JULY 2022 | VOL.

14

THE
ORANGE
BOOK
Leverage your FINANCIAL QUOTIENT

Be Rain Ready
 Get showered with money lessons!
It’s time for paper boats and pakodas!
The scent of wet earth and the sound of rain pattering on our rooftops bring in a magical time!
However, amidst all this, there are many money lessons to be learnt from the rains!

Mend your leaking roofs before the rains arrive

Being prepared is important in the monsoons; be it
mending our roofs or filling potholes, we need to
plan ahead. Similarly, it is important to plan your
finances and be prepared for important milestones
and emergencies.

OPEN AN FD EMERGENCY FUND

OPEN AN IWISH RD

START AN SIP*

You can’t always predict things

Like the monsoons can bring in a drizzle or a
downpour, life can be unpredictable too. We
need to adapt, relook at our portfolio timely
and change our investment strategies.

*ICICI Bank Limited is a AMFI Registered Mutual Fund Distributor. Mutual Fund investments are subject
to market risk. Read all scheme related documents carefully. T&C Apply
JULY 2022 | VOL.14
Learn to dance in the rain
While we focus on preparedness, let’s not forget to enjoy the rains, be it enjoying a hot cup of
tea or playing with paper boats! Similarly, while we focus on saving more, it is equally important
to indulge occasionally and spend on things that bring us joy!

OPEN AN IWISH ENHANCE YOUR CREDIT CARD LIMIT

GET AN INSTA CREDIT CARD EXPLORE OFFERS FROM DIFFERENT BRANDS

JULY 2022 | VOL.14

Always keep your umbrella handy
It is important to take care of yourself in the rains.
With the same caution, we must create a safety net
of adequate insurance.

T&C apply. ADV/15044

STAY PROTECTED WITH A HEALTH INSURANCE

Sunshine and rain together make a rainbow

Rain or sunshine alone cannot make a rainbow. The minute they come together, a beautiful
rainbow takes form. A similar balance in our finances; between spends and savings is imperative
for a healthy portfolio.

KNOW YOUR RISK PROFILE

For assistance with your Banking needs,

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(Express Relationship Banking No.) 86400 86400
Call us on 1860 120 7777

JULY 2022 | VOL.14

 Check the health of your wealth!
July 1st is celebrated as National Doctor’s Day and let’s take a moment to thank our
doctors that always know what’s best for us. The doctor-prescribed saying goes,
“prevention is better than cure” and that’s equally relevant to our financial health!

You are financially fit, when you:

Maintain a balance between Build and keep

income & spends adequate reserves

Prioritise savings &

Have the ability to recover
investments over spends from financial shock

Are able to service existing Effectively deploy a range

debts & have access to of financial instruments
additional credit

For assistance with your Banking needs,

Call your RM on 022 4440 0000 WhatsApp ‘Start’ to
(Express Relationship Banking No.) 86400 86400
Call us on 1860 120 7777

JULY 2022 | VOL.14

 Measuring your financial fitness
Discipline
What are the ways in which
you spend and save?

Net Income:
Should grow each year by at
least 7% to 9% to keep up with
inflation
Maintain multiple sources of
income both active and passive

The 50-30-20 rule:

Allocate 50% of your income
for need based expenses, Persistence
30% for want based and the Your ability to manage debt and
remaining 20% for savings pursue important life goals

Preparedness Debt to income (DTI) ratio:

How prepared are you to Ideal DTI ratio should be 30% or
weather financial shocks? under
Liquidity: Credit Score:
A thumb rule is to keep 6 Higher your credit score (CIBIL or
months of expenses in liquid equivalent), better are your chances at
savings securing credit from Banks & NFBCs
A CIBIL credit score of 700 and
OPEN AN FD above is considered good while 800
and above is considered excellent
Insurance:
CHECK YOUR CIBIL SCORE#
Life cover should generally
be at least 10-20 times Long-term investment plan:
your annual income
Start investing early for long term for
GET A LIFE INSURANCE the power of compounding to take effect.
Ensure your portfolio is growing at a
healthy rate which beats inflation
*ICICI Bank Limited is a AMFI Registered Mutual Fund Distributor.
Mutual Fund investments are subject to market risk. Read all scheme START AN SIP*
related documents carefully. T&C Apply

CIBIL Score check is chargeable as per current rates. T&C apply.

