CHAPTER 1

INDUSTRY OVERVIEW

1.0   Industry Overview

Financial industry plays a major role in the economy of the country. As, financial industry is responsible for the movement of money or funds in the economy. Financial industry helps people or organization in various activities like lending of funds, investment, insurance etc…

India’s Financial industry has a diversified financial sector undergoing rapid expansion. The sector comprises commercial banks, non-banking financial companies, co-operatives, pension funds, mutual funds and other more minuscule financial entities. (India Brand Equity Foundation)

The industry incorporates and assimilates many components and services in it. Bank deposits offer the capital for bank loans. The sale of stocks and bonds to investors supports the operations of businesses and governments who issue those stocks and bonds. Insurance contracts help to pool and manage risks. (Kolakowski, 2018)

The banking regulator has authorized emerging entities such as payments banks in the financial industry. However, the financial sector in India is predominantly a banking sector with commercial banks. (India Brand Equity Foundation)

 The Government of India has announced several improvements and restructuring to liberalize, regulate and improve this industry. The Government of India and Reserve Bank of India (RBI) took various actions to ease access to finance for Micro, Small and Medium Enterprises (MSMEs). With a mutual push by both government and private sector, India is unquestionably one of the world’s most lively capital markets. (India Brand Equity Foundation).

Financial planning or consulting service is the part of the Financial industry, which usually handles and provides mutual funds, insurances and various financial products. Financial consultancy companies will provide strategic asset planning for the clients and strategies to achieve the client’s financial goals. Financial planning or consulting service in India is having exponential growth over the last decade. This growth has helped the society in properly utilizing the earning and spending power of people more effectively.

Financial planner will have qualifications like CFP (certified financial planner) and other required expertise to perform the job. The financial planning will help to control on client’s financial situation. Here is the typical list of steps carried out by the financial planner for the consumer.

1. The first step is determining the current financial situation of the client. The financial planner will list the client’s income, expense, assets and liabilities. Later the goals are listed and to archive the financial goal (buying home, car, vacation …), financial planner sees possible ways. Based on the net worth the client will analyzed.
2. Not just listing the action plan is useful, but the strategy with alternative course of action is prepared by financial planner. This can be like increasing the savings, reducing the expense, taking less or no debts etc..
3. The time horizon for the goals are calculated and measures needed to archive the goals quickly will be done by the financial planner.
4. Now the financial planner will create the portfolio report where it gives information to the client, where to invest, where not to invest, time needed to archive goals, SIP required for the objective, investment avenues.
5. In the final step the financial planner will review, revise and update the report annually after the implementation of suggested strategy. (SAWANEH, n.d.)

During the personal financial planning, the following aspects are covered by personal financial planner.

• Insurances includes life insurance, health insurance…
• Retirement planning
• Mutual Funds
• Investment avenues
• Risk apatite of the client
• Asset allocation in equity and debt
• Emergency fund
• Housing

Mutual fund is the main product of the Simplus Financial consultancy, and intern is likely to focus more on mutual funds.

1.1   Scope of the industry

The financial service industries have CAGR of 15.25% from past ten years (India Brand Equity Foundation). The company or the organization handling the mutual funds are having the exponential growth over the years. On the other side the financial support given by government, let it be in the name of demonetization or the GST implementation given head start for financial industry. To strengthen the financial industry government released the amount worth of 1.48 Billion USD for public sector bank under union budget 2017-2018. In equity the number of the companies listed in the stock exchange that is NSE and BSE is risen from 5800 companies in 2006 to 7800 companies in 2108. And the number of house hold savings by the people have increased from 620 billion USD in 2011 to 940 billion USD in 2018. (India Brand Equity Foundation) So, one can clearly see the growing trend and scope in the positive direction.

1.2 Typical financial consultancy organization structure  

The financial consultancy firms usually have front office, middle office and backend work force. Front end office will deal with customer service, relationship management and investment advisory. Middle office deals with product management, compliance and risk management. And Back office deals with transactions and audit operations.

Front office, in this department of financial consultant firm there will be relationship management person, who is considered as the point of contact to the clients. Relationship management person will have all the knowledge of products and services. He interacts internally with middle and back office. (FLIP, 2018)Customer service managers will handle the service request of the clients and customer service manager will usually work along with relationship manger. Relationship manager and customer service manager will both work under investment advisory who is having in-depth knowledge in all products and service, he will be providing all the support to the front office.

Middle office, here this department will have a person known as product management who will create necessary products and services as per the market needs. Product management can of the same company or the third-party company, he fuels the consultancy firm with investment strategies being an expert. (FLIP, 2018)Risk management and compliance team will be responsible for showing the return for the clients and they also perform KYC operations.

Backend office, this department is responsible for processing of all the transactions which are executed in front office. And they also involved in accounting the firm’s operations.

CHAPTER 2

ABOUT THE COMPANY

About the company

Name the company	Simplus Financial Consultancy
Business of the company	Financial consultancy
Products	Mutual funds
Tagline	Educate, enlighten, empower
Founder	Deepak K Rao
Year	2006

Table 1: About the company (Source: Intern, “About the company”, 2018)

Vision: Creating successful investors by empowering them with right insights & wisdom

Mission: Proactively educate common investors using traditional and non-traditional mediums. Guide them in the right direction towards achieving their financial goals. Be ethical in our approach towards investors by keeping their best interest in mind and comply with existing regulations as stipulated by concerned competent authorities. (Nayak, 2017)

Belief: An educated investor is a successful investor (Simplus, Educate, Enlighten, Empower, 2018)

Website address: http://www.simplus.co.in/

2.1 Company history and background

Mr. Deepak Rao is the founder of the Simplus Financial Consultancy Private Limited. The company ethics is derived from Mr. Gerard Colaco. Mr. Gerard Colaco is managing partner of Colaco and Aranha financial consultancy in Mangalore.

It happened that Mr. Deepak Rao was lucky and once had a chance to attend a lecture by Mr. Gerard Colaco in Mangalore university. Mr. Deepak Rao was inspired by the Gerard’s talk and decided to start a business in financial field. And started as an apprentice under Mr. Gerard Colaco. Soon Mr. Deepak Rao left his old job as he was not satisfied with his work in old job. And started Simplus Financial Consultancy Private Limited as an entrepreneurship.

Mr. Deepak Rao learnt all the things related to financial consultancy, investments and other things related to this field for six months from Mr. Gerard Colaco. And Simplus was first started in Mangalore as associate of Artha and Colaco.

Now Simplus has provision educating the clients through electronic media such as YouTube and Simplus website. In 2013 the new branch in Bangalore was established. Now more than 100 crores of client’s assets are managed by Simplus with more than 2000 clients.

2.2 Company Hierarchy

Simplus Financial consultancy

Founder and Director

Mr. Deepak Rao

Mrs. Padmashree

Bangalore Branch

Mangalore Branch

Front office(Mr. Purushotham) (Branch head)

Middle office(Ms. Manjula)

Back office(Mr. Sunil, Mr. Syed)

Figure 1: Company Hierarchy (Source: Intern, “Company Hierarchy”, SIP, 2018)

2.3 Products

Mutual fund is the main product of the Simplus Financial Consultancy, Both Debt mutual fund and equity mutual funds are handled by them.

The following are the mutual fund asset managing companies which is recommended by Simplus for the clients.

• Franklin Templeton
• Aditya Birla sun life
• Reliance Mutual Funds
• HDFC Mutual Funds
• ICICI prudential AMC
• DSP Black Rock

Mutual funds guidance is provided by them based on the financial goals and time horizon of the clients.

Insurance product is handled by third party insurance providers. Insurance products are Life insurance, health insurance, house hold insurance, critical illness insurance.

Along with the products mentioned above, Simplus Financial Consultancy will provide assistance in other type of investments. The assistance includes investment for the Emergency funds, extinguishing bad debts, housing guidance, parking the funds with low risk on capital loss, ways to earn regular income and long-term investments in Equity.

2.4 Revenue model

The revenue model of the Simplus Financial Consultancy is through the commission on every transactions of mutual funds by the clients. They do not do any marketing activity. They hire interns to lead new clients to Simplus Financial Consultancy over the years. They provide free guidance with no charges on all type of investments.

2.5 Role of employees

Employee role is to bridge the gap between the vison of the organization and customer needs. This is achieved by the catering the consumer with unique way. Here employee will give know how of the financial industry and suitable financial products according to the requirements of the client. Each client is unique with different requirements; hence the organization will provide customized solution for everyone in structured manner. By the help of mutual funds, insurance, asset allocation, tax planning and financial strategies are used to cater the consumer.

2.6 Infrastructure

Simplus is located in heart of Bangalore. Where it is having potential to bring many clients in to its basket. Office is in ground floor, it has all the basic facilities.

Technical infrastructure consisted of,

Hardware: The Company uses Desktop computers (Apple brand) and laptop for assistant/ branch managers for performing various tasks. They have intercom facility to communicate and transfer information to one another. They have a photocopy machine to get a copy of client’s information and this hard copy are maintained separately for each client.

Software: The Company uses Management Information System (MIS) for Portfolio Management. Once the Portfolio is updated in the MIS software, the photocopies of the portfolio are taken and these photocopies are used by advisor and backend office. MIS system includes Microsoft Excel 2016, Office 365 and Microsoft Power Point.

The office is having high bandwidth low latency internet connection so as to do conference video calls between Mangalore and Bangalore branch.

2.7 Framework of Simplus

Acquire and engage clients

Financial planning

Recommendation of asset allocation

Recommendation of strategies and product

Monitor the performance and result

Figure 2: Framework of Simplus (Source: FLIP, “Wealth Advisor”, 2018)

Acquiring clients is first step and it is the most difficult stage in the process. In this step clients are targeted, and relationship is built with them which finally leads to strong customer relationship. Clients can be acquired with following ways.

• By cross selling in to existing products to client’s link which will provide quality clients which is easy and quick way to acquire client.
• Creating marketing programs to generate leads which is time consuming and sometimes costly. This way is strictly not followed in Simplus.
• Referral from existing clients, friends and family network which is very slow process for quality clients. (Quality clients network will mostly have quality clients only).
• And another way is, which is the only way followed by Simplus is that educating the clients and bringing awareness of financial managing and only interested potential who are serious about managing money clients are coming back to Simplus. In this way clients are acquired.

Many times, in financial consultancy industry quality clients are missed because of dissatisfaction in service. So, it is necessary for having good relationship with clients supported by front, middle and backend office.

Next step followed is financial planning, which is provided by the consultancy service, that is how financial planning is done is by identifying the clients behavior, which is knowing common investor’s investment attitude, that is

Passive investment

• Risk tolerance will be low
  • Wealth – fear of capital risk.
  • Knowledge – knowledge level in financial field will be low
  • Service – For such kind of investors, conservative and ultra conservative debt products for investments are recommended.

Active investment

• Risk tolerance will be high
  • Wealth – fear of capital risk is low, they may show greedy behavior.
  • Knowledge – knowledge level in financial field will be medium to high.
  • Service – For such kind of investors, SIP and equity products for investments are recommended.

After the above step, the financial products will be recommended, and it is left to the clients to select. Whichever is suitable for client he will choose the products. After selecting the products financial consultancy will provide unique strategies to follow by client. After following recommendation and strategy, portfolios are monitored result are observed and seen.

2.8 Role and importance of the function

Functions that was assigned by Simplus are

• Learning the financial concepts and implementing the plans through case study and real time data provided by Simplus for about one month.
• Learning strategy and rationale for the situation-based investment in mutual funds.
• After learning next is educating clients with what was taught in Simplus.
• Bringing the clients onboard to Simplus by providing personal financial management advice to clients in field work.
• The target of sixty was given to intern, so intern educated and brought awareness on personal financial management to target people.

2.9 Activities which are carried in Simplus, over the years

It is important for the company to provide some extra benefits in order to create vale to the customer. In the same track Simplus is moving by providing some of the unique activities will in turn help Simplus by retaining the existing customer for a long period of the time. (Nayak, 2017)Some of the additional quality services apart from educational awareness programs are given below.

