Investing with your Mind, not Ears – the need of Financial Planning

Investing with your Mind, not Ears : With the development of the Financial Markets in India, investors have a much wider choice of investment opportunities available today than before. However, the choice does not necessarily provide a better and sound investment according to requirements. In fact, a wide range of choice may confuse the investor to the point of investment in irrelevant products vis-à-vis his risk profile.

There are many hurdles in investment as well. Not all products are easily available or accessible to all investors. The paperwork may be tedious and complex and not many investors have the inclination of doing research before investing. They have the habit of following someone’s words for their own investment requirement without the proper Financial Analysis and Planning. There lies the importance of a sound Financial Planner to bridge the gap between the two so as to focus of long term capital growth of the investor according to his requirement and risk profile rather than being short-sighted and focusing only on his first year revenue.

What is Financial Planning?

A proper Analysis of the Financials of the Investor keeping in mind his long term cash flow requirement, his dreams, goals and aspirations, his risk appetite and then advising him on the grounds of development of his assets is called Financial Planning. This has become the key of Investment in today’s world and the requirement is growing exponentially!

This was not the case a few years back, primarily because the advice provided is very fee driven and short sighted. A Long Term approach would focus on growing the assets even if the fee income is lower than other class of assets.

Focus on a Regulated Financial Planning:

So far, Financial Planning was an unregulated activity in India. Hence there was no proper format of utilization of resources and knowledge. There is a move to regulate the business which is a good thing for the business as it will bring credibility and ensure minimum standards. The regulation of a Proper Financial Planning will ensure that the customer’s interests are being kept in mind and facilitate a planning which keeps the long term horizon in mind and then advises accordingly.

Transparency in fees earned by an advisor is another important element. Ideally, an advisor would not sell risky products just for a higher fee because he has the investor’s interests at heart. But this has not been the reality till now. Not only has risky products been sold but this has been largely driven by the extent of revenue only. The advice that the poor investors had been receiving till now were definitely for the benefit, but who is benefit is a big question!

Hence the trust factor has also been diluted over the years with the investors who now try to consult multiple advisors for their financial decisions without proper planning and analysis. With the standardization under the guidance of Financial Standards Board of India (FSBI) and the surveillance of Securities and Exchange Bureau of India (SEBI), there is an effective roadmap of Proper Financial Planning so that there is an educated and systematic approach towards planning and then execution of the advisory in a much larger platform.

Thus, if you wish to have a sound Financial Planning for yourself, you can get it done by a Certified Financial Planner, which is a more reliable source for Financial Planning.  This can be achieved by discussing all your present and future requirements and its suitability and possibility by keeping your long term requirements, goals and needs in mind. So, now as an Investor you can actually see your Cash Flow Requirement and then plan accordingly by chalking out the priorities and choosing the best available investment with your mind without having to blindly trust on the advice provided by others!