SEC: Personal Financial Planning Notes by Abhishek Kumar

Syllabus:
Unit 1: Introduction to Financial Planning:
Financial goals, steps in financial planning, budgeting incomes
and payments, time value of money. Introduction to savings,
benefits of savings, management of spending & financial
discipline, setting alerts and maintaining sufficient funds for fixed
commitments.
Unit 2: Investment Planning
Process and objectives of investment, concept and measurement
of return & risk for various asset classes, measurement of portfolio
risk and return, diversification & portfolio formation. Gold bond;
Real estate; Investment in greenfield and brownfield Projects;
Investment in fixed income instruments, financial derivatives &
commodity market in India. Mutual fund schemes; International
investment avenues. Currency derivatives and digital currency.
Unit 3: Personal Tax Planning:
Tax structure in India for personal taxation, Scope of personal tax
planning, exemptions and deductions available to individuals
under different heads of income and gross total income.
Comparison of benefits - Special provision u/s 115 BAC vis-à-vis
General provisions of the Income-tax Act, 1961, tax avoidance
versus tax evasion.
Unit 4: Insurance Planning:
Need for insurance. Life insurance, health insurance, property
insurance, credit life insurance and professional liability insurance.
Unit 5: Retirement Benefits Planning:
Retirement planning goals, process of retirement planning,
Pension plans available in India, Reverse mortgage, Estate
planning.

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Introduction to Financial Planning:
Financial planning is the process of managing your finances to achieve
your life goals. It involves assessing your current financial situation,
setting goals for the future, and developing a plan to achieve those goals.
Why is financial planning important?
Financial planning is important because it helps you achieve your life
goals by managing your finances in a responsible and effective way. It
can help you save for retirement, pay for your children's education, buy a
house, and achieve financial security.
Financial planning also helps you manage financial risks by creating a safety
net for unexpected events such as job loss, illness, or death. It can also help
you manage debt and reduce financial stress.

The financial planning process:

1. Assess your current financial situation: This involves
gathering information about your income, expenses, assets, and
liabilities. This helps you understand your current financial
position.
2. Set your financial goals: This involves determining your long-
term and short-term financial goals. These goals should be specific,
measurable, achievable, relevant, and time-bound.
3. Develop a plan: This involves creating a plan to achieve your
financial goals. The plan should include strategies for saving,
investing, managing debt, and managing risk.
4. Implement the plan: This involves putting your plan into action.
This may involve making changes to your spending habits,
increasing your savings, and investing in financial products.
5. Monitor and review: This involves regularly reviewing your
financial plan and making adjustments as needed. This helps you
stay on track to achieve your financial goals.
Financial goals: Financial goals are the specific objectives that you want to
achieve through financial planning. The primary aim of setting financial goals is to
ensure that an individual or a company has a clear path towards financial stability,
growth, and success. They can be short-term, medium-term or long-term. Some
examples of financial goals include buying a house, saving for retirement, paying off
debt, or saving for your child's education.

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Steps in financial planning: Financial planning is the process of
setting financial goals, evaluating an individual's financial status, and
developing a comprehensive plan to achieve those goals. The following
are the steps involved in financial planning:
1. Assessing the Current Financial Status: This step involves evaluating an
individual's financial situation, including income, expenses, debt, assets, and
liabilities.
2. Setting Financial Goals: Once an individual has assessed their current
financial status, they can set realistic and achievable financial goals.
3. Developing a Financial Plan: A financial plan is a comprehensive
document that outlines the steps an individual will take to achieve their
financial goals.
4. Implementing the Plan: This step involves taking the necessary actions to
put the financial plan into action.
5. Monitoring and Revising the Plan: Financial plans should be reviewed
periodically to ensure that they are still aligned with an individual's current
financial situation and goals.

Budgeting incomes and payments:

Budgeting is a critical component of financial planning. It involves
tracking income and expenses to ensure that an individual or a company
is living within their means. The following are the steps involved in
budgeting incomes and payments:
1. Determine Income: This step involves identifying all sources of income,
including salaries, bonuses, investments, and other sources of revenue.
2. Identify Expenses: This step involves listing all monthly expenses,
including housing, utilities, groceries, entertainment, and other recurring
expenses.
3. Prioritize Expenses: Prioritizing expenses involves categorizing them into
essential and non-essential expenses. Essential expenses include rent or
mortgage payments, food, and utilities, while non-essential expenses include
dining out, shopping, and entertainment.
4. Allocate Funds: Once expenses have been prioritized, an individual can
allocate funds accordingly.
5. Monitor and Adjust: Monitoring expenses regularly and adjusting the
budget accordingly is essential to ensure that an individual or a company is
living within their means.

