Financial Planning

ICICIdirect Financial Planning Services is specially designed to assist you with your financial goals and prepare a detailed plan customized for your needs and aspirations. Our experts can provide you with a picture of where you stand today and how to get you where you want to be in the future.

The main features of our service are:

• Tailor made and confidential service: Our planner meets you exclusively in the comfort of your home or any other place convenient to you, both at the time of filling the client profile questionnaire as well as presenting your financial plan. Rest assured your financial details are kept confidential
• Professional advice: The plan is made by a certified financial professional with the relevant experience and qualification in financial planning
• Comprehensive plan: The report contains detailed analysis of every component of financial planning, ranging from planning for your life goals to your retirement
• No sales obligation: Even though our plan will identify the products relevant to help you achieve your goals there is absolutely no obligation to buy from us
• Post-planning support: Your planner will be at hand for a period of three months to help you implement and execute your financial plan

FPS: This is a one-time service. A planner from ICICIdirect takes an appointment from you, meets you in person and understands your goals. If you are not sure, he will even assist you to articulate them. We prefer meeting you at your home so that you are most comfortable and can even involve your family while you discuss your goals. Once the discussion is complete, the planner processes and charts out the financial plan with a team of experts. The planner then presents the plan to you along with strategies to achieve your goals.

This service is available at a fee of ₹ 15,000 (inclusive of all taxes) to be paid online or by cheque in favor of ICICI Securities Limited. This service is available at limited cities only. For more details, please mail us at fps@icicisecurities.com

FPS Plus: This is a 2-year service. A planner from ICICIdirect takes an appointment from you, meets you in person and understands your goals. If you are not sure, he will even assist you to articulate them. We prefer meeting you at your home so that you are most comfortable and can even involve your family while you discuss your goals. Once the discussion is complete, the planner processes and charts out the financial plan with a team of experts. The planner then presents the plan to you along with strategies to achieve your goals. We shall provide you access to our online advisory platform, Track & Act^TM, which works 24 hours and gives you triggers if you are maintaining your asset allocations right, help you track if you are saving as per the plan and even advice you where to invest into or withdraw from. At the end of 1 year, an updated action plan is provided for the changes to be made in asset allocation & investment recommendations for the 2nd year.

You can renew the service at the end of 2 years by choosing any of the two renewal variants to keep investing as per your financial plan to achieve all your financial goals. This service is available at a fee of ₹ 17,500 (inclusive of all taxes) to be paid online or by cheque in favor of ICICI Securities Limited. This service is available at limited cities only. For more details, please mail us at fps@icicisecurities.com

FPS Plus-Direct: This is a 1-year service. If you are a self-starter and can articulate your goals by yourself, you can opt for this variant and provide all the required details for making the plan yourself online. A planner from our central team would be assigned to you to help you with the same. Once the data is received, the planner processes and charts out the financial plan with a team of experts. The planner then briefs you the plan along with strategies to achieve your goals, over phone. We shall provide you access to our online advisory platform, Track & Act^TM, which works 24 hours and gives you triggers if you are maintaining your asset allocations right, help you track if you are saving as per the plan and even advice you where to invest into or withdraw from.

You can renew the service at the end of 1 year by choosing any of the two renewal variants to keep investing as per your financial plan to achieve all your financial goals. This service is available at a fee of ₹ 7,500 (inclusive of all taxes) to be paid online or by cheque in favor of ICICI Securities Limited. This service is available for all residents in India, irrespective of your location. For more details, please mail us at fps@icicisecurities.com

As we go through various life stages, we aspire to attain various goals. These goalscould vary from buying a house to going on a dream vacation. These life goals canbe attained through a process called financial planning. Financial planning helpsconvert these goals into reality through proper management of your finances.

A good financial plan requires analyzing the financial status, outlining the goalsand understanding the means for achieving these goals. It helps in setting realistictime horizons to achieve goals and assists in achieving them with discipline. Italso enables you to analyze your financial behavior and help optimize your expensesand savings. The ability to mitigate risks when investing is another important facetthat financial planning addresses.

