We all do investments, be it any form. Isn’t it?
Then do we need to plan it? Really????
Is it important at all?
I mean what is the significance of it.
Is it worth giving a second thought for such a planning?
I mean investing money is important, but what is the need to plan it.
Table of Contents
How does Investment Planning impact my life, if I don’t go for it?
Have you ever noticed unorganized colonies/ office files/papers?
How messy it becomes if things are not placed in manner and it makes you frustrated and sometimes lost or worried also. Similarly from this example you can yourself figure it out that how good Investment Planning can be for you.
Suppose If you are not able to liquidate your investment or got lesser interest rate as you had planned it or if you lose your principal amount because of volatility of market. How bad situations can turn for you, if this happens at all to you?
Many instances had been seen that people invested money all their life but at the time of retirement or at the time of college admission of their ward, they did not have adequate cash/money.
Here, the probable reason is Investment Planning/ Goal Based Investment Planning / Financial Planning.
In our day to day life also you can easily differentiate between planned work and unplanned work.
Similarly you can compare random investing with Best Investment Planning.
Suppose market is doing very well; your friend told you that this particular fund has made his money 1.5 times in a span of one year only. You also got tempted and invested Rs 200000 in equity mutual fund but suddenly a need arisen and you had to redeem the money after 2 years, But at that time due to market crash your money value remained only 1.90 Lac.
If you had done Investment Planning with a Financial Advisor, this might not had happened because he/she must have analyzed your requirements and would have suggested appropriate fund as per your requirement.
How to do Investment Planning
STEP 1: When you require your money back
Firstly you need to know for how long you wish to invest or when you require your money for your financial life goal (like purchase of an asset, child education, retirement, vacation or any other).
STEP 2: Analyze your risk taking capacity, life stage and market outlook
You can check your risk taking capacity from any risk analyzer available online from various asset management companies or get it done through a Financial Planner.
Another important aspect to check your risk taking capacity is your dependency on the money invested.
Similarly if you do not require money in short duration and you wish to invest for more than 5-10 year, then equity allocation can be increased and likely if you are approaching to the life goal then high debt allocation is to be taken.
Life stage: usually higher the age, lower should be the allocation of equity.
https://www.youtube.com/watch?v=5ow6VIhfmxw
How do you loose Money Value II What is the Need for Investing
You take adequate debt allocation based on few factors like investment in other debt instruments, age and risk bearing capacity. Additionally when you require money in future should also be taken in to account.
STEP 3: Set equity and debt ratio
Allocate of money to equity and debt should be based on
your risk analysis ratio.
STEP 4: Choose funds based on your duration
| Objective | Duration of Investment | MF Category | Probable Goals |
| Very Short Term | Less than 1 year | Liquid Mutual Fund | Contingency/ Emergency Fund |
| Short Term | 1-3 year | Debt Mutual Fund | Purchase of house/ asset,parking of retirement corpus |
| Medium Term | 3- 7 year | Equity Hybrid Fund | Any long term goal |
| Long Term | 7-10 year | Diversified Equity Fund | Children education, Marriage, Retirement, House or other |
| Very Long term | 10 year + | Mid Cap, Small cap, Sector fund and diversified equity mutual funds | Wealth creation, children education etc. |
STEP 5: Diversification
While there is no problem to invest a large sum in a good debt fund but money investment should be diversified in equity mutual fund.
Allocation in equity mutual fund should be done on the basis of risk level in a fund.
SEBI has listed Different caps of equity mutual fund on the basis of market capitalization of underlying stocks (the stocks in which a mutual fund scheme invests)
Large Cap Funds – Lowest risk in equity mutual fund category
Multi cap Funds (mix of large, mid and small cap) – higher risk as compared to large cap
Mid Cap – higher risk as compared to multi cap
Small Cap- higher risk as compared to mid cap
Sectoral Fund– High risk
Thematic Fund– High risk
STEP 6 : Allocation to Funds
As per your requirements you should take exposure in different categories of funds of different AMC.
Ideally if you are investing in equity funds then higher proportion of large cap fund should be taken and decrease the allocation as per risk.
What does Investment Planning does for you
- Holistic approach: Investment Planning is a holistic approach in itself. Investment Planning, allows you to understand your risk taking capacity, your life stage and time duration of your goal for which you want to invest for.
You should Avoid these mistakes to ensure best result from your investments
I know most of the people do not link their investment with life goals and invest for 3 to 4 years and later think what they need to do with this investment
Upon reaching life stage people invest their money in products which are not appropriate for them.
People tend to invest in long term investments (such as equity, close ended products) for their short term requirements and book losses due to this.
- Diversification: Investment planning takes care of diversification of the portfolio, so that you do not invest all your money in one asset class (sometimes in one fund or sometimes in different funds of same categories).
- It is just like putting all your eggs in one basket, risking all the eggs. If something hit the basket your all eggs will be broken and you will loss substantially.
Investment Planning. Also take care of over diversification of the portfolio, which also makes your portfolio earn less as you have not taken advantage of different market cap funds such as large cap, mid cap, small cap, debt funds etc.
This feature Portfolio Review makes your portfolio to earn better for you and let’s you take a calculated risk as compared to huge risk.
Goal Based Investment Planning offers you to calculate the amount required for your each life goal and also tells you how much amount to be invested to achieve the particular goal and where to invest your money.
Investment Planning under Portfolio Review section also balances your portfolio’s equity and debt ratio so that portfolio remains aligned with all initial settled ratios and requirements.
As if portfolio deviates from the initial focus or the initial allocation, your return many change over time and it may take more risk as compared to decided risk measures.
Investment Planning, also lets you know, if some fund has matured or about to mature or inappropriately lying in liquid fund and earning very low. It alerts you and suggests making changes.
Conclusion:
There are many more benefits of Investment Planning.
It is just like melody kao khud jaan jao kind of thing.
So, I urge all of my readers to go financial Planning way for their investments. Believe me you will feel more relaxed, calmer with regards your financial needs.