#

JULY 2022 | VOL.14

How to ACE your personal finances?
Tennis is a game of strength, stamina, agility and of course focus. This sport can teach us lots
including some important finance-related lessons.

Play to win the match, What you do off-court

not the set matters as much
Profiting from a quick Your financial well-being
sell may feel good in depends not only on how wisely
the short term. But to you invest your money but also
gain returns for the on how you spend your money
long run, it is important and how you conduct yourself
to stay invested and let financially on a daily basis.
go of short-term gains.

Play to your
strengths
While investing, what might
seem like a good move may
end up doing more harm
Loosen your grip than good if you’re not
The markets keep focused or adept at it.
fluctuating daily; it is What may seemingly
important to stay calm. offer higher returns may
Do not make any decisions prove to be a downer if
in haste and don’t let your you know little of it.
emotions get the better of
you.

For assistance with your Banking needs,

Call your RM on 022 4440 0000 WhatsApp ‘Start’ to
(Express Relationship Banking No.) 86400 86400
Call us on 1860 120 7777

JULY 2022 | VOL.14

It’s all relative!
A number of factors including our own experiences, things happening in our surroundings and
data, shape our decisions and opinions.
Let’s meet Ishaan, Sushmita and Divesh to understand
this better with an example of investments.
Individualistic Ishaan
(Influenced by his own beliefs
and experiences)
Belief: Ishaan believes that PPF is not a suitable
investment option because of its lock-in period of 15
years and withdrawal of funds before maturity is not
allowed.

Reality: PPF is a secure investment option with

good returns and maximum (EEE)* tax benefits#. It
also offers partial withdrawal facility. As a rule, you
can fully withdraw the account balance only upon
maturity i.e. after the completion of 15 years.

However, if the account holder is in need of funds,

and wishes to withdraw before maturity, partial
withdrawals upon completion of 6 years is allowed,
subject to a maximum limit.

Socially influenced Sushmita Priyanka

CHATTER

(Influenced by social circle and I lost so much money in the

stock market crash! Never

surroundings)
invest in Equity.

Belief: Sushmita thinks that investing in

equities is risky as her friend had lost a lot of
money 8 years ago in a market crash.

Reality: A diversified equity portfolio has a

history of giving good returns over a long
term horizon.
*EEE (Exempt Exempt Exempt):
E1 = Investment qualifies for a deduction
E2 = Interest earned during the accumulation phase is also exempted
E3 = Income generated from the investment would not be taxable on maturity.
#
Tax Benefits are subject to amendments in tax laws from time to time
JULY 2022 | VOL.14
Data driven Divesh
(Influenced by data & information)
Belief: Divesh believes that real estate is a good
investment because his research tells him that
real estate investments in his locality have
fetched returns of 15%.

Reality: His daughter plans to go abroad for

higher education in 2 years and investing in real
estate would block the funds needed for his
daughter’s higher education.

One should invest in real estate with a long

term vision and take advantage of the Long
Term Capital Gain Tax. Alternatively, one can
also look at REITs (Real Estate Investment
Trusts) as an option to invest in Real Estate.

So whenever making a decision, we should take all factors into consideration and make
an informed choice.

For assistance with your Banking needs,

Call your RM on 022 4440 0000 WhatsApp ‘Start’ to
(Express Relationship Banking No.) 86400 86400
Call us on 1860 120 7777

JULY 2022 | VOL.14

Are you using the right ‘Rate of Return’?
The return on investment is the most crucial factor to look at. Investment planning uses multiple
rates of return and each has a different application. Let’s take a look at these and understand
which ones apply where!