Contrary to common belief, financial planning is not just for high net-worth individuals,it is for one and all. Each individual’s aspirations and goals will be differentand so each one has to plan as per his/her need. Planning your finances for theyear gives you a bird’s eye view of the income and expenses and helps you be betterprepared for every occasion.

The crux of financial planning is investing for your goals and maintaining a fairamount of liquidity to make use of any opportunity that may present itself or meetany unforeseen emergencies.

How can I benefit from financial planning? - Financial planning helpsyou assess an overall picture of your income, expenses, net-worth, cash flow, investments,debt (or liabilities), insurance and retirement benefits. It helps you identifyspecific and measurable life goals taking into consideration your and your family’sneeds. Some of your goals may include, but is not limited to: owning a house andcar, education for children, marriage of children, a foreign trip, start a businessventure, creating a retirement corpus, etc. After assessing your financial situationand your life goals, it helps you draw up a plan that will help you achieve yourgoals within the means of your available resources. It helps you meet your short-termas well as your long-term goals. It helps you analyze whether the actions takento implement have been successful. When a particular goal is fulfilled, it helpsyou find out ways to divert the surplus funds to some other goals to be achievedin the immediate future.

Is it meant for me? - Change is the only constant thing. This clichévery well applies to our lives. As our lives are altered at various periods of lifeour dreams become a moving goal post. To keep pace, we need to plan our investmentsin a systematic manner so that we reach our goals with fair ease.

Financial planning is a great framework that helps bring about discipline to yourfinances and simultaneously provides you that roadmap to identify your life goalsand a direction to achieve them with relative ease. Bringing about a disciplinein your financial management will help create wealth for you in the long term.

As each individual’s aspirations and goals are different, each one has to plan asper one’s needs. Before you start making any financial plans, you should sit downwith your family to discuss the goals and aspirations of each member. This helpsin prioritizing the goals that you wish to achieve.

Investing is all about risk and return. Almost every investor aspires to get high return with lowest possible risk. This, in actual sense, is not possible. The key, however, is to strike the right balance between risk and reward. That is, investing in such a way which effectively reduces the overall portfolio risk while maintaining the expected level of returns. How do you do that? The answer is, through asset allocation. Asset allocation is the process that seeks to balance risk and return in a disciplined manner. With the right asset allocation, you can look to improve risk-adjusted returns. Here's how...

Asset Allocation
In simplest terms, is deciding how to distribute your investment capital among various types of asset classes, such as equity, debt, cash, gold, real estate, etc. Most people confuse asset allocation with diversification. Diversification means having a wide variety of investments within a portfolio, but that doesn't necessarily have to involve different asset classes. Whereas asset allocation is the process of building a portfolio of different asset classes with varying levels of correlation.

Correlation is a measure of the extent to which one asset class behaves in tandem with another. Correlations between pairs of asset classes range from -1 to +1. A correlation of positive one (+1) means that two assets will move together in lockstep or in same direction (as one rises, the other also rises). A correlation of negative one (-1) means that two assets will move in exact opposite directions (as one rises, the other falls). A correlation of zero (0) means that two assets will move completely independently from each other (uncorrelated to each other).

The idea is to choose assets that are negatively correlated to each other or are less correlated (i.e. closer to zero). This will help ensure, that if any time, one asset does not do well, the other will help provide some solace to the portfolio.

Historically, equity and debt asset classes have been negatively correlated. That is, when equities go down, debt moves up, and vice-a-versa.

The table below shows the correlations of various asset classes over a period – April 30, 2006 to December 31, 2012.

Correlations were arrived at, by taking daily rolling returns, for a period April 30, 2006 to December 31, 2012; Indices used are: Equity - S&P BSE SENSEX, Debt - Crisil Composite Bond Fund Index, G-Sec - I-Sec Composite Gilt Index, Cash - Crisil Liquid Fund Index and Gold – MCX Gold Index; Source: Accord Fintech.

