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A Project report on MUTUAL FUNDS AS PERSONAL FINANCIAL PLANNING TOOL Bajaj Allianz Life Insurance ltd,
Conducted at SINDHANUR
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The only thing permanent in life is change. Times change. People change. So does life. You expect life to be much better tomorrow than it is today. Tomorrow, you hope to fulfill all your dreams and aspirations. But what happens if things take an untoward turn? Or, if there is an eventuality? Perhaps its time for you to change the way you plan your investment. Each one of us needs, financial information at various stages of our life, and to ensure that we have the money available at the right time, when needed. We may need money at the time of marriage of a daughter or son, and we need it then, not later! Or at the time of a medical emergency, and again at that time, as later the money will not help. Or money will be needed simply at the time of retirement. In other words, we need finance at different times for different goals. Buying a home, providing for a childs education and marriage or for retirement are all examples of goals in life that can be measured in monetary terms.
Personal financial planning is the process of meeting your life goals through the proper management of your finances. Life goals can include buying a home, saving for your childs education or planning for retirement.
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The UTI was setup by the Reserve Bank of India (RBI) and functioned under the
Regulatory and Administrative control of the RBI.
The First scheme in the history of mutual funds was UNIT SCHEME-64, which is
popularly known as US-64.
In 1978, UTI was de-linked from RBI. The Industrial Development Bank of India (IDBI)
took over the Regulatory and Administrative control.
At the end of the year 1988, UTI had Rs.6700/- Crores of Assets Under Management. 2. Second phase (1987-1993)
Entry of Public Sector Funds. In the year 1987, public sector Mutual Funds setup by public sector banks, Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC) are came in to existence. State Bank of India Mutual Fund was the first non-UTI Mutual Fund. The following are the non-UTI Mutual Funds at initial stages. SBI Mutual Fund in June 1987. Can Bank Mutual Fund in December 1987. LIC Mutual Fund in June 1989. Punjab National Bank Mutual Fund in August 1989. Indian Bank Mutual Fund in November 1989. Bank of India Mutual Fund in June 1990. GOVT-P.G CENTER SINDHANUR Page Page 3
Open-ended schemes
Close-ended schemes
TOTAL
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CHAPTER 3
Where do you want to be & when Define your financial goals in terms of how much you will need and when
Where are you? Check your financial resources Check your financial commitments
3.2 Statement of the problem Mutual Fund as personal financial planning tool
3.2.1 Definition of Problem Financial planning offers to most people significant benefits including peace of mind and happiness. Unaided, most people find it difficult to identify and accept their financial planning needs. It is for this reason that a financial planner is one of the most respected professions in the developed countries. It is for the same reason that financial profession is now emerging to be important in India. After all, financial health is as important as physical and spiritual health, and people should approach a financial planner who can advise them on achieving financial fitness. Generally, people have two types of financial needs-protection and investment. Insurance
companies seek to offer products for protection needs. Mutual funds broadly cater to the investment needs. Mutual fund products from a powerful set of tools available to financial planners and investors. Hence, it is in the fitness of things that those individuals who are in the business of distributing fund products also learn how to help investors do appropriate financial planning before making investment decisions.
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There is a saying that one cant compare apples and oranges, does the old adage mean you cant make comparisons between companies? The answer depends on how you define apples and GOVT-P.G CENTER SINDHANUR Page Page 8
segments. You can compare individual performance categories of apple and the orange says the amount of debt that each company has in proportion to its assets. Such performance comparison between companies in the same industry can be made by analyzing pieces of data in published financial statements.
2) The Basis of The Financial Planning Life Cycle & Wealth Cycle Stages
2.1 The Life cycle Stage Guide The need for financial planning persists throughout life of an individual. Most people have at least one unsatisfied need at any time. Most people will have both financial protection and investment needs simultaneously throughout life. However, the priorities of these financial needs change as people grow older and their personnel circumstances changes. The age at which each stage of life cycle starts may vary from individual to another, but in our society most people would fall into a standard cycle. Associated with each stage is a certain income level. We earn different amounts of income at different stages in life. If we superimpose the stages on the typical income graph of a salaried employee or a self-employed person, it well help in understanding how financial planning priorities, and the ability to fund them, change with each stage in the life cycle. GOVT-P.G CENTER SINDHANUR Page Page 9
2.2 Childhood Stage Childhood is a period of dependency that usually lasts until children finish their full-time education. The childrens financial needs are met by parents or other relatives. Most of the basic requirements of children will be met from the income of parents or relatives. However, most people who want to give their children more privileged opportunities will have to start investing money for this purpose when their children are still young.
