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Financial Planning Advisory | Need And Analysis

A country like India. Where recent past has experienced a very fast economic growth rate and income level of the people has gone up. Where financial investment industry is wooing investors with different financial products. Investors are really confused to choose among? What is the best? Which category and sector? How much? The straightforward answer is the best Financial Advisory Services offered either by individuals / by institutions completely dedicated to offer such services.


If you are keen to know about the facts, how important it’s to avail a Financial Advisory Service, as the best solution for your happy financial status and as well as life ahead, read this article and comment!

What Is Financial Planning /Advisory

Without proper management of current resources, there will not be any surety about the fulfillment of life’s goals /achievements. People from different walks of life, with divergent income levels may have distinctive goals in life. But, the method of achieving those goals is the same. That’s “The proper management of available funds”. So, financial planning is simply defined as follows.

Financial Planning is the process of achieving life’s possible goals, through the proper management of one’s Personal Finances and Available Resources.

Why Do People Need Financial Planning Advisory Services

Numerous Financial Products. Their complexity. Irrespective of abundant available information, there are chances that people may go astray from, what they actually need to choose. That’s where, a financial planner actually plays an active role to articulate the necessary plan to go with. With his /her service, it’s easy to set up goals and draw the plan to reach those goals within the set time frame.

There are numerous factors that can be addressed easily with the help of Financial Planning advisory Service. By addressing these factors, one can not only can reach the life’s goals easily, but also can lead a happy tension free  life with no further financial obligatory tasks.  Because a well defined Financial Plan will have all the safety built-in -features, that will efficiently address, all the life’s goals and financial obligations.

Let’s have a look at all those factors, that a well defined Financial Plan can address.


The best investment that can efficiently deal with inflation is equity. An alternate option is Equity Oriented Mutual Fund Schemes. A well defined Financial Plan includes Equity Component. The percentage varies among individuals. And, it depends on their risk taking capacity and the set goals.


A good Financial Planner always makes sure that, all his /her clients take the benefits of Tax Reliefs, provided by the Government from time to time. It is always necessary to take all those advantages of Tax Benefits, to reduce the tax burden and unnecessary cash outflow.

Increase In Income Levels And Hence The Savings

India is one of the fastest developing countries of the world. In such countries, it’s common to see a high economic growth rate. Income levels of citizens of those countries normally rise at a fast pace.  Being the part of such fast growing economies, people with high income levels have high saving levels too. That too, unlike their counterparts, like developed European Countries, Asians, especially we Indians believe in savings. Believe that savings will ensure their future prosperity.

Financial Planning helps to park those savings in avenues, that drive them to meet their highest aspirations and goals.

Higher Aspirations And Goals

People with High income levels naturally thrive to have highest aspirations and goals in life. It’s quite natural. Whether it’s, buying a home in the up-market locality at an early age /dreaming a fantastic future higher education for the children /happy holiday vacation /the happy retirement. People due to higher income levels, would like to achieve as early as possible.

Without proper financial planning, it’s very difficult to meet all of their goals. Hence, a proper financial plan which considers all these aspirations is compulsory to develop.

Problems That Arise Due To Small Family Stucture

Due to the increasing number of small family structures, the importance of a well addressed financial planning  assumed the utmost importance to stay independent.

Olden days were different. Joint families with certain net worth were always supportive to all its members. Head of the family was acting the role of a fund manager. He /She was always there, to support their individual family members, in their bad financial situations.

So, there is a need to plan for such support, through a proper Financial Planning.


Attractive low interest rates proposed by different financial institutions, including banks, is making the people to borrow more. Sometimes more than their capacity. This anyhow, finally leads to the negative cash flow, which is a threat to anybody’s financial health, which indirectly impacts the physical health too.

One of the most important aspects, that needs to be explained to the borrowers is ‘Leveraging the low interest rates’. A good financial planning explains and avoids such negative cash flow problems successfully.

Confusion Due To Numerous Financial Products

Numerous and similar. Chances are great too misled by such attractive return promises. Need to distinguish from the individuals risk, age and need base point of view. One small financial mistake may lead to havoc.

A professional financial planner chooses the best for you, keeping in mind the aspirations as well as the risk profile.

Product Complexity

A recent revolution in the financial services industry came up with a number of complex financial products. Difficult to understand whether it matches the individual’s need or not. And, how the other market conditions impact those products indirectly, is another matter of big concern to understand.

Difficult to dig around all these matters, in these ‘No Time To The Self Crae’ days. Simple to transfer this workaround to the expert.