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Time value of money:
The time value of money refers to the principle that the value of money
changes over time due to inflation, interest rates, and other factors. This
principle is essential in finance, as it helps individuals and companies to
calculate the present value of future cash flows. The following are some
of the concepts related to the time value of money:
1. Present Value: The present value of money is the value of a future cash flow
in today's dollars.
2. Future Value: The future value of money is the value of an investment or
cash flow in the future.
3. Interest Rates: Interest rates are the rates at which lenders charge
borrowers for the use of money.
4. Inflation: Inflation is the rate at which prices of goods and services increase
over time.

Introduction to savings:
Savings is the process of setting aside money for future use. It is an
important part of financial planning as it helps individuals to achieve
their financial goals.
Saving money has many benefits, some of which are:

1. Financial Security: Having savings provides financial security and can help
individuals to cope with unexpected expenses such as medical emergencies,
car repairs, or job loss.
2. Achieving Financial Goals: Saving money can help individuals to achieve
their financial goals such as buying a house, saving for retirement, or starting
a business.
3. Earning Interest: Savings that are deposited in a bank account earn
interest, which can help individuals to grow their wealth over time.
4. Avoiding Debt: Having savings can help individuals to avoid taking on debt
to cover unexpected expenses.
5. Peace of Mind: Knowing that one has savings can provide peace of mind
and reduce financial stress.

Management of Spending & Financial Discipline:

Managing spending and practicing financial discipline are essential for achieving
financial goals. Financial discipline is the ability to control your spending habits and

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make responsible financial decisions. The following are some tips for managing
spending and practicing financial discipline:
1. Create a Budget: Creating a budget and sticking to it is the foundation of
financial discipline. A budget helps individuals to track their spending and
ensure that they are living within their means.
2. Avoid Impulse Buying: Impulse buying can lead to overspending and can
derail an individual's financial goals. To avoid impulse buying, individuals
should make a list of necessary items and stick to it.
3. Use Cash: Using cash instead of credit cards can help individuals to manage
their spending and avoid overspending.
4. Avoid Debt: Avoiding debt is critical for financial discipline. Individuals
should aim to pay off their debts as soon as possible and avoid taking on new
debt.
5. Save First: Instead of spending first and saving what is left, individuals
should aim to save first and then spend what is left.

Setting alerts and maintaining sufficient funds for fixed

commitments: Setting alerts can help you stay on track with your
financial goals by reminding you of important deadlines and payments.
Maintaining sufficient funds for fixed commitments involves setting
aside money to pay for regular expenses such as rent, bills, and loan
payments.
The following are some tips for setting alerts and maintaining sufficient funds:

1. Set Reminders: Individuals should set reminders for fixed

commitments such as rent, mortgage payments, utility bills, and
credit card payments.
2. Automate Payments: Automating payments can help
individuals to avoid late payments and improve their credit score.
3. Maintain a Buffer: Maintaining a buffer of funds can help
individuals to avoid financial stress and cover unexpected
expenses.
4. Plan Ahead: Planning ahead and budgeting for fixed
commitments can help individuals to avoid financial stress and
ensure that they have sufficient funds to cover their expenses.

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Investment Planning:
Investment planning involves the process of identifying investment goals and
developing a plan to achieve those goals. Investing can help individuals to grow their
wealth over time and achieve their financial goals such as saving for retirement,
funding a child's education, or buying a house.
Steps in Investment Planning:
1. Determine Investment Goals: The first step in investment planning is to
determine investment goals. Individuals should identify their short-term and
long-term investment goals and determine how much money they need to
achieve those goals.
2. Assess Risk Tolerance: Risk tolerance refers to an individual's willingness
to accept risk when investing. Individuals should assess their risk tolerance
and choose investments that align with their risk tolerance.
3. Determine Investment Options: There are various investment options
available such as stocks, bonds, mutual funds, and real estate. Individuals
should research and evaluate different investment options and choose the
ones that align with their investment goals and risk tolerance.
4. Develop an Investment Plan: Once investment goals, risk tolerance, and
investment options are determined, individuals should develop an investment
plan. The plan should include a portfolio allocation strategy, investment
timeline, and expected return on investment.
5. Monitor and Adjust the Investment Plan: Monitoring and adjusting the
investment plan is essential to ensure that the plan is on track to achieve
investment goals. Individuals should regularly review their investment
portfolio and make adjustments as necessary to ensure that their investment
plan aligns with their investment goals and risk tolerance.

