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Formula

TVM problem set

Fin Planning

SME

Ratios

MF

Stocks

Banks

Tax

Stories

Shorts

Calcuator

P Finance

E Fund Insurance Debt Debt Equity others Plan
E Fund Life Insurance FD EPF MF SIP (Debt) Gold/ETF Will
Health Insurance RD PPF MF SIP (Hybrid/Equity) Real Estate Estate Planning
2w/4w Insurance Bonds PNS ELSS Investment Plan
POMIS/NSC Stocks Tax Plan

Sample MF p/f

Goal Mutual Fund Rate Notes
SHORT TERM GOALS ( 1-3 YRS) ( 100% DEBT)
Buying a Car Open ended ST Debt Fund 9.5% 9500/mo ( 3 yrs) , 4 lac ( 3yrs)
Go On Holiday Short term Debt Fund 9.5% 10,500/mo ( 18mon) , 2 lakh 18 mon
MEDIUM TERM GOALS ( 3-7 YRS) ( 60% DEBT , 40% EQUITY)
Child’s Higher education Monthly Income Plan 10% 14,000 / mo (5 years) , 10 lakh ( 5 yrs)
Buy House Equity Balanced Funds >3 yrs 14% 14,000 / mo ( 7 years) , 20 lakh (7 yrs)
LONG TERM GOALS (> 7 yrs ) 100% EQUITY
Child’s Marriage Diversified Equity Funds 15% 3,700 / mo(15 years ) , 25 Lakh( 15 yrs)
Retirement Diversified Equity Funds 15% 3,300 / mo (20 yrs) , 50 Lakh (20 yrs)

Simple Portfolio

  • Goals : Long term view Financial Goals , Retirement Plan
  • Banks : 1-2 Bank A/c , Credit cards 1-2
  • Short Term goals 1-2 FD/RD
  • Term Insurance 1 ,
  • Health insurance (Reviewing adequacy)
  • PPF : EPF/PPF/SA/Gratuity – 1
  • MutualFunds : 3-4 equity funds(SIP/STP/SWP) / Index Fund / FMP 2-3 ( Max 5 , not 40)
  • Stocks : Stocks 10-20 , 10% stock , 20% sector

Charity

  • Temple oil , danam(festivals)
  • edu : http://ffe.org
  • Kashi Trust - annadanam

Trackers

  • Goal Sheet , Cash flow( Income, Expense) , Net worth (assets/liabilities)
  • Income , Expense , Asset , Liability
  • Income - Expense = Cash Flow , Assets - Debts = Net Worth
  • Net Worth = Age * Pretax Income / 10
  • Inflation , Market risk , interest rate risk , credit risk , liquidity risk , reinvestment risk , volatility , risk of fraud
  • investing = returns , liquidity , diversification , costs , ease of transaction , having the money when you need it.

Need to take risk

Fin Goal (Rate %) 8 9 10.5 12 13.5 15
Equity Allocaiton % 0 20 40 60 80 100

Tolerable loss and equity exposure

Max Tolerable loss % 5 10 15 20 25 30 35 40 50
Max equity exposure 20 30 40 50 60 70 80 90 100

asset allocation model

Accumulation Distribution
Old Age 70:30 50:50
Young 80:20 60:40

What to Read

  • ETW formulas , xls Finance fx , TVM
  • ETW qs
  • Calculator : Tvm , SIP/SWP , Emi, Income tax
  • P Fin IN , P Fin US ,
  • NISM (IA1 2) , NCFM(MF ,Stocks) , yt case study
  • Site : ET Money , Value research , Stock screener
  • Masters : WB , PL , Dr Alexander

