Skip to main content

It is advisable to pay for financial planning

MANY of you want all the comforts in life and for all these you are often ready to shell out a fancy price as well. But you are not this passionate when it comes to managing your personal finances.

Ask yourself whether you have paid a respectable sum to a financial planner to draw a financial plan and secure your future? I'm quite sure the answer is no. You may say, "I get all such financial planning services free on various website and through financial advisors. Why should I pay?" Well, I beg to differ, as there are no free lunches. Let us consider the case of a 45 year-old Atul with retirement age of 60 years and life expectancy of 80 years having a current expense of Rs 3,00,000 per annum. His financial goals are retirement and insurance planning. He has been approached by two companies for financial planning. The first company ABC gives free financial planning services but has `compulsory product buying' clause attached. The second company XYZ charges Rs 20,000 as financial planning fees and there is no compulsory product buying clause.

Based on the data provided by him total corpus required at retirement is Rs 1,51,75,840; the monthly savings required to achieve that amount is Rs 30,076 and the insurance requirement at retirement is Rs 90,03,775 assuming that inflation is at 7 per cent. Pre-retire tion is at 7 per cent. Pre-retirement returns are at 12 per cent and postretirement returns are at 8 per cent.

In order to accumulate his retirement corpus he requires investing approximately Rs 30,000 per month till his retirement at 12 per cent per annum.

Now based on his requirement the two different companies have recommended him following products.


Recommendations of ABC: Invest Rs 2,000 per month in a Ulip for your retirement planning which will give you approximately Rs 10,00,000 at retirement assuming 12 per cent pa return on investment.


Buy an endowment plan for next 15 years by paying Rs 6,50,000 pa for an insurance cover of Rs 90,00,000 to fulfill your insurance planning requirement. It will also give you maturity amount of Rs 1.41 crore.


Recommendations of XYZ: Invest Rs 30,000 pm in a large cap mutual fund for your retirement planning which will fulfil your retirement requirement of Rs 1.51 crore assuming 12 per pa return on investment.

Buy a term plan for next 15 years by paying Rs 59,000 pa for an insurance cover of Rs 90,00,000 to fulfill your insurance planning requirement.


Comparison: Now, if we evaluate the earnings of both the companies, even though company ABC is not at all charging Atul for making a financial plan, then too it is able to generate Rs 1,64,420 by way of commissions whereas, company XYZ's total earnings even after charging fees for a financial plan works out to be Rs 36,550 only, assuming that he buys the recommended products from company XYZ.

While XYZ provided recommendations on the basis of client's requirement, company ABC provided recommendation on the basis of high commissions products.

Total earning of company XYZ is less than company ABC by Rs 1,27,870. According to recommendations by company XYZ, Atul is investing Rs 2,55,000 pa less compared to recommendations by company ABC.

Paying fees for financial planning will mean recommendations are on the basis of his requirement and not on the basis of company's requirement.

Any company or any practicing financial planner who is making a financial plan for you will charge you in some or the other way for making a financial plan.

A paid advice is a more responsible, professional and an unbiased one, but the final decision rests with you to decide whether you want to make a financial plan for free or want to pay nominal fees for making it.

 

Popular posts from this blog

What is Electronic Clearing Service (ECS)?

  As the name suggests, it's an electronic process through which money can be transferred from one bank account to another. According to RBI, this mode is usually used for regular payments and receipts, like distribution of dividend, interest, salary, pension etc. This mode is also used for collection of bills for telephone, electricity, water, various types of taxes, payment of EMIs , investments in mutual funds , payment of insurance premium etc. There are two types of ECS , like most other banking transactions, ECS credit and ECS debit. An ECS credit is used by a bank account holder , usually a large company or an institution for services like payment of dividend, in terest, salary, pension etc. If your mutual fund pays you dividend to your bank account, of all probability it is being paid through ECS credit.ECS debit, on the other hand, is used when a company or an institution is getting money from a large number of people. For example if you are investing in a mutual fund sc...

Equity Savings Fund

Invest Equity Savings Fund Online   The best part about these funds is that they are subject to equity fund taxation and at the same time are structured like MIP like funds . This new category, equity savings funds , offer a little of everything. They allocate money to equities & equity related instruments, and fixed income. They aim to generate returns by diversification. Such funds invest in fixed income and arbitrage to protect the investors from short term volatility and equity for capital gains. The best part of these funds is that they are subject to equity fund taxation and at the same time are structured like MIP funds.   MIP funds however are subject to debt fund taxation. Investors Equity savings funds are suitable for the following: First time investors who seek partial exposure to equity with less volatility and greater stability Investors seeking moderate capital appreciation with relatively lower risk Those wh...

WEALTH TAX

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300 WEALTH TAX   WHAT CONSTITUTES WEALTH? For wealth tax purposes, "wealth" means property , urban land, car, jewellery , yacht, boat, aircraft and cash in hand in excess of Rs 50,000. CAUTION POINT | Do not think you will have an easy escape from wealth tax by transferring your `wealth' without consideration to your spouse or minor child. Such assets will also be considered as your wealth. HOW TO DETERMINE YOUR TAXABLE WEALTH Add the taxable value of the above assets (computed as per the detailed rules for valuation) owned by you as on March 31 (for FY 2014-15, it will be March 31, 2015). In case you sold your car during the year, it will not be taxable wealth. Deduct loans if any obtained by you to acquire any of the taxable assets from the value of gross tax out for at least 300 days in a...

How to Pick Top Performing Mutual Fund Schemes

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   How to Pick Performing Schemes  Funds that continue to stay in the top grade of performance over longer periods are the ones to bet on, advise investment experts   The mutual fund performance charts of the past few months make for an impressive reading. Funds across all categories boast of stellar returns. Sample this: The mid and small cap category has averaged 77 percent return over the past 12 months, with the best fund delivering a staggering 120 percent. The tax-saving funds also average an impressive 51 percent, including a fund which has soared 92 percent. Many of the table-toppers are funds of proven quality and track record. However, there are also schemes that are not that well-known. Some of these have rarely made it to the performance charts in the past, yet, of late, they bo...

Section 80CCD

Top SIP Funds Online   Income tax deduction under section 80CCD Under Income Tax, TaxPayers have the benefit of claiming several deductions. Out of the deduction avenues, Section 80CCD provides t axpayer deductions against investments made in specific sector s. Under Section 80CCD, an assessee is eligible to claim deductions against the contributions made to the National Pension Scheme or Atal Pension Yojana. Contributions made by an employer to National Pension Scheme are also eligible for deductions under the provisions of Section 80 CCD. In this article, we will take a look at the primary features of this section, the terms and conditions for claiming deductions, the eligibility to claim such deductions, and some of the commonly asked questions in this regard. There are two parts of Section 80CCD. Subsection 1 of this section refers to tax deductions for all assesses who are central government or state government employees, or self-employed or employed by any other employers. In...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now