The Definitive Guide to Financial PlanningPresentation Transcript
Money. Simplified. is 5 years old, but our efforts to give
Money investors a simple, unbiased, and profitable view on how to
The need for financial planning--------------------------------- ------ 3
Reasons why you must take up financial planning on priority.
plan for their future is a lot older than that.
Simplified I started Quantum Financial Services in 1990. By then, Indian How to get started ----------------------------------------------------------- 5
The definitive guide to Setting objectives is the first step in the financial planning process.
investors had already experienced a few boom-bust cycles
Financial Planning including: the blow-up of the IPOs of the non-bank financial
Copyright: institutions (NBFCs) in 1987; the government-owned It’s all about your risk appetite ------------------------------------------ 8
financial institutions had entered the mutual fund industry in Invest based on your risk profile, not the expected return.
1988 and had launched what were to be the first disastrous
schemes (they guaranteed returns from investing in the stock
markets), and the corporate debt market had seen its share of Importance of Asset Allocation ---------------------------------------- 11
scandals in the Non-Convertible Debenture segment. It's important to distribute your money across avenues.
Services Pvt. Ltd. In 1990 there was no regulator, the July 1991 path-breaking Executing the investment plan ----------------------------------------- 15
budget was still 18 months away, and the tussle between the
Successful execution of your investment plan is critical.
Websites: bull and the bear syndicates (commonly referred to as the
www.personalfn.com "Harshad Mehta scandal") was still to blow up in April 1992.
Why it pays to have a financial planner ------------------------------- 18
Over the past five years, the Indian financial services industry It is crucial to connect with a competent and honest financial planner.
has seen an unprecedented boom. Many of the factors driving
the recent surge in the Indian economy and the rise in incomes
Quantum Information and purchasing power are real and rest on a fundamentally
Services Pvt. Ltd., solid base. However, every boom leads to mis-selling, to
404, Damji Shamji, advice that may be based on the need of the advisor and not
Vidyavihar (W), necessarily on the need of the investor.
Mumbai - 86, India
All boom-bust cycles are due to passion and tips, and these
Email: can only be countered by dispassionate decision-making,
email@example.com which is based on education. My philosophy, and of those
who work at Quantum, has always been to educate investors
and then give our clients and readers advice based on what is
good for them rather than our bottom-line. And we keep the
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25th July, 2007 This booklet a) is for Private Circulation only and not for sale. b) is only for information purposes and Quantum Information Services
Dharmesh Chauhan Private Limited (Personalfn) is not providing any professional/investment advice through it and Personalfn disclaims warranty of any
kind, whether express or implied, as to any matter/content contained in this booklet, including without limitation the implied warranties
Himanshu Srivastava Ajit Dayal of merchantability and fitness for a particular purpose. Personalfn will not be responsible for any loss or liability incurred by the user
Irfan Husain Rupani as a consequence of his taking any investment decisions based on the contents of this booklet. Use of this booklet is at the user’s own
Founder - Quantum Information Services Private Limited risk. The user must make his own investment decisions based on his specific investment objective and financial position and using
Vicky Mehta such independent advisors as he believes necessary. Information contained in this Report is believed to be reliable but Personalfn does
not warrant its completeness or accuracy.
Copyright: Quantum Information Services Private Limited.
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Why Financial Planning Why Financial Planning
The need for financial planning Setting objectives, investing in line with In conclusion, it can be stated that
one's risk appetite and asset allocation achieving financial nirvana isn't as
Over the last few years, terms like Financial planning can ensure that one are some of the fundamental principles difficult as it is often made out to be. To
financial planning and personal finance is equipped to deal with the impact of of financial planning. In this guide, these get there, all one needs to do is, stick to
have emerged as buzzwords of sorts. inflation, especially in phases like principles have been dealt with in detail. the basics of financial planning.