Financial Planning

  • Emergency Fund - term ins - tax savings - Short/Med term goals - long term/retirement - post retirement
  • Expenses - 60% - EMI's , Reg Exp , Future Goals - 30% - g1 , g2 , g3 , Retirement - 10% - PPF , MF SIP
  • 6m e fund , 15% liquidity , 50-30-20 budgeting , 20% savings , 50% debt to asset ration , credit score 800 ,
  • save 25% per month , avg bal bk < 1l , understand investment , life ins 5 ann inc , hlth ins > 10L ,
  • car ( registration 4-8% , road tax 2-12% , insurance , temp regn , handling and logistic charges , no extended warranty)
  • medical checkup (3-5k), fin adviser (10-25k) , start sip (5-20k) , sr citizen a/c (50k-2l) , pm vaya v ( 2-3l) , gold etf(5-10k), health ins
  • Tax Investment Sec 80C 150000 - 130000 ELSS , 10000 term ins , 10000 ppf
  • tax filing ( 2000 , 4000 , 7000) : salary / pension / interest / rent / capital gains / foreign assets
  • Src of Income : Savings bank interest , FD rd nsc , ins policies , dividends , st capital gains , lt capital gains , gold funds
  • Asset Classes : Equity , Debt , Cash , Gold
  • Equity 60% ( Stocks , MF) , Debt , 30% , ( PPF , FD) , Gold , 5% (ETF) , Liquid Cash , 5% (Cash,Bank)
  • Asset allocation
    • Conservative ( equity - 5% , debt - 90% , gold - 5%)
    • Moderate( eq 30% , debt 60% , gold 10%)
    • Aggressive( e 75 , dbt 10 , g 15)
  • Financial Goals in Life
    • E-Fund / Insurance ( Life , Health ,Vehicle)
    • Family Gifting , Charity work , Weddings , Healthcare
    • Travel (Domestic and International)
    • Buy Gadgets(Laptop/Mobile) , Car , 2w
    • Buy House , Home Renovation
    • Retirement
    • Children’s Education , Children’s Marriage

Basics

  • Returns , Risks , Cost ,Liquidity , Inflation , CAGR chart , Compounding
  • How to calculate compound annual growth rate in Excel?
  • CAGR Formula: CAGR=((FV/PV)^(1/n)) - 1 , ((5,000/1,000)^(1/10)) - 1 = 17.4%
  • Purchasing Power =10,000/ (1+5%) ^10 = 6,139
  • Compound Interest , A = P * (1+r/t) ^ (nt) = 1,00,000(1+0.1) ^10 = 2,59,374.25
  • Investment 9 per cent annual rate compounding quarterly, EAR (1+(0.09/4)^4) -1*100 = 9.3 per cent
  • DCF , IRR
  • XIRR ( B14:b15 , A14:a15) , 01-Jan-2010 -1000 , 01-Jan-2012 12000
  • Inflation adjusted returns = [(1+ r) / (1+P)}-1]*100, where r is nominal return and P is inflation rate
  • Tax Adjusted returns TR = NR * (1-tax rate), NR: nominal return , = 10 - 10 * 30% = 10 - 10 * 0.3 = 7

Ratios

  • Savings Ratio = Savings / Gross Income , target 20% savings rate,
  • Debt to income r : Monthly Debt Payment / Monthly Income 15000(emi)/50000(sal) DTI : 30% , DTI < 30% ( to get a loan)
  • Solvency ratio = Total assets / Total liabilities , Ideally, the ratio should be more than 1
  • Liquidity Ratio = Total liquid assets/Total current debt , The value should be above one.
  • Payback period = Initial investment amount/value ÷ Cash flow per year

Time Value of Money

  • FV , PV , Rate of Int % , Duration (N years) , PMT ,
  • FV = PV * (1+inflation rate) ^number of years , = 10,000* (1+5%) ^10 = 16,289
  • Future cost= a* (1+r) ^ n | = 1200000 * ( 1+7% ) ^ 15 = 33 10 838 , 7 % inflation , 15 yr child education , Current Val 12l
  • How much to invest = PMT (RATE, NPER, PV, FV, Type) | = PMT( 12%/12 , 15.12 , 0 , 33 10 838)