Absolute Return Example Values*

It is the absolute profit (or loss) made from an Investment Amount (A) (in Rs) 1,00,000
investment Future Value (B) (in Rs) 1,50,000
Absolute Return = (Future Value - Investment Absolute Return (%) = (B-A)/A 50%
Amount) / Investment Amount

Where to use it? To calculate returns from short term investments (investment period of less
than 1 year).

Yield Example Values*

Yield is used to represent annual Investment Amount (A) (in Rs) 1,00,000
returns in simple interest terms Time (B) 5 Years
Yield = Absolute Return / No. of Future Value (C) (in Rs) 1,50,000
Years Yield Formula Absolute Return / No. of Years
Yield (%) = (C-A)/A/B 10.0%

Where to use it? To calculate returns from a fixed return generating instrument having a
pre-defined tenure like an FD.

*The numbers mentioned are for illustrative purposes only

JULY 2022 | VOL.14
Compounded Annual Growth Rate (CAGR) Example Values*
CAGR calculates the annualised returns on an Investment Value (A) (in Rs) 1,00,000
investment Time (n) 5 Years
CAGR = (Future Value / Investment Value)1/n - 1 Future Value (C) (in Rs) 1,50,000
where n = investment period in years CAGR (%) = (C/A)(1/n)-1 8.45%

Where to use it? To calculate returns from long term investments (of more than 1 year) with a
single cash flow (Not for an SIP).

Rolling Returns (RR)

RR are point-to-point returns calculated on a daily basis for a specified period
We can calculate one-year rolling returns for a fund every day over a period of 5 years
From RR, we get all kinds of information – the average rolling returns, minimum, maximum,
median, standard deviation etc.
Example Date Price (in Rs)* 5 Day Rolling Return
A1 01-Jan 100
A2 02-Jan 101
A3 03-Jan 101.5

}
A4 04-Jan 102
A5 05-Jan 101 1.00% (A5-A1)/A1
A6 06-Jan 99 -1.98% (A6-A2)/A2
A7 07-Jan 102 0.49% (A7-A3)/A3 Average = Rolling
A8 08-Jan 104 1.96% (A8-A4)/A4 Returns
A9 09-Jan 103 1.98% (A9-A5)/A5
A10 10-Jan 103.5 4.55% (A10-A6)/A6
Minimum Rolling Return -1.98% | Maximum Rolling Return 4.55% | Average (Mean) Rolling Return 1.33%

Where to use it? When you want to choose the better performing investment product
compared to it's peer set.

*The numbers mentioned are for illustrative purposes only

JULY 2022 | VOL.14
Internal Rate of Return (IRR)
IRR calculates returns when there are multiple cash flows for a period of more than one year

Example Values*
Total Investment (A) (in Rs) 1,20,000
Time (B) 12 Months
Investment type (C ) Staggered
Investment value after 12 months (in Rs) 1,50,000

Remark Date Cash flow (in Rs)*

SIP investment 1 1-Jan -20,000
SIP investment 2 1-Feb -20,000
SIP investment 3 1-Mar -20,000
SIP investment 4 1-Apr -20,000
SIP investment 5 1-May -20,000
SIP investment 6 1-Jun -20,000
Investment value after 1 year 31-Dec 1,50,000
IRR (%) 32.45%

Where to use it?

To calculate returns when your investments are irregular investments involving multiple inflows
and / or outflows like an SIP.

For any assistance with your Banking needs

Call your RM at 022 4440 0000 WhatsApp ‘Start’ to us on
(Express Relationship Banking No.) 86400 86400
Call us at 1860 120 7777

*The numbers mentioned are for illustrative purposes only

JULY 2022 | VOL.14
 Quiz
It’s time to test your knowledge now. Take a
short and simple quiz based on what we have
covered in The Orange Book, so far.

TEST YOUR KNOWLEDGE

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JULY 2022 | VOL.14