Lack Of Social Security

Simply to say – ‘Financial obligations are unlimited’. Irrespective of financial position, status in the society, age, caste, creed or gender, every individual has his /her particular need for finance. Whether it’s for the self or the dependants. Financial cushion /flow is must for everybody’s life.

Those days of ‘I will receive my pension, no tension after retirement’ have gone. Without proper financial planning for the self and the family, all the stages of life become a ship without a rudder.

One of the main objectives of Financial Planning is that of Social Security. No other way to ensure such a peaceful social security in terms of financial security.

Longer Life Expectancy

Thanks to the revolutionary developments in medical field. Life expectancy has been tremendously improved from an average 60 years to 80  years today. Without proper Medical Insurance Planning and Pension planning, and Retirement Planning, it’s very difficult to lead the post retirement life of 20 years.

Worse will be the condition if one quits the job earlier and that too without proper financial planning.

When it is obvious that the goals cannot be reached, don’t adjust the goals, adjust the action steps

– By Confucius (An influential Chinese Philosopher, 551 B.C)


The Best Mutual Funds | How To Select

Plenty of Mutual Fund offers. Plethora of information. But, of no use. When it’s time to invest, it’s a common man’s common problem to choose the right one. Try to investigate. Most of the people are stuck in Funds, that were performed well in the past. But currently, not even meeting the benchmark index. All this happens, only when the investor lacks proper knowledge about guidelines, that need to be followed, while investigating into the Mutual Funds.

It’s simple, to pick a well suited Mutual Fund, that matches our requirements. Fund houses are ready with variety of Mutual Funds, that are well tailored to match the financial requirements of people from all walks of life. They are well planned and designed, keeping in mind the financial obligations of different streams of investors. So, it’s our choice to pick the right one to meet our financial goals.

Here are certain guidelines to come up that winner to suit to your financial goals. Let’s Beat the Benchmark Index like a Pro.

Know Your Goals, Risk Profile And Investment Horizons Before Choosing A Mutual Fund

The goal or the investment objective should be the first criteria while choosing the mutual fund for your investment. Goals can be classified as high, medium and low in terms of capital gains. Risk and return go hand in hand. High goal seekers with aggressive return expectations are compulsory to invest in equity oriented mutual fund schemes. These are comparatively riskier than other types of funds, with huge return opportunities. Debt funds are always there for risk averse medium and low goal investors.

A picture of a man's hands , calculating mutual fund returns and writing on a sheet.

An investor with long-term investment period is best to choose a long-term capital growth equity or balanced fund. A young investor with long-term goals, which would probably be high falls in this category. But, an investor with near and medium-term targets are better to engage with short-term debt oriented mutual fund schemes.

What is the category to select?

Debt? Equity? Or Hybrid? Your age, risk taking capacity, investment horizon and future targets are the factors that decide upon the category.

Check Back The Fund Managers Past Performance

Few funds are managed by an expert team. And, few are by a single star fund manager. In the first case, where there is an expert team to manage  the fund the performance would be very clear and peaceful.

Whereas, the fund managed by a single expert manager, we need to look his / her past performance track record. This facilitate us to guess his /her future performance.

Consistency Is The Main Criteria

Duly have a check on the fund performance during those market fall periods. If the fund had done well even in the bear phase, we can say that it has beaten the index.  Otherwise, if had done well in the bull market, and became dull during the fall, it’s a type of fair weather friend. Keep it away.

Consistency in performance is the symbol of its stamina to win. One can be sure to assume that it will beat the Index in the future too. Good to look for the consistency in performance, over longer periods like 3, 5 and 10 years. Have a look at NAV’s of past years. Look for its growth percentage.

Know About The Fund House’s Pedigree

The track record of a fund house is as important as any other factors that help us in selecting a good mutual fund. Try to identify, fund houses with a strong presence and excellent track record in the financial world. Such fund houses have their own investment experiences as well as efficient processes. Consistency in returns is the main feature of these schemes. Sustained performance over a long period of time results in consistent returns.

Make Use Of Statiscal Measuring Tools /Metrics

There are certain risk measuring statistical tools, that may otherwise indicate the investment risks associated with their returns. These indicators make use of historical data for the analysis of not only mutual funds, but also the stocks and bonds.

These ratios simply compare the mutual fund return with the market benchmarks.

Alpha (α)

The simplest definition of an alpha would be the excess return of a fund compared to its benchmark index. If a fund has an alpha of 10%, it means it has outperformed its benchmark by 10% during a specified period.

Beta (β)

Beta measures the mutual fund’s performance-swing /volatility, compared to a benchmark.

For example, a fund with a Beta of 1 means it’s NAV will move 10% upside↑ /downside ↓ in respect of the benchmark index.