1. Simplus Learning Academy-Educational Videos

Simplus believes that an educated investor is a successful investor and it is evident from the core belief that they adopt. They believe that only when investors are educated about the various avenues would they be able to have a good understanding, and the rationale for the same is that only then will they be able empowered to take the right decisions. (Nayak, 2017)Rather than being butchered into the wrong hands and being sold the wrong policies and investments, they first try to educate them about the same and thus try to keep them at bay from such policies.

At Simplus, ethics comes first, as they believe that the hallmark of a true professional is ethics, expertise and a long-standing commitment for quality practice. Simplus Learning Academy is a laudable step taken by Simplus in educating the common public about the basics of money management. (Nayak, 2017)Simplus through its website selflessly is doing such an act with an intention of raising awareness about personal finance among the masses.

A series of talks by Mr. Gerard Colaco covering various topics like personal financial planning, introduction to stock market, mutual funds etc. are elaborated upon which are usually quite comprehensive and stated in simple terms so that they can be easily understood by the layman. Additionally, talks on entrepreneurship emphasizing on human capital is narrated on in such videos.

Moreover, videos on current affairs like analysis of the union budget. They also provide recent and up to date articles under the head ‘resources’. Short reading materials, which acts as guide to investing in various avenues. (Nayak, 2017) The videos can be accessed from their website free of cost (http://www.simplus.co.in/category/videos/) and is open to the public.

They further undertake talks in various schools and colleges by making students aware of money management at the grass root level. They covering various topics like body language, public speaking, group discussions, writing CVs etc., too provide a course on effective communication.

• Wills, Living Wills and General Power of Attorney (Nayak, 2017)

They help their client to prepare Wills, Living Wills and General Power of Attorney

a)  Will: A will is a document which contains an exact description of all the assets held by the person and the manner in which it will be divided between the spouse and the children

b)  Living will: A living will is a document which states that should there be any circumstance wherein the patient is on the verge of death and all hopes are lost but is kept alive through use of artificial means, under such a circumstance it is advised to refrain from doing so. Further, no one shall be held liable and it is on the willingness of the patient.

c)  General Power of Attorney: This document gives the right to take care of the affairs incapable person, on behalf of him. This is given to one of the family member or a close kith and kin. Hence a firm by truly identifying the need to put such documents in place, did go out of its way in finding the necessary details and thereafter briefing the client so that he is well informed and he would very much have his peace of mind.

• Trusts

They provide information regarding managing trusts

A trust is generally an organization established to take care of the assets of the deceased according to a certain framework of the trust deed. Owner parts the asset with the trust. (Nayak, 2017)

There are two parties to the trust-a trustee and beneficiary. Trust is managed by the board of trustees according to the provisions of the trust deed, which entails the general functioning of the trust.

There  are  of course  the  religious  and  charitable  trusts  which  are  tax  exempt  but  there  are  no professional trustees in India and are usually managed by the lawyers.

• Reducing Stress When One Reaches the Age Of 50

Contrary to the financial services industry wherein a 50 year old man approaches them saying he has money to invest he is straight away asked to invest in sectorial and thematic funds and sold useless insurance policies just to grab home a huge commission, companies like Simplus and Colaco and Aranha make him understand the very basics of finance and investment and only when he is absolutely clear about the avenue he is going to invest only then is he asked to venture. (Nayak, 2017) Essentially, they believe that peace of mind for client is far more important than the returns he makes.

Many clients in their 50s had approached to take their advice on if they could start a business venture with the money. They believe in the philosophy of human capital being far greater than physical capital. Human capital is based on skills, knowledge and expertise of the individual and they have no problem with clients venturing into some business based on their skill.

• They Strive To Create More Entrepreneurs

The Indian industry is always short of ethical investment advisors who put their client’s interest first rather than indulging in a selling spree of the high commissioned products. It is in this regard that firms are like Simplus, Colaco, and Aranha who always try to give in their best to provide the enhanced learning through their internships in order to mould the students by educating the public about nuisances of investment and finance and encourage  students being entrepreneurs in this field.Hence, they makes the interns to go through all such books plus a few more books on behavioural finance. The interns are also made to attend client meets and then would get their doubts cleared from Mr. Colaco. Deepak Rao, Director, being a former intern himself ventured into this field. (Nayak, 2017)

2.10 SWOT analysis of Simplus

Strengths

• Experience in the field
• Capacity to handle clients
• Experienced work force and research
• Updating of strategy time to time
• Associate of Artha and Colaco
• Well known by word of mouth

Weakness

• Zero marketing, which creates lack of awareness to the people.
• Employee with CFP (certified financial planner) qualifications are not easily available.
• Average employee retention.
• No fee models

Opportunities

• Humongous growth in financial sector
• Expanding in other investment avenues other than Mutual funds

Threats

• Threats from other competitors.
• Difficult to get reliable clients.

2.11 Future of Simplus

Simplus have maintained excellent track record since its inception. Simplus will be going to increase the number of employees in the future based on the requirement. Simplus can change the business model from B2C to B2B consultancy service. Simplus will hire people who have CFP qualification when business is scaled up. The important thing is quick accustoming to the technology by Simplus, already company have implanted modern technology available in the organization, as client base increases technology help is definitely needed. Simplus will follow its vison strategically.

CHAPTER 3

SITUATION ANALYSIS

3.1 Context of the project

It is important to save money, but it is even more important to keep money growing. That is where personal financial planning comes in to picture. Now a day’s people used to invest in bad products and ended up in loss or even loosing capital. So, one needs to take a proper guidance and advice to make a proper investment where risk on capital is low.

Apart from that, there is tremendous need for advisors in this field. Most of the advisors are so called brokers or agents who will force the clients to invest in bad products for their own gains. And even they sell the financial products aggressively by creating a artificial hype on the products. To prevent that from happening Simplus comes in to picture.

It is important to achieve financial freedom, which is like independent from others on financially, there is a freedom to spend on financial goals. To achieve this financial freedom, one should be financially literate, in the sense that person should be knowing in and outs of the investment and returns. And finally, to achieve these one should compulsorily take the financial responsibility. So, interns will be educating clients an all investment aspects specially in mutual fund department.

3.2 Problem Identification

The problem comes from change in generation over the years, usually few decades ago there use to be joint family and now families are segregated. Before, since it is joint family the person who is earning has to take care of whole family but now due to segregation in family, retirement is creating fear in people because, the person may be the sole earner in the family. Due to retirement the monthly income is stopped, and person will be having weakness and susceptible to diseases which leads to financial stress. To chase this problem personal financial planning is needed.

As explained before people end up buying bad financial products which are not needed. Which may lead to loss and loss on capital. People becomes greedy when it comes to increasing their wealth to tackle this personal financial planning is needed.

Inter day trading or daily trading is major cause for falling in the trap of loss. Trading is meant for long term (More than five years) but if it is followed for daily trading it will lead to speculation and in turn loss. So, in order to tackle these personal financial planning is needed.

There is a rule that higher the risk and higher the return and vice versa. This is followed in financial market in all avenues. Along with that other factors which are responsible for returns are, taxes, time horizon, risk apatite of investor, market influence and performance of investment.

3.3 External drivers

External drivers are the factors which will influence client from outside. Therese are the factors which will be common to all the investors, and it is difficult but possible to take control of these below factors.

3.3.1 Life cycle of client

Risk

Return

Life cycle of investor

Early carrier

Mid carrier

Late carrier (Retiring)

A

B

C

Figure 3: Life cycle of client (Source: FLIP, “Wealth Advisor”, 2018)

There are three stages in life cycle of clients namely,

• Early carrier – here client will be ready to take high risk for more returns, it is the stage when investor is in the age less than forty year.
  • Mid carrier – here client behavior changes and he will be ready to take medium risk for medium returns, it is the stage when investor is in the age less than forty-five year.
  • Late carrier – the client behavior drastically changes, where he will be taking very low risk and looks for low to moderate returns. The age of the investor will be greater than forty-five years.

3.3.2 Time horizon goals

In investments the money will be working for investors. If more time is available more the returns. Power of Compounding is seen in long time horizon. It is recommended to invest at low price and hold for longer and get huge returns.

3.3.3 Time value money

Present value (PV) or beginning amount, that can be invested. PV also represents the current value of some future amount. Future value (FV) which is the value to which an amount invested today will grow at the end of number of period, after accounting for interest that can be earned during the investment period. Rate of return, or interest rate, that is paid each period. The interest earned each period is based on the balance in the account at the beginning of each period. Time value of money is used while taking financial decision, generally people ignore the time value of money which leads to bad financial decision.

3.3.4 Risk return

Higher the risk associated with an investment will have higher chance of greater return. Similarly lower the risk in the investment lower will be the returns. It is left to the investor to choose particular investment which can have either high or low risk.

Risk factor (FLIP, 2018) which influence the investor is based on

• Income level of investor
• Age of investor
• Present wealth of investor
• Risk profile of investor
• Time remaining on financial goals

Exception to this is, every time the formula of risk return relation won’t work, some times higher the risk associated investment can give low return or high probably of loss. But converse in not true that is low risk investments never give higher returns.

The following needs to be considered (risk) while investing by the investor.

• Dividing the risk by diversifying the investment
• Getting the mindfulness of risk and returns from past performance of investment.
• Recognize investors risk profile and selecting optimal risk level

Risk profile	Return	Type of Mutual fund
Conservative investor	Return is low	Debt funds, Liquid avenue, government securities
Moderate investor	Return is balanced and moderate	Large cap, Blue chip funds, ELSS, Hybrid funds
Aggressive investor	Return is high	Mid cap and small cap investments, commodity investments.

Table 2: Risk (Source: FLIP, “Wealth Advisor”, 2018)

3.3.5 Available capital

One simple rule followed is if lumpsum amount is available one should not invest entire amount in to one product or scheme, but it should be invested in to diversified products. If lumpsum amount is not available systematic investment planning (SIP) to be followed, where every monthly small amount is saved and invested.

3.4 Internal drivers

Internal drivers (environment) comprises of factors within the industry which impact the success and approach of operations. These are those factors which are not in control of the investors.

3.4.1 Investment performance and market influence

Only equity related products are giving returns according to the market performance. BSE SENSEX started with 100 and now is 36000 which is giving 17% return is one of the example of market returns. Equity Mutual funds, Index funds or any diversified equity products will also have same kind of returns. These can be measured using the ratios like Ternor ratio and Jensen’s alpha and other terminologies.

Net asset value will be coming in Mutual fund. It is the price of each units in mutual fund. It is not in control of investors but is controlled by asset management companies and stock market.

3.4.2 Technology factors

Taking the present financial status, everything is online and at the fingertips of the investor. Even from taking D-Mat account to trading is online. Taking the macro perspective of the financial development with technology in the world, as the days are moving the technology is growing exponentially like artificial intelligence, bitcoin, virtual currency etc…,

3.4.3 Inflation

Increase in general prices leading to elevation in the cost of living is called as inflation. Inflation will decrease the value of money over the years. The purchasing power of the money decreases. For example, this year ten lakh worth asset will be more than ten lakhs worth next year. The rate of inflation is six percent this year. If a person saves the money instead of investing the saved money will depreciate at the rate of inflation. So, it is important to invest the money which gives return that beats inflation.

Beating the inflation can be done by just investing in avenues which yields the return greater than inflation. The investment avenues which beat inflation are,

• Real estate
• Equity related products
• And own business.

But the above investment should have more exposure to time, that is longer the investment

return will beat inflation.

3.4.4 Market regulators

RBI- Reserve bank of India

• RBI of India is regulator of all banks and non-banking financial companies, which are engaged in business of wealth management and investment advisory in India. Each organization are given license by RBI and so that financial companies has to follow RBI norms and instructions under RBI supervision. (FLIP, 2018)

SEBI- Securities and exchange board of India.

• SEBI will protect interest of investors in securities and it also promote devolvement of security market in India.
• SEBI is the key market license issuer and market regulator in India for all institutions and individuals who are associated with the securities market. This includes all Asset management companies (AMC), Brokers and sub brokers at various stock exchanges in India.
• If a wealth managing company is investing on behalf of its customers, it will be subjected to SEBI regulations. SEBI can also act as a regulator of product for equity and bonds. Any organization who provides advisory should be certified under SEBI guidelines.