Benefits of Investment Planning:

1. Achieving Financial Goals: Investment planning can help individuals to
achieve their financial goals such as saving for retirement, funding a child's
education, or buying a house.
2. Wealth Accumulation: Investing can help individuals to grow their wealth
over time and achieve financial security.
3. Diversification: Investment planning can help individuals to diversify their
portfolio and reduce the risk of losing money.
4. Tax Benefits: Some investments offer tax benefits such as tax-deferred
growth or tax-free withdrawals.
5. Inflation Protection: Investing can help individuals to protect their
investments from the effects of inflation.

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Process and Objectives of Investment:
The process of investment involves identifying investment goals, selecting
investment options, and monitoring the performance of the investment portfolio.
The primary objectives of investment are to generate income and grow wealth over
time.
Concept and Measurement of Return & Risk for Various Asset Classes:
Return on investment refers to the profit earned on an investment. The return on
investment varies depending on the asset class. The most common asset classes are
equities, fixed income, and real estate. The risk associated with each asset class also
varies. The concept of risk refers to the uncertainty of the return on investment. The
measurement of return and risk for various asset classes is essential in selecting the
right investment options for a portfolio.
Measurement of Portfolio Risk and Return:
The measurement of portfolio risk and return involves analyzing the performance of
an investment portfolio. The portfolio return is the weighted average of the returns
on individual investments. Portfolio risk is the uncertainty associated with the
portfolio return. The measurement of portfolio risk and return is essential in
selecting the right investment options for a portfolio.
Diversification and Portfolio Formation:
Diversification involves investing in a variety of asset classes to reduce risk. Portfolio
formation involves selecting the right mix of investments to achieve investment goals while
managing risk. The key to successful portfolio formation is to invest in a variety of asset
classes and to ensure that the portfolio is diversified.

Gold Bond:
Gold bond refers to a government-backed bond that is linked to the price of gold. The
bond provides investors with exposure to the price of gold without having to
purchase physical gold. Gold bonds offer several benefits such as regular interest
payments, capital appreciation, and tax benefits.
Real Estate:
Real estate refers to property consisting of land, buildings and housing units. Real
estate investments can provide a steady stream of income through rental income and
potential capital appreciation Investing in real estate can provide a regular stream of
income through rent and appreciation in property value over time.
Investment in Greenfield and Brownfield Projects:
Greenfield projects refer to new projects that are being developed from scratch, while
brownfield projects refer to existing projects that are being renovated or upgraded.
Investment in greenfield and brownfield projects can provide investors with an
opportunity to invest in infrastructure and development projects.

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Investment in Fixed Income Instruments:
Fixed income instruments are debt securities that pay a fixed rate of interest over a
set period. Investing in fixed income instruments can provide investors with a
regular stream of income and can help to manage risk in a portfolio.
Financial Derivatives and Commodity Market in India:
Financial derivatives are financial instruments that derive their value from an
underlying asset. Commodity markets in India offer investors exposure to various
commodities such as gold, silver, and crude oil. Investing in financial derivatives and
commodity markets can provide investors with an opportunity to hedge against
inflation and manage risk in a portfolio.
Mutual Fund Schemes:
Mutual fund schemes pool money from multiple investors to invest in a variety of asset
classes. Investing in mutual fund schemes can provide investors with a low-cost way to
invest in a diversified portfolio of assets.

International Investment Avenues:

International investment avenues offer investors exposure to international markets
and economies. Investing in International investments can provide diversification
benefits and potential returns from foreign markets.
Currency Derivatives and Digital Currency:
Currency derivatives are financial instruments that allow investors to hedge against
currency risk. Digital currency, also known as cryptocurrency, is a form of currency
that is created and managed using encryption techniques. Investing in currency
derivatives and digital currency can provide investors with a new asset class with
potential for high returns, but they also come with higher risks.

Personal tax planning

Personal tax planning is the process of minimizing your tax liability by using various
tax strategies and techniques. It's important to have a basic understanding of the tax
system in your country, including the various tax laws, deductions, exemptions, and
credits. Tax planning strategies can help you minimize your tax liability, including
timing your income and deductions, maximizing your tax credits, and investing in
tax-advantaged accounts. Major life events can have significant tax implications, so
it's important to plan accordingly. Tax compliance involves following the rules and
regulations set forth by the tax authorities, including filing your taxes on time, paying
your taxes, and keeping accurate records.
1. Understanding Tax Laws: The first step in personal tax planning is to
understand the tax laws applicable in your country or region. This includes
understanding the tax rates, tax deductions, and exemptions, and tax-saving
investment options.

