1) What is financial planning?
Financial planning is a systematic approach whereby the financial planner helps the customer to
maximize his existing financialresources by utilizing financial tools to achieve his financial goals.
financial planning is the process of meeting once life goals through proper management of one's
finances. Life goals can include buying a home, saving for children's education or planning for
Generally every one invest in various available avenues but very few are linked to individual goals.
Financial planning is simple mathematics. There are 3 major components :
Financial Resources (FR)
Financial Tools (FT)
Financial Goals (FG) Financial Planning : FR + FT = FG
2) Why you need financial planning?
Need to meet financial goal determine by
o Understanding of the present situation
o Income level
o Risk profile
o Ability to save
o Past & present life style
3) Advantages of FP ?
Protecting oneself & family against financial risk
i. Market Risk
ii. Interest Risk
iii. Inflation Risk
iv. Reinvestment Risk
Achieving personal Goal
I. Child Marriage
4) Criteria Financial planning?
Life cycle stage
Savings without having any Goal is just like walking on a road without knowing the
destinations, So to begin Financial Planning it becomes very necessary to set Goals as setting
goals will make one more focused and will help him / her save in accordance with it.
Another way of financial planning is on the base of Expected Returns as once your goals are
set he is sure of what amount of money he needs and when as he need this money, but for
getting this amount one needs to estimate at what rate of return should he invest his savings so
as to get the required amount on time. This is where the selection of the best instrument comes
in. Estimating on the rate of return helps one decide the correct vehicle to invest in.
Risk profile of the individual:-
Risk appetite of each individual is different somebody may have an aggressive approach the
other may have a moderate approach while the 3rd may be totally conservative with regards to
Most investments instruments are linked either to equity or debt, so let us see which instrument is best suited to
one or one can take a blend of blend of both in the ratio suitable to him
5) FINANCIAL PLANNING PROCESS
Most people want to handle their finances so that they get full satisfaction and a feeling of security. Financial and
personal satisfaction are the result of an organized process that is commonly referred to Personal financial
planning. Every person, family, or household has a unique financial position, and any financial activity therefore
must also be carefully planned to meet specific needs and goals.
The Financial Planning Process consists of six steps, using which, you can work out where you are now, what
you may need in the future and what you must do to reach your goals.
Step 1: Determine Your Current Financial Situation
In this first step of the financial planning process, one needs to determine his current financial situation with
regard to income, savings, living expenses, and debts. Preparing a list of current asset and debt balances and
amounts spent for various items gives him a foundation for financial planning activities.
Step 2: Develop Financial Goals
One should periodically analyze one`s financial values and goals. The purpose of this analysis is to
differentiate one`s needs from his wants.
One needs to gather all the information ie. Quantitative and Qualitative. Quantitative information will
include data such as Insurance, Budgeting, Asset & Liabilities, Cash Flow etc
Qualitative data would include ones attitude towards risk, inflation, taxation, Past experience etc.
Goal Setting is deciding the end-point of one`sr planning exercise determining where one wants to go.
Specific financial goals are vital to financial planning. The more tangible one`s goals, the easier it is to
plan for their realization.
Step 3: Develop financial planning alternatives
Developing alternatives is crucial for making good decisions. Preparation of some alternatives gives one
some options to achieve the financial goals. Alternatives should be in line with one`s financial goals
Creativity in decision making is vital to effective choices. Considering all of the possible alternatives will
help one make more effective and satisfying decisions.<
Step 4: Evaluate Alternatives
One needs to evaluate possible courses of action, taking into consideration one`s life situation, personal
values, and current economic conditions.
Evaluating Risk : In many financial decisions, identifying and evaluating risk is difficult. Decision making
will be an ongoing part of one`s personal and financial situation. Thus, one will need to consider the lost
opportunities that will result from his decisions.
Step 5: Create and Implement a Financial Action Plan
In this step of the financial planning process, one develops an action plan. This requires choosing ways to
achieve one`s goals. As one achieve his immediate or short-term goals, the goals next in priority will come into
Step 6: Re-evaluate and Revise One`s Plan
Financial planning is a dynamic process that does not end when one take a particular action. He needs
to regularly assess his financial decisions. Changing personal, social, and economic factors may require
more frequent assessments.
When life events affect one`s financial needs, this financial planning process will provide a vehicle for
adapting to those changes. Regularly reviewing this decision-making process will help him make priority
adjustments that will bring his financial goals and activities in line with his current life situation.
6) Common Mistakes in Financial Planning Approach
The following are some of the common mistakes made by consumers in their approach towards Financial
Planning : They,
Do not set measurable goals.
Make a financial decision without understanding its effect on other financial issues.
Confuse Financial Planning with investing.
Neglect to the re-evaluation of their Financial Plan periodically.
Think that Financial Planning is only for the wealthy.