Hence, the main need for children may be to invest cash gifts to provide a lump sum when they are adults. The parents or guardians make even these arrangements until the children reach adulthood.
However, most young people will have relatively low incomes and cannot afford to devote large amounts to financial planning. Also, the young person may already have more urgent short term needs, such as saving to marry and establish a home. Thus, money should normally be devoted to long-term plans only when adequate short-term savings have been set aside.
2.4 Young Married Stage The needs of young people may change considerably as soon as they marry. Immediately, a young couple becomes interdependent with a shared responsibility for the achievement of future goals. Both partners may work and contribute to the family income or only one may be in paid employment with the other looking after the family home. a) Where both partners work, they have two incomes to meet the burden of their costs. Although each of them often still be fairly low on the earnings scale, they should have sufficient surplus funds to meet their most important financial planning needs. Since the couple depends on two incomes, the loss of one income would be a serious blow to their domestic economy. The priority need is therefore to protect each of their incomes against loss through disability resulting from injury or long term sickness. Further, if a partner dies, life assurance to replace at least part of the income of the deceased partner may be advisable. It is also very important to create an emergency found of before committing much money to long-term plans. The purpose of the emergency found is to provide a GOVT-P.G CENTER SINDHANUR Page Page 11
b) If only one of the two partners earns the family living, their financial planning priorities will be different. The death of the wage earner would deprive the non-working partner of family income and therefore there is a need for life assurance on the earning members life. The sum assured should be sufficient to replace a large part of their earnings, possibly for the rest of the surviving partners life. Also, with only one working partner, the need to start pension provision early greater, should the money be available to pay for it.
2.5 Young Married with Children Stage The arrival of children very quickly changes the financial situation of any young couple. This is a difficult stage as expenditure is rising at a faster rate than income. This will reduce the money available to spend on financial planning but the protection needs of the family will increase greatly. A substantial life assurance on the wage earners life is now absolutely necessary. Precisely how much cover is needed will depend on the familys standard of living and the age at which children are expected to complete their education. If the mother returns to work, the total life assurance on both their lives should be divided between them in proportion to the contribution of each to the family budget. Even in our society, which has a strong tradition of family care for unfortunate relatives, the availability of insurance money will help to reduce the financial burden. GOVT-P.G CENTER SINDHANUR Page Page 12
Once protection needs are taken care of, the family will have to make provisions for investments. These investment needs could take various forms. The most common are saving for childrens education and marriage. To achieve these objectives for their children, the parents may have to start investing from the day the first child is born. Additional investment needs are saving for a house, car, holidays and most importantly, adequate for retirement.
Each year without initiating financial programs to achieve investment goals makes it harder to achieve these goals. Unfortunately, there is rarely sufficient money to pay for all the familys protection and investment needs. Difficult choices have to be made. However, with a young family, protection needs must normally take priority over investment, leaving investment needs to be funded as soon as possible. Fortunately, most people become better off as they grow older and this enables them to keep increasing their contribution to financial planning programs as they advance in life.
PROBLEM
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4.RESEARCH METHODOLOGY
Research design:
This project is exploratory research design. Exploratory research helps determine the best research design, data collection method and selection of subjects. It should draw definitive conclusions only with extreme caution. Given its GOVT-P.G CENTER SINDHANUR Page Page 14
Secondary data:
Secondary data was collected through journals, newspapers, company records, textbooks and websites, SEBI reports etc.
Areas Covered:
1. The study covers the history of the mutual fund industry. 2. Present and future expected scenario of the industry. 3. Different schemes of the funds 4. Different marketing strategies adopted for the schemes. 5. The concept of Rupee cost averaging and different types of investment strategy.
