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

Mutual Fund Exit Load Changes

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 Mutual Fund Exit Load Changes AMCs don't communicate about any change in exit load directly with investors, but do update on their website   The exit load applicable to your investments is the load which existed at the time when you invested in the particular fund. Any subsequent changes in the exit load will not be applicable to your investments.   However, Asset Management Companies ( AMCs ) periodically publish addendums in the newspapers, which state any change in exit loads of specific schemes managed by them. Such changes are also posted on their websites. However, a direct communication to an investor is not made, considering the costs involved in doing so. In their own interests, investors should not only track the performance of the funds they i...

Atal Pension Yojana contribution Tax Benefit for spouse

Contributions to Atal Pension Yojana (APY) are eligible for the same tax benefits as the NPS. This means that the contributions can be claimed under Section 80CCD (1B). The current limit for Section 80CCD (1B) is   Rs   50,000, over and above the   Rs   1.5 lakh limit under Section 80C. Section 80 CCD (1) is a different one, meant to cover employers' contribution towards NPS . You cannot get tax benefit by investing in the name of your spouse under Section 80 CCD . ------------------------------ ----------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saver Mutual Funds to invest in India for 2016 Best 10 ELSS Mutual Funds in India for 2016 1. BNP Paribas Long Term Equity Fund 2. Axis Tax Saver Fund 3. Religare Tax Plan 4. DSP BlackRock Tax Saver Fund 5. Franklin India TaxShield 6. ICICI Prudential Long Term Equity Fund 7. IDFC Tax Advantage (ELSS) Fund 8. Birla Sun Life Tax Relief 96 9. ...

Birla Sun Life Mutual Fund Launches Birla Sun Life NIFTY ETF

Birla Sun Life has launched a new fund namely, Birla Sun Life Nifty ETF, an open ended exchange traded fund. The new fund will be open for subscription from 4th July to 18th July 2011, at an offer price of Rs 10 per unit. The investment objective of the scheme is to generate returns that closely correspond to the total returns of securities as represented by S&P CNX Nifty, subject to tracking errors. No exit load will be charged under the scheme. The performance of the scheme will be benchmarked against S&P CNX Nifty and will be managed by Satyabrata Mohanty.   -----------------------------------------------------------------   Also, know how to buy mutual funds online:   1) DSP BlackRock Mutual Funds: http://prajnacapital.blogspot.com/2011/05/buying-dsp-blackrock-mutual-funds.html   2) Reliance Mutual Funds: http://prajnacapital.blogspot.com/2011/06/buying-reliance-mutual-funds-online.html   3) Birla Sunlife Mutual Funds: http://prajnacapital.blogspot.com/2011/...

Mutual Fund Reivew: Birla Sun Life Asset Allocation Conservative

Birla Sun Life Asset Allocation Conservative has numbers on its side to prove its credibility… Don't be surprised to find this Fund of Funds ( FoF ) in our recommendations. It has earned its place. And despite the difference in the structure of the product, there is no arguing with the numbers.   Of the total 6 years of its existence, the fund has been among the top 10 funds in its category in four of them. Last year it put up an average show and the only year it underperformed its peers was in 2008.   One aspect to look at when investing in an FoF is the expense ratio. The expense ratio of an FoF is capped at a lower limit of 0.75 per cent (2.50% for an actively managed fund). However, the FoF not only has its own expense (though lower) but even the expense ratio of the fund it is investing into. Fortunately, the fund manager takes that into account. "Expense is one of the important criteria used for fund selection and is the main reason for our investment in BSL Ind...

Short-Term Investment Options in Mutual Funds

Mutual funds offer liquid funds and ultra short term funds in the debt category, which are suitable for short investment periods. Ultra short-term funds were earlier known as liquid plus funds. Liquid funds invest in money market instruments with a maturity of 91 days or less. However, there are no such restrictions for ultra short-term funds. Who should invest in these? These are open-ended schemes. Investors with a short investment horizon or with surplus cash and low risk appetite should look at these. These could include corporate as well as retail investors. Those interested in staying invested for less than 15 days can opt for liquid funds. Retail investors who want to remain invested for two-four months, can look at ultra short-term funds. The short duration for both liquid and ultra short-term funds shields them from any interest rate volatility.   What kind of returns do they offer? In terms of an investment period less than 15 days, these funds are comparable to a ba...
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