Personal Financial Services

Agenda for Discussion

 Management of PF  Income Tax 2007-08
 Factors for Investment  Personal / Retail Loans
 Assets & Liabilities in  Housing Finance
PF  Loans against Shares
 Indian Financial  Credit Cards, EMI, etc
System  NBFCs, Postal Savings
 RBI & Other Banks  Insurance, PLI, PPF, etc
 Investor Guidance  Mediclaim, Demat a/s
 Deposit Schemes etc  Credit Rating, MFs,
 Cheque, Interest, etc  Will, Retirement, etc
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 Management of Personal Finance !

 Objective of Personal Financial Planning is with

an aim to make sure that we have enough
money when it is most required !
 For Day to Day expenses and living
 Educating children, Perform marriages, etc
 At the time of Sickness and
 To lead a decent living on Retirement !

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 PERSONAL FINANCIAL
PLANNING PROCESS

• Establish short- and long-term goals

• Determine current net worth
• Figure out current spending patterns
• Examine the current tax situation
• Use insurance to manage risk
• Set a budget to control spending
• Invest surplus money to achieve financial goals
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 Factors for investment
 Availabilityof Funds
 Rate of Return, Yield
 Degree of Risk and Cover
 Level of Inflation
 Capital Appreciation
 Liquidity and Marketability
 Tax Advantages
 Frequency of Return
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 Investment and Risk
 Low Risk
– Bank Deposits, Govt Bonds, NSCs, Post Office
Savings, PPF, Gold, Land, House, Flat, etc
 Medium Risk
– Company Fixed Deposits, Secured Debentures,
Units and Blue Chip Shares
 High Risk
– Shares, Mutual Funds, Portfolio Schemes,
Unsecured Debentures, etc
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 STATEMENT OF NET WORTH: A
TOOL FOR DECISION MAKING
 A. Assets: What You
Own

 B. Liabilities: What
You Owe

 C. Net Worth = Assets

- Liabilities

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 Liabilities: What You Owe

 Liabilities include all the amounts you actually

owe

– the Rs. 100 you just put on your charge card is

a liability even if you haven’t yet been billed

– the tuition you plan to pay in ten years for your

now eight-year old child is not a liability

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 Assets: What You Own

 Theoretically, your assets include every thing

you own.

 Forfinancial decision making, the relevant

assets are those that have some resale value

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 LIQUIDITY

LIQUIDITY: “nearness to cash”

If an asset is very liquid, it can be converted

to cash relatively quickly.

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 Really Understanding Changes in
Net Worth
 Assets — Liabilities = Net Worth

 cash utility bill

 savings credit card balance
 car student loan
 house auto loan

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 Assets & Liabilities : Personal
 Own a House or Flat  Home Loan & Auto Loan
 2-Wheeler, Car, etc  Income Tax liability
 Gold, Silver, Jewellery  Consumer Durables loan
 Bank Fixed Deposits  Educational Loan
 Shares, Debentures,  Insurance,Chit Fund due
Bonds, MF Units, etc  Gold Loan, PF Loan
 Life/General Insurance  Loans against Shares
and Mediclaim Policies  Credit Card dues, etc
 Provident Fund, NSC,  Any Guarantees issued
PPF, etc balances
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 Income Tax Rules in brief (2007-8)

 Income up to Rs. 1,10,000 (Women : Rs

1,45,000 & Sr Citizen : Rs 1,95,000) – Nil
 Rs. 1,10,000 to Rs. 1,50,000 – 10%
 Rs. 1,50,001 to Rs. 2,50,000 – 20%
 Rs. 2,50,001 onwards – 30%
 Surcharge @ 10% on income > Rs. 10 lacs
 Education cess on IT plus surcharge @ 3%

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 Highlights

 No rebate under Sec 88 …

 Deduction under section 80L withdrawn
 Savings up to Rs. 1 lac eligible for deduction
from gross total income under section 80 C
 Investments in Bank FDs for 5 years u/s 80C
 Fringe Benefit Tax (except Con) on employers
 Medical Ins Scheme, Cash Withdrawals Tax ..