Newspapers, magazines, television retirement when expenses continue but
channels and just about every one under income streams dry up.
the sun seem to be talking about the IN A NUTSHELL
importance of financial planning. So The second factor is changing lifestyles. Financial planning can aid in charting a roadmap to meet expected
what is financial planning; more With higher disposable incomes, it is and unforeseen needs in life.
importantly, does it merit the attention common for individuals to upgrade their Inflation i.e. a rise in the general price level is one of the major
that it is being given? standard of living. For example, objects factors that necessitates financial planning.
like cars that were considered luxuries Financial planning aids individuals both upgrade and maintain their `
Financial planning is a process through not too long ago, have become lifestyles.
which an individual can chart a roadmap necessities today. Financial planning has Also financial planning helps meet contingencies like medical
to meet expected and unforeseen needs a role to play in helping individuals both emergencies and unplanned expenditures.
in life. Simply put, the intention is to take upgrade and maintain their lifestyle as Discipline and religious adherence to the principles of financial
necessary steps to ensure that the well. planning can help in achieving financial goals.
individual is equipped to accomplish
what he has set out to achieve and is Finally, there are contingencies like
prepared to deal with contingencies as medical emergencies or unplanned
well. expenditures that an individual might
have to cope with. Sound financial
And yes, the importance of financial planning can enable him to easily
planning (especially in the present mitigate such situations, without
scenario) cannot be overstated. Among straining his finances.
others, two factors are responsible for
the same i.e. inflation and changing Principles of financial planning
lifestyles. At its core, financial planning is not a
very difficult task. All it takes is discipline
Inflation is a situation where too much and religious adherence to the principles
money chases a limited number of of financial planning.
goods. This leads to a fall in the value of
money. It is also expressed as a rise in Discipline has a part to play at every
the general price level. For example, a stage, from setting objectives to actually
product that costs Rs 100 at present executing the plans that are meant to
would cost Rs 105 a year from today, achieve those objectives. In fact, an
assuming that prices rise at 5%. This is adhoc approach while dealing with one's
the impact of rising prices over one year; finances is one of the major reasons for
over a 30-Yr period, assuming that the financial distress that individuals
inflation continues to rise at 5%, the find themselves in.
same product will be available at Rs 432!
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S Setting Objectives
How to get started How to get there 23,003 respectively. Finally, if the
Having discussed, how to set investments yield a return of 17% pa,
Cliché - Unless you know where you individual with a 5-Yr old child and are objectives, let's now take a look at how then you need to invest Rs 1,197 per
are headed, you won't get there. yet to own a house property or provide you should go about achieving those month or Rs 15,445 pa.
for your retirement. In this case, objectives. Becoming a crorepati (Rs 1
Fact - Unless you know where you are providing for the child's education, crore is Rs 10 million) is often viewed Clearly, becoming a crorepati isn't as
headed, you won't get there. accumulating a corpus for buying a as the pinnacle of affluence. Let's difficult as it is made out to be. All you
house property and retirement planning assume that you are a 30-Yr old need is a well-defined investment
Anyway you look at it, knowing where are some of the pertinent objectives on individual who wishes to retire at the objective and a plan to get there. Of
you want to be is the all-important first hand. Now what you need to do is - age of 60 years; this gives you an course, your investment advisor/
step, and the rest follows. To draw a prioritise. Start off with the objective that investment horizon of 30 years. financial planner will have a vital role to
parallel in the world of financial planning, is most pressing and then provide for Furthermore, you have decided that you play in helping you make investments
you first need to decide what you wish the others. need a retirement kitty of a crore to take and ensuring that the investments
to achieve. Put simply, you need to begin care of your post-retirement expenses. deliver the results expected of them. In
the financial planning process by setting Secondly, you are likely to find yourself Here's how you can achieve your fact, he can even help you in quantifying
objectives. The objectives could range in a situation, wherein despite the investment objective. your investment objectives. For example,
from buying a car, setting aside money presence of clearly-laid out objectives, if the investment objective is to provide
for children's education to providing for you lack the means to provide for all of We shall assume 3 scenarios, wherein for your child's education 15 years from
your retirement. Typically, there will be them. In other words, you may not have investments made to achieve the stated now, he can help you with the
multiple objectives, which can range sufficient funds to meet all the objective (becoming a crorepati), yield computations to determine how much
from short-term to long-term ones. objectives. A typical reaction (which can returns of 12% pa, 15% pa and 17% pa. money you will need to provide for the
prove costly in the long run) is to objective.