IRDA- Insurance Regulatory and Development Authority

• This is an autonomous regulatory body for Insurance regulation which supervises all operations regarding all insurance companies. They supervise Life insurance and non-life insurance companies.
• Insurance being the investment option, so wealth management companies will need to follow IRDA regulations of their insurance products. IRDA acts as a product regulator of insurance products. All the advisors who are selling/ advising customers on insurance (Life insurance products and Non-Life insurance products) must obtain prior certifications from IRDA.

AMFI- Association of Mutual Finds in India

• AMFI regulates mutual fund advisory in India. All advisor must clear the AMFI certification prior to advising customers.

PFRDA – Pension Fund Regulatory and Development Authority

• PFRDA is the latest regulator in market which directly licenses and supervises the operations of all pension schemes and funds (Private and public sector) in India. This authority also regulated provident funds.

CHAPTER 4

PROJECT EXECUTION

Many people know to earn their money, but they don’t think beyond it, there is a scope for the managing the money to archive financial goal. There is a saying” If you plan to fail, you fail to plan” that is there is a need to take right action s at the right time of one’s productive life (SAWANEH, n.d.). Financial planner will provide proper directions for managing of the wealth.

4.0 Background of the project

Internship in Simplus was conducted for two months. The training was provided for a month to the interns. The environment in the organization was bit informal but the work was serious. The reason for the organization for conducting internship was to bring awareness, inculcating the habit of savings to the people for the better society and working towards vision of the organization. Simplus know that people are not serious about financial management, and adverse consequence faced by the people because of this. So, the interns are given the objective of learning the financial topics as fast as possible and educate near and dear people around to make better society. Organization feels an educated investor is a successful investor. The organization follows no fee model for the consultancy, any client is not charged for the intellectual values taken from or provided by the organization. Simplus only believes in long term strategy for the growth of wealth. Thus, this internship is meaningful in providing the value to the organization and working towards vision (ie., empowering the investors with right insights & wisdom) of the organization.

4.1 Objectives

The objectives provided was incremental that is step by step over the period. Objectives to the interns are as follows.

• Learn about personal financial management, concepts and application.
• Understand the working of financial market, financial products and financial instruments.
• To bring awareness and help clients to archive their financial goals through diversified Mutual funds. And to educate clients on personal financial management in various investment avenues.
• To understand client’s behavior and needs of clients on personal financial planning.

4.2 Alternative ways to attain objective

• The first objective, learning about personal financial management, can be achieved by reading and understanding the financial concepts from books.
• The second objective, understanding the financial market, products and instrument can be achieved by analyzing the financial information available through social media, financial websites, publications, research, attending seminars and workshops.
• The next objective of bringing awareness can be achieved by making posters, videos, posting multimedia in internet.
• The objective of knowing client’s behavior and needs can be achieved by studying the research this topic, doing survey and preparing the questionnaire.

4.3 Problem solving approach did you select

• The first objective, learning about personal financial management. The approach selected was, learning from videos and materials provided by Simplus.
• The second objective, understanding the financial market, products and instrument. The approach selected was, group discussion [with group members in Bangalore (offline) and Mangalore branch(online)], interview and with employees of Simplus.
• The next objective of bringing awareness. The approach selected was through inperson/ direct meeting with clients and educating them with concepts and insights learnt in Simplus. Each meeting with the clients lasted on average time of forty minutes per client.
• The objective of knowing client’s behavior and needs. The approach selected was through the survey with questionnaire.

4.4 Rationale and motivation for selecting this approach

• The first objective, learning about personal financial management. The rationale for this approach was, Simplus already done extensive research on the required areas and it was ready made material for all interns. Simplus knew that learning from video is most effective solution for faster learning. By these interns learns in same pace with equal understanding of the concepts.
•  The second objective, understanding the financial market, products and instrument. The rationale for this approach was, as instructed by organization group discussion will bring some quality learning and it creates platform to think.
• The next objective of bringing awareness. The rationale for this approach was, inperson meeting with clients and educating them is the great way for interns to clearly provide information and active interaction with client.
• The objective knowing client’s behavior and needs. The rationale for this approach was, surveying with questionnaire was effective way to know clients opinion with out any communication gap and loss of information.

4.5 Description of the approach

The tasks and activities provided by the Simplus for interns were successfully completed in time.  In the Videos provided by Simplus, it consisted of detailed explanation of various area under Personal financial planning. In one on one meeting and in survey different types of people are approached based on age, qualification and job and they’re by educating them regarding PFP and collecting data from them for further analysis. Additionally, for better understanding interns were also given an opportunity and invitation to attend the training session regarding excel usage “Exceling in Excel” by Aditya Birla Sunlife Mutual Fund in Bangalore. For each and every step guide always provided information and guidance for the successful completion of tasks.

4.6 Steps of Execution

Learning different investment avenues and portfolio tools as orientation from Simplus. Which include own study on the topic, video conference with Mangalore team, case studies, PowerPoint presentation, listening to lectures of guides at Simplus, watching videos made by Simplus on personal financial management

Convincing the client and educating regarding investment by creating awareness in

• Mutual funds
• Retirement planning
• Real rate of return
• Equity and debt instrument
• Health insurance, life insurance, critical illness insurance property and house hold insurance
• Emergency funding, Bad debt and tax liabilities.

Interns have contacted more than sixty clients and bought awareness on savings and topics mentioned above. Interaction with client was inperson with informal meeting and collected response on the questionnaire.

4.7 Challenges encountered

• Because of the lack of time, different avenues could not be studied in detail.
• Clients a are not comfortable in disclosing their financial status which can lead to response error.
• Clients have lack of knowledge and fear towards mutual funds, sharemearket…
• Most client do not invest after getting their advice on financial planning.
• Earning trust and convincing the client is challenging.
• This advice and decision varies based on the risk apatite of client.

CHAPTER 5

FINANCIAL

PLANNING –

AVENUES  

5.0 Insurance

Health Insurance should be compulsorily taken by all investors. The should be taken which is covering entire family. So, better option is family floater plan of health insurance where insurance covers whole family of four with small premiums. (Simplus, Educate, Enlighten, Empower, n.d.)

Personal Accident Insurance (Optional) should be taken only by earning members of the family to cover the risk of partial and permanent disability.

Critical Illness Insurance (Optional) should be taken for all the family members to cover the risk against costly treatment of terminal deceases.

Life Insurance If an individual has no financial dependents, life insurance is not necessary and will be a waste of money. If there are financial dependents, the quantum of life cover required must be calculated. Thereafter, it is advisable to take only a pure term life insurance cover, to the extent life insurance is required.

Property Insurance (Optional) Protection against losses caused by earthquake, fire, damage from other causes, breakdown, burglary, etc., may be taken if required, and to the extent required.

House Hold Insurance (Optional) to cover the risk of fire and burglary of electronic goods, furniture, interiors, etc., may be taken if required, and to the extent required.

5.1 Emergency funding

This is an important strategy where person has to ensure that an expense of a year has to be kept separately in a liquid fund so as to encache/take the money within in 24 hours for emergency. This will make a buffer time to adjust new emergency situation (eg., job changing) and one can spend the emergency funds for future plans. It is recommended to build emergency funds from the first employment for two to three years. (Simplus, Educate, Enlighten, Empower, n.d.)

Investment in any short-term debt fund with monthly or quarterly capital appreciation transfers to an equity index fund or diversified equity fund would be an excellent strategy for an emergency fund. An emergency fund is your private insurance policy and your first line of defense when tackling an unexpected, adverse financial situation. It is important that an emergency fund be utilized only in an emergency.

5.2 Retirement

Everyone is responsible for their post referment life, during retirement period the energy to work will be low, susceptible to diseases poor finance will make life stressful and expenses raises as a result of inflation. Most of the time people will run out of asset. Another thing is that one has to protect the dependents of the family.

A proper retirement planning would help retiree to have perfect standard of living by being independent for financial support. Peace of mind will be there when there is no worry on finance. As mentioned before after retirement the energy capacity will be low and body will be susceptible to disease, Propper treatment and medical costs can be managed by having retirement plan so life expectancy will be higher. Inflation and delay in retirement planning is big enemy for retirement, as money value decreases and cost of living increases which is not under control. From retirement planning successful aging can be obtained. (Simplus, Educate, Enlighten, Empower, n.d.)

So, strategy for successful aging are,

• Start investing for retirement from the first employment, longer one invests more the return. Long time investment has to be periodical there should be no breaks, similar to Systematic investment planning (SIP)
• Invest in well diversified ELSS (Low risk and long term) for 10 year plus.
• Invest in a product which gives more return, because small change in percentage of returns will give huge difference on retirement corpus.
• Since EPF-employee provident fund and PPF- Public provident fund has tax benefits it is recommended to invest here.
• Retirement money has to be used or retirement only.

5.3 Housing

Housing is a great investment ass it is a asset whose value grows over the years. Owning a house provides psychological comfort. It is considered as a productive asset. It is recommended that one should not take house loans before at least five years of work experience as one can fall in to debt trap as person still not have maturity in investments and may lose or switch job and interest rates are higher. Investment in real estate is recommended as rental income will be considered. Maintenance of real estate is expensive. (Simplus, Educate, Enlighten, Empower, n.d.) (Colaco, n.d.)

5.4 Extinguishing debt

Here the logic is, getting rid of unwanted debt or avoiding debt as much as possible. The thumb rule is taking debt for productive purpose is recommend. (Productive purposes are education loan and housing loan) In case one takes the loan, term loan is recommended. As burden for EMI will reduce as payment premium at the end of loan duration. One should make sure that the debt payment should be at least or less than twenty five percent of the monthly income. (Colaco, n.d.)

5.5 Investment in gold

Investing in gold is a good option, but standard gold is recommended as it does not include charges like wastage and making charges. The gold will always follow returns of inflation so gold investment is preserving wealth and preserving capital rather than growth.

5.6 Mutual Fund

A mutual fund is an investment vehicle made up of a pool of moneys collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and other assets. Mutual funds are operated by professional money managers, who allocate the fund’s investments and attempt to produce capital gains and/or income for the fund’s investors. A mutual fund’s portfolio is structured and maintained to match the investment objectives. (Investopedia, 2018)

CHAPTER 6

FINANCIAL

PLANNING –

KEY CONCEPTS

Financial planning key concepts

6.0 Investment tripod

• Parking funds- These are the funds which are considered lumpsum that are kept for future investment, in such situation the funds are to be placed in low risk on capital avenues which will give return, but the capital is preserved. (Colaco, n.d.)
• Regular returns- these are investments which will provide constant returns periodically in the form of interest, example like bank fixed deposits.
• Growth- Growth, the time horizon is long term (Greater than five years), since long term investment Equity product or any product which is related to equity is recommended. But diversified investment is recommended.

6.1 Saving, Income, Investing, Expenditure

Investing is diverting the saved money in to various asset avenues such as mutual funds, bonds, stocks etc., which ever has high return on investment.

There are two ways one can do savings which is shown below

1. Income – Expenditure = Savings
2. Income – Savings = Expenditure

Out of these options second method is accepted by Simplus.

The difference between investing and savings are listed below,

Investing	Saving
Investment are made to get higher return	Savings are made to preserve wealth and returns expected will be low
This is made to achieve the financial goals	This is made to achieve regular expenses and immediate goals.
Risk factor should be considered while investing	Savings will have low or zero risk on capital.
Return on investment is taken as benchmark to build wealth.	Transferring money in to savings account is considered.

Table 3: Saving, Income, Investing, Expenditure (Source: Intern, “Strategies”, 2018)

6.2 Real rate of return

• Real rate of return is the return which is not seen directly but it is the actual return for the investors with hidden deductions in the return, it can be used to check whether the wealth is growing or not.
• Real rate of return = Actual return- Taxes on return- Inflation
• For short term investment debt instruments are recommended. For long term investments equity are recommended.

6.3 Ratios

Net asset value – NAV

• Net asset value is the price of each unit of mutual fund scheme, at this price mutual funds are purchased and redeemed. This changes every day and it depends on the market performance.

Asset management company – AMC

• Asset management company pools the money of the investors and invests in to the various avenues based on the investors requirement. Every AMC will have fund manager in it and is registered under SEBI. (FinIQ, 2018)

Asset under management – AUM

• Asset under management is the total value of the investments managed by AMC on behalf of the investors. It indicates the size of the scheme.