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 Facilitators for Personal Finance

 Agents of LIC, GIC, etc

 Chartered Accountants
 Investment Advisors
 Post Office Agents
 Share Brokers
 Franchisees, Direct Selling Agents, etc
 Personal Financial Advisors

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 Investor Guidance
 Banks and their Personal Banking Cells
 RBI and SEBI Notifications
 Advertisements of MFs and Insurance Cos.,
 (Bangalore) Stock Exchange Monthly meets
 (Bombay) Stock Exch Investor Service Cell
 NSE “Know your Facts” in Hindustan Times
(Ref : Advertisements)
 ET dt May 10, 2007 – IBA and Mastercard site

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 Indian Financial System
 Commercial (Public & Private), Cooperative,
Local Area, Regional Rural & Foreign Banks
 Dev Fin Instts – IFCI, IDBI, IIBI,SIDBI,REC, etc
 Life and Non-Life Insurance Companies
 Stock Exchanges – National, Regional, OTCEI
 Post Office Small Saving Schemes, EPF, KVPs
 Chit Funds, Factoring Cos, NBFCs, Nidhi Cos
 Housing Finance, Leasing, Hire Purchase Cos
 RBI, UTI, NHB, NABARD, HUDCO, PFC, etc
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 RBI Data as on a recent date

 Aggregate Deposits : Rs. 26,01,666 Crores

– Demand Deposits (CASA) - Rs. 3,89,903 Crores

– Time Deposits (RD, FD etc) Rs 22,11,763 Crores

 Loans and Advances – Rs. 19,06,128 Crores

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 Types of Banks in India

 PSBs = (19+1 Nationalised) and SBG (1 plus 7)

 Private – Old and New Generation Banks
 Foreign – 34 Banks = Citi, HSBC, Stanchart etc
 Co-op – (Rural and Urban) Banks
 LABs – Four Local Area Banks (1 since closed)
 Regional Rural Banks – 196 - in different States
all over India (Central / State Govt / Sp Banks)

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 Types of Bank Deposit Accounts
 SB – Chq Book ; Joint A/c, E or S, Nomination
 Current Accounts (No interest paid)
 Recurring Deposits (Monthly)
 Fixed Deposits (Ordinary and Special) : Multi
Option Deposit Scheme (MODS-SBI), Quantum
Optima (ICICI Bank), Auto Sweep facility, etc.
 Cheque Collection Rules, Clearing System
 Issue of Dfts, TTs, MTs, RTC, EFT, Credit Cards
 Settlement o/a Death, Maturity, Loans, etc..
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 What is a Cheque?
Laura Johnson
123 Fourth Street
Anywhere, Illinois ➦ PAYEE May 14, 2007
Pay to the order of John Roe
-----------------------$ 50.00
------Fifty and no/100 ------
Dollars
➦ DRAWEE
LAST NATIONAL BANK ➦ DRAWER

Mytown, Illinois Laura

Johnson
073285 123456789 98765432
5000
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 Definition and others

A Cheque is a Bill of Exchange on a Banker!

 Drawer, Drawee, Payee, Endorsee
 Bearer and Order Cheques
 Blank, Open and Crossed Cheques
 Current and Post Dated Cheques
 Collection, Discounting and Truncation
 Cheque bouncing is a Criminal offence!

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 Types of Savings Instruments
 SB, RD, FD, Foreign Cy Domestic a/cs
 Insurance Policies – Life, Non-Life, Mediclaim
 NSC, PPF, EPF, CPF, PLI, etc
 Gold, Silver, Jewellery, etc
 Land, Building, Flat, Real Estate, etc
 Shares, Debentures, Flexi Bonds, etc
 Company Deposits, FCD, PCDs, NCDs, etc
 Chit Funds, Plantation Schemes, Resorts,etc
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 Various Types of Personal Loans
 Deposit Loans
 Overdraft
 Consumer Durable Loan
 Housing Loan
 Credit Cards
 Gold Loan
 Educational Loan
 Auto Loan, Loans against Shares, etc

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 Consumer Finance : EMI
 Equated Monthly Installments – Housing Loans
 Convenient monthly appropriation, easy to
understand, facilitates personal finance
planning, lower compared to quarterly or half
yearly payment
 EMI comprises of Principal and Interest
repayment
 Related to Loan amount, rate of interest,
duration...
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 Future Value of a Single Sum, or How
Will What We Already Have Grow?

