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

2. What if water runs out while taking a shower?
Emergency Needs
What if water runs out while taking a shower?
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3. What if Municipal Water Supply is not there for 3 days?
Medium Term Needs
What if Municipal Water Supply is not there for 3 days?
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4. What will be the requirement 20 years from now?
Long Term Needs
What will be the requirement 20 years from now?
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5. Life Cycle Financial Planning
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6. Different strategies needed at Different Life Stages
Early stage
Income low, Wealth low, Family Responsibilities High
Use TERM INSURANCE to bridge the gap, Prudent Borrowing
Accumulation Stage
Income rising, Wealth low, Family Responsibilities High
Continue Insurance, Start Long Term Investments, Prudent Loans
Maturity Stage
Income High, Wealth High, Family Responsibilities low
Insurance less important, Wealth Building centre stage,
Use of Trusts to ring fence wealth from Liabilities
Distribution Stage
Income low, Wealth High, Family Responsibilities low
Withdraw for own expenses, Estate Planning important
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7. A Balanced Meal
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8. A Balanced Portfolio
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9. Debt Equity Mix Will Depend On
Personal / Family Situation
Risk Appetite
Risk Tolerance
Expected Cash Out Flows in next 3Years
A Risk Profile and Asset Allocation Mix of each family needs to be determined
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10. It will also depend on Environment More Safe ? More Risk?
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11. Asset Allocation Framework
PORTFOLIO INVESTMENTS
DIVERSIFY
REBALANCE
DEBT
EQUITY
ABSOLUTE RETURN
COMMODITIES
REAL ESTATE
CONTROL EXECUTION RISK
CONTROL-
TAX,FEES & EXPENSES
STRATEGIC
DIVERSIFIED FOR WEALTH PRESERVATION
CONCENTRATED FOR WEALTH CREATION
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12. Wealth Creation Wealth Creation does not happen in the markets,
It happens in the Farms, On the Shop Floor, On Road, In the Ports, In Services
Markets only allow us to participate in the value creation
Markets also allow Companies to Raise Risk Capital
Portfolios can benefit from this growth in the long term
For Wealth building, debt alone is not sufficient
The Keys to success are:
Equity Bias
Value Orientation
Diversification, and
Rebalancing
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13. Debt Market Returns
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14. Birla Sun Life Income Plus Returns
Year
Absolute Return
End NAV (Rs)
1995
2.85
9.76
2004
(1.08)
27.59
1996
18.34
11.55
2005
4.27
28.77
1997
16.45
13.45
2006
5.48
30.35
1998
11.90
15.05
2007
12.57
34.16
1999
13.09
17.02
2008
23.60
42.22
2000
10.63
18.83
2009
(1.24)
41.70
2001
16.83
22.00
2010
3.18
43.03
2002
17.27
25.80
2011
8.34
46.62
2003
8.11
27.89
2012
10.70
51.60
CAGR
14.03
7.07
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15. Equity Market Fluctuations
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16. Franklin Blue Chip Fund Returns
Year
Absolute Return
End NAV (Rs)
1995
(23.07)
15.54
2004
24.60
128.14
1996
(22.84)
11.99
2005
41.22
180.96
1997
17.35
14.07
2006
45.52
263.34
1998
31.56
18.51
2007
47.41
388.18
1999
179.20
51.68
2008
(48.14)
201.30
2000
(13.20)
44.86
2009
84.49
371.38
2001
(16.14)
37.62
2010
22.96
456.66
2002
23.92
46.62
2011
(18.25)
373.33
2003
120.59
102.84
2012
26.79
473.33
CAGR
26.65
18.49
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17. Look what happened over 17 Years
30x
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18. But finally, Equity will track Earnings
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19. Earnings Drive Equity YEAR EPS EPS CAGR SENSEX SENSEX CAGR 31-Mar-03
272
3,048
31-Mar-04
348
5,590
31-Mar-05
450
6,492
31-Mar-06
523
11,279
31-Mar-07
718
13,072
31-Mar-08
833
25.09%
15,644
38.70%
31-Mar-09
820
9,708
31-Mar-10
17,527
31-Mar-11
1,050
19,445
31-Mar-12
1,120
7.68%
17,404
2.70%
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20. The Magic of Compounding
“Compounding is the 8th Wonder” – Einstein
The Rule of 72
Divide 72 by number of years of Doubling to get Rate of Return and vice versa
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21. “Doubling Time”
At 6% per year inflation, expenses will double in 72/6 = 12 years
If rate of return is 9%, money will double in 72/9= 8 Years
At 12%, 72/12= 6 Years
At 18%, 72/18= 4 Years
At 24%, 72/24 = 3 Years
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22. Equity Market Participation
Low Risk
Index Funds
Large Cap Diversified Funds
Medium Risk
Sector Funds
Midcap / Small Cap Funds
Direct Stock Portfolio Investments
High Risk
Delivery Based Trading ( Buying & Selling)
Intraday Trading /Futures & Options
Highest Risk
Writing Options
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23. Types of Equity Based on Market Cap Based on Style Large Cap Mid Cap
Small Cap
Based on Style
Growth
Value
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