Expense ratio

• Expense ratio is the annual change or operating expense of the scheme.it is expressed as percentage of NAV. SEBI mandates the expense ratio of the scheme. It is used to compare expenses of different schemes.

Exit load

• It is the fee charged by the certain mutual fund schemes only if units are redeemed during the specified period. It is expressed as percentage of NAV. It is charged because to encourage the investors not to do premature withdrawals.

Risk free return

• It is the theoretical rate of return that investor expects from the mutual fund scheme.

Standard deviation

• It is used to measure the volatility of schemes return with respect to expected returns based on historical returns.

• Higher the SD of a scheme, more volatile the scheme is. Conservative investors generally prefer schemes with lower SD.

R- squared (R^2)

• It represents the percentage of a scheme’s movement that can be explained by the movements in the benchmark index. It is not a measure of the performance of the scheme, but it is the measure of the correlation between the schemes performance and the benchmark index returns. R- squared varies from 0 to 1. Zero represent zero percentage and 1 represents hundred percentage. It is known as co efficient of determination.

Beta

• Beta =1 implies that scheme moves in the same moves in way as that of the benchmark index.
• Beta>1 implies that the scheme is more volatile than benchmark index.
• Beta<1 implies that the scheme is less volatile than the benchmark index.
• Investors prefer schemes with lower Beta.

Alpha

• It measures the excess returns of a scheme relative to the returns of its benchmark, it measures excess returns of the scheme relative to the returns if its benchmark index.

• If alpha is 0 then it is exactly tracking the benchmark. If alpha is 10 then scheme is out performing by ten percent. It is better to prefer schemes with higher alpha.

Jensons alpha

• It measures difference between schemes actual returns and expected returns.

• It is better to prefer higher value of Jensons alpha

Sharpe ratio

• Higher the Sharpe ratio the better is its risk adjusted performance compared to a scheme with a lower Sharpe ratio. It is used to compare the schemes with similar reruns. Investors generally prefer schemes with high Sharpe ratio.

Treynor ratio

• Treynor ratio is used to measure the excess retuns generated from a scheme over the risk-free return, per unit of market risk- beta. Known as reward to volatility ratio.

Macaulay duration

• The Macaulay duration is the weighted average term to maturity of the cash flows from a bond. The weight of each cash flow is determined by dividing the present value of the cash flow by the price. Macaulay duration is frequently used by portfolio managers who use an immunization strategy.

6.4 Equity

Equity funds make money for investors by investing in the equity stock market. Equity funds may be classified into large cap funds, mid-cap funds, small-cap funds and sector/thematic Funds. There are further types called multi-cap funds and balanced funds too, however these are just variants.

When we invest in equity we buy a stake in one or more companies in the form of shares. Investor sells the shares at higher prices and buy at low prices and the dividends will be provided by companies at least once a year. Returns in equity is not guaranteed as it is market linked. There is more potential for equity to outperform inflation.

Large-cap funds

• Invest into large-sized companies
• Lower risk within equity category

Large-cap funds are funds which invest a large part of their assets in the equity shares of very large companies. Large -cap funds invest in companies which have a large market capitalization (hence the name large), usually, these are very large companies established players, with a large workforce.

Mid-cap Funds

• Invest into mid-sized companies
• Relatively higher risk than large-cap

Mid-cap funds invest in mid-sized companies, these companies by being mid-sized can provide good returns. There are various definitions of mid-caps funds in the market, one could be companies with a market capitalization of INR 500 Cr to INR 10,000 Cr another could be companies beyond the first top 50 companies to the 250th company.

Small-cap funds

• Invest into small-sized companies
• Highest risk within equity category

Small cap companies include firms that are in their early stage of development with small revenues. Small caps are typically defined as firms with a market capitalization of less than INR 500 Crore.

6.5 Debt

Debt funds invests in fixed income instruments. They invest in fixed income securities like bonds, etc. Debt mutual funds mainly invest in a mix of debt or fixed income securities like Government securities, Treasury bills, corporate bonds, etc. Debt funds are preferred by those who are looking for steady income with relatively lower risks.

Debt or fixed income securities are a form of loans that can be bought or sold in market by corporate investors. These loans are generally used to raise money from investors by governments and companies.

Short term Income funds

• Invest in corporate bonds/short dated G-secs
• Carry lower risk within debt category

Short term funds mainly invest in Commercial Papers, Certificate of Deposits, Money Market instruments, etc. The average maturity period of short-term funds is usually between 6 months to 12 months. They may provide a higher level of return than ultra-short term and liquid funds but will be exposed to higher risks.

Long term Income funds

• Invest in corporate bonds/long dated G-secs
• Carry high risk within debt category

Long term income funds invest in corporate bonds and Government of India bonds that have a long- term maturity period.

6.6 KYC – Know your customer

Know your customer is a one time verification process to verify the identity of the investor based on the details given by the investor during the verification. After the verification the investors details are uploaded to data base of Central KYC Registry (CKYCR). (FinIQ, 2018)

Investors has to fill and sign the form of KYC in AMC’s website. Along with it proof of identity, proof of address and photograph as per instruction of central government, it has to be provided by investor for verification. The forms can be submitted to either AMC or distributors or registered transfer agents (like HDFC, ICICI prude, Franklin Templeton…)

E-KYC

This is similar to KYC’s verification, where the verification is through electronic media. Aadhar, PAN details, biometry and OTP – one-time password with registered phone number are linked to the KYC.

One time mandate (OMT)

This is one-time registration process, this registration is compulsory for investor because it allows investor to authorize his or her bank to automatically debit from bank account. Investor has to provide bank details along with cheque for verification. There will be limit for AMC for bank to automatically debit the funds. OMT can be linked to many AMC for SIP or lumpsum investment purpose.

6.7 Time horizons

6.7.1 Long term

• It is said to be long term if investments are more than or between 10 and 15 years. The purpose can be retirement, child’s education, marriage, buying real-estate.

6.7.2 Short term

• It is said to be short term if investments are between 1 and 5 years. The purpose can be child’s education, buying car, smart phone or any appliances.

6.7.3 Medium term

• It is said to be medium term if investments are between 5 and 10 years. The purpose can be Buying luxurious car, buying equipment’s for the business.

6.7.4 Regular needs/ immediate need

• This is investment period less than one year, the purpose is to achieve immediate and nearby goals.

6.8 Rupee cost averaging

• When investor invests a fixed amount regularly in a particular mutual fund scheme for a long period, he will be indirectly investing in all market situations that is investors investment is being invested in all markets ups and downs.
• What happens here is, whenever market is up the price of each units in mutual fund scheme will be higher hence few units are purchased. Similarly, when the market is down the price of each units in mutual fund scheme will be lower hence more units are purchased.
• Now after long period of investment the average price paid per unit will be lower, this is how market fluctuations are overtaken.

6.9 Investment Risk

All investment will carry some kind of risk associated with it, it is important to understand the risk, risk apatite and take decisions appropriately. There are two types of investment risk namely,

• Systematic risk
• Unsystematic risk
• Other risks

6.9.1 Systematic risk

Systematic risk, it is the risk because of uncertainty associated to entire market, which is caused by factors which are external to company or industry. Which affects securities across the market. These are uncontrollable factors. Managed by asset allocation. This also called as market risk, un diversified risk. Systematic risk has the following classifications. (FinIQ, 2018)

Interest rate risk

Caused by interest rate fluctuation in the market. Which affects debt instruments.

Inflation risk

Caused by increase in cost of goods and services, investment is not affected from this risk. This risk is inevitable.

Currency risk

Caused by unfavorable exchange rate fluctuation, this affects commodity currency investments.

Socio political risk

Caused by political events, decisions and social conditions, examples are GST and demonetization.

Regulatory risk

Caused by changes in laws and regulations and affects business. Example taxation law change.

6.9.2 Unsystematic risk

Unsystematic risk, it is the risk because of uncertainty associated to particular company or industry. Which is caused by factors which are internal to company or industry. Which affects securities of certain companies. These are controllable factors. Managed by portfolio diversification. This also called as specific risk, diversified risk. Unsystematic risk has the following classifications. (FinIQ, 2018)

Business risk

This is specific to company and time of the sector, caused by management in the company.

Credit risk

Caused by bad management of debt, also called as default risk. This can be the early indication of insolvency.

6.9.3 Other risks are given below

Liquidity risk

Caused when not being able to sell or cannot raise required capital. Common in real estate investment, lock in period type of investment.

Re investment risk

Sometimes investment/ capital is reinvested in schemes which has low interest rate/ yield. This is  common in debt instruments.

CHAPTER 7

FINANCIAL

PLANNING –

MUTUAL FUND

7.0 Mutual fund

Mutual funds are investment products available to investors through which they can invest in an asset class of their choice such as equity, debt, gold or real estate. Investors who may not want to invest directly in financial markets may instead get exposure to the same securities through a mutual fund. Similarly, investors can diversify their portfolio holdings even with small amounts, by investing in gold and real estate through mutual funds. Each product offered by a mutual fund is called a scheme or fund. A mutual fund may offer multiple schemes or funds, each catering to a different investment need of the investor.

An investor may choose to invest through a mutual fund to be able to use the services of the fund manager who will make the investment decisions relating to selection of securities, timing of investments, reviewing and rebalancing the portfolio periodically and executing the operational decisions related to the portfolio.

There are multiple entities involved in the activities of a mutual fund business. All these entities are regulated by SEBI for their eligibility in terms of experience and financial soundness, range of responsibilities and accountability. A mutual fund is set up by a sponsor, who is its promoter. Trustees are appointed to take care of the interests of the investors in the various schemes launched by the mutual fund. An asset management company (AMC) is appointed to manage the activities related to launching a scheme, marketing it, collecting funds, investing the funds according to the scheme’s investment objectives and enabling investor transactions. In this, they are assisted by other entities such as banks, registrars to an issue and transfer agents, brokers or members of stock exchanges, custodians etc.,

7.1 Objectives of mutual fund

• Capital appreciation achieved by investing on asset which has potential of high growth.
• Income generation, by investing in securities which provide stable regular dividends in form of income.

The Units in mutual funds are similar to the shares of the company, when ever one buys the scheme the mutual fund units are allocated. The price per each unit of mutual fund is called as net asset value.

Net asset value will be fluctuating day by day as per mutual fund performance. When ever one purchases or sells the mutual funds the amount value is based on the product of number of units and price of net asset value.

7.2 Mutual fund house

Sponsor is similarly to promoter of a company. Sponsor establishes the trust. Trustee are present in the trust, they hold the legal title of the assets of the schemes on behalf of the fund holders. They are under the super vision of the SEBI, SEBI monitors trustees ensuring legal compliances and protecting the interest of investors. Similarly Custodian holds securities of the scheme in its custody on behalf of mutual fund investors. (FinIQ, 2018)

Asset management company is another part of mutual fund house which is responsible for the day to day operations of the assets in the company.

7.3 Steps for investing in mutual fund

• KYC- know your customer is mandatory step for mutual fund investment, this is linked with Aadhar card, pan card and other proof.
• Scheme have to be selected that suits investment purpose, risk associated with scheme, objectives and goals of investor. The scheme selection can be done with the help of the finical consultant or else investor can select his scheme based on personal research.
• After selecting the scheme investor has to see whether he is comfortable with the lumpsum amount investment or systematic investment planning (SIP- monthly small investments).
• Now that the investment amount has been selected investor needs to determine time horizon of investment
• Filling the application form of mutual fund is next step which is done online or offline.
• Attaching cheque with desired amount or providing bank details for direct debit/credit card from/to of the bank.
• Next step is to register the nominee for the investments by submitting the nomination form.

After the applications are being processed investor needs to do the following,

• Collecting folio number for every investment
• The amount invested will give units of mutual fund based on net asset value
• Investor should make arrangements for next investment premiums.

The investor should be cautious about the risk associated with the investment, understanding which scheme to investment, it is recommended to select debt mutual fund for short term goals, similarly equity mutual fund for the long-term goals.

7.4 Choosing direct plan or regular plan

Every mutual fund will have two plans namely direct plan and indirect plan.