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 2. Maximizing Deductions and Exemptions: Tax deductions and
exemptions are an essential part of personal tax planning. These can include
expenses related to healthcare, education, and charitable donations. By
maximizing these deductions and exemptions, individuals can lower their
taxable income and reduce their tax liability.
3. Utilizing Tax Credits: Tax credits are incentives provided by the
government to encourage certain behaviours or investments. Examples of tax
credits include the child tax credit, education tax credit, and renewable energy
tax credit. By taking advantage of these credits, individuals can reduce their
tax liability.

Tax Structure in India for Personal Taxation: The tax structure in India for
personal taxation is progressive, which means that the tax rate increases as the
income increases. The tax rates applicable for the financial year 2022-23 are as
follows:
• For individuals with income up to Rs. 2.5 lakh: Nil

• For individuals with income between Rs. 2.5 lakh and Rs. 5 lakhs: 5%

• For individuals with income between Rs. 5 lakh and Rs. 7.5 lakhs: 10%

• For individuals with income between Rs. 7.5 lakh and Rs. 10 lakhs: 15%

• For individuals with income between Rs. 10 lakh and Rs. 12.5 lakh: 20%

• For individuals with income between Rs. 12.5 lakh and Rs. 15 lakhs: 25%

• For individuals with income above Rs. 15 lakhs: 30%

Scope of Personal Tax Planning: Personal tax planning involves a range of

strategies that individuals can use to minimize their tax liabilities. Some common tax
planning strategies include maximizing deductions and exemptions, utilizing tax
credits, investing in tax-advantaged accounts, timing income and expenses, and
retirement planning.
Exemptions and Deductions Available to Individuals: Individuals are eligible for
several exemptions and deductions under different heads of income and gross total
income. Some of the popular exemptions and deductions available to individuals are
as follows:
• Under Section 80C of the Income Tax Act, individuals can claim deductions
up to Rs. 1.5 lakh for investments in various instruments such as Public
Provident Fund, Equity-Linked Savings Scheme, National Pension System,
etc.
• Under Section 80D of the Income Tax Act, individuals can claim deductions
for health insurance premiums paid for self and dependents.
• Under Section 80E of the Income Tax Act, individuals can claim deductions
for the interest paid on education loans taken for higher education.

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 • Under Section 80TTA of the Income Tax Act, individuals can claim deductions
for interest earned on savings accounts up to a maximum of Rs. 10,000 per
year.
• Under Section 24 of the Income Tax Act, individuals can claim deductions for
interest paid on home loans.
Comparison of Benefits - Special Provision u/s 115BAC Vis-à-Vis General
Provisions of the Income-tax Act, 1961: Section 115BAC of the Income Tax Act,
introduced in the Budget 2020, offers an optional lower tax rate to individuals who
are willing to forego certain exemptions and deductions. Individuals who opt for this
scheme will be taxed at lower rates as compared to the general provisions of the
Income-tax Act, 1961. However, it is essential to calculate the tax liability under both
provisions before making a decision.
Tax Avoidance versus Tax Evasion: Tax avoidance is the legal way of minimizing
tax liabilities by taking advantage of tax-saving opportunities and making strategic
financial decisions. On the other hand, tax evasion is illegal and involves deliberately
concealing income or assets to avoid paying taxes. Tax evasion can result in severe
penalties, including fines and imprisonment. It is essential to distinguish between tax
avoidance and tax evasion to ensure compliance with tax laws.

Insurance planning
Insurance planning involves the identification of potential risks and the selection of
appropriate insurance policies to mitigate those risks. The primary objective of
insurance planning is to protect individuals and their families from financial losses
due to unforeseen events such as illness, disability, or death.
Factors to Consider: When selecting insurance policies, individuals should
consider various factors such as their current and future needs, their budget, and the
policy's features, including the premium, coverage, and benefits.
It is also essential to review insurance policies periodically to ensure that they
continue to meet the policyholder's needs and to make any necessary changes to the
policies.
Need for insurance: Insurance provides financial protection against potential risks
and losses. It helps individuals and businesses manage the financial impact of
unexpected events such as illness, injury, property damage, or liability claims.
Insurance also provides peace of mind by ensuring that individuals and businesses
have the necessary financial resources to cope with such events.
1. Life Insurance: Life insurance provides financial protection to the
policyholder's family in case of the policyholder's untimely death. The lump
sum amount paid by the insurer can help the family meet their financial
obligations such as mortgage payments, education expenses, and daily
expenses. Life insurance is especially important for individuals who have
dependents such as children, elderly parents, or a spouse who rely on their
income.