5.SAMPLING TECHNIQUE:
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The process of extracting some units or a sample from the population is termed as sampling. Sampling Unit
The sampling unit consists of BSE; NSE & HST listed companies from the various sectors. Method of Sampling
6.PLAN OF ANALYSIS:
In the present world the management of investment is a very important concept because of the availability of various investment options and their different characteristics. Investment management is considered to be both art and science thus requiring knowledge and skill. This project mainly aim at projecting Mutual Funds and one of the investment options Equity Share. Mutual fund includes all the major advantage of other investment options by eliminating various disadvantages. From this study we can find the risk and return associate with the various portfolios of companies.
7.CHAPTER SCHEME:
Chapter1: This chapter gives information about MUTUAL FUNDS AS A PERSONAL FINANCIAL PLANNING TOOL. Chapter2:
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Chapter3:
This chapter gives a brief discussion about industry and company profile and their activities.
Chapter4:
This chapter deals with analysis and interpretation of data
Chapter5:
Findings, Suggestions and Conclusion
5.1.1 Investment planning Service includes: Risk Profiling Asset Allocation and Portfolio Construction Creation and Accumulation of Wealth through Systematic Investment Plans (SIP) Regular review of progress and Portfolio Rebalancing.
Essentially, investment planning involves identifying your financial goals throughout your life, and prioritizing them. Investment planning is important because it helps you to derive the maximum benefit from your investments. Your success as an investor depends upon your ability to choose the right investment options. This, in turn, depends on your requirements, needs and goals. For most investors, however, the three prime criteria of evaluating any investment option are liquidity, safety and return, depends on your requirements, needs and goals. For most investors, however, the three prime criteria of evaluating any investment option are liquidity, safety and return. Investment planning also helps you to decide upon the right investment strategy. Besides your individual requirement, your investment strategy would also depend upon your age, personal circumstances and your risk appetite. These aspects are typically taken care of during
investment planning. Investment planning also helps you to strike a balance between risk and GOVT-P.G CENTER SINDHANUR Page Page 18
5.1.2 Who needs Investment Planning? Investment planning is necessary for every one who wishes to achieve any financial goal. You have to plan your limited resources to avail the maximum benefit out of them. You should plan your investments to fulfill major needs like. Creating wealth over the long term Acquiring assets like a dream house or a dream car Fulfilling your need for financial security.
Thus, Investment Planning is nothing but a holistic approach to meet your lifes goals
5.1.3 Choosing the Right Investment Options The choice of the best investment options for you will depend on your personal circumstances as well as general market conditions. For example, a good investment for a long term retirement plan may not be a good investment for higher education expenses. In most cases, the right investment is a balance of three things; Liquidity, Safety and Return.
Liquidity-how accessible is your money? How easily an investment can be converted to cash, since part of your invested money must be available to cover financial emergencies.
Safety- what is the risk involved? The biggest risk is the risk of losing the money you have invested. Another equally important risk is that your investments will not provide enough growth or income to offset the impact of inflation, which could lead to a gradual increase in the cost of living. There are additional risks as well (life decline in economic growth). But the biggest risk of all is not investing at all.
Return what can you expect to get back on your investment? Investments are made for the purpose of generating returns. To a large extent, the choice of the right investment option will GOVT-P.G CENTER SINDHANUR Page Page 19
Risk V/s Return: Risk and Return go hand in hand. Higher the risk, higher is the possibility of earning a good return. Thus, it follows that all types of investment have some form of risk attached to it. Theoretically, even safe investments (such as bank deposits) are not without some element of risk. Broadly, here are the various types of risks that you might have to face as an investor.
Credit risk: The risk is that the issuer of the security will default, or not repay the principal amount. This is valid for corporate bonds etc.
Liquidity Risk: If you invest in securities, stocks, bonds, you are risking their sellabililty. In other words, your money gets stuck unnecessarily, creating an asset liability mismatch.
Market Risk: Financial markets are volatile in nature. Volatility means sudden swings in value from high to low, or the reverse. The more volatile an investment is, the more profit or loss you can make, since there can be a big spread between what you sell it for. But you also have to be prepared for the price to drop by the same amount. Those who invest in stocks and mutual funds typically run this risk.
Interest Rate Risk: Depending on the interest rate movement in the economy, the rates of interest investment instruments may go up or come down, resulting in a subsequent reverse movement of their prices. Such a scenario of economic instability might affect mutual funds etc. GOVT-P.G CENTER SINDHANUR Page Page 20
Bibliography
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Merchant Banking
News papers:
Internet:
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