Skip to main content

When it comes to Financial Planning Trust matters most



Trust is important while you approach a planner.


Imagine a scenario… you go to a doctor, who examines you and comes up with a diagnosis of what the ailment is and what medicines you need and for how long. Would you turn around and tell the doctor that the ailment actually is something else, the medicines suggested are therefore not suitable and that you want a different set of medicines. Could he kindly prescribe those?


Obviously, this sounds silly. No one in his senses would do that… and yet it happens when it comes to people's investments.


Investors assume they know well enough to dictate what they would want to take up for investments. As financial planners, we do come across such clients occasionally… can we change our recommendation to . 1 crore of insurance instead of . 2.5 crore, which we have recommended? Can we suggest investments in FDs & NSCs, instead of mutual funds we have suggested?
You understand what I mean… people who have come to us for advice, pay our fee and get a comprehensive plan done, tell us what they want to do! It's frustrating that after spending around 30 hours to complete the plan to hear them say that they want to do something entirely different. Why do they want to do that? Because, their helpful friend had told them that they would be chumps to invest in some mutual funds suggested by some third party. Shaken, by this revelation, they seek out another colleague to get a third opinion!


Now, this colleague has the reputation of being a wizard of stock markets and has several pearls of wisdom on investing. His take… just investing in equity - mutual fund is for wimps and FDs are for grandfathers.


By now, confusion reigns supreme and they come up with a compromise. They would not want to invest in MF schemes as suggested, but would want to invest a portion of it in equity, in a few stocks they have heard of in the office and the rest would go to FDs! Our analysis and strategy be damned!


In any endeavour, things will work out only if advice is followed completely. Trust is important. If you are not able to trust your planner to come up with a good plan, why approach them in the first place?


That's why they used to say that if you approach a guru, you need to stay the course with him and do all that he asks you to do. A guru can take a student to the destination only if the student is willing to walk the path chalked out by the guru. Each guru's path might be different. If a student were to jump from guru to guru, he will learn nothing and go nowhere. It is like digging two feet at 20 places and expecting water to gush out.


There are others who choose to execute a portion of the recommendations, but ignore some others. For instance, one may complete investments as per the suggestions but choose to ignore insurance recommendations, as the life cover recommended seems too high. This again is like a patient having only two of the four tablets suggested. It will not lead to a complete cure.


In finance, this problem exists as investors tend to think that if they are familiar with some products, they can do it themselves. So why did they approach a planner? Because they were not sure if they are right in the first place. Then, they argue with the planner about the merits of what they have in mind, about investments and insurance. And then take a call to do some of what the planner has suggested and some as per their predilection.


That does not work. It works only when the relationship is a trusting relationship… just like in a marriage. It makes no sense if the spouse constantly keeps a tab on the significant other. Trust in these relationships has to be complete… like the trapeze artist who is willing to let go the bar and leap with the full trust that his partner will catch him. We have seen that in circuses. That is trust. Before trusting anyone so much, of course do the due diligence. But once you have satisfied yourself, you have to let go – like that trapeze artist! Nothing works like trust.
 

Popular posts from this blog

Tata Mutual Fund

Being a part of the Tata group, the fund has the backing of a very trusted brand name with strong retail connect. While the current CEO has done an excellent job in leveraging the Tata brand name to AMC's advantage, it is ironic that this was just not capitalised on at the start. Incorporated in 1995, Tata Mutual Fund remained an 'also-ran' fund house for around eight years. Till March 2003, it had a little over Rs 1,000 crore in assets and 19 AMCs were ahead of it. But soon after that the equation changed. It was the fastest growing fund house in 2004 and 2005. During these two years, it aggressively launched six equity funds, two debt funds and one MIP. The fund house as of now stands at No. 8 in terms of asset size. This fund house has a lot to offer by way of choice. And, it also has a number of well performing schemes. Tata Pure Equity, Tata Equity PE and Tata Infrastructure are all good funds. It also has quite a few good debt funds. The funds of Tata AMC are known to...

UTI Mutual Fund

Even though only a few of UTI’s funds are great performers, this public sector fund house has many advantages that its rivals do not. It has a huge base of retail equity investors and a vast distribution network. As a business, it looks stronger than ever, especially in the aftermath of credit crunch. UTI is, by a large margin, the most profitable fund company in the country. This is not surprising, since managing equity funds is more profitable than debt. Its conservative approach and stable parentage is likely to make it look more attractive to investors in times to come. UTI’s big problem is the dragging performance that many of its equity funds suffer from. In recent times, the management has made a concerted effort to improve performance. However, these moves have coincided with a disastrous phase in the stock markets and that has made it impossible to judge whether the overhaul will eventually be a success. UTI’s top performers are a few index funds, some hybrid funds and its inf...

Salary planning Article

1. The salary (basic + DA) should be low. The rest should come by way of such allowances on which the employer pays FBT and you don't pay any tax thereon. 2. Interest paid on housing loan is deductible u/s 24 up to Rs 1.5 lakh (Rs 150,000) on self-occupied property and without any limit on a commercial or rented house. 3. The repayment of housing loan from specified sources is also deductible irrespective of whether the house is self-occupied or given on rent within the overall ceiling of Rs 1 lakh of Sec. 80C. 4. Where the accommodation provided to the employee is taken on lease by the employer, the perk value is the actual amount of lease rental or 20 per cent of the salary, whichever is lower. Understandably, if the house belongs to a family member who is at a low or nil tax zone the family benefits. Yes, the maximum benefit accrues when the rent is over 20 per cent of the salary. 5. A chauffeur driven motor car provided by the employer has no perk value. True, the company would...

8 Investing Strategy

The stock market ‘meltdown’ witnessed since the start of 2005 (notwithstanding the recent marginal recovery) has once again brought to the forefront an inherent weakness existent in our markets. This is the fact that FIIs, indisputably and almost entirely, dominate the Indian stock market sentiments and consequently the market movements. In this article, we make an attempt to list down a few points that would aid an investor in mitigating the risks and curtailing the losses during times of volatility as large investors (read FIIs) enter and exit stocks. Read on Manage greed/fear: This is an important point, which every investor must keep in mind owing to its great influencing ability in equity investment decisions. This point simply means that in a bull run - control the greed factor, which could entice you, the investor, to compromise with your investment principles. By this we mean that while an investor could get lured into investing in penny and small-cap stocks owing to their eye-...

Debt Funds - Check The Expiry Date

This time we give you an insight into something that most debt fund investors would be unaware of, the Average Portfolio Maturity. As we all know, debt funds invest in bonds and securities. These instruments mature over a certain period of time, which is called maturity. The maturity is the length of time till the principal amount is returned to the security-holder or bond-holder. A debt fund invests in a number of such instruments and each of these instruments would be having different maturity times. Hence, the fund calculates a weighted average maturity, which would give a fair idea of the fund's maturity period. For example, if a fund owns three bonds of 2-year (Rs 30,000), 3-year (Rs 10,000) and 5-year (Rs 20,000) maturities, its weighted average maturity would be 3.17 years. What is the big deal about average maturity then, you may ask. Well, knowing a fund's average maturity is important because it tells you how sensitive a fund is to the change in interest rates. It is ...
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