Today the Indian market is flooded with a range of financial products and services. The list of financial products is very long and is continuously increasing. Few products out of the list are mutual funds, NPS, corporate fixed deposit, capital gain bonds etc. All of these products claim to grow your money and here is where the problem arises. Most of the investors have no idea about the products they are investing in. Or let’s say even though they know about the product, but do they know about any potential risks, limitations, costs as well as other characteristics of the products. With this arises a need of a financial planner. Financial Planners who go by a variety of titles-from Relationship Manager to Wealth Manager, Personal Portfolio Manager to Investment Advisor-play the role of advising a client on the best financial management plan for him or her with the help of financial planning.
Everyone has needs or aspirations. And almost all of them need financial commitments. With commitments, it becomes a financial goal. So financial planning is a planned and systematic approach to provide for the financial goals that will help people realize their needs and aspirations, and be happy.
For example, a father wants his son, who has just passed his 10th standard Board examinations, to become a doctor. This is an aspiration. In order to realize this, formal education expenses, coaching class expenses, hostel expenses and various other expenses need to be incurred over a number of years. The estimated financial commitments towards these expenses become financial goals. These financial goals need to be met so that the son can become a doctor.
The needs or aspirations are a good starting point, but in order to plan, these need to be converted into financial goals. The financial goals must be defined in terms of time horizon and the amount of money required to fund the goal.
In the above example, the father has to plan (financially) for funding the son’s medical education. For that purpose, one needs to know the time when the son is ready to go to the medical college, which will be after 2 years, in this example as the son has just passed his 10th standard examination. The father also needs to estimate the amount required for tuition fees and other related expenses.
A financial planner helps in converting a need to a financial goal. A financial goal tells us what would be the amount of money required at the time of the need, taking into consideration risk appetite of the client, inflation, rate of return, cost in today’s terms and no. of years in the future when the expense will be incurred.
i) Young call centre / BPO employee with no dependents
50% diversified equity schemes (preferably through SIP); 20% sector funds; 10% gold ETF, 10% diversified debt fund, 10% liquid schemes.
ii) Young married single income family with two school going kids
35% diversified equity schemes; 10% sector funds; 15% gold ETF, 30% diversified debt fund, 10% liquid schemes.
iii) Single income family with grown-up children who are yet to settle down
35% diversified equity schemes; 10% Index fund, 15% gold ETF, 30% diversified debt fund, 10% liquid schemes.
iv) Couple in their seventies, with no immediate family support
15% diversified equity index scheme; 10% gold ETF, 30% diversified debt fund, 30% MIP, 15% liquid schemes
The financial planner should have a model portfolio for every distinct client profile.
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