The trouble is that most individuals tend postpone investing and "wait for an As can be seen in the table, if your
to ignore the "What" part i.e. what do opportune time". Our advice - never investments yield a return of 12% pa, In conclusion, getting your objectives
you want to achieve? Instead, they start delay investing. Instead, the key lies in then you need to invest Rs 3,277 per right and having the necessary
off with the "How" part i.e. how will you starting off as early as possible and month or Rs 41,437 pa (over 30 years). If investment plans in place will ensure that
achieve the same? This in turn, leads to giving yourself adequate time; begin you take on higher risk and the you are on a sound footing to achieve
an adhoc and directionless investment with the investible funds that you have investments yield a return of 15% pa, your goals - and that's a fact, not just a
pattern that may not yield the desired and make up for the shortfall at a later then the required monthly and annual cliché.
results. The right approach is to decide date when hopefully you will have more investments drop to Rs 1,796 and Rs
on the "What" i.e. objective and then funds at your disposal. Become a crorepati
follow it up with the "How" i.e. a
Objective (Rs) 10,000,000
dedicated investment plan. Finally, setting objectives is a very
personalised activity, i.e. it has to be right Tenure (years) 30
There are some pointers that must be for you. The activity should not be Case 1 Case 2 Case 3
borne in mind, when you are setting influenced by external factors like your Rate of return (%) 12 15 17
objectives: friends, relatives or peers. This is vital Annual investment required (Rs) 41,437 23,002 15,445
since what you set out to achieve is what Monthly investment required (Rs) 3,277 1,796 1,197
Firstly, at any point in time, you are likely you will eventually land up with. Ensure
to face multiple objectives. For example, that you put in adequate thought before
assume that you are a 35-Yr old arriving at the objectives.
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Setting Objectives Interview
IN A NUTSHELL It's all about your risk appetite
Setting objectives is the first step in the financial planning process.
Each objective must be backed by a dedicated investment plan. For a lot of investors, investing can be a all three parties - the service provider
The investment advisor has an important role to play in quantifying pretty simple activity. It involves that launches the investment
the objectives. keeping oneself updated through opportunity, media that cannot seem to
When faced with multiple objectives, prioritise and start off with numerous magazines, newspapers and hype enough about it and the investor
the most pressing one. news channels about the latest, most who is led to believe that it's the best
Don't delay the investment process on account of shortage of funds. touted investment opportunities. The thing to happen to him in a long time.
Start early and make up for any deficit at a later stage. next step is obvious - invest in these And that small detail that is overlooked
Setting objectives is a personalised activity; ensure that the objectives opportunities to the hilt in the hope of is the risk of investing in the 'hot
are right for you.
making some easy money. And if opportunity'.
everything goes right, investors would
have made a neat packet all because But how does the investor go about
they were quick to seize upon these assessing his risk appetite? If an
great investment opportunities. investor can afford to lose significant
amount of money on his principal before
We are sure the 'investment process' we it can generate a return, then his risk
have outlined will strike a chord with appetite is high. Put bluntly, risk is the
many an investor. We are not saying this amount of money that the investor can
is how all investors are investing, but it afford to lose, in the interim, in his quest
is a disturbingly familiar sight. As more for a certain return on his investment. If
and more newspapers, news channels, an investor can afford to lose only a
magazines, personal finance initiatives moderate amount of money, then his risk
get launched, media hype around these appetite is on the lower side.
so-called investment opportunities
builds up even more rapidly, which in Our grouse with the media hype over a
turn feeds investor interest. This particular investment opportunity and
escalates to a point where investors investor enthusiasm for the same, is that
believe that since everyone is investing rarely, if ever, is the risk of investing in
in the 'hot' investment opportunity, the opportunity highlighted. It's always
prudence demands that they adopt the about how rewarding the opportunity
same course of action, because not can prove to be and never about how
doing so will entail a great opportunity much the investor can stand to lose (i.e.
loss. risk) if the opportunity does not quite
blossom like it's meant to. In other
We could write an entire note on how words, the investor gets half-baked,
this whole rigmarole is a prefect recipe incomplete information. As a matter of
for disaster and that investors should fact, in the absence of information
take the media hype with a bagful of salt. related to risk, information isn't just
Over here we wish to highlight incomplete, it's downright misleading.