Rule of Thumb

  • Time taken to double , triple 2x 72 / 9 % = 8y , 3x 114/ 3 % = 38 y , 4x 144/12 % = 12y
  • Rule of 70 ( 1/2x , Inflation)
  • 68 95 99.75 , 68% returns distributed 1 SD mean , 95% 2 SD , 99% 3 SD
  • Emergency Fund : Salaried : 6 months of expenses , 12mo liquid fund , Self employed : 9x-12x
  • 50/30/20 : monthly income is Rs 100,000, HH Expense : 50000 , Needs : 30000 , Savings 20000
  • 1lakh per mo Food (18%,15000) , 4% hlth ins , 3% life ins , 20% housing , 8% transport , 20% savings 20000 , 20% discretiornary
  • 10/5/3 - 10% equities , 5% bonds/debt , 3% FDs/t bills/savings bank a/c
  • 10X life insurance rule , 10 time annual income
  • 2015 insurance , 1 cr term plan 12000, 5l family floater 8000, 20l cover personalaccident cover 4000 ( Ann premium 24000)
  • House : 2-3x Annual income , 20 lakh salary , home loan 40-60l
  • Car Loan : value < 50% ann income , 20/4/10 - down payment of 20% , tenure 4 years , emi not higher than 10% income
  • Personal loan 16% , 3l amt - 2 y - 14689 emi - , auto loan 12% , 8l - 5y - 17795 , home loan 7% - 50l - 20y - 38764 , CC 36%
  • Invest in Stock : 100 - Current Age of = % in Equity , @30 - 70% , @60- 40%
  • Stocks investment for 3-5 yrs , 8-12 stocks ,prune p/f
  • hold no less than 10 stocks and no more than 30 stocks , more stocks - txn and monitoring costs will increase , track co action(dividend)
  • diversify atlest 4 diff sectors with no single sector 40% pf value , no single stock 20% of pf value
  • do not overexpose small cap cos , 50% in top 200 cos (equity mf)
  • Retirement 4% w/d rule : 33000 monthly income ( 4l/yr ,4% corpus) , 1 cr , 2yrs , earns 7% inflation %
  • MF diversify 4 schemes , 3 diff fund houses
  • cost of acquiring (entry load) , cost of holding(expense ratio) , cost of exiting(exit load) mf scheme
  • returns of 10 yrs a/z , avoid schemes at top/bottom of performance deck , avoid schemes low corpus < 100 cr

bogle 12 pillars of investment wisdom

  • investing is not nearly as difficult as it looks
  • when all else fails , fall back on simplicity , occams razor , select simplest solution for multiple options
  • time marches on , magic of compounding , capital accumulation
  • nothing ventured , nothing gained - take reasonable interim risks
  • diversify , diversify , diversify
  • eternal triangle : risk , return and cost , triangle of investing
  • powerful magnetism of the mean , returns tend to regress towards mean , returns fall after exceeding historical norms
  • do not overestimate your ability to pick superior MF , underestimate ability to pick bond and money market funds
  • you may have a stable principal value or stable income stream , buy you may not have both (investment choices , trade-offs , compromises)
  • beware of 'fighting the last war'
  • you rarely , if ever , know something that the market does not ( collective wisdom of crowds)
  • think long term , short term volatility , stay the course

Where to Invest

  • Pay yourself first : 5000 / mo - 8.5% SIP , increase investment 10% every year , after 30yrs , 2.5cr
  • Where to invest 2 yr : Debt , 3-5 yr : equities/commodities , 5+ ; real est/equity
  • Invest 5000/mo , 30y , 8% RD ( 75l) , gold 10% , 1.15cr , debt mf 9%(91l) , equity mf 15%(3.5cr)
  • 5 cr retmt 60y , 10% step up ( 25y - 9073/3172 , 30y - 16229/6262 , 35y - 29374/12706 , 40 - 54356pm/26838 ) 12% pa
  • 2cr retmt corpus - 60l debt f(30%), 60l eq f , 80l 40% fully equity
  • Expense 50000/month ,6l/1yr , E-fund : Bucket1 : 1l 2mon (sweep in FD) , b2 ( 2l - 4 mo , arbitrge/liquid fd) , 3l - 6m ( short debt fund)