• Equity, as an asset class, has always been negatively correlated to asset classes: Debt (- 0.26), G-sec (- 0.48), and Cash (- 0.62)
• Generally, there is a view that gold has a negative correlation with equity. And it can be seen from the above table that they have been negatively correlated (-0.09)
• Gold, as an asset class, has always been negatively correlated to asset classes: Debt (-0.05), G-sec (-0.20), and Cash (-0.06)

Asset classes over time move in cycles due to various factors such as economic conditions, industry trends, investor sentiment, etc. The table below shows how various asset classes have performed over a ten year period, on a calendar year basis, from 2003 to 2012.

Table 2: Calendar-Year Returns of Key Asset Classes

We have highlighted calendar-year-wise best (blue) and worst (orange) returns across asset classes. Indices used are: Indian Equities: S&P BSE Sensex, Global Equities: MSCI World Index, Indian Govt. Bonds: I-Sec Composite Gilt Index, Gold: International prices in dollar, Global Commodities: Commodity Research Bureau (CRB) index; Source: Bloomberg and Accord Fintech.

As you can see from the above table, asset classes have performed quite differently each calendar year. This explains the importance of building a portfolio of different asset classes. The key is: Selecting asset classes that are not 'perfectly positively correlated' or have a correlation of '+1'. This will help reduce the overall risk in your portfolio.

Putting together a portfolio of different asset classes
When putting together a portfolio of different asset classes, there are a number of parameters that need to be looked upon. We describe below the main asset classes and some of their key characteristics.

Table 3: Asset Classes with Their Key Characteristics

Stay true to your allocation by regularly rebalancing - Asset allocation is not static. It changes with time, as the age of the investor increases and risk profile changes. Also, whenever there is a change in the portfolio mix due to the returns generated by the various asset classes, there is a requirement for re-balancing the portfolio to bring it back to the initial allocation. If not rebalanced, the portfolio might take a hit on the returns generated over a period of time. Put simply, re-balancing helps adhere to one’s risk-return tolerance level. It’s a good idea to re-balance your portfolio at least once or on any important life event.

Summing up - Asset allocation is the single most important determinant of a portfolio performance. This is because a portfolio's allocation among asset classes determines a large proportion of its return. Creating an asset allocation plan based on your needs will not only help you balance risk and reward ratio, but will also help you face any type of market with greater confidence.

Single? Path To Meet Your Aspirations

Ria Thakur | 26 years | Status: Single, Working

I am Ria Thakur. A marketing executive by profession,and have been with an MNC for the past 4 years. My family includes my parents andan elder brother (31). My father (60) is retired and mother (58) is a homemaker.

I have always been very clear of what I want in life. Be it a dream vacation orbuying a home. All I needed was a plan that helped me meet my goals without stretchingmy finances too far. Fortunately, I met a financial planner, who has provided mea clear picture of my finances and ways to achieve my goals.

Brief about my financial situation

My total annualincome is ₹5 lakh and annual expenses are ₹2.42 lakh. I invest around ₹ 24,000 a year in mutual funds through systematic investment plans (SIP). Accordingly,I’m left with an annual surplus of ₹2.34 lakh.

My assets include ₹2 lakh in savings bank accountand a vehicle worth ₹4.5 lakh. I do not haveany liability currently.

My Goals

• I want to go to Europe on a dream vacation within next 2 years
• I aspire to buy a home of around ₹70 lakh innext 8 years

Roadmap provided by ICICIdirect Financial Planning Services for achieving our goals

• Being young, my planner said that I have the advantage of age on my side. Plus, I have a good investible surplus, i.e. 47% of my income
• Dream Vacation: Considering the rise in the cost for this goal, my planner said that I’ll need more amount after 2 years. The present cost is ₹2 lakh. To achieve this goal, I’m advised to invest ₹8,633 per month in debt instruments as the goal tenure is short.
• Buying a Home: Considering that I take a home loan, still I’ll have to arrange for the down payment, said my financial planner; and that works out to be ₹14 lakh (20%). Further, the future cost of this goal (after 8 years) would increase of ₹22.31 lakh due to the rising costs. To accumulate this corpus, I need to save and invest ₹14,210 per month over the next 8 years. As the time duration is long I can consider investing into equity and start a mutual fund SIP for this goal, recommended my financial planner.
• Insurance and Protection: I currently have an insurance cover of ₹45 lakh (provided by the employer). My planner has recommended that I should take a cover of my own as well - a term policy – with high insurance cover for a relatively smaller cost.