something critical that is overlooked by
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Risk Appetite Risk Appetite
In our view, any discussion on an equities) for instance. The idea is to real estate and gold to cite a few. could be one of those investors who
investment avenue is incomplete unless make your risk appetite and not the cannot tolerate more than a 10% drop in
it underlines the risk along with the investment opportunity, as the reference 4) Another strange aspect of risk is his investments (refer Point 1), in which
(probable) return on it. To that end, point. Most investment disasters are that it decreases with time. Certain case a 70% equity investment is a clear
investors must pay as much attention fashioned when investors use the market-linked investments like equities invitation to disaster. On the same lines
to the risk of investing in an asset as the investment as a reference point and then appear very risky prima facie. While this a 60-Yr old investor may have
return on it. While it is difficult to try to mould their risk appetite risk is clear and present, it's important considerable appetite for equities (at
quantify your appetite for risk, there are accordingly. to recognise that this risk is amplified Personalfn we have investors in this
ways through which you can get a fairly over the short-term (less than 3 years). category) and may want to invest more
good idea about how much risk you can 3) The risk associated with an investment Over the long-term, the risk of investing than the 40% that the formula permits
take on in your quest for a return. We has a lot to do with the investment in equities reduces. As a prominent him.
have highlighted some of the key points timing. One reason why a lot of investors fund manager observed equities are the
to keep in mind while evaluating your burn their fingers (and portfolios) with riskiest asset over the short-term and 6) The above point does not mean that
own risk appetite: the hot investment opportunities is not the safest asset over the long-term. there is absolutely no link between risk
because the opportunity was a dud or That is why where equities are appetite and age. While it may not be
1) Risk can be loosely defined as the because the media reported it all wrong; concerned it pays to have a really long- true in every case, investor appetite for
money you can afford to lose in the it's mainly because by the time they term investment horizon. risk does decline with an increase in age.
interim period until you achieve the invested in the opportunity, it had This is because a) as investors age, they
return you have in mind. If you can afford already run its course and had peaked. 5) Contrary to popular expert opinion, really can't tolerate sharp dips in their
to see significant erosion in your In other words, it was a bubble waiting risk appetite for equities is not '100 investments; it upsets them and makes
investments (say upto 50% of to burst. And since all good things must minus the investor's age'. So if an them nervous. And b) at an advanced
investments) in order to achieve the come to an end, the investment investor is 30 years old, it does not age, investors are usually most
target return then that makes you a high opportunity soon embarks on its (sharp) necessarily imply that he must have 70% concerned about planning for retirement.
risk investor. If you are the type, who decline hurting investors who came in of assets in equities (according to the Since equities can be volatile over the
can tolerate a dip in your investments towards the end, the most. These 'formula' it does). Apart from the fact short-term it is advisable to shift a
only upto a certain level (say upto 10%), investors either lose a lot of money or that this is skewed asset allocation, the majority of assets from equity to debt, as
then you are low risk investor. While make so little of it that it's not worth the investor may just not have the risk the investor approaches retirement age.
the fall in the investment value (10% and effort (and hype). appetite for a 70% equity allocation. He
50%) is only indicative, we are sure you
get the drift. So the next time you hear/read of the
next big opportunity in the media, ask IN A NUTSHELL
2) Your choice of investments must flow yourself a simple question - is it possible Always evaluate the risk in an investment opportunity before the
from your risk. If you can take a 50% that since this hot opportunity is return. Invest in line with your risk appetite, not the expected
drop in your investments then high risk yesterday's news it has already run up return.
investments like technology stocks/ more than it should and if I enter in it If you can afford to lose a lot of money in your quest for a higher
funds or aggressively managed funds today I may either lose money or make return then you have a high risk appetite.
like mid cap funds could suit your very little money? A lot of investors, who Market linked investments like equities get less risky with the passage
appetite. If you cannot tolerate too much if they had asked themselves this of time.
volatility, then you must opt for lower question, would not have been hurt in Risk is a very personal thing there is no formula to calculate it.
risk investments like balanced funds the hot investment opportunities of yore Often at an advanced age, risk appetite declines.