Mutual Fund

  • mf investor : kyc compliance (id , address , photo , pan) , kra , p info ( em , b info , micr) , nomination , fatca compliance
  • details : postal address (follow ups) , email , contact no , bank a/c ( delay in dividend pmt) , nomination ( handover)
  • Diversify : Large Cap ( 40%) , Diversified ( 40%) , Midcap ( 10%) , US(10%)
  • 15 15 15 , Invest Rs. 15,000/month for 15 years w/ 15% , build corpus of Rs. 1 crore,
  • 15 15 30 ,Invest Rs. 15,000/month for 30 years w/ 15% , build corpus of Rs. 10 crore,
  • 8 4 3 first 8 years money grows steadily, next 4 years it accelerates and next 3 years snowball effect
  • Invest approximately ₹1.3 to 1.5 lakhs per month to reach ₹1 Crore in 5 years (15%)
  • Equity Debt Hybrid Flexi US , open and closed , lumpsum STP SIP SWP , fund fact sheet , CAS , growth and ICDW (dividend)
  • cost of entry , maintenance expense ratio , exit ,nav , return , benchmark ,
  • Standard Deviation—low , Beta—low | Alpha—high , Sharpe ratio—high , Sortino ratio—high
  • index investing
  • you rebalance when asset allocation changes or when life situation changes.
  • DIY , distributor , RIA
  • MF portfolio
    • Level one: equity index funds + PF + PPF + FD
    • Level two: equity index funds + PF + PPF + FDs +debt funds
    • Level three: equity index funds + active funds + PF + PPF + FDs + debt funds (50% index, 25% aggressive hybrid and 25% large- and mid-cap
    • Level four: equity index + active multi-cap funds + PF + PPF + debt funds (50 per cent index, 25 per cent mid-cap and 25 per cent small-cap fund)
    • Level five: equity index + active multi-cap + foreign funds + PF + PPF + debt funds

MF Notes

  • High targets require sip hiked 10% year
  • Cut number of funds to make p/f manageable
  • Small midcap skew, ready volatility
  • Chose aggressive allocation nps 75%
  • Review Investment, rebalance once year
  • Reduce risk when goal is near so that you dont miss target
  • Stock volatility , invest equity fund

MF Ratios

  • SIP Future Value , S = R((1+i)^n-1/i) (1+i) , 1,000 each month 10 years(120), 15% pa , 15/12 = 1.25% = 0.0125 ,
  • S = 1,000 * [{(1+ 0.0125) ^120 - 1}/0.0125] * (1+ 0.0125) = Rs 2,78,657
  • ALPHA : fund's risk-adjusted return. + alpha fund better than expected, a negative alpha the fund has underperformed.
  • BETA : volatility returns relative mkt index. beta 1.3 , Nifty rises 1%, stock +13%; index falls 1%, -13% , higher beta -> high risk investment.
  • Sharpe Ratio (S) = (r (Portfolio return) – rf (Risk free rate)) / portfoli volatility (v)
  • Treynor Ratio (S) = (r (Portfolio return) – rf (Risk free rate)) / portfoli beta (b)

Loan(Home,Car)

  • EMI Formula: EMI= (AR)(1+R) ^N/ ((1+R) ^N)-1)
  • loan 10l ,11%,15 years ,Tenure = 15*12 = 180 months , EMI = (1000000 x 0.00916)x((1+.00916)^180)/([(1+.00916) ^180] - 1) = = Rs 11,361

Loan Details

Loan Criteria Rate Duration
Personal Loan Age 21-60 , 25000 /month 12-18% 40l , 12-60 months
Educational Loan Age 16-35 9-12% 50l , 15yr 180 EMIs
Auto Loan Age 21-60 , 3l /yr salary 9-14% 25l , 12-60 months
Home Loan Age 21-65 , 10000 pm 7-9% 20-30 yr , 240-360 EMI

Income tax

Banking

  • KYC , Nomination , Banking Account(self,family) , Netbanking/Telebanking
  • Loans ( Car , Home , 2w ,Educational , Personal , Loan against shares , Gold , working capital , agri)
  • Investment : FD (Interest Rate , Tax Deduction , Form 15G/H), MF , RD , SIP , Gold bar , Demat , pension plan , child plan , ULIP
  • Insurance : Med ins , vehicle ins ,travel ins , gen ins , term plan
  • other svc : Credit Report , Debt repayment CC , Debit card , Forex Card , Letter of credit , Online bill payment

Guidelines

  • ignore complex plans , inertia
  • google search - 2 hr research - no action , 2hr /week for pfin review
  • fear of going wrong while choosing a product is so high that it becomes roadblock for taking actions
  • complexity just takes us away from our focus , focus on ACTIONS and dont let little things get in the way
  • slow down & create fin portfolio , understand it
  • Remove clutter from financial life->back to level0, automate (SIP/ECS) , exercise , 2 weeks fin prd , monitor
  • Diversify portfolio asset allocation , Rebalance Portfolio 6m , 1yr
  • Match investment horizon asset class
  • Dont go after extra returns , SAY NO to every other product