Direct plan is meant for those investors who already has prior knowledge of mutual funds and have time to take care of their investments independently. Here investor will be alone while completing investment process and documentation. Direct plan can be purchased online through asset management companies or physically by visiting offices. The expense ratio will be low compared to regular plans and hence more return is expected from this kind of plan.

Regular plan is meant for those investors who don’t prior knowledge of mutual funds and have no time to take care of their investments independently. Here investor will get assistance for completing investment process documentation and for all situations. Mutual fund advisors and distributers will be helping regular plan investors. Regular plans can be bought through online through distributer websites or through trading accounts. Investments are done through the assistance of the distributers and financial advisors. The expense ratio will be higher for regular plan and hence the return will be comparatively low. (FinIQ, 2018)

7.5 Choosing growth option or dividend option

Growth option

• Growth option is for those investors who want take power of compounding in to their investments. The gains on the net asset value is reinvested back in to the mutual fund scheme.

Dividend option

• There are two options in this plan namely, dividend payout and dividend reinvest. In Dividend payout option, the scheme of the mutual fund provides the dividend monthly or quarterly or even semiannually. The dividends are provided to the investors. This kind of option is recommended to those investors who look for intermediate payout from investments.

Dividend reinvest option

• Dividend reinvest option, the monthly returns or dividends from mutual funds are reinvested in to the mutual funds to buy some more units of same mutual fund scheme, based on the price of net asset value. So that the at the time of redemption large corpus is obtained to achieve financial objective.

7.6 Why to invest in mutual fund?

There are many instruments to invest like debt, public provident fund, commodity investment, stock market investment or equity, gold, real estate investment etc., here are few reasons to invest in mutual funds for investors.

Diversification

• All mutual fund schemes come with diversified investment, the only reason is to reduce the risk. In the scheme if one or few investments (stocks and bonds) doesn’t give returns, the scheme is backed up by other investments (stocks and bonds) to cover the loss, this is only possible because of diversification. In diversification the investment is spread across all avenues, so the mutual fund need not depend on one avenue for performance then the risk is automatically get low.

Profession fund management

• There is no other investment which guides investor at each step other than mutual funds. The guidance is provided by fund managers as they process skills, experience and understanding of the market for sound investments based on investors objective. All the fund managers are backed up by the research teams to take calculated risk.in investor point of view, investor need not have to the pro at financial things to take decisions, as the investors time and efforts are reduced by professional guidance.

Supports all kinds of financial goal

• Each mutual fund provides so many schemes and it is increasing day by day. There is at least two or three schemes which cater the investors goal. The goal can be short-term or long-term.

Regulated investment- transparency

• Mutual funds are under supervisor of the regulatory authority called SEBI, so there is no chance of fraudulent activities. If any of the mutual fund house goes insolvent or doesn’t want to continue the other mutual fund house will be there to buy such mutual fund house. One of the example is HDFC Top 200.

Liquidity

• When ever investor wants to exit there is nothing stopping from that. Investors invested capital is not calculated for exit load, only profits are considered.

Affordability

• The mutual fund is designed in such a way that people can invest in forms of lumpsum amount or else monthly small investment known as systematic investment planning. The advantages of systematic investment planning (SIP) are,
• Small amount from one hundred rupees is enough to invest.
• Diversification of investment is achieved even with such small amount.
• Market fluctuations are over taken in monthly SIP’s by investing in all kind of market situations.
• Investors find it comfortable and convenient to invest saved money.
• To achieve goals faster one can increase SIP amount.
• One can have more than one SIP in different schemes and can also increase the amount as the income grows.

7.7 Types of mutual fund

Mutual Fund classification

Based on Structure

Based on investment objective

Open ended funds

Close ended funds

Equity fund

Debt fund

Hybrid fund

Solution oriented fund

Other fund

Figure 4: Types of mutual fund (Source: http://www.hdfcfund.com, “Types of mutual fund”, FinIQ, 2018)

Open ended mutual fund

• Open ended mutual fund is a type of mutual fund where units can be purchased and sold at any point of time. They do not have any fixed maturity time. This provides liquidity to investors as investors can redeem at any point of time.

Close ended mutual funds

• Close ended mutual funds are type of fund where the units are purchased only during initial offer period called new fund offer period. These will have the fixed maturity date, and after the maturity date the scheme is automatically redeemed. The liquidity is limited as the investor has to exit before maturity date by selling all the units of the scheme.

Equity mutual fund

• Equity mutual fund, as the name suggests the funds are invested in listed share market either NSC or BSC, this is recommended for long term as it is suitable for capital appreciation. These are at high risk as it is linked to stocks and over the time the risk factor will decrease.

Debt mutual fund

• Debt mutual fund, here the funds are invested in fixed income securities like government securities, corporate bonds, debentures. They are also called fixed income funds. They give steady returns to investors. This is recommended for short to medium term. The risk is moderate this can be alternate for conventional savings instruments like savings account, fixed deposits.

Hybrid funds

• Hybrid funds, this is a mix investment of funds in debt and equity. Here investor has to rebalance asset of the portfolio periodically. Based on time horizon it caters investors objectives.

7.8 Common misconceptions of Mutual fund

• One need not be the expert to invest in mutual funds, because the funds are managed by expert fund managers and they are backed by strong research team with skills and experience. So, investor need not worry on which stock to invest or redeem.
• Investor need not be wealthy to invest in mutual fund, because investor can start investing with SIP starting from hundred rupees or lumpsum from thousand rupees. There is flexibility to increase the investment amount over period of time. (FinIQ, 2018)
• Mutual funds are investing funds only in stocks, this is wrong misconception because there are various kinds of mutual fund schemes, where some invests in stocks some in debt instruments and there are schemes like hybrid scheme where investments are in both debt and equity. It is left to investor to choose which kind of investment is suitable.
• All investments are not eligible for tax deductions because only investment in equity and equity lined saving scheme is liable for tax deduction under section 80C act.
• D-mat account is not compulsory for mutual fund investor, but KYC process is mandatory
• Mutual fund will double the investments is big misconception because the investment dependents on various factor along with fund manager, so investment for long term may give good returns based on performance of funds.
• Scheme that pays dividend is not necessarily better than a scheme which doesn’t pay dividend.

7.9 Steps for selecting mutual fund

• Objective, investment objectives needs to be identified by investor.
• Risk profile, investor may be aggressive, conservative or moderately aggressive. So based on the time horizon one needs to take appropriate risk
• Research mutual fund scheme, if financial planner is available he will help the investor or if investor choses direct investment then he needs to do private research on various mutual fund scheme, different fund house, risk, asset under management, asset class etc., and list out affordable schemes. Matching of the mutual fund scheme has to be done appropriate to goals of the investors.
• Costs involved in scheme like entry load, exit load, expenses and taxes has to be considered for selecting mutual fund scheme.

CHAPTER 8

FINANCIAL PLANNING – OTHER PRODUCTS

8.0 Provident Fund (PF)

• Provident Fund is also known as Employee’s Provident Fund (EPF). This scheme is specially made for retirement and emergency purpose. This is available for all the individuals who work with salaried job. It is mandatory for the organization to provide Employee’s Provident Fund which is having employees more than twenty number of staff.
• Here the employee will be saving minimum twelve percent of the salary amount in to Provident Fund account every month and employer will put same amount in employers Provident Fund account. It is left to the employee to increase the portion of the salary to the Employee’s Provident Fund. This is observed by the Employees Provident Fund Organization of India (EPFO). The amount in the as Employee’s Provident Fund will get interest rate of 8.75% compounded semiannually. Now it is coupled and linked with Aadhar card and UAN number is assigned, so as to help investor to link his account when he switches job. After the retirement age the investor will get option to withdraw money completely or partially.

8.1 Public Provident Fund (PPF)

• This was introduced in the year 1968 by the ministry of finance in order to have successful retirement for those who do not have Employee’s Provident Fund. And people who have the Employee’s Provident Fund can also do investment in Public Provident Fund also. Here only the individual has to put money in Public Provident Fund unlike Employee’s Provident Fund. This account can be opened at any bank and post office. The locking period is fifteen years. The maximum limit of deposit in each financial year is one and half lakhs rupees. On this account loan can also be provided from year of three. Renewal allowed for five years at a time. The current interest rate is 8.1% per annum. Withdrawal is from the seven years of investment and complete withdrawal can be made at the maturity.

8.2 Senior Citizens Savings Scheme (SCSS)

• Senior Citizens Savings Scheme investment offers the option of regular income with good safety on investment, this has become the popular investment for people who are sixty and above years of age (for defense people minimum age is fifty years). This is not allowed for nonresident Indians and Hindu undivided family. This scheme is available in banks and post offices. One can invest maximum of fifteen lakhs rupees only with multiples of thousand rupees. The return or rate of interest of 8.3% is given per annum. This is backed up by Indian government hence it is safest kind of investment. This scheme is flexible and has average tenure of five years and can be extended up to three years.

8.3 National Savings Certificate (NSC)

• This scheme can be opened with the post office. This is government of India initiative. People invest to save tax. This is secured and low risk product. The tax benefit is up to the investment of one lakh and fifty thousand rupees investment under section 80c. The interest rate of 7.6% is provided annually on investment, the interest generated is added to investment and compounding takes place. Though it is low return yielding scheme people go for it because of the security on investment. Investor can choose maturity period either five years or ten years. Investment can be made with small amount starting from hundred rupees.

8.4 Kisan Vikas Patra (KVP)

• Kisan Vikas Patra is one of the instrument for saving. This is for people who like to invest for long term. This scheme was introduced in 1988 and reintroduced in 2014. Tis scheme has be regulated by government thus any investment which cross fifty thousand rupees should mandatorily link it with PAN card and income source to be shown if investment crosses above ten lakhs. The advantage of this is easy process for investment from post office. Indian residents are having the option to get KVP. People in semi urban and rural people like to take KVP.

8.5 Post Office Savings Schemes (POSS)

• Post Office Savings Schemes is a debt instrument but this similar to bank which offers savings in post office. Post Office Savings Schemes gives decent return and suited for rural and semi urban people. POSS will have the limited documentation. The return is low as it is debt product.

8.6 National Pension Scheme

• National Pension Scheme is introduced by Indian government to provide the retirement income. Investors are provided with PRAN- permanent retirement account number. Investors of age between eighteen and sixty years can open the National Pension Scheme. People with no salary can also apply for National Pension Scheme. The invested amount will have major exposure to equity and as investor is getting near to retirement the exposure to equity reduces.

8.7 Savings account bank deposit (SB)

• Savings account are created to encourage saving behavior in the people. People with steady income will benefit from savings account. Saving bank account will provide the interest annually on the savings account. Many banks will provide savings account facility. Banks even provide facility to open savings account for children. In savings account the transaction are limited up to twelve transactions. Because banks want consumers to save money over time. Savings bank account encourages people to save the earned money and also keeping the money safe and liquid so as to meet the goals.

8.8 Fixed deposit (FD)

• Fixed deposit is saving scheme similar to the savings account, where the lumpsum amount is locked for the period in the name of savings. In turn banks provide the interest rates quarterly or semiannually. If amount is withdrawn with in the lock in period the penalty is levied because to discourage the investor from withdrawing. Fixed deposit will have the higher interest rates than the savings account. The tenure for fixed deposit is from seven days to ten years.

8.9 Recurring deposit (RD)

• It is the savings facility by the banks where the investor will deposit fixed amount in to the account monthly. This provides flexibility for the investor in savings. At the end of the tenure the investor will be provided with the lumpsum amount consisting of the principal and the interest. Because of the recurring investment the compounding will take place on the investment. The investment amount starts from rupees ten and minimum tenure is six months to ten years.

8.10 Flexi deposits

• Flexi deposit is similar to the recurring deposit feature. The difference is that the investment amount is not fixed. That is based on the convenience of the investor one can save variable amount of the savings monthly. Except this all other feature is same as the recurring deposit.

8.11 Equity linked savings scheme (ELSS)

• Equity linked savings scheme is known for the tax saving feature, this fall in the mutual fud investment. It is equity related instrument with the lock in period of three years. For investor this investment will provide wealth building on the other hand tax savings.

