strategies like SIP, and concepts like risk tolerance, asset allocation, and diversification. The goal is to educate students about money management so they can make informed financial decisions.

Uploaded by

Bharat Mishra
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Financial Education for College going Students

An initiative of SEBI & NISM

Agenda
Introduction
Financial Planning
SMART Goals
Risk vs Returns
Power of Compounding
Inflation
Investment Vehicles
Investment Strategies

Importance of learning about money


Enables us to take informed decisions about
money

Introduction
Planning of finances is essential for
everyone
One must restrain from overspending
Planning helps us to plan, save and
achieve our financial goals
If people start planning from student
days, they have longer time to plan
Power of compounding helps the most
over longer periods of time

WHAT IS FINANCIAL
PLANNING?

Exercise

Ideal savings should be 20% of total income

The financial planning process


Gather financial data
Identify goals and risk appetite
Identify gaps
Prepare a plan to bridge the gaps
Implement the plan
Review periodically

Gathering financial data


What is the source of income and what
is its nature
Monthly Salary
Business Income

How much are your monthly expenses


Knowing salary & expenses act as first
step for planning
Even basic needs cannot be met, even if
there is a handsome salary but lack of
planning

Identify Goals
Define investment objective or financial
goals
Goals can be short term (upto 3 years),
medium term (3 to 5 years) or long
term (upwards of 5 years)
Each goal must have a target amount
and a target date
Goals without amounts and dates are
likely to be missed!

Identify gaps or issues


Are there any expenses which have to
be met on a priority, due to which plan
may have to be changed
Are there any liabilities which are
already existing or worse still, may crop
up suddenly?

Prepare the plan


Understand the risk taking ability
Income & Expenditure and Assets &
Liabilities play a very important role in
an individuals risk taking ability
High income does not necessarily mean
high risk appetite if the person also has
large amount of liabilities
Low income used judiciously to build
assets, can increase risk appetite

Implement the plan


Preparing plan is relatively simple,
implementing it regularly is the real
challenge
Where is the money invested in
which asset class determines the
potential returns the investor can
expect
Avoiding risky investments may lead to
compromising of goals

How to achieve goals


Arrange goals in order of their time to
reach (short term, followed by medium
term and lastly long term)
Plan investments for each goal.
Short term goals cannot be achieved by
investing in risky avenues which by
definition are long term in nature
Long term goals cannot be funded by
investing in short term avenues as they
may not generate enough returns

Risk V/S Returns


Low risk investments include cash, bank
FDs, gold etc. These will generate
returns in the range of 3.5% to ~8%
Medium risk investments can be bonds
of government, corporates, either
directly or through MFs. Returns can be
~ 8 to 10%
Aggessive investment avenues involve
direct equities or equity MFs. Returns
can be ~ 12%

The eighth wonder - compounding


What happens to Rs.100 invested @
10% for 5 years in bank FD?

Inflation The silent killer


Inflation erodes purchasing power of
money
What Re. 1 can buy today is more than
what the same Re. 1 can buy after 1
year.
This means purchasing power of rupee
has gone down.
Conversely it means you need more
rupees tomorrow to buy the same
thing which you can buy today for Re. 1

Diversification

Asset Allocation
Investors need to have varying
percentages of low, medium and high
risk investments in their portfolio
Available resources must be deployed in
various asset classes like equity, debt,
real estate, gold, etc. depending upon
risk appetite, understanding of the asset
and its associated risks, time horizon,
etc.

Savings V/S Investments


Saving means to keep money aside
Investment means to make efforts to
make the money kept aside to grow
Savings is relatively simple and hassle
free
Investment requires time and effort to
increase probabilities of returns and
reduction of risk
Investors want high returns and low
risk

Loans or Investments
Depends upon financial strength
Depends upon cost of loans. Personal
Loans and credit cards have very high
cost of loans
Is there a tax benefit by letting loan
remain?

Credit Cards
At times misused by spending even
when person dont have money
Non payment of money used by way of
credit card within 45 days attracts huge
interest, even to the tune of 3% per
month
If used properly, credit cards can allow
people extra float on their money
This time can be used to generate
additional interest income.

Investment vehicles Equities


Represent ownership in company
Returns dependent upon profits made
by the company
Returns may thus fluctuate with the
companys fortunes
Strictly an investment avenue for
investors with a very long term horizon

Investment vehicles Mutual Funds


Professionally managed pool of funds
Investors can choose a low, medium or
high risk category mutual fund scheme
Good for beginners who lack time,
expertise and huge chunks of money to
invest directly in equities
Diversification and low costs are
advantages of mutual funds

Investment vehicles Insurance


Strictly speaking, is not an investment
vehicle.
Majorly used in India for tax saving and
also investment
New products like ULIPs are fast gaining
popularity, but carry market risks

Investment vehicles Insurance


Cover or Sum Assured in case of life
insurance policies should depend upon
persons current as well as projected
income
Insurance also available for house for
protection against theft, fire, etc.
Cover can be taken for unforseen
circumstances like accidents,
hospitalisation, etc.

Investment Strategies SIP


SIP stands for Systematic Investment
Plan
Similar to Recurring Deposit in
execution. Different is that here money
is invested in equities/ debt papers,
indirectly through mutual funds
Biggest benefit is that of rupee cost
averaging
Cost of buying gets averaged out due to
price fluctuations

Protecting Money
Rebalance portfolio periodically, if
required. Do not forget Taxes
Weed out bad investments, even at a
loss.
Avoid direct equities if you do not
understand ratio analysis, etc.
Even in case of mutual funds, have good
funds with established track record in
your portfolio

Tax Planning
Section 80C gives rebate upto Rs.
1,00,000 for select investments like life
insurance premiums, housing loan
principal, PPF, etc.
Long Term Capital Gains are not taxable
for equities
ELSS schemes in mutual funds also
allowed under section 80C

How to begin?
PAN Card, passport, driving license is a
must as personal identification proof
Telephone, electricity, utility bills are
required for address proof
Know Your Client (KYC) form needs to
be filled
Demat accounts & trading accounts
required for equity invsting. MF
investing does not require demat

Regulators
Various regulators in Indian financal
markets are:
Securities & Exchange Board of India (SEBI)
Reserve Bank of India (RBI)
Forward Markets Commission (FMC)
Insurance Regulatory & Development
Authority (IRDA)
Ministry of Corporate Affairs (MCA)
Ministry of Finance (MoF)

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