FV = amount (1 + i )n

FV = Future value
Amount = Amount invested
i = Interest rate (or return)
n = Number of periods

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 Compound Interest
 Compounding process involves earning
interest on interest.
 Invest principal for 3 years
– Year 1 - earn interest on the principal

– Year 2 - earn interest on the principal and on the

interest you earned in Year 1

– Year 3- earn interest on the principal and on the

interest you earned in Years 1 and 2

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 Housing Loans
 Banks, Bank-Subsidiaries, Hsg Fin Companies
 For construction, ready purchase, repairs,
renovation, extension, registration, furnishing
 Duration : 5 to 25 years @ easy EMIs
 Age : 18 to 65 years – all types of individuals
 Fixed and Floating rates of Interest terms
 I T benefits for repayment of Principal (20 K) and
Interest on borrowings (150 K) per annum
 Term Insurance to cover premature death of

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 Why take a Housing Loan ?

 Roti,Kapda aur Makaan ! Build a shelter !!

 A real saving for any class individual
 An asset always likely to appreciate
 Compare with several other savings
 Easy to acquire, repay and transfer
 A good tax savings facility
 A decent line of business in modern days

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 What formalities ?
 Application ?
 Enclosures :-
– Estimate / Land papers / Plans / Designs – approved by
Municipal or Town Planning Dept
– Salary Certificate / IT-ST-Wealth Tax Assessment
– Partition / Gift / Sale Deed ?
– Duplicate papers ? In Vernacular Language ?
– Agricultural / Urban Land ?
– Proof of residence ? Guarantors ?
– Builders’ Credentials ?

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 Types of Appraisals by Banks
2. Credit Appraisal
Repayment Capacity- Income, Age, back-
ground, employment, family, track record…

3. Legal Appraisal
Verification of Documents; Title, etc
Mortgage formalities, NOC, PDCs, etc.

• Technical Appraisal
Civil Estimates, Quality of construction, etc
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 Fixed vs. Floating Rate of Interest
 Interest rate remains  Linked to PLR;
same variable

 Fixed EMI; Known  EMI may increase or

liability; financial decrease; difficult
planning to plan finances /
taxes

 No interest rate risk;  High Intt rate risk;

beneficial when prone to unplanned
increase in rates takes expenditure
place exposure; good
only in falling
regime

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 Housing Finance :
Reverse Mortgage
 RM is a mortgage loan for Senior Citizens
(over 62 years) who today, generally are not
eligible for any form of mortgage loans.
 The lender makes periodic or lump sum pay-
ment to the borrower, the payment stream is
reversed when compared to conventional loans
 The loan is not required to be serviced i.e.,
payment of principal and interest as long as the
borrower is alive and occupies the property

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 HF : RM contd…
 The loan is repaid on the death of the borrower
and spouse (co-obligant) or on permanent
movement by sale of the property
 Surplus, if any, will go to the Estate of deceased
 The loan can be prepaid without any charges;
 Maximum period of loan is 15 years

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 Loans for / against Shares
 Available to Individuals and Corporates
 Max. Rs10 L for physical & Rs 20 L – Demat
 For genuine individuals – no speculation
 For subscribing to IPOs – Rs 10 Lacs
 Uniform margin of 40 per cent
 Valuation is CMP or Face value which is less

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 Loans against Shares, Gold, FDs

 Banks sanction loans against pledge …

 Gold Loans for personal, business, agricultural

purposes, quarterly interest, DP note, Delivery

 Lien against FDs – 90% of present value …

– 2% over and above agreed ROI ….

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 Educational Loans Scheme
 GOI-RBI-IBA-Guidelines to all Banks in 2001
 All poor and meritorious students covered
 Covers all higher studies in India and abroad
 Rs. 7.5 lacs in India and Rs. 15 lacs for abroad
 No margins upto Rs 7.5 lacs, for others 5 -15 %
 Intt @ PLR upto Rs 4 lacs; Plus 1 % for others
 Repayable in 5 to 7 years after 1 year/ 6 ms.
 IT benefit on amt repaid upto Rs 40,000 u/s 80 E
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 Credit, Debit, Charge, Smart Cards

Convenience
Free Credit
Freebies
Protection of purchases
Free insurance
International usage
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 What….about Credit Cards
 “Credit” in Latin is Trust

A Credit Card Is a Mode of Cash-less

Transaction That Allows the User to Pay for
Goods or Services With the Actual Payment
Being Made in Installments, Over a Period of
Time. It is BUY NOW PAY LATER!
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 What is an NBFC?

