While Certified Financial Planners (CFPs) and financial advisors may know these steps, it will be useful for investors to familiarize themselves with the process, so that they can work efficiently and effectively with their financial planners or advisers.

Defining Goals:

This is the first and also, one of the most important steps in financial planning. The more specific and quantitative your goals are the more effective will be your financial plan. Sometimes you may not have enough clarity about all the financial goals in your life, especially if you are young. Sometimes people set impractical goals. An experienced financial planner or adviser can help you define the goals across your savings and investment lifecycle and determine the specific numbers you need to reach specific goals.

Data Collection:

The second step in the financial planning is to collect the data regarding the investor’s income, expenses, assets (both physical and financial like property, gold, bank deposits, stocks, bonds, mutual funds etc), liabilities (like home loan, car loan, personal loan etc), life and health insurance, and other important factors, that will form the inputs in the investor’s financial plans.
Many financial planners or advisers prefer face to face meetings with their clients to collect this data. A face to face meeting will also help the investor to clarify doubts, expectations or share additional details with financial planners or advisers.

Data Analysis:

This is the third step of the financial planning process. The financial planner will review all the data collected from the client, e.g. investor’s income, expenses, assets, liabilities, existing insurance policies (both life and non-life insurance), number of family members, legal documents (if required), short term, medium term and long term financial goals.

Through a structured financial analysis process, the financial planner will determine your asset allocation strategy and insurance (both life and health) needs to meet your financial objectives.

Plan Recommendations:

In the fourth step, your financial planner or adviser will make the actual recommendation with respect to your comprehensive financial plan. This will include your asset allocation strategy, alternate investment options (e.g. mutual funds, equity investing, traditional debt products etc.), life and health insurance needs. Your financial planner or adviser will schedule a meeting with you, to discuss these recommendations.

This is a very important step in the financial process for you, as a client. You should make sure that you understand all the recommendations and the reasons thereof. You should ask as many questions as you would like to, regarding each strategy or product, because they will be crucial in meeting your financial objectives.

Implementation / Execution:

In business we say that, a great strategy or plan is completely useless without good implementation or execution. Fortunately, in the personal finance space, the evolution of the financial services industry in India has made implementation of the easiest part of a financial planning process. Implementation involves the actual process of purchasing the investment and insurance products needed for your financial plan. At this stage various regulatory and procedural requirements need to be fulfilled, depending on the products involved.

Monitoring and Tracking:

You should review your financial plan, to evaluate the effect of changes in your income levels, your financial situation, your tax situation, new tax rules, the performance of your investments, and suitability of new products with respect to changes in market conditions. Normally, your financial planner or adviser will schedule meetings with you at a regular frequency, to review your portfolio and discuss if any change needs to be made in your financial plan, asset allocation strategy and product strategy.

Conclusion

We should also remember that financial planning is not a static, but a dynamic exercise. As discussed earlier, your financial situation, goals and aspirations may change over time. Therefore, you should meet with your financial planner or adviser on a regular basis, to ensure that your portfolio is doing well and at the same time, ensure that any change to your financial situation, goals or aspirations is appropriately reflected in your financial plan, and executed upon.

Source: advisorkhoj

• Since the rate of inflation for education costs & wedding expenses are usually 2-4 percentage points higher than retail inflation, equities can help you get inflation-plus returns.
• In India, several surveys among parents have shown that securing a child’s future through good education, and then taking care of the expenses for the child’s marriage are among their top priorities.
• Financial planners, advisors and fund house officials, say that just like every parent is concerned about the health of the child since the time of his/her birth, they should be as concerned about meeting the costs of the child’s education. “ Like they give the child various vaccines so that the child remains healthy all his/her life, they should also put in place a good financial plan for the kid, so that he/she is protected well.” said a top fund house official.
• Since a child has several years ahead of him/her before he/she needs a large chunk of money (we are assuming large fund requirement for higher education & then marriage). Parents should look at Systematic Investment Plan (SIP) in equity funds for the same. In the long run, an SIP in a good equity fund would create a corpus which is much larger than what a recurring deposit, a fixed deposit or an insurance plan can create.
• While calculating cost of higher education, it’s important to remember that in India, the long term average inflation rate for education cost is about 8-10% per annum. And the rate of inflation for costs of wedding has been 10-12%.
• You can use calculators for compound interest, cost of child education and expenses of wedding to estimate how much you need when your child goes for higher education, and when he/she is ready to get married.

Putting In Place An SIP

• Select one or two equity funds from a good fund house with a track record of several years
• Speak to family members to estimate when your child could go for higher education and when he/she would get married
• Fill up the application forms for the funds you have selected
• Fill up the ECS mandates for automatic transfer of money from your bank account to the funds
• Fill up the SIP mandates for the fund
• Be careful not to touch these investments unless under extreme conditions
• Review regularly if the amount of money required is sufficient, your investments are on track etc.
• If required, re-balance the portfolio
• Consult a financial planner/advisor

Source: ET

We bring you five advantages of investing through systematic investment plans (SIP).

Everybody wants a reward but not risks that come while working towards it. This is human nature. This is also the main reason for the popularity of systematic investment plans, or SIPs, which give investors the option of gaining from market while reducing the risk of volatility that is inherent in all financial markets. SIPs or the good EMI, as they are called by many, help investors avoid the risk of bad market timing, ensure disciplined investing, average out costs, and help investors gain from the power of compounding.

We discuss five reasons why SIP is the best way to accumulate wealth in the long term.

Brings Discipline

Any investment needs a dedicated effort towards achievement of a predetermined goal. However, maintaining discipline in investing is easier said than done if one decides to invest lump-sum amounts. This is because some or the other expense will always come up and distract from goals.
Taking the SIP route is one way to remain disciplined. SIPs allow one to invest a fixed amount at regular intervals - daily, monthly or quarterly.

Timing The Market

SIPs, say experts, are a stress-free way of investing. For people who don't know how to make sense of markets, SIP is a godsend. By committing to regular investing, one can reduce the risk of bad timing in entering or exiting the market. There is always a chance that one stays out when the market is doing well or enters when it is doing badly. SIP takes care of all these worries.

Rupee Cost Averaging

This is one of the biggest reasons why SIPs can be so effective. As markets keep fluctuating, the amount invested will buy you fewer units when they are rising, while the same investment will buy you more units if markets are down/falling. This means the cost of acquisition per unit is averaged out over time. This evens out the market's ups and downs, especially if one has been investing for long.

Flexibility

SIPs are usually for only open-ended funds and one can take out the invested amount anytime one wants. The amount can be fully or partially withdrawn during the SIP tenure or even later (except in case of tax-saving funds, which have a lock-in period of three years). The amount invested at each interval can be increased or decreased anytime. Though one has to select a period for which one will invest at the time of filling the form, SIPs do not have a fixed period. They can be stopped any time. Also, their tenure can be extended by just requesting the mutual fund company. Also, keep in mind that gains from equity investments are tax-free only after one year of the investment.

Benefits Of Compounding

Financial planners say one must start an SIP as soon as one can to gain from the effect of compounding. Even a delay of a few years can make a significant difference to the wealth accumulated. In long-term investments, one benefits immensely from the power of compounding as one earns interest on the accumulated interest. Another benefit of SIP is that one does not have to invest a huge amount; one can start by investing as little as `500-1,000.

To gain from all the above factors, one must make sure that a portfolio should have investment vehicles that can give returns higher than the inflation rate over long periods.

Source: businesstoday