Approach to financial planning: Investing and Disinvest

This post was originally published on this site

Darshit Gautam Shah

There are many avenues of investing that most of us are aware of property,gold,bank deposits,shares,mutual funds etc.Within each, there’s an absolute jungle of options.That’s why many investors struggle when it comes to choosing an appropriate option.The obvious outcome is that the most persuasive salesperson we meet ends up being the decision-maker of our financial lives.Many people replicate investments which are made by their relatives,who have different needs & Goals than them.

The obvious antidote seems to be that – each one of us -should learn to choose the right financial products ourselves.That’s obvious but wrong.The reason is that if you start believing product choice to be the most important thing,then you have already lost the battle.The most critical thing is financial planning & goal-based investing.If investing is not goal-based, it’s like you are travelling in any random direction without fixing your destination.This way of approaching haphazard investing is disastrous.

You need to gather knowledge about yourself first.Why do you need to save?What will you do with the money? When will you need it? Are you sure of the amount you will need? What retirement corpus will be required & at what age for regular cash flow post-retirement? What if the bread earner doesn’t survive till goals are achieved?How the wealth will be distributed post demise? Surprisingly many people have never sat down and thought about these questions.

Most of us have precise needs & aspirations that we can predict – specific financial goals which we need to meet at specific times.But,can we prepare a plan to fulfil all and make contingency provisions for eventuality?What will happen to our dreams & family if God forbids and something wrong happens? Can we make a blueprint of the same? If the answer is NOT SURE,should we not avail services of professionals like Certified Financial Planners,who are experts in the subject?

Here is why. If you want to meet specific financial goals, then each will need to be served with something that has a different time frame, risk and return level.For example, you may like Rs.5 lakhs to be available always for emergencies.Need money for kids’ higher education after some years (depending upon age & no of kids).You may like to buy a house after 10 years.You may like to go on a vacation to Europe after 2 Years.

Each of these goals is very precise but some are inevitable & some can be compromised.The risk you can take with them as well as the amount of money needed can be quantified quite precisely but one need to protect not only assets but dreams.

The key thing to understand here is that you, as a person, do not have a single pool of savings. Instead, you have a range of financial needs and goals, each with different requirements.Investing is important for all the above factors but equally important is disinvesting. One may find this illogical but it isn’t.

The goal of investing is to grow your money. However, this goal is accomplished only when you have taken the money out of your investments & taken it back to your bank account.The manner and timing of redeeming your investments is the most important part of the process especially when the investments are in Equity-linked product.

People invest money through SIP in Equity Mutual Funds for specific life goals like Education, House, Marriage, Retirement.They are long term Goals & volatility in Equity markets are avoided due to the longer tenure of investment.However, it’s entirely possible that just when your need for money arises because of completion of goal equity markets are towards downward swings and the value of your accumulated corpus is lesser than your goals.Thus, protecting your created corpus is essential which a Financial Advisor can do with the help of the use of lesser-known tools like Systematic Transfer Plan (STP) without dragging into emotions.

The flipside of the coin is such an exercise may reduce your returns if equity values are increasing.A qualified Investment planner can optimize (not maximize) returns while keeping an eye on risk.

Views are personal: The author is Darshit Gautam Shah – CFPCM at G K Globas LLP in Ahmedabad

Disclaimer: The views expressed are of the author and are personal. TAML may or may not subscribe to the same.The views expressed in this article / video are in no way trying to predict the markets or to time them.The views expressed are for information purpose only and do not construe to be any investment, legal or taxation advice.Any action taken by you on the basis of the information contained herein is your responsibility alone and Tata Asset Management will not be liable in any manner for the consequences of such action taken by you

Mutual Fund investments are subject to market risks, read all scheme related documents carefully

Disclaimer: Content Produced by Tata Asset Management