(which invest about 65% of assets in like technology/media stocks, mid caps,
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Interview Asset Allocation
importance of asset allocation. In fact, negative for stocks in the short-term,
Importance of Asset Allocation you may even feel that asset allocation could actually lead to a rise in gold prices
is a hindrance as having all money in (as investors move from currency
Too often financial planning is made out estate, gold and cash. The answer to the equities is a smarter way to ride the stock denominated assets to 'real' assets).
to be simpler than it is. Of course, at a second question - 'how much of each market rally. It usually takes an adversity
level financial planning is relatively asset should you own' is a little tricky, (in this case, a sharp fall in stock markets) So what can asset allocation offer
uncomplicated. But that does not mean because it will vary from investor to to fully appreciate that having more than investors? Plenty, if executed correctly.
that it's only about identifying investor. An honest and experienced one asset in your portfolio can be a big The advantage of having different
investment objectives and outlining an financial planner will certainly play an bonus assets in the portfolio is that a decline
investment plan that will help you get important role in helping you determine in any one asset can be partially offset
there. It does involve both these how much each asset must contribute Assets have varying cycles; put simply, with the presence of other assets, which
elements of course, but there is an to your investment plan. these are the ups and downs in the are not witnessing the same trend (in
equally important element that is often assets' fortunes. Not all assets move in this case a decline). This is what
ignored - asset allocation. A place for every asset the same direction at the same time, in diversifying across assets can do for
To be sure, every asset has a role to play fact, that is a rare phenomenon. This you. If it weren't for asset allocation, you
Now asset allocation may sound like a in your portfolio. And equally important means that if stock markets are would be a sitting duck every time there
complicated concept, but isn't. As the is the allocation of each asset. Put simply, witnessing a prolonged rally, then it is was a decline in the prices of stocks or
word suggests, it means distributing an investor who can take risk will unlikely (except in very rare cases) that real estate or whichever asset dominates
your money across various investment appreciate that he must include equities other assets like gold and property will the portfolio and if you aren't adequately
avenues or assets so that the poor in his portfolio. But that is just half the also witness a sharp upturn at the same 'covered' with investments in any other
performance of any one avenue/asset story; the other important half is about time. On the same lines, if stock markets asset. Now you know why a Swiss army
does not jeopardise the entire how much equities the investor must are in the midst of a prolonged bear knife (as opposed to a simple knife) can
investment plan. As logical as that own in order to achieve his investment phase, (again in very rare cases) other be such a handy tool outdoors, because
sounds, it is one of the rarest traits in a objectives effectively. assets are unlikely to be in the same it can do so many things for you.
financial plan, but more on that later. situation. Bottom line is since you do
Once he resolves this query he must not know which asset is going to be at As we have mentioned, asset allocation
To better appreciate how the right asset move on to the next asset, say fixed which stage at a particular point of time, is done best by the investor with his
allocation can add value to an investment income (or debt). The same question its best to invest in more than one asset financial planner sitting across the table
plan, let's first understand what it's all surfaces - how much fixed income? Then so as to improve your chances of after giving due weightage to the
about. When you look at the investment how much real estate and so on. Piece achieving your long-term goals with investor's risk profile and investment
landscape there are a lot of assets (which all these assets (along with their minimal turbulence.