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 2. Health Insurance: Health insurance provides financial protection to the
policyholder in case of illness or injury. Medical expenses can be high, and
having health insurance can help reduce the financial burden on the
policyholder and their family. Health insurance is especially important for
individuals who have a chronic illness or a family history of medical
conditions.
3. Property Insurance: Property insurance provides financial protection to
the policyholder's property in case of damage or loss due to unforeseen events
such as theft, fire, or natural disasters. Property insurance can help the
policyholder cover the cost of repairing or replacing damaged property.
Property insurance is especially important for homeowners who have invested
a significant amount of money in their property.
4. Credit Life Insurance: Credit life insurance provides financial protection to
the policyholder's family in case of the policyholder's death. This type of
insurance is usually taken out in conjunction with a loan or mortgage to
ensure that the debt is paid off in case the borrower dies before the loan is
fully repaid. Credit life insurance is especially important for individuals who
have significant debt and do not want to burden their family with it in case of
their death.
5. Professional Liability Insurance: Professional liability insurance
provides financial protection to individuals in case they are sued for
negligence, errors, or omissions in their professional capacity. This type of
insurance is especially important for professionals such as doctors, lawyers,
and accountants who have a high risk of being sued due to the nature of their
work.

Retirement benefits planning

Retirement benefits planning is an important aspect of personal finance
that involves preparing for financial security during retirement. It
involves determining the income and expenses that an individual or
couple is likely to have during retirement and creating a plan to ensure
that their financial needs are met during this phase of life.
Need for retirement benefits planning: Retirement benefits planning
is essential to ensure that individuals have a financially secure
retirement. It involves planning and investing in retirement savings
plans to accumulate sufficient funds to meet post-retirement expenses.

Retirement planning goals: Retirement planning involves setting goals for

retirement and developing a plan to achieve them. This involves estimating the total
cost of living during retirement, including housing, healthcare, food, travel, and

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other expenses, and developing a savings plan to meet those needs. Some common
retirement planning goals include:
• Accumulating sufficient retirement savings to maintain a desired lifestyle after
retirement.
• Ensuring that retirement savings last throughout retirement.
• Managing retirement income tax efficiently.
• Protecting assets and income in retirement.

Process of Retirement Planning: The retirement planning process involves the

following steps:

1. Determining retirement goals and objectives

2. Estimating retirement expenses and income needs
3. Evaluating current retirement assets and liabilities
4. Developing a savings plan to meet retirement goals
5. Implementing investment strategies to achieve retirement goals
6. Monitoring and adjusting the retirement plan as necessary

Pension plans available in India: In India, there are two main types of
pension plans:
• Defined Benefit (DB) pension plans: These plans provide a guaranteed
retirement benefit based on the employee's salary and years of service.
• Defined Contribution (DC) pension plans: These plans allow employees to
contribute a portion of their salary, and the employer may also contribute. The
retirement benefit is based on the contributions and investment returns.
There are several types of pensions plans available in India, including:

National Pension System (NPS)

Employee Provident Fund (EPF)

Public Provident Fund (PPF)

Atal Pension Yojana (APY)

Senior Citizens Savings Scheme (SCSS)

Annuity Plans from insurance companies

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Reverse Mortgage:
A reverse mortgage is a type of loan that allows homeowners to convert a portion of
the equity in their homes into cash without selling the property. The loan is typically
repaid when the homeowner dies, sells the property, or moves out. Reverse
mortgages are often used by retirees as a source of income during retirement.

Estate Planning:
Estate planning involves the process of managing and distributing an individual's
assets and liabilities after their death. The primary goal of estate planning is to
ensure that the individual's assets are distributed according to their wishes and that
the process is carried out in a tax-efficient manner. Estate planning may involve
creating a will, establishing trusts, designating beneficiaries for retirement accounts
and insurance policies, and taking other steps to minimize estate taxes and ensure
the smooth transfer of assets to heirs and beneficiaries.

ALL THE BEST FOR YOUR EXAMINATION!!

Regards

Abhishek Kumar

Insta: @abhishek_kumar_official_

YouTube: @abhishekkumardu

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