Married, Double Income? Roadmap To Your Goals

Satya & Rupanwita Gosh | 35 & 33 years | Status: Married, One Son, Double Income

I am Satya Gosh, age 35, and married to Rupanwita, age 33. I am a government employee,and my wife is a marketing manager with private company. We stay in Kolkata, andhave a 10-months old son, Ajoy.

Over the past few years, we had been cautious with respect to our future. We wantedto have a clear road-map to help achieve our goals and secure our financial future.Fortunately, we met a financial planner, who has provided us a clear picture ofour finances and ways to achieve our goals.

Brief about my financial situation

Our totalannual family income is at ₹13.2 lakh, whileannual expenses are at ₹5.71 lakh

We invest about 2.68 lakh annually (This includes ₹2.04lakh in SIPs and ₹64,000 as insurance premium).In addition, we have ₹1.5 lakh in equity/ MFinvestments, ₹4.5 lakh as life insurance surrendervalue, ₹60,000 in savings account and a vehicleworth ₹2 lakh.
We do not have any liabilities currently.

Our Financial Goals

• We want to buy a flat with a down payment of ₹10lakh (in today’s value) after 1 year
• We want to purchase a new car worth ₹5 lakh(today’s price) after 5 years
• We need to plan for a major expense around ₹60lakh (current value) after 30 years
• I, Satya, also planning to start a business for which I need to accumulate ₹25 lakh (in today’s value) after 8 years
• We also need to save for Ajoy’s MBA abroad; approximate cost of MBA abroad is ₹ 15 lakh today. This goal is to be achievedwhen he turns 19. And, for his marriage, we need to accumulate ₹10 lakh (in today’s value), when he turns 24

Roadmap provided by ICICIdirect Financial Planning Services for achieving our goals

• Flat: Considering the rise in prices, our planner has recommended saving and investing ₹79,000 every month to accumulate ₹10.70 lakh (future value) after 1 year. As the time horizon is short and monthly surplus is not sufficient to meet the goal requirement, our planner has suggested postponing this goal for a few years. Later, we may make a stepped-up investment to build a corpus for buying a flat as we are expecting a rise in income every year, suggested our planner
• Car: We will need around ₹7 lakh after 5 years to achieve this goal. For this, our planner has suggested to invest ₹8,650 per month
• A major expense: The future value of this goal will be around ₹4.56 crore, hence, to achieve it, we need to invest ₹14,824 per month, as per our planner’s recommendation
• A New Business: The present value of this goal is ₹25 lakh. We need to save ₹27,355 per month to meet this goal
• Ajoy’s Post Graduation and Marriage: Taking into account the rising cost of education, in future, we will need around ₹83.3 lakh to meet Ajoy’s post-graduation goal – MBA abroad. Currently, we have no investments made towards this goal. We need to save ₹11,718 per month or ₹1.3 lakh annually to achieve this goal. Since the time horizon is long, we are advised by our planner to consider equity as an investment and start an SIP in mutual funds. For our son Ajoy’s marriage, when he turns 24, we will need around ₹89.50 lakh (future value). To accumulate this corpus, we need to invest ₹6,700 per month or ₹76,000 annually
• Retirement: I, Satya, want to retire at the age of 65 and expect to live up to 80. I have 30 more working years. Currently, I have accumulated 1.5 lakh towards retirement kitty and am investing through an SIP ₹11,000 a month. As per the analysis by ICICIdirect FPS team, I need to continue the SIP and to bridge the short fall required retirement corpus, I should additionally start an SIP of ₹1,400 per month.

We have adequate insurance cover, but we need to immediately take sufficient medical insurance along with critical or accidental illness covers, as suggested by our planner

Planning To Purchase A Car?

Pankaj Mehra plans to buy a car

Pankaj, a young professional, wants to buy a car within next one year. His range is ₹4-5 lakhs. He draws a monthly salary of ₹45,000 and can save around Rs. 30,000 a month.