CHAPTER 9

FINANCIAL PLANNING – TAX IMPLICATION ON INVESTORS

Tax implications on investments

9.0 Tax slab

In India, income tax is levied on individual taxpayers on the basis of a slab system where different tax rates have been prescribed for different slabs and such tax rates keep increasing with an increase in the income slab. Such tax slabs tend to undergo a change during every budget. (Cleartax, n.d.)

Income Tax Slabs	Tax Rate	Health and Education Cess
Income up to Rs 2,50,000*	No tax
Income from Rs 2,50,000 – Rs 5,00,000	5%	4% of Income Tax
Income from Rs 5,00,000 – 10,00,000	20%	4% of Income Tax
Income more than Rs 10,00,000	30%	4% of Income Tax

Table 4: Income tax slab (Source: http://www.cleartax.com, “Income tax slabs”, 2018)

9.1 Tax on Fixed deposit- FD

Penalty will be levied if the amount is withdrawn with in maturity period. Only return on investment is eligible for taxes, so there is no tax on investment. The return is taxable as per the tax slab. If the return is reinvested or the return is more than ten thousand rupees then ten percent of TDS will be levied. If annual income is less than 2.5 Lakhs, then ten thousand rupees deduction is waved off. If FD is kept for five years or longer then only up to one lakh fifty thousand rupees are tax deductible.

9.2 Tax on Public provident fund – PPF

This is a retirement investment which is having a lock in period of fifteen years and tax is deductible only up to one lakh fifty thousand, but the interest obtained is having zero tax.

Tax deductions under section 80c

Investments or payments up to sum of one lakh fifty thousand are tax deductible under section 80c of the income tax act 1961.

The following are the investment which fall under the section 80c,

• Equity linked savings scheme (ELSS)
• Public provident fund (PPF)
• Fixed deposits
• National saving certificate
• Unit linked insurance plans (ULIP)
• Sukanya samruddhi yojana
• Senior citizens savings scheme

9.3 Tax on ELSS

Investments are taxed according to section 80c and dividends are taxable up to 10% and surcharge of 4%. Short term capital gain tax (STCG) applicable at 15% tax, surcharge and 4% of cess, if units are redeemed within a year. Long term capital gain tax applicable for gains above one lakh per annum at ten percent tax, surcharge and 4% of cess.

9.4 Tax on non-ELSS mutual fund

Here investments are not eligible for tax deductions. Dividends are taxable up to 10% and surcharge of 4%. Short term capital gain tax (STCG) applicable at fifteen percent tax, surcharge and 4% of cess, if units are redeemed within a year. Long term capital gain tax applicable for gains above one lakh per annum at ten percent tax, surcharge and 4% of cess.

9.5 Tax on debt mutual funds

Det mutual fund have tax benefits like indexation. Indexation is beneficial for long term capital gains. The tax is only payable at the time of redemption. If redemption is within three years from investment date, our gains will be taxable as per income tax slab.

If redemption is after three years from investment date, twenty percent long term capital gain tax will be applicable with indexation benefit.

 

9.6 Indexation

It is a technique to adjust tax payments on capital gains by taking inflation in to account. Indexation allows one to adjust the purchase price of an investment for inflation, in capital gains calculation. As a result, capital gains on the investment reduce, which in turn reduces tax liabilities. Inflation is calculated by central government and revised every year.

CHAPTER 10

FINANCIAL PLANNING – STRATEGY

Strategies for investment

10.0 Systematic withdrawal plan – SWP

Systematic withdrawal plan is option offered in mutual funds where investor can withdraw specific about at predefined time intervals. Intervals may be annually, semiannually, quarterly or monthly. It provides regular income from investments.

There are two types in SWP namely,

• Fixed withdrawal

Investor specifies a fixed amount which is withdrawn over the period of time

• Capital appreciation withdrawal

Only the capital appreciations are withdrawn from investments by maintain fixed

investment amounts.

Benefits of are, (FinIQ, 2018)

• Provides regular income
• Potential to earn higher returns
• Tax efficient
• Low sensitive to fluctuation

Systematic withdrawal plan is used by investors for the following,

• Retirement income
• Educational expenses
• Payment of premium for insurance
• Paying EMI
• And for monthly expenses

 

10.1 Systematic transfer plan – STP

Systematic transfer plan allows investor to invest a certain lumpsum amount in to a mutual fund scheme regularly. Investors use this mainly for the equity investments. Sometimes return or capital gains in debt scheme is transferred to equity.

The different types of Systematic transfer plan are,

• Fixed STP

The fixed amount is transferred from source scheme to target scheme.

• Capital appreciation STP

Only profits from source schemes are transferred to target scheme.

• Flex STP

Here the amount transferred flexibly from source scheme to target scheme.

Benefits of STP are, (FinIQ, 2018)

• Gives potential to get higher return
• Eliminates market timing risk
• Helps to rebalance the portfolio
• One of the best way to shift the investments from one scheme to other
• Rupee average cost is obtained

10.2 Strategies for investment if lumpsum money available

Example taken have following assumption

• Lump sum amount considered is Ten Lakh
• Money can be liquidated any time
• Money needed to be invested either in debt or equity instrument
• The interest generated i=on the capital is neglected

Ultra conservative investment approach

The investor here, wants to take very less risk on capital, thus only one percent of the lumpsum that is ten thousand rupees is transferred in to equity every month This is continued till the lumpsum capital becomes zero. This is shown in below figure.

Table 5: Ultra conservative investment approach (Source: Intern, “Strategies”, 2018)

Conservative investment approach – 1

The investor here, wants to take less risk on capital, thus only Two percent of the lumpsum that is twenty thousand rupees is transferred in to equity every month This is continued till the lumpsum capital becomes zero. This is shown in below figure.

Table 6: Conservative investment approach 1 (Source: Intern, “Strategies”, 2018)

Conservative investment approach – 2

Everything here remains the same as Conservative investment approach -1, but the lumpsum amount is divided in two parts of Five lakh each. And two percent of five lakh is invested in to different mutual funds, like for example mutual fund of franklin and Reliance.

Table 7: Conservative investment approach 2 (Source: Intern, “Strategies”, 2018)

Moderately investment approach

Here investor will have medium risk associated with the capital, Capital is divided in to the five lakh each, and one part is completely invested in to the diversified large cap equity. And another part is made two percent systematic transfer in to the small and mid cap equity till capital becomes zero.

Table 8: Moderately investment approach (Source: Intern, “Strategies”, 2018)

Aggressive investment approach – 1

Here investor will have High risk apatite associated with the capital, the investor should not put all the capital in to the equity mutual fund. This approach is not recommended. Aggressive investment approach – 2 is recommended.

Table 9: Aggressive investment approach – 1 (Source: Intern, “Strategies”, 2018)

Aggressive investment approach – 2

Here investor will have High risk apatite associated with the capital, the capital has to be divided in to X, Y Z percentages of the capital according to the investors wish and investing in to either large cap, small cap or midcap mutual funds once.

Table 10: Aggressive investment approach – 2 (Source: Intern, “Strategies”, 2018)

Market fall strategy – 1

This is to be followed only if  market falls 25% from peak. Here investor can do two things, one is, shifting 50% of the capital in to equity. And second option is doubling the STP (Systematic transfer plan) amount.

Market fall strategy – 2

This is to be followed only if  market falls 50% or more from peak. Here investor has to put entire capital amount in to the equity diversified in small cap, mid cap and large cap.

CHAPTER 11

FINANCIAL PLANNING – INVESTORS BEHAVIOR

11.0 Different types of investors behaviors

The impatient investor

The impatient investor, these investors like to trade frequently with the intention of making above average returns. Tend to be more comfortable with risk when the portfolio is performing well and less comfortable when their portfolio is performing poorly ie., sell low buy high. They don’t have any strategy just with their instincts they trade, they dissent like to have buy and hold strategy. Such investors need to take advice from financial planners to mitigate their behaviors. (FinIQ, 2018)

Risk avoiders

Risk avoiders, these investors like to avoid risks as much as possible and prefer keeping money idle and safe. The product chosen by such investors which gives stable and secure return. This kind of behavior is good for short term, for long term perspective investor needs to change the mentality.

Frequent spenders

Frequent spenders, these investors are shopaholic, they like to do shopping and spend with out control. Such investors have to analyze the spending patterns and put limit on spending.

Bossy behavior

Bossy behavior, the investors like to have everything under their control, they frequently analyses bank balances, spending and they become emotionally attached to the low in balances. Such investors need to look the world in bigger picture.

Ignorant investors

Ignorant investors, these investors will procrastinate the investment plans and fails to achieve their goals on time. Such investors has o start with small goas with the guidance of financial planners.

Smart investors

Smart investors, they are more informed investors who are serious about investment and tend to take calculated risk. These investors are known for the taking advantages of the opportunities in market fluctuations. Such investors need to keep themselves updated.

11.2 Common investment biases

These are the following biases which influences the investor during investment.

Conformation

Here investors try to get or seek information and opinions that support perceived notions about investments. This this makes blind investments.

Optimism

Here investor over estimates the return on investment and invests in wrong avenue.

Loss aversion

Many investors invest with wrong objective of avoiding loss rather than gains on investments. This makes investors to invest in unprofitable investments.

Recency

People try to invest in such schemes where it has performed well recently rather than looking in to historical performance.

Attention

This is falling in to trap of frequently highlighted products. This makes blind investment with out analyzing stability of the investment.

Herd mentality

If many people are in one scheme this will tends investors to invest in such schemes. This is following the crowd.

11.3 Mitigating volatility

Volatility is inevitable, so investor needs to patient in investments to avoid rash decisions. Investing for long term will reduce the risks of volatility. Diversification and not withdrawing frequently and doing systematic investment planning are the only ways to mitigate volatility.

CHAPTER 12

FINANCIAL PLANNING OPINION SURVEY

Potential client’s survey results

Survey was conducted for hundred and twenty responses were recorded from potential client’s the average age group of the survey is 30 years.

Figure 5: Age  (Source: Intern, “Age”, 2018)

The survey was conducted in Bangalore city, ad the average age of the respondents was around 22 to 30. So one can see that youth is interested in knowing about financial products. They may be potential clients for financial consultancy services.

Figure 6: Inflation (Source: Survey, “Inflation”, 2018)

About half of the people were aware of the inflation. So one can say that lot of consumer education is needed.

Figure 7: Wealth (Source: Survey, “Wealth”, 2018)

About half of the people were aware of the inflation. So, one can say that lot of consumer education is needed. One can see many people are cautious about investment.

Figure 8:  Savings  (Source: Survey, “Savings”, 2018)

One can see people are not calculating their expenditure, this can affect their savings behaviour.

Figure 9:  Earning and saving (Source: Intern, “Earning and saving”, 2018)

Most of the people are saving their money, so financial consultancy services have lot of potential to cater needs of clients.

Figure 10:  Equity (Source: Survey, “Equity”, 2018)

Majority of people are afraid of risk posed by share market, hence people are less likely to invest in Equity.

Figure 11:  Wealth  (Source: Survey, “Wealth”, 2018)

We know that gold doesn’t beat inflation, around 40% are investing in gold thinking that they are building their wealth, instead of investing in gold, one ca invest in different financial avenues.

Figure 12:  Beat inflation (Source: Survey, “Beat inflation”, 2018)

Majority of people doesn’t know that, real estate, stock market are the only instruments which beat inflation.

Figure 13:  Financial goal  (Source: Survey, “We Financial goal  alth”, 2018)

People are spending their earnings lavishly, majority doesn’t have finacial goals to achieve, so this may be concerning actor for financial service industry.

Figure 14:  PFP  (Source: Survey, “PFP”, 2018)

Only 19% of the respondents have personal financial planning, so there is huge scope and potential to provide personal financial planning service to the society,

Figure 15:  Need of PFP  (Source: Survey, “Need of PFP”, 2018)

Majority of the people are interested in taking personal financial planning.

Figure 16: Transaction (Source: Survey, “Transaction”, 2018)

It is recommended for financial consultancy service to have advisory based fee model.