Tasks

  • Track Investment performance / File Tax returns / Monitor goals / Good record keeping / online p/f tracking
  • 3 things simplify financial life (1) use of tech/automation - 1hr/week (2) choosing less instead of more (3) documentation management
  • struggle to track p/f - use pf tools ,review 3-4 times / year
  • review mobile dth plans ,avoid splurging
  • store pwd , complete paperwork , file form 15g
  • Appoint nominees
  • increase amt investment , increase sip 10%
  • buy critical illness cover
  • Steps joint ac , nominee , will , sort docs , list debtors/creditors , keep spouse loop , note pwd , know names docs traceability

Common mistakes

  • Not saving enough even though we can.
  • Inability to balance enjoying today vs. saving for tomorrow.
  • Leaving money on table by
    • keeping money in bank accounts, staying invested in costly funds,
    • having a sub-par asset allocation, excessive conservatism, etc.
  • Sticking to default options even if they are terrible.
  • Being driven by greed and chasing quick money and other investment fads.

Automate finances

  • Create a SIP to build up your emergency fund.
  • Invest systematically through SIPs. Create a mandate for your SIPs to automatically debit money from your bank account.
  • Automate the payments for your health and life insurance policies.
  • Automate your rent and bill payments.
  • Set up automatic repayments for your credit cards and other loans.
  • Have nominees for all your investments and insurance policies. All you have to do is fill out[ a form online or courier it.
  • Tell your nominees that you’ve nominated them. Otherwise, what’s the point?

create a physical or digital folder with the following details

  • Details and documents related to all your investments. What, where etc.
  • Details of all your bank accounts.
  • Details about all your insurance policies.
  • Details of all the liabilities like home loans, loan against investments, etc.
  • Documents of your properties and other assets.
  • Copies of your identity proofs, educational documents, etc., used to open accounts and purchase products.
  • A document detailing the claims process for all the assets and investments.

ETW MF

Large cap

  • Kotak equity opportunities* , Kotak bluechip
  • Canara robeco bluechip equity* , Canara robeco emerging equities
  • Nippon india largecp* , * Axis blue chip* , * ICICi prudential bluechip*
  • Quant focused* , Aditya birla sl equity adv
  • Bandhan core equity , Mirae asset emerging bluechip , Sbi bluechip , HDFC top100 (under) ,

Flexicap

  • Parag parikh flexicap*
  • Pgim mindia flexicap*
  • Franklin I flexicap* , Canara robeco flexicap* , Dsp flexicap*
  • Kotak flexicap* , Kotak standard multicap
  • SBI focused equity , Uti flexicap , Nippon india flexicap

Hybrid

  • Icici pru equity and debt* , Kotak balanced advantage*
  • Canbak robeco equity hybrid , ICICI Pru balanced advantage

Debt

  • Aditya birla sl short term* , Bandhan banking psu debt*
  • Sundaram short duration , SBI magnum low duration
  • Franklin india short term income plan hols

Midcap

  • Pgim india midcap o*
  • Kotak emerging equity , SBI magnum midcap ,
  • Dsp midcap , Axis midcap , HDFC midcap

Small

  • Sbi small cap , Nippon india smallcap
  • Axis smallcap , Kotak smallcap

Others

  • ICICI Pru value discovery* , ICICI Pru short term
  • Bharat bond etf , Axis long term equity elss , Canara robeco equity taxsaver*
  • HDFC dividend yield , Motilal Oswal nasdaq 100 fof ,
  • HDFC nifty50 , Uti nifty index*

notes from big b rakesh j

  • Check for Nifty and sensex dividend yield
  • Opportunity and market size move in tandem, runway growth (big change , tirnaround) , learn to value company
  • Investment Checklist :, Corp Governance, owners runing w frugality , demand exists , competitive advantage, liquidity imp , not more than 5_10% stick (liquidating difficult) , cash flows matter ( amz , fk) , Great business made w skills and superior budiness models
  • F500 cos built c/lows and profits , not w/ investors money , Rnd 1 and 2 funding fine , 3 & 4 sales growth, f500 pay taxes unlike online players
  • Value destoryers : Dhfl , ( loans shell cos , round tripping , A3Z infra ,
  • Small cap universe : murky deals , price manipulation, forged financial results, no earnings calls agter qtrly results

Fin Planning

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