Our Advice :

Pankaj can invest in equity mutual funds via SIP. With the help of systematic and disciplined investing, his current surplus of Rs. 30,000 per month will fetch him a corpus of ₹3,84,280 at the end of 1 year, assuming a 12 per cent return.

We understand, while going for a car, most of us tend to take a car loan. One should always remember that the interest rate on car loans is mostly in the range of 13 to 14 per cent p.a. Hence, if you have a lump sum amount for disposal, then it's suggested to avoid taking a car loan. Else, go for the car loan. While opting for a loan, one should take care that the total EMIs/interests towards repayment of all loans put together should not exceed 45 to 50 per cent of your net income. However, this ratio should not exceed 15 to 20 per cent, if you do not have a home loan.

For salaried persons, there are no tax benefits on the repayment of car loan; however, most of the self-employed class can claim interest and depreciation as expenses and get deduction to that extent from their income.

Planning For A Vacation?

Ashok and Rupali Patil planning a trip to Ladakh with family

Pune-based Ashok and Rupali Patil dream of backpacking for Ladakh this summer, for a 15-day tour with their two children. Ashok is a marketing manager working with private company, and Rupali is a home maker. He draws a monthly salary of Rs. 50,000. After all the expenses and liabilities, he saves around Rs. 10,000 per month. His current cash and bank balance is Rs. 30,000.

Estimated cost for 15-day tour to Ladakh: The average cost per person (adult) is around ₹50,000 in peak season for a 15-day trip to Ladhak. Patil and family may have to spend around 150,000 – 175,000 for their trip.

Our Advice :

To fund their trip, Patil and family may need to withdraw current investments, which is not an advisable move as it could impact their overall financial picture. One should always save and invest for holidays well in advance to avoid tightening belt at the eleventh hour. If you desire of going on a vacation every year, it is ideal that you start investing into a recurring deposit (RD)/suitable options from a year ago and then utilize the maturity proceeds for the same. If you have not done that, then count on the lump sum bonus which you may receive from your employer during this time of the year. You should always avoid breaking any investment (specifically long-term ones) made for any other goal/purpose and utilizing for vacation. Some people also opt for personal loans for this, which is not a healthy sign. Personal loans should be opted as the last resort for high priority goals only.

Planning for your children education and marriage expense? The usual answer that we get is ... "Is it not too early?" Perhaps not.

Planning and financing Child education is one of our key responsibilities. And the expenses that we will incur could be significantly different than what our parents incurred on our education. With higher ambitions and wider options today, good education will cost more. The rising costs will add up to the expenses. It is best to start as early for these important expenses.

Planning for these expenses start with knowing how much they will cost and how much should you invest. At ICICIdirect our expert financial planners can assist you make a customized financial plan to ensure that you are able to offer the very best to your children and they can fulfill their dreams.

If you wish to plan your child’s goals, please write to us at fps@icicisecurities.com

How do you see your ideal retired life? How much are you going to spend and what lifestyle do you expect? Would you want to step it up a notch from your current lifestyle? Are you looking at an early retirement or plan to start something on your own post retirement?

Are your investments in line with your retirement planning? These are some of the questions that can be answered through a Retirement Plan.

Retirement planning is about ensuring that we have enough corpus to maintain the same standard of living that we are used to. Given the socio-econimic changes, retirement planning is the most critical of our goals….but are we prepared?

Our retirement could be very different than what our parents experienced. A guaranteed pension and medical benefits from our employer may not exist. Which means that for 25-30 years of retired life, we would need to save enough and start to plan right now.

At ICICIdirect.com our financial planning experts can assist you make a customized financial plan to ensure that you have all that it takes to lead a fulfilling retired life.

If you wish to plan your retirement, please write to us at fps@icicisecurities.com

At ICICI Securities, we offer workplace education seminars to help your employees understand financial matters at different stages of life and get their finances in order. We are equipped with competent resources to address the following topics:

• Financial goals setting
• Investment basics
• Asset allocation
• Insurance planning
• Retirement planning
• Will Drafting
• On-site financial tools and work-sheets

We encourage you to reserve a FREE financial planning session for your employees to help them plan for a secure financial future.