loosely refers to investment avenues) allocations) together and you have what Asset Allocation for Kumar and Vivek
and as an investor you really don't know is commonly known as an asset The reason why
a) which asset must form part of your allocation plan. Kumar Vivek
having more than one
investment plan and b) if it must, then asset can work in your Fixed Income 10% 20%
how much of it should you own. Why asset allocation favour over the long- Equities 30% 20%
When you diversify across assets you term is because
The answers to these questions are give yourself a lot of leeway to counter Property 50% 50%
different assets react
simple, yet not so simple. To the first market uncertainties. Till the time an differently to the same Gold 5% 5%
query - ‘which asset must you own’ asset market like the stock markets for set of factors. For Cash 5% 5%
most investors would qualify to own all instance, are progressing well, you instance, inflation
the key assets viz. equities, debt, real probably cannot appreciate the which can be a Allocation is a percentage of Kumar and Vivek’s portfolios
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Asset Allocation Asset Allocation
objectives. To give an idea, let us recommend an asset allocation that combination of several factors; one is happen. When the rally (in the asset)
consider two individuals Kumar and accurately reflects your risk appetite and the rally in the asset itself, other factors fizzles out, the retail investor is usually
Vivek. Kumar is a 30-Yr male who is is geared to achieve your investment are greedy intermediaries and media the biggest loser since he is the last to
married, no children. Vivek on the other objectives. hype. The intermediary (from get out. This could have been averted
hand is 55 years old, married with commissions) and media (from very easily if he were prudently
children who are on their own. Also, asset allocation is not a one-time advertisements) make their money from diversified across assets with no single
According to the Personalfn's Asset process; rather it must be pursued on all the hype, but the retail investor is asset occupying a larger-than-necessary
Allocation Review, their asset allocation an ongoing basis. This is because with sitting on a disaster that is waiting to share of his investment plan.
should be as follows: the exception of cash, all assets (like
equities, debt) are market-linked. With
Since Kumar is young and has appetite the passage of time, the allocations to IN A NUTSHELL
for risk, he should invest in stocks/ these assets will shift from the original Asset allocation is all about diversifying your money across investment
equity funds (30% of assets) as equities allocations. For instance, it is possible avenues in a particular proportion.
can add considerable value to the that after a rally in stock markets your With a well-balanced asset allocation you can tide over a decline
portfolio over the long-term. His equity allocation has increased in a particular asset market.
investment in fixed deposits/bonds considerably from what it was before the Asset allocation is not one-time, it must be reviewed regularly especially
(10%) is on the lower side, mainly to rally. However, your risk appetite is the after a rally in a particular asset.
provide stability to the portfolio. His same; to reflect this reality, you must re- Asset allocation at the end is a reflection of the investor's risk
property (50%), although accounting for adjust the higher equity allocation by appetite.
the highest proportion of the portfolio, selling the excess equity and increasing
is largely for residential purpose and not allocations to other assets. The
investment objective is that over a period of time,
. you must be as close to your original
asset allocation as possible.
The balance is in gold (5%) for
diversification (since gold is a hedge Any financial plan that aims at realising
against inflation) and in a savings bank pre-determined investment objectives
account (5%) to meet emergencies. without diversifying across asset
classes is doomed to fail. We aren't
Compared to Kumar, Vivek's asset talking theories over here, this is reality.
allocation plan reflects his advanced age Every time there is a rally in a particular
and lower risk appetite. To that end, he market, investors flock to it ignoring the
has 20% (of assets) in equities and 20% basics of financial planning. A rally in
in fixed income. His allocation to technology stocks often means
property (50%), gold (5%) and savings investing only in technology companies.
account (5%) is the same as that of An upturn in real estate means ignoring
Kumar. other assets for the lure of real estate (or
real estate stocks). A surge in gold
The asset allocations must be treated as prices, means buying gold to the
indicative. An honest and competent exclusion of other assets.
financial planner is best equipped to Of course, this kind of investing is a
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Executing the investment plan Step 2: Reviewing Step 3: Making changes to the plan
Undoubtedly investing in instruments Although you may not be prepared for
Once you have an ideal asset allocation outlined by your investment plan is a this, sometimes you may need to make
and competence must be beyond
plan in place with help from your financial critical first step. But to ensure that you some changes (even critical ones) to
planner, half the battle is over. The other stay the course, a regular review of the your investment plan. This could be for
half involves setting the asset allocation investment plan is necessary. Again, a variety of reasons. For instance, due
Below we have outlined the most critical
plan in motion. Once again, your financial this will be done under the guidance of to a financial crunch you may not be
steps involved in the execution process.