 Non Banking Finance Companies

 Registered as a Company under the Act
 Registered with Reserve Bank of India
 Obtained Credit Rating from an Agency…
 Minimum Net worth of Rs. 25 Lacs
 Comply with all Prudential Norms and
permitted to accept Public Deposits within the
prescribed ceilings and at permitted rate of intt
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 Some Post Office Schemes

 National Savings Certificates

 Public Provident Fund
 Kisan Vikas Patra
 Monthly Income Scheme
 Time Deposits
 Recurring Deposits
 Savings Accounts

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 National Savings Certificates (PO)

 InterestRate : 8 % pa; Compounded half-yly

 Minimum Investment : Rs. 100/=
 Maximum Investment : No Limit !
 Features : 6 Yrs, Tax Saving Instrument
 Tax Breaks : Section 80 C and 80 L benefits
 (Can be pledged with Banks as security for
overdrafts or temporary loans for personal use)

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 Kisan Vikas Patra

 Rate of Interest : 8.41% pa Compounded qly

 Min. Investment : Rs. 100/=
 Max. Investment : No Limit
 Amount doubles in 8 years-7 months
 No Income Tax benefit
 (Bank loans can be availed of as security)

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 Monthly Income Scheme

 Rate of Interest : 8 per cent p.a.

 Minimum Investment : Rs. 1,000/=
 Max Inv : Single a/c : Rs 3 L; Joint a/c : Rs 6 L
 6 yr tenure; monthly returns; bonus after 6 yrs
 Section 80 L benefit for Income Tax

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 Post Office Time Deposits
 Rate of Interest : 6.25 to 7.5
per cent pa
 Min amt accepted : Rs. 50
 Max amt limit : None
 Available for 1, 2, 3, 5 years
 Joint names, Minor accounts
permitted

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 Post Office Recurring Deposit a/c

 Rate of Interest : 7.50 per cent pa

 Min amt : Rs. 10 per month
 Max amt. No limit
 Duration : 5 years
 Others : Joint names, Minor account,
Nomination, etc.

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 Post Office Savings Account

 Rate of Interest : 3.5% pa

 Min amt accepted : Rs. 20
 Max amt : Single Account – Rs 1 Lakh and
 Joint Account : Rs. 2 Lakhs
 Tax-free interest, Cheque facility, Withdrawals
any time, Nomination facility, transferable
 Tax free under Section 10

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 Postal Life Insurance Scheme

 Ad in leading News Papers from time to time!

 Avail unmatched returns with PLI

 An insurance cover that not only protects, but

pays as well……..
 Insuring lives : Ensuring Prosperity

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 Insure with Postal Life Insurance

 Tax benefits under sec. 80C of I T Act

 High Bonus : High Liquidity
 Low rates of Premium : Security of Investment
 Loans against Policies : Efficient Service
 Nomination Facility
 The First and Trusted Insurance Scheme in
India

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 PLI - 3

 For employees of
 Central and State Govern-ments, Defence
Services (Civilians),
 Govt aided educational institutions & Univ’s
 Local bodies like Municipalities and ZPs
 Nationalised Banks and Regional Rural Banks
 All Public Sector Undertakings of Central and
State Governments
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 PLI - 4

 Insurance Schemes to cater to every need !

 Santosh (Endowment Assurance)
 Suraksha (Convertible Whole Life Policy)
 Sumangal (Anticipated Endowment Assurance
/ Money Back)
 Yugal Suraksha (joint Life Endowment
Assurance)

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 P L I - 5

 Attractive Bonus offered only by PLI ……..

– Suraksha : Rs 95 per Rs. 1000 sum assured per

year

– Santosh : Rs 77 per Rs 1000 sum assured per year

– Sumangal : Rs 70 per Rs 1000 sum assured per

year
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 For more details on PLI, contact :

 The Deputy Divisional Manager (PLI)

– PLI Service Centre, 2nd Floor
– Bangalore GPO Complex
– Bangalore 560 001
 Phone : 2286 1799 Fax : 2286 2913
 Email : [email protected]
 Web site : www.indiapost.org

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 Insurance : Life & Non-Life cos

 LIC & new Private and Foreign Companies

 Non Life : General Insurance Corp of India

– Oriental
– National
– New India
– United India

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 Public Provident Fund Scheme
 Any individual, in a Bank or Post Office
 Period : 15 years extendable x 2 x 5 years
 Investment : Min Rs 500 & Max Rs 70,000 pa
 Interest compounded @ 9 % pa – tax free
 Withdrawal – 50 % after 7th year
 Loan upto 25 % bal @ previous 2 years
 2nd loan allowed; No Loan after 6 years;
 Rs.70,000 exempt pa as rebate u/s 80C of IT Act
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 Mediclaim Policy
 Covers reimbursement of Hospitalisation etc
 Age Group : 5 to 80 years; children above 3 Ms
 Sum Insured : Rs. 15,000 to Rs. 5 lakhs
 Premium per Age band and per person
 Family discount; Cumulative and Group Disc
 Income Tax Exemption on premium paid upto
Rs. 10,000 pa u/s 80 D of Income Tax Act
 Claim to be lodged within 7 days of Hospitlzn
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 Depository

 Its an Organisation where securities (like

Shares, Debentures, Bonds, Government
Securities, Units etc.) of an investor are
held in electronic form– eg., NSDL & CDSL
 This is done at the request of investor
through the medium of a Depository
Participant (DP)
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 Depository Participant

 DP is an agent of the Depository

 Authorised to offer Depository services

 SEBI allows Financial Institutions, Banks,

Custodians, Stock Brokers etc to be DPs

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Contd..
 Two routes adopted by Depositories World over
:
– Immobilization- in which securities are held by
Depository in physical form in its own Vaults, but
transfer of securities takes place through book entry –
E.g. S H C I L, Banks, etc
– Dematerialization- Securities in physical form are
shredded and corresponding credit is made in the
form of electronic balances which are maintained in
the Depository. Account transfers are made through
book entries

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 Legal Awareness needed !

 Negotiable Instruments Act, 1881

 Indian Contract Act
 NBFC Deposit Rules
 Company Deposit Rules
 Insurance Laws
 Consumer Protection Law
 Income Tax Act, 1961
 NRI Rules, Transfer of Property Act, etc.
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 Money Market Mutual Funds

 What is a mutual fund?

– investors pool money
– invest in a broad range of investments
– managed by a professional money manager
 What is a money market mutual fund?
– a mutual fund that invests in jumbo CDs and
short-term liquid securities

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 Mutual Funds
 A Mutual Fund is a trust that pools the savings of a
number of investors who share a common financial
goal. The money thus collected is then invested in
capital market instruments such as shares,
debentures and other securities. The income earned
through these investments and the capital
appreciation realised are shared by its unit holders in
proportion to the number of units owned by them.
Thus a Mutual Fund is the most suitable investment
for the common man as it offers an opportunity to
invest in a diversified, professionally managed basket
of securities at a relatively low cost.
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 The flow chart below describes broadly the
working of a mutual fund:

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 What is Credit Rating?

Credit rating is essentially,

 an indicator of the current opinion of the rating
agency
 on the relative ability and willingness of the issuer
of a financial (debt) instrument
 to meet the (debt) service obligations as and when
they arise.

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 2. What is Credit Rating…?

 An assessment of the financial stability and

general credit-worthiness of a company,
institution or individual.

 Major companies, banks, insurance companies,

countries, government authorities, etc

 Any significant fund raisings they may undertake,

are assessed by agencies.

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 3. What is Credit Rating… …?
 It is an opinion about relative degree of safety vis-
a-vis other debt instruments

 Timeliness in meeting debt obligation

 Instrument specific - could be different for a

structured instrument and stand-alone

 Rating is assigned by a committee of experts in

finance, management & economics, after a
detailed and in-depth discussion
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 ONICRA

 Onicra Credit Rating Agency of India Ltd.

incorporated in October 1993
 Pioneers of the concept of individual Credit
rating in India
 Individuals and Small and Medium Enterprises

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 CIBIL

Objective

 For Minimising defaults and maximising credit

penetration, CIBIL’s Consumer Credit Bureau will
furnish info on individual consumer

 Credit Information Report contains:

– Borrower Info – name, DOB, Id, Ad
– Account Info – type, ownership, amt dates,
balance, overdues, suit filed asset classification,
etc.
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 WHY PLAN?

How we acquire and own property impacts what

we can do with it

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 Wills

Formal, written and witnessed

document used to transfer property
after death

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 Making a Will

A will is a formal, written, signed and witnessed

document that transfers one’s property after
death
 Besides distributing property, a will is used to
appoint a guardian and trustee for minor
children

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 THINKING ABOUT RETIREMENT

 The concept of retirement is changing as

demographics and increased life expectancy
create new challenges
 Retirees look to three sources for income:
– Government
– Employer based retirement plans
– Personal savings
A fourth source: flextime employment

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 INVESTING FOR RETIREMENT

 Create a plan now, to take advantage of time

and compounding earnings
 Be prepared to change your plan as you travel
through your work life

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 Retire
Comfortably !
 Start early with small savings
 Cultivate habit of saving : retirement fund : PPF
 Keep aside at least 10 % of salary every month
 Consult your Banker, Agent or Broker regularly
 Make money work for you : Invest in MFs !
 Do not spend away interest earned from FDs
 Do not draw from PF or Retirement Funds

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 Retirement Myths busted !
I am too young to plan my retirement !
 I am too old to plan my retirement !!
 I won’t live long after I retire, so why bother ?
 I don’t earn enough to save for my retirement !!!
 My children would take care of me ??
 My PF and Pension will be enough, No ???

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 Magazines for Personal Finance
 Outlook – Money (recent)
 Intelligent Investor (Outlook)
 Bajaj Capital Investors India
 Capital Market - Monthly
 Dalal Street Journal
 Investment Monitor (Monthly)
 Professional Investor (Monthly)
 KARVY – the Finapolis (Monthly)

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 News Papers and
Business Magazines
 Alllocal, regional or national dailies
 Economic Times : Investor’s Guide
 Business Line : Personal Finance
 Financial Express
 Business Standard
 Business Today
 B-World, B-India
 Outlook Money, etc
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 Books on Personal Finance
 How to Manage your Personal Finances –
Jagdish Kumar & Porus S. Doctor – 1997 –
UBSPD – Rs. 125/=
 Intelligent Investing – Radhika Chadra and
Parmit Chadha – 1995 – Wheeler Publishing
 The Investment Game – Prasanna Chandra
 Stock Exchanges and Investments : Straight
Answers to 125 Nagging Questions by
V Raghunathan – Tata McGraw Hill - 1994
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 Books recommended for Per Fin …

 How to Save Income Tax thro Tax Planning by R N

Lakhotia – 17th edition – Vision Books
 Tax Planning of Personal Investments by R N
Lakhotia and Subhash Lakhotia – A to Z : Ready
Reckoner : Vision Books 2003
 The Winning Portfolio : How to choose the best
Mutual Funds /Paul B Farrell–Vision Books – 2003
 Personal Finance – Tools for Decision Making –
Ramaglia & MacDonald – 1999 – SWC Publishing
87 ABS Bangalore Personal Financial Service
 Websites for Personal Finance
 www.Bankersindia.com
 www.Apnaloan.com
 www.Myiris.com
 www.Moneycontrol.com
 www.rrfinance.come
 www.Sharekhan.com
 www.Bajajcapital.com
 www.Bse.com
 www.personalfn.com
88 ABS Bangalore Personal Financial Service
 Summing up …..

 Management of Personal Finance includes :-

 Saving & Investment in different Schemes

 Borrowing at best rates for genuine purposes
 Systematic Tax Planning in the Process and
 Preparing a Road Map for Happy Retired Life

89 ABS Bangalore Personal Financial Service

 Thank you. Any questions please ?

90 ABS Bangalore Personal Financial Service