Key takeaway from survey

• We came to know that around fifty percent of the people are already aware of inflation, so it would be easy for those people to educate them.
• From this survey it is evident that people don’t know rational to save and spend based on income.
• 55% of the people does not have the habit of savings attest 25% of the income.
• 60% of the respondents feel that investing in stocks is risky.
• 58% of the respondents knows that gold is not building the investors wealth.
• 50% of the investors doesn’t know where to invest to beat the inflation for getting the greater return.
• 60% of the respondents doesn’t have financial goals, so the investment habit is lacking.
• 80% of the respondents doesn’t have their own personal financial planning.
• 60% of the respondents are interested in having a personal financial planning.
• It is recommended for financial consultancy service to have advisory based fee model instead of commission-based revenue model as majority of the respondents likes to have advisory based fee model.

CHAPTER 13

FINDINGS

13.0 Transfer of capital appreciation

Considered the following mutual funds

• Franklin India ultra-short bond          
• Franklin India blue chip fund
• Franklin India prima fund                             

Of term of ten years tenure. With growth option. We considered Franklin India ultra-short bond as source fund, then the capital application on ten lakhs are transferred to blue-chip fund and prima fund.

The return obtained are,

Investment returns for franklin India ultra-short bond fund	8.29%
Investment returns for franklin India blue chip fund	13.27%
Investment returns for franklin India prima fund	21.47%

• As we can see Franklin India ultra-short bond is yielding low return of 8.29% the part of profit obtained is transferred in to those funds (Franklin India blue chip fund and Franklin India prima fund) which provide consistent higher yields (13.27% and 21.47% respectively).
• What we can observe is that amount investment in Franklin India ultra-short bond is stagnant, but the only the capital appreciation is transferred thus investor can take risk of investing in high yield schemes.
• This was only possible of long time horizon of ten years (2008 to 2018), even though the market ups and down was there, this strategy provided higher returns.

The over all return is calculated below,

Out of ten lakhs invested after the full STP from Franklin India ultra-short bond in to Franklin India blue chip fund and Franklin India prima fund, ten lakhs have grown in to 31,18,106.06 rupees, that is with return of 11.67%

Overall Investment Returns since 8th January 2008 to 27 April 2018
	08-01-2008	-10,00,000.00
	27-04-2018	31,18,106.06
	XIRR	11.67%

Table 11: Transfer of capital appreciation (Source: Intern, 2018)

13.1 STP of one percent

In this case what we will  do is we invest ten lakh on source scheme Franklin India ultra-short bond then only the one percent of ten lakh that is ten thousand rupees will be divided equally (five thousand rupees) and invest in target scheme (Franklin India blue chip fund and Franklin India prima fund).

The return obtained are,

Investment returns for franklin India ultra-short bond fund	8.28%
Investment returns for franklin India blue chip fund	13.22%
Investment returns for franklin India prima fund	21.12%

Table 12: STP of one percent (Source: Intern, 2018)

Which is same as the previous case. The overall return is calculated below,

Out of ten lakhs invested after the full STP from Franklin India ultra-short bond in to Franklin India blue chip fund and Franklin India prima fund, ten lakhs have grown in to 36,41,511.09 rupees, that is with return of 13.367%. with 1% capital appreciation.

Overall Investment Returns since 8th January 2008 to 27 April 2018
	08-01-2008	-1000000.00
	27-04-2018	3641511.09
	XIRR	13.36%

Table 13: STP of one percent returns(Source: Intern, 2018)

13.2 STP of hundred percent during 25% fall in the market

Now we calculate when market is fallen 25% from peak all the money is transferred to target scheme that is buying at low price. So, return obtained is 18.02% over ten years.

• On the day of 09-03-2009 the market was fallen 25% from peak which is the right time to apply this case.
• Instead of doing STP of fixed amount or the 1%, what we will do is transfer or invest entire amount in to the target schemes.
• This provided huge return of 18.02% by taking advantage of market fall. By ten lakh rupees growing in to fifty-one lakh rupees over ten years.

Overall Investment Returns since 8th January 2008 to 27 April 2018
	08-01-2008	-1000000.00
	13-12-2017	5186993.96
	XIRR	18.02%

Table 14: STP of hundred percent during 25% fall in the market – returns (Source: Intern, 2018)

13.3 STP is doubled when market fall is below 25%

When market is under crisis we start to double the STP and when market is fallen 25% from peak all the money is transferred to target scheme that is buying at low price. So, return obtained is 21.00% over ten years.

• On the day of 14-03-2008 the market was fallen considerably. So, from this day the STP will be double (twenty thousand rupees) the initial STP amount of ten thousand rupees.
• This is followed till 09-03-2009, which is known for market crash of 25%. On this day the entire amount is invested in target schemes.

Overall Investment Returns since 8th January 2008 to 27-04-2018
	08-01-2008	-1000000.00
	27-04-2018	7130991.61
	XIRR	21.00%

Table 15: STP is doubled when market fall is below 25% – returns (Source: Intern, 2018)

13.4 Difference in return of mutual fund and fixed deposit

We calculated the difference in return of debt mutual fund (franklin India ultra-short bond fund) and bank FD the result obtained is given below. Here the annual bank interest calculated at 6.50%. we can see mutual fund performs better than bank FD.

RETURN COMPARISON DEBT MUTUAL FUND Vs. BANK FD
DATE	CAGR FOR DEBT MUTUAL FUND	CAGR FOR BANK FD
01-12-2016	-10000000	-10000000
02-01-2017	50000	50000
01-02-2017	50000	50000
01-03-2017	50000	50000
03-04-2017	50000	50000
02-05-2017	50000	50000
01-06-2017	50000	50000
03-07-2017	50000	50000
01-08-2017	50000	50000
01-09-2017	50000	50000
03-10-2017	50000	50000
01-11-2017	50000	50000
04-12-2017	50000	50000
01-01-2008	50000	50000
01-02-2018	50000	50000
01-03-2018	50000	50000
03-04-2018	10236404.37	10093564.71
XIRR	8.01%	6.84%

Table 16: Difference in return of mutual fund and fixed deposit (Source: Intern, 2018)

• We can clearly see mutual fund out performs the investment in Fixed deposits.
• Debt mutual fund is considered because Fixed deposit is debt instrument, which makes a good comparison
• So we can conclude that the mutual fund is winner in all aspects of return when compared to bank investments.

13.5 Comparing regular and direct plans in mutual fund (HDFC top 100)

• We considered performance of five years from 2013 to 2018 with SIP of 1000 rs, the total return given by regular is 13.91%. and direct is 14.71%. we can see only one percent difference in return between direct and regular plan.

13.6 Comparing regular and direct plans in mutual fund (Franklin prima fund – Direct and Regular)

• We considered performance of five years from 2013 to 2018 with SIP of 1000 rs, the total return given by regular is 22.93%and direct is 24.20%. We can see only two percent difference in return between direct and regular plan.
• We can conclude that the regular is giving less returns as the leak or loss in the profit is happening at the commission and other charges levied by investment advisor and AMC. So it is better to choose direct plan for informed investor in mutual fund.

13.7 Portfolio created for a case study

Name	Mr. Wealthy
Age	25
Marital Status	single
Place of Permanent Residence	Bangalore
Place of Employment	Excellent Technologies
Professional Status	Senior Software Engineer

Table 17: Client details 1 (Source: Intern, 2018)

Details of Dependents
Name	Age	Relationship	Earning Status
Rich Dad	58	Father	No
Rich Mom	52	Mother	No

Table 18: Client details 2 (Source: Intern, 2018)

Finical goals of client (self)

• Self wants to accumulate Rs. 3,00,000/- towards self’s marriage by end of 2019.
• Self wants to accumulate Rs. 5,00,000/- towards other financial goals by end of 2020.
• Self wants to accumulate Rs. 30,00,000/- towards down payment for purchase of House by end of 2030.
• Self wants to retire at the age of 55. Accumulate sufficient retirement corpus.

Assets of clients
Cash Balance	1,00,000.00
Fixed Deposit	1,20,000.00
Total assets	2,20,000.00
PPF /EPF	1,07,951.00
Total Assets	3,27,951.00

Table 19: Client details 3 (Source: Intern, 2018)

13.7.1 Solution for the case study

Insurance                                                                                           

Health insurance                                                       

• It’s good to know that that the employer is providing 3 Lakh policies, but it is better to have a personal health insurance.        

Personal accident insurance                                                               

• To overcome any event of accident it is better to have personal accident insurance the value of this insurance should be approximately equal to the Life insurance that is 70 Lakh.      

Critical illness Insurance                                                                   

• A value 10 Lakh or Lakh insurance, A flouter plan is recommended                                   

Life insurance                                                            

• Since self is about to get married he is going have dependents in near future, if the Life insurance is started early the premiums will be lower
• Value of life insurance self should take is 70,00,000

Emergency Fund                                                                                                        

• Approximately the emergency fund should be of the value of expenses of one year to meet emergency of unemployment for various reasons
• so, the value of fund that self should keep in liquid form is 5,00,000, and can be accumulated three years from now and sip needed is ₹ 12,449.26                               

Goal of marriage (clients/self)                                                

• Self wants to accumulate Rs. 3,00,000/- towards self’s marriage by end of 2019.
• So, SIP needed to achieve this is        ₹ 27,266.57 monthly in Debt mutual funds

Other goals                                                                

• Self wants to accumulate Rs. 5,00,000/- towards other financial goals by end of 20
• If self has less risk apatite it is recommended to invest in Debt with interest rate of 7% annually and SIP needed is ₹ 13,746.86 monthly          
• Self wants to accumulate Rs. 5,00,000/-  along with the cushion of 1,00,000 by end of 2020 SIP needed is ₹ 16,496.23 monthly.
• Self wants to accumulate Rs. 30,00,000/- towards down payment for purchase of House by end of 2030.                                                                                   
• If self has high risk apatite, it is recommended to invest in Equity with interest rate of 10% annually as it is long term. And SIP needed is 10,009.84 monthly in equity mutual funds.
• If self has less risk apatite, it is recommended to invest in Debt with interest rate of 7% annual needed is 12316.8877 monthly in debt mutual funds at 7% rate of return.

Retirement planning                                                                                                  

• This is the right time for self to do retirement planning because, sooner the self invests, greater the corpus that he will get at the time of retirement. Self does not have PPF account, so it is recommended to do systematic investment in PPF. t is recommended to take the retirement corpus only at the time retirement.  At the age of 55 EPF will provide ₹ 1,62,78,550.58 corpus
• Considering the yearly present expense of 4,20,000. The future value with inflation of 6% at the age of 55 is ₹ 24,12,266.29. Taking average life of 75 years of male individual in India, the total expense which will take place between the age of 55 and 75 is ₹ 9,64,73,106.51. To time value of  ₹ 9,64,73,106.51 at the age of 55 is ₹ -3,00,80,770.63. which is needed as a corpus to lead successful retirement life. But EPF provides ₹ 1,62,78,550.58 corpus so balance needed for successful retirement is  ₹ 1,38,02,220.05. SIP needed for ₹ 1,38,02,220.05  is  6,356.60 monthly in Equity. It is seen that that nearly 50% of revenue is expenses, to achieve financial goals it is recommended to reduce the expenses.

13.8 Which scheme to invest?

Now that one understood the investment, types of investment, and all the things needed to know about the investment. So, the big question which scheme shall I have to choose for investment? In India there are more than twenty thousand schemes to invest, that’s big and lot of options. So how do I choose a well-tailored scheme for me which meets all the needs? The answer is not simple, it needs experience of the financial consultant, and analytics which provide calculated risk to take on. So, here are the insights that I learn from Simplus.

The exposure to equity based on risk,

Equity cap/risk	Conservative	Moderately aggressive	Aggressive
Large cap	70% exposure	60% exposure	50% exposure
Mid and small cap	30% exposure	40% exposure	50% exposure

Table 20: Equity exposure (Source: Simplus, 2018)

For the conservative investor the equity exposure is 70% to large cap and 30% in to mid and small cap. For the Moderately aggressive investor, the equity exposure is 60% to large cap and 40% in to mid and small cap. For the Aggressive investor the equity exposure is 50% to large cap and 50% in to mid and small cap.

Simplus are handling these mutual fund AMC, because these are the AMC’s which have long history of good performance.