planner can be expected to play a critical your financial planner. able to contribute as much as you had
role in this process. Step 1: Investing projected for your new 2-bedroom
There could be several reasons why your house in an upmarket locality. However,
After preparing the investment plan,
Financial planning is not a theoretical investment plan may have to be revised since owning property is crucial you
your financial planner will help you
subject. Its results are rooted in practical at regularly (like every year for instance). can't obviously abandon this plan
execute it. This involves, for instance,
applications like planning for your child's This is mainly because since a lot of your altogether. What you can do is invest
opting for the child plan for your child's
education, retirement planning, buying investments are market-linked, you will whatever you can towards the house
education/marriage, or the diversified
a house to cite a few investment have to adjust for market changes. For and instead of the 2-bedroom house in
equity funds for your retirement plan or
objectives. Therefore a financial plan instance if equity markets run up sharply, an upmarket locality settle either for a
the balanced fund for your new house.
once outlined must be executed carefully; your equity allocation will be a lot higher smaller house or a downmarket locality
You must invest in all the investment
the successful execution of the plan is than what you had initially projected.
and insurance options that your
the key to the house you are planning to Obviously your risk appetite has not The idea is that at all times treat your
financial planner has outlined for you
buy or the engineering degree you wish changed with the higher equity objectives as sacred, don't compromise
while drawing up the investment plan.
for your child. allocation. To account for this on them. Lower your sights if necessary,
Of course, you must question your
misallocation, you should lower your but don't abandon contributing for them
financial planner on all his
As a process, executing the financial plan equity allocations by selling a portion altogether. Also do not borrow from one
recommendations. Remember, it's your
involves a series of steps. A lot of these of your equity investments; the same portfolio to provide for the other. For
money that is being invested.
steps are repetitive; to borrow a cliché, should be reinvested in other avenues instance, if there is a shortfall looming
your financial planner and you have to based on the investment plan. in your 'new house portfolio', do not
Your financial planner will help you with
be on the ball all the time to ensure that the formalities, but it pays to be borrow from your retirement portfolio.
the investment plan is on track. Actually Stock markets are more volatile compared Instead, as suggested earlier make
personally involved upto a level. For
you, more than your financial planner, to say debt markets. It is therefore likely adjustments in the new house portfolio
instance, to the extent possible fill the
must be concerned about the investment that every time you review your asset by settling for a smaller house.
application forms yourself so you learn
plan, because your investment allocation, you may feel the need to
about the relevant details. While filling
objectives are on the line not his. You correct the change that may have Step 4: Finishing touches
the insurance application form, for
will notice that we mention the financial occurred. However, this may not be As you approach the milestone (child's
instance, you have to give a true and
planner all the time while discussing the wise. In our view, you should review engineering admission or marriage), you
fair picture of your medical history as
execution of the financial plan. His active your portfolio say once every three must gradually redeem risky investments
an inaccurate representation could lead
involvement is critical because a) he is months; but you should reallocate your like equities since they can be very
to rejection of claim at a later date.
an expert in executing investment plans assets say once a year, or maybe even volatile over the short-term. That money
Likewise, appointing a nominee is
and b) his inputs are necessary every longer (every time you reallocate assets, should be reinvested in low-risk
common in mutual funds and life
time the investment plan is reviewed. That you incur a cost). Of course, if the asset investments like short-term debt. The
insurance, so ensure you have those
is why you must be careful while allocation changes dramatically in a idea is that when you are so close to
details correctly filled in.
selecting a financial planner; his honesty shorter period, then you may need to realising your objectives you do not
act sooner. want to take undue risks.
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Execution Interview Planner
IN A NUTSHELL Why it pays to have a financial planner
Your financial planner plays an important role in the successful
execution of your investment plan, so his honesty and competence On many occasions in this guide, we Bid adieu to the agent
must be beyond reproach. have mentioned that financial planning Convention suggests that the local
You must review your plan at regular intervals. isn't necessarily as difficult as it is made 'agent' is the man for the job. And why
If you are not able to contribute to your plan as expected, contribute out to be. All you have to do is, stick to not? He has been servicing your family's
whatever you can instead of abandoning the plan altogether. the basics and there's a more than a fair investment and insurance needs for
As you approach your milestone de-risk your plan by reducing the chance that you will do well for yourself. ages. He helps you with all the paper
equity component. You might be tempted to believe that if work and delivers all documents to your
the aforementioned is true, then there residence. In some cases, he goes a step
should ideally be no need to engage the further and even offers a commission
services of a financial planner. In other i.e. rewards you for the investment by
words, financial planning is just another, parting with a portion of his earnings.
