Our association with Cholamandalam Group has been for decades and we value this relationship deeply. Chola securities...
K Ajith Kumar Rai, Chairman ,
Financial Planning is the process of meeting your key financial goals through the proper management of your finances. This will help you to work out where you are now, what you may need in the future and what you must do to reach your goals.
The Financial Planning process involves gathering relevant financial information, setting financial goals, examining your current financial status, and coming up with a strategy for meeting your financial goals considering your current situation and future plans.
Determining your financial goals is the first step in the financial planning process. You should define and prioritise your goals based on the importance and number of years left to that goal. Child education & marriage, planning for retirement, risk protection and building a contingency fund are the most common goals for an individual. You need to prioritise the most important goal and start allocating the surplus for that goal. For instance, Building a contingency fund and Risk protection is the most important immediate goals compared to other goals like buying a car/House.
Risk appetite and risk capacity vary from person to person. However, we can broadly classify the investor, by answering a few set of questions in Risk analysis questionnaire. Investors are broadly classified as Conservative, Moderately Conservative, Moderately Aggressive, and Aggressive investor. We suggest the suitable allocation based on the investor risk profile.
Your dreams and wishes may be big; however, you should examine your present financial situation, before deciding the ideal investment plan. You have to project your income and expenses to arrive at an annual or monthly surplus. You also need to ascertain your net worth by listing your assets and liabilities. You should also examine your existing investments and the future investment commitments.
By examining your existing investments, you will figure out whether it will fulfill all your future goals. With your existing investments, if you are unable to fulfill your goals, then there is a gap. This crucial step (gap analysis) will help you to take corrective measures to adjust your investment portfolio in line with your goals. For instance, if you have invested in an investment instrument that is yielding suboptimal returns, you should reallocate the corpus in to some other investment instrument to get better returns.
Your financial plan depends upon the factors such as financial goals, risk appetite, risk capacity, and monthly cash flows. Based on the available surplus you must allocate first for the most important goals and allocate the rest to other goals. For instance, Building a contingency fund and Risk protection is the most important immediate goal compared to other goals like buying a car/House.
Developing a financial plan consists of the following steps:
Risk analysis questionnaire will guide you to ascertain the asset allocation mix. Based on the risk analysis, investors are broadly classified as Conservative, Moderately Conservative, Moderately Aggressive, and Aggressive investor. We suggest the following model portfolios for each investor category, which will guide you to take informed decisions.
|Fund Name||Conservative||Moderately Conservative||Moderately Aggressive||Aggressive|
|Equity-Large Cap Funds||10%||15%||10%||15%|
|Equity-Large & Midcap Funds||0%||5%||15%||20%|
|Equity-Multi Cap Funds||0%||5%||10%||10%|
|Equity-Mid Cap and Small cap Funds||0%||5%||15%||25%|
|Equity – Balanced Funds||15%||5%||10%||5%|
|Hybrid – Arbitrage Funds||30%||30%||20%||15%|
|Debt- Short term Funds||25%||20%||10%||5%|
There are hordes of financial products that dot the investment world. The mutual fund industry in itself is replete with numerous funds that look similar in style and objective. To add to it the investment returns generated by each of these funds are different. It becomes a herculean task for an investor to choose the right scheme for their investment horizon.
Our Chola Fund Selector, which is based on an in-house research model, can help you select funds under each category.
Investment plan needs to be reviewed on a regular basis (at least yearly). Changes in income & expenses, changes in goals or any eventualities will affect the investment plan. Periodic review will help you to identify any deviations and alter the plan based on the current situation. Next step, you need to check the performance of the invested portfolio and the asset allocation. Periodically you may rebalance the exposure between the various asset classes if there is a significant outperformance or underperformance of the underlying schemes. MF Schemes that are consistently underperforming the peer group needs to be redeemed and reinvested in better performing schemes.