• Franklin Templeton
• Aditya Birla sun life
• Reliance Mutual Funds
• HDFC Mutual Funds
• ICICI prudential AMC
• DSP Black Rock

It is recommended by Simplus that one need to take regular option if investor has no knowledge of financial market. And one need to take direct option of investment if investor has some knowledge of financial market also can handle their investments. And finally, open-ended scheme is also recommended where the lock in period is not fixed.

13.9 Fact sheet of mutual fund analysis

Mutual fund fact sheet is a information package available for the investor to get insights of the scheme. It gives information on fund house, information to compare the mutual fund schemes. So, here I take the example of HDFC top 100 scheme and walk through the analysis of fund’s fact sheet.

Figure 17: HDFC MF Factsheet April 2018  – HDFC Top 100 Fund (Source: www.hdfcfund.com, “HDFC Top 100”, Factsheet, 2018)

The fund’s facts sheet is designed in such a way that it is easy to understand and easy to compare with others. All the mutual fund schemes’ follow the standard template, that is why it is easy to compare the schemes.  One need to see in the fact sheet are,

• Check whether it is open ended or close ended scheme.
• Next the scheme is regular or direct scheme.
• Then the scheme is growth or dividend option.

After getting basic information of the scheme, the next step is to go deep inside the fact sheet to get insights.

• Should check the benchmark which is used by the scheme, it may be NSC or BSE. The benchmark will have the stars, higher the stars more reliable the fund.
• Every fund fact sheet will have a graph showing the performance over the years. The graph will be comparison with the benchmark index. It is recommended to choose the scheme to choose which outperforms the benchmark every year.
• Next in analysis one need to see the, ratios like alpha, beta, Sharpe ratio, R-squared. Which is essential for taking calculated risk on the investment.

Now we need to see the portfolio of the scheme,

• Here the fact sheet shows how the diversification of the fund taken place by the supervision of the AMC. Like how much percent of the investment is in Stocks, bonds, cash and others.
• The equity style box is the graphical representation of the size versus style. Which gives the information of the capitalisation of the fund versus option of growth or the dividend.
• The portfolio section also gives the market capitalisation. And the geographical representation of where the fund is popular.

Figure 18: HDFC MF Factsheet April 2018  – HDFC Top 100 (Source: www.hdfcfund.com, “HDFC Top 100”, Factsheet, 2018)

• In the portfolio additional information like top holdings of the scheme will be provided along with the percentage.
• The sectoral diversifications weightage will be provided.

So the funds fact provide the organised details to take right decision on the investment. It is left to the investor to choose the appropriate scheme.

Sot there is another way of finding the analysis of the fund’s fact sheet by some experts is by going online and finding out the fund’s performance. The common website where investors go are,

• http://www.morningstar.in
• https://cleartax.in
• http://www.moneycontrol.com
• https://www.valueresearchonline.com

13.10 Starting early investments

Why to start early investments?

Time- Always more the time more compounding on investment. So, by investing less amount one can get huge return over a period of time. If one invests not early, then the time for compounding goes down and hence the return on investments goes down. (FinIQ, 2018)

Age factor

• Being early in investments means that investor is in his young life or his maximum earning potential age. So, one can take more risk on investment at young age which has high probability of getting greater returns. His risk profile will be aggressive during young age, and over the years when person enters near retirement time he will be conservative that is willing to take low or no risk. Conservative investor always looks at safeguarding his asset that is no question of investment.

Research

• Identifying the potential investment avenues early gives a head start for investor. This is supported by technology and research. This makes investor informed and equipped with tools and makes him confident to invest.

Now that advantages of early investing has been explained, how ever the thumb rule followed by investors form fresh investment are,

• Listing the financial goals which have to be achieved through investments.
• Calculating the time horizon to achieve the goal also choosing affordable investment instrument.
• Getting guidance from expert
• Reviewing and rebalancing the investments periodically.

13.11 Prudent investor is consistent on investment

Being persistent and consistent in investments will be always advantageous because,

• Reduces risk of loss
• Potential to create wealth over long term with advantage of compounding.
• Makes investor mindful of saving behavior.
• Market fluctuations are surpassed (rupee cost averaging) by systematic investment planning.

Being consistent in investment is not the key for successful investment, we need to also keep in check with withdrawal of the investments. Because if withdrawal of the investments takes place in middle of the investment period the compounding gets deuterated making to low return on investment.

13.12 Diversifying the investments

The key for all successful returns is diversification of investments. Apart from mutual funds if investors can diversify their other investments, like investing in equity instrument, debt instrument, gold investment and in real-estate. Diversification will give steady return with balancing the risk.

Along with the diversification the timing in the market is important as when the market is high investor need to buy less and when market is low investor need to buy more.

Delay in investment will costs the investors, because more the time money is in investments chances are there that investments yields return greater than inflation.

13.13 Building retirement corpus

One need to determine the retirement corpus required at the time of retirement, after that at least ten percent of the income should be moved to retirement savings, later this portion of the increased from ten percent as per raise in income. Earlier one starts more growth will there in the investment. There is various instrument to invest for retirement fund, with the help of financial advisor and based on time horizon investment instrument has to be selected.

CHAPTER 14

MY EXPERIENCE AT SIMPLUS

14.0 Training period

Simplus financial consultancy focused mainly on the training for us, the training lasted for one month. The training provided was very useful and structured. Training was important because, Simplus understood that we are students and some of them do not have exposure of the finical concepts, in the start we started with blank page then later day by day we moved to advanced topics. The training session was from morning ten to evening five. We were guided by and Deepak sir Purushottam sir from Mangalore branch and Bangalore branch.

Orientation and onboarding of interns

The purpose of the orientation,

• The orientation made me feel welcome as the part of Simplus.
• The orientation has provided me the basic details to do the internship.
• This was the way for us (all interns) to understand Simplus
• The orientation was in between formal and informal which was helpful for me to socialise with the employees.

14.1 Overview of training process

• The training was platform for me to analyse financial market from industry perspective.
• Training helped me to develops the skills by learning new topics every day
• After learning the topics, we needed to explain (online with Mangalore branch and offline in Bangalore branch) the learnt concepts to other groups, which made the learning faster and easy.
• Group discussion on the topics was helpful because it made us to think.
• Whenever we have confusion or doubts we had Simplus employees to help us all the time.
• Daily goals were set by Simplus to cover the number topics per day systematically.
• Effective management of tasks, being ethical, achieving the goals, working productively are some of the things learn apart from theory.
• The training was implemented structured strategically which helped to learn vey quickly, effectively also improving knowledge, skill ability.
• Mr. Gerard Colaco sir’s online videos on personal financial planning were important for us to understand the financial concepts clearly and practically.
• By the end of one month we learnt all the financial products, the macro overview of the financial market was observed and learned. Different portfolios of investment were learnt. The asset allocation strategy for better returns according to risk apatite of investor, time value of money, debt and equity instruments features, insurance, emergency fund, retirement planning and mutual fund concepts was learned. This was the platform to understand how the industry works, applying the learned concepts practically.
• And on the last day of training we made the presentation on personal financial planning for twenty minutes.

14.2 Field work

After the orientation and training we were assigned to field work where we needed to educate the near and dear ones about personal financial management, savings. After educating them we need to bring awareness up on the mutual funds and it is left to the people to invest or not. The target provided in the field work was sixty members to educate. In field work, I learned and experienced about financial literacy, financial behaviour and financial mentality of people while educating them.

CHAPTER 15

RECOMMENDATION

15.0 Recommendations for organization

• Marketing is not present in Simplus, if marketing department is available it is will be easy for Simplus to reach more clients.
• No fee-based revenue model can be changed to pay per hour on advice, type of model can be implemented.
• Company is very transparent in providing guidelines and assistance, which should be followed in to the future as well.
• Only mutual funds are given more importance, instead of that, different products can be put forward to the clients.
• We did not got information about internal promotion within the organization, it is better to have such promotions internally which will be helpful for employees.
• Client relationship is excellent in Simplus, I can see the investors who are taking guidance from Simplus who are satisfied with the strategies provided, Simplus should keep on doing such good work.
• Providing temporary intern ID-card could be helpful during fieldwork.
• Increasing the number of case study and examples during the training will be helpful.

15.1 Recommendations for Client / Investors

• Starting early is the key to get power of compounding. Getting insurance is recommended, refer chapter 5 for more details
• Emergency funding, retirement planning, getting rid of debt is also recommended (refer chapter 5 for more details)
• Mutual fund is the safest invest avenue recommended for the investor (refer chapter 7 for more details)
• Along with investment in the avenues, few strategies are recommended when market goes up or down (refer chapter 10 for more details)
• Apart from mutual fund one can invest in various investment avenues (refer chapter 8 for more details)
• Before doing any investment, one needs to know in and outs of investments.

CHAPTER 16

CONCLUSION

16.0 Conclusion

The project has covered various aspects of wealth management which are required for personal financial planning. All the products in the markets were studied with the help of real time data and case study.

Speaking of the experience of the internship. Since this is first internship for some of the  interns it was a nice experience. Every day intern learned new topics on mutual funds and personal financial planning. Interns were guided by Deepak sir, Purushottam sir from Mangalore branch and Bangalore branch respectively. Interns were given all the facility to learn in Simplus Bangalore branch. Daily online video chat live session with Simplus Mangalore team, to share the topics learned was helpful to learn quickly and easily. Interns started with basic topics and moved to advanced topics day by day. Mr. Gerard Colaco sir’s online videos on personal financial planning were important for us to understand the financial concepts clearly and practically. Whenever Interns did not understand the concepts, Interns were helped by Purushottam sir to clear our doubts. Group discussion and explaining the learned concepts to other group members in Simplus was really helpful.

The macro overview of the financial market was observed and learned. Different portfolios of investment were learnt. The asset allocation strategy for better returns according to risk apatite of investor, time value of money, debt and equity instruments features, insurance, emergency fund, retirement planning and mutual fund concepts was learned. This was the platform to understand how the industry works, applying the learned concepts practically. In the fieldwork, Intern educated and brought awareness about savings, personal financial planning, and mutual funds. In field work, Intern learned and experienced about financial literacy, financial behavior and financial mentality of people while educating them. More than 60 people were educated by each intern and total of 780 members were educated by all Simplus interns from Mangalore and Bangalore team put together. And internship is successfully completed Intime.

The important take away from the internship is, internship was planned and executed in structured way. Lot of learning had taken place and personally this internship had given intern a new perspective on personal financial management and this internship have paved intern a foundation to finance and future investments.

ANNEXURE

17.0 Annexure

QUESTIONNAIRE USED FOR THE STUDY

Figure: Simplus Logo (Source: Simplus.co.in)

Figure: Simplus E-Learning (Source: Simplus.co.in)

Figure: Presentation slides used to educate clients

Figure: Presentation slides used to educate clients

Figure: Presentation slides used to educate clients

Figure: Presentation slides used to educate clients

Bibliography

• Cleartax. (n.d.). cleartax. Retrieved from cleartax: https://cleartax.in/s/income-tax-slabs
• Colaco, G. (n.d.). Simplus Financial Consulting. Retrieved from Youtube: https://www.youtube.com/user/simplusfcpl
• FinIQ. (2018). HDFC Mutual Fund. India: HDFC Asset Management Company Ltd.
• FLIP. (2018). Wealth Advisor. Learnwithflip. Learnwithflip.
• India Brand Equity Foundation, M. o. (n.d.). Financial Services in India.
• Investopedia. (2018). Mutual Fund. Retrieved from investopedia: https://www.investopedia.com/terms/m/mutualfund.asp
• Kolakowski, M. (2018, 4 29). A Beginner’s Guide to the Financial Services Industry. Retrieved from The balance careers: https://www.thebalancecareers.com/the-financial-services-industry-1287307
• Nayak, M. S. (2017). A study of ‘Buy and hold’ equity model and comparison of investment. Mysuru: SDM Institute for Management Development.
• SAWANEH, E. (n.d.). financial planning. Retrieved from successvalues: http://successvalues.com/financial-planning/
• Simplus. (2018). Educate, Enlighten, Empower. Retrieved from Simplus Financial Consultancy: http://www.simplus.co.in/
• Simplus. (n.d.). Educate, Enlighten, Empower. Retrieved from http://www.simplus.co.in/