"do it yourself" task. However, that's not To put it mildly, that investment style is
quite the case. passé.
The financial planner has a vital role to An agent whose forte is his ability to
play in aiding you achieve your desired ensure that your tax-saving investments
financial goals. And rest assured, the (i.e. NSC and PPF), are duly made is
presence of a competent, experienced about as useful as the proverbial cat in
and honest financial planner can ensure a toy mouse factory. The modern
that the financial process becomes an investment scenario is way too complex
easy task. for a conventional agent to handle.
So why does one need a financial To be fair to agents, they have done their
planner? To begin with, to help you sift bit to acclimatise to the new conditions.
through the vast (and ever-expanding) They have tried hard to masquerade as
list of investment avenues on offer and financial planners. For example, now
select the one that is right for you. A agents are armed with laptops which are
financial plan would typically involve used to display fancy PowerPoint
adding avenues like equities, mutual presentations. Also, coloured print outs
funds, fixed income instruments and showing illustrations along with graphs
insurance, among others, to the portfolio. and pie-charts are the norm. But scratch
There are multiple offerings within each the surface (i.e. ask a few pointed and
avenue vying for your attention (your non-standard questions) and the gloss
wallet, actually). Tracking each of these peels off, exposing the same old agent.
offerings and selecting the right ones is
a full-time job. That's where the financial What makes a financial planner
planner enters the picture. Having discussed the failings of an
agent, now let's take a look at what a
financial planner can offer. A financial
17 visit us at www.personalfn.com visit us at www.personalfn.com 18
Financial Planner Financial Planner
planner is someone who is equipped to is common to hear of investors being IN A NUTSHELL
'advice' you on a range of investment misguided into investing in avenues that The conventional agent whose offering is restricted to delivering
avenues. He will have an informed view were completely unsuitable for them, but forms and collecting cheques is inept to deal with the modern
on the economy, interest rates and right for their financial planner (because investment scenario.
markets. He is someone who can of the high commissions). Also regular The financial planner has an important role to play in aiding investors
accurately read the events in the churning of the portfolio i.e. exiting a achieve their financial goals.
economy and educate you about their mutual fund scheme and getting invested He must prepare the investment plans and ensure that the
impact on various investment avenues. in another with a view to make higher investments stay on course to achieve the predetermined objectives.
commission earnings are common The financial planner's forte should be his ability to offer unbiased
Secondly, he can devise an investment occurrences. and personalised advice.
plan that is right for 'you'. The concept Always stay actively involved in the investment process.
of 'one size fits all' doesn't work while Mission impossible
investing. Investment avenues that are Finding a financial planner, who is
apt for say, your friend can be grossly competent, experienced and honest,
unsuited for you. The financial planner's might seem like an uphill task, a mission
skill sets will enable him to accurately impossible of sorts. Well, it's not. All you
quantify your investment objectives; need is patience to stay put for the right
also, he will construct a plan that will financial planner and willingness to
help you achieve your investment shoulder responsibility in the financial
objectives without compromising your planning process. Before engaging the
risk profile. services of any financial planner, ask for
references and have his credentials
The financial planner will monitor the verified. Ask relevant questions about
investments and ensure that you stay how he intends to help you achieve your
on course to achieve your targets. He goals, question his recommendations,
will incorporate necessary changes to ask for alternatives and back-up plans, if
the investment plan in line with changes his plan fails to deliver as expected.
in the investment scenario and other
factors like your risk appetite. This is More importantly, stay actively involved
where his experience and skills will come in the investment process. There is a fine
into play. line which divides having confidence in
the financial planner's abilities and
Finally, an honest financial planner can having blind faith in him. Never cross
bring a lot of value to the table. Now over to the latter.
why should honesty feature so
prominently? Simply because, here is the In conclusion, the financial planner's role
individual you trust your finances with. in helping you achieve your financial
Hence, it is pertinent that, at all times, he goals is undisputed. And you would do
is looking out for your interests and not well to take due care before engaging the
his own. In fact, his gains should be the services of one.
result of your targets being achieved. It
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