High Beta – For aggressive goal seekers with risk taking capacity for the possible high returns


Low Beta – For less aggressive, risk averse investors, who are seeking for stable returns.

Standard Deviation (σ) (SD)

It’s the statistical return measuring method. It actually measures the deviation of returns from their mean value. In Mutual Funds, Standard Deviation  is used to measure the possible deviation in returns from its historical mean value.

Assume that a Mutual Fund with an Average Rate of Return of 12%. And a Standard Deviation of 3%. Then,  this Mutual Fund has the possibility of giving returns which will vary from 9% – 15%.

So, it is most obvious that, risk taking investors will prefer to choose funds with high Standard Deviation (SD). And risk averse, the funds with low SD.

Sharpe Ratio

One of the most popularly considered and used indicators to measure, Risk Vs Return is Sharpe Ratio. It was developed by Nobel Laureate William F.Sharpe. Hence is known as Sharpe Ratio.

Each investment in the Mutual Fund Portfolio comes with its own degree of risk. Returns should always be in proportion to the amount of risk taken by any investment. Only such investments are worth buying.

Sahrpe Ratio measures the excess return per unit of risk taken over the risk-free return. Here, risk-free return is the return given by risk-free instruments like Treasury Bills and Government Bonds

Sharp Ratio (S) = (Mean Portfolio Return-Risk Free Rate) /Standard Deviation of the Portfolio Return


(S) = rp – rf /σp

The Sharpe Ratio tells, how well the Mutual Fund has performed in proportion to the risk taken by it.

The higher the Sharpe Ratio, the better would be the ‘risk-adjusted- return’ of the Mutual Fund Portfolio

A good mutual fund is one which gives better returns than its peers for the same kind and amount of risk taken.

Loads and Charges

As said by the American Science Fiction Writer and Novelist, “Nothing of Value Free…..”, applies to Mutual Funds also. As an investor, it is very important to know the charges levied by the Mutual Funds. Less or more, directly or indirectly all those Fund Managing and Distributing expenses are collected from the investors anyhow. But, where the care should be taken is to select the Mutual Fund that charges less.

There are two types of fee that an investor need to pay as one time payment. They are broadly,


Entry Load

This load is levied at the time of buying the Mutual Fund Units. Actually, this entry load is collected by selling the units at a higher price than the existed unit price. So, the purchasing price hikes. But, this load has been abolished by SEBI in August 2009. So, no need of worrying about it.

Exit Load

This load is a factor of the holding period. If an investor stays invested till the end of the holding period, as mentioned in scheme related documents, it is exempted. No exit load is charged.

Before the holding period, it will be charged at the rate as mentioned in the scheme related documents. Usually, the percentage of charging varies from 0.5% – 3%. And, this charge is collected by the fund, by buying back the units at the lower than the current NAV.

Hence, if the investor is not sure about the holding period, better to choose a scheme with lower exit load.


Transaction Charges

These are also one time charges, to be paid by the investor at the time of purchasing the scheme. These are collected by the fund to pay to the intermediary /distributor. Hence, is also known as a Sales Load.

This fee is applicable for the investment amount of over Rs.10,000/-.

Rs.100/- for the SIP commitment of Rs. 10,000/- or above. These charges are deducted over 4 installments starting from the 2nd installment to 5th installment.

Recurring Charges

These expenses are charged on a daily basis and is deducted from the net asset value. The daily NAV is declared after deducting /adjusting these expenses. There are certain guidelines and mutual funds can’t charge more than the stipulated fee structure.

Even though, the fee structure is regulated, it varies based on the Net Assets of the Mutual Fund. More the net assets held by the fund, less are the recurring expenses and vice versa.

Expense Ratio

When you come up with Mutual Funds of similar nature, the next step is to consider their expense ratios. It’s better to choose the fund with low expense ratio. This will benefit you in the long run.

The whole fixed expenses of the Mutual Fund are spread out equally over the investors. In the case of funds with higher asset base, these expenses are spread over the large number of investors. Hence, the higher is the Assets Under Management, the lower is the ‘Expense Ratio’ or ‘Expense to Assets Under management Ratio’.

So, it is advisable to choose funds with high ‘Assets Under Management (AUM)’, and avoid the funds with less Asset Base /Assets Under Management.

Portfolio Turnover Ratio

The total cost incurred by the scheme is a function of the turnover ratio. The greater the ratio, the more is the cost charged by the fund. So, a fund with the lower turnover ratio is preferable over the fund with a higher turnover ratio.

FMP’s | Are Not Guaranteed Return Schemes?

Fixed Maturity Plans /FMPS are also known as ‘Fixed Term Plans‘. These are ‘Close Ended Schemes’ floated by various Mutual Funds. The maturity period ranges from 1 month to three/five years. The tenure is fixed. Even though, almost all the FMPs are predominantly debt oriented, some of them may have small equity component. The objective behind this is to protect the investor’s investments from market fluctuations and to ensure the guaranteed returns over a predetermined fixed tenure /maturity period.

How Do Fund Managers Manage The FMPs

Fixed Maturity Plans are passively managed by the Fund Managers in the favor of investors to generate a fixed income over the fixed investment tenure. Fund Managers lock the investments in the debt securities, whose maturity period coincides with the maturity period of the plan.

As said before, FMPS are the closed ended debt mutual fund schemes with fixed tenure. So, these closed end schemes typically invest the major portion of about 80% in risk free debt instruments like AAA rated bonds, and the remaining 20% is routed towards the riskier avenues like equity.

It is the very structure of FMPs, that ensures the protection of capital as well as the expected return. By the end the stipulated period, the debt portion of the total investment grows to give back the principal along with its interest return. The return on the equity portion is related to the existed market situation. And the return fluctuates as per the fluctuations in the market. In the up market condition the return is good and the equity portion brings the potential upside. Similarly unfortunate market crashes may bring back the minimum, but the corresponding unfortunate loss.

Where Do The FMPs Make Their Investments

The debt portion of FMPs usually invests in commercial papers (CPs), money market instruments, certificate of deposits (CDs), corporate bonds and sometimes even in bank fixed deposits. Depending on the tenure of the FMP, the fund manager invests in a combination of the above mentioned instruments of similar maturity. Say, if the tenure of the FMP is about a year, then the fund manager invests in paper maturing in one year. The expense ratio, usually varies from 0.25 to 1 per cent.

Why FMPs Are Not ‘Guaranteed Return Schemes’

It’s true that FMPs offer many advantages over other fixed income products. But, at the same time, there are several risk factors that need to be concerned. These risk factors, sometimes may adversely affect the returns. That’s why FMPs are ‘Not Guaranteed Return Schemes’. In other words, the returns that the plan promises at the time of investment is only indicative.

To get back the indicative returns, we need to avoid those risk factors anyhow. Few risk factors that we need to be concerned are mentioned below.

Default Risk

Bank Certificates Of Deposits are the safest debt instruments with zero default risk. Whereas Commercial Papers offer higher interest rates with more risk. So, indicative portfolios with the major portion 0f corpus in less /zero risk instruments like Bank CDs is best to choose to avoid the default risk. If, one has the capacity to bear the default risk, then indicative portfolios with predominantly invested in Commercial Papers are best to invest. One can expect more returns.

Credit Risk

You should also check the scheme’s offer document for the minimum credit rating of the securities the fund intends to invest into. The investors should also note that the higher the credit ratings of their securities, the lower the returns would be for the FMPs and vise versa. However lower credit rating securities have higher credit risks; hence investor should keep in mind the same.

Expense Ratio

The higher the expense ratio the lesser are the returns. The high costs will eat up the total returns, reducing the overall return benefit.

So, FMPs with lower expense ratios are preferable over the FMPs with higher expense ratios.

Growth Or Dividend Option

There are two options to choose between while investing in FMPs. They are the growth and dividend options. Investment tenure is the main criteria to choose between these two options.

Growth option is good for long-term investment, that’s most probably more than a year. Because, the capital gains taxed @SST, if the tenure is under 1 year. For more than 1 year tenure period, the investor can be benefited from the long-term capital gains tax rate. Which is @10% without Indexation benefit, and @20% with Indexation benefits.

Dividend option is best for, under one year investment tenure. Under this option returns are in the form of dividends. These dividends are charged by the dividend distribution tax, which is @12. 5% for retail investors.  This, along with education cess and applicable surcharges are paid by the fund. And are tax-free in the hands of individual investors.

Maturity Of  The Scheme And Indexation Benefit

Some of the FMPs launched between January and March every year, offer double-indexation benefit. As the scheme is purchased in one financial year and the matured after two financial years, these schemes are benefited by the double indexation.

Under double indexation, the overall tax liability gets reduced, as the long-term capital gains are adjusted for inflation. That means, for two years the capital gains are adjusted @rate inflation and only the pure capital gains are taxed. Thus, the overall tax liability is reduced.

For example, a scheme is launched in March 2011 i.e. FY10-11, it will mature in April 2013 i.e. FY12-13. While the investment is made in FY10-11, the redemption takes place in FY12-13. Thus, by investing in FMPs with the maturity of a little over a year, the purchase and sale years are spread over two financial years, called double indexation, which effectively reduces one’s tax liability.