Financial Planning, Asset Allocation and Investment Decision Framework

1. Financial Planning, Asset Allocation and Investment Decision Framework Bharat Phatak

2. Emergency Needs What if water runs out while taking a shower?

3. Medium Term Needs What if Municipal Water Supply is not there for 3 days?

4. Long Term Needs What will be the requirement 20 years from now?

5. Life Cycle Financial Planning

6. Different strategies neededat Different Life Stages • Early stage Income low, Wealth low, Family Responsibilities High Use TERM INSURANCE to bridge the gap, Prudent Borrowing • Accumulation Stage Income rising, Wealth low, Family Responsibilities High Continue Insurance, Start Long Term Investments, Prudent Loans • Maturity Stage Income High, Wealth High, Family Responsibilities low Insurance less important, Wealth Building centre stage, Use of Trusts to ring fence wealth from Liabilities • Distribution Stage Income low, Wealth High, Family Responsibilities low Withdraw for own expenses, Estate Planning important

7. A Balanced Meal

8. A Balanced Portfolio

9. Debt Equity Mix Will Depend On • Personal / Family Situation • Risk Appetite • Risk Tolerance • Expected Cash Out Flows in next 3Years • A Risk Profile and Asset Allocation Mix of each family needs to be determined

10. It will also depend on EnvironmentMore Safe ? More Risk?

11. Asset Allocation Framework DIVERSIFIED FOR WEALTH PRESERVATION CONCENTRATED FOR WEALTH CREATION

12. Wealth Creation • Wealth Creation does not happen in the markets, • It happens in the Farms, On the Shop Floor, On Road, In the Ports, In Services • Markets only allow us to participate in the value creation • Markets also allow Companies to Raise Risk Capital • Portfolios can benefit from this growth in the long term • For Wealth building, debt alone is not sufficient • The Keys to success are: • Equity Bias • Value Orientation • Diversification, and • Rebalancing

13. Debt Market Returns

14. Birla Sun Life Income Plus Returns

15. Equity Market Fluctuations

16. Franklin Blue Chip Fund Returns

17. Look what happened over 17 Years 30x

18. But finally, Equity will track Earnings

19. Earnings Drive Equity

20. The Magic of Compounding • “Compounding is the 8th Wonder” – Einstein • The Rule of 72 • Divide 72 by number of years of Doubling to get Rate of Return and vice versa

21. “Doubling Time” • At 6% per year inflation, expenses will double in 72/6 = 12 years • If rate of return is 9%, money will double in 72/9= 8 Years • At 12%, 72/12= 6 Years • At 18%, 72/18= 4 Years • At 24%, 72/24 = 3 Years

22. Equity Market Participation • Low Risk • Index Funds • Large Cap Diversified Funds • Medium Risk • Sector Funds • Midcap / Small Cap Funds • Direct Stock Portfolio Investments • High Risk • Delivery Based Trading ( Buying & Selling) • Intraday Trading /Futures & Options • Highest Risk • Writing Options

23. Types of Equity • Based on Market Cap • Large Cap • Mid Cap • Small Cap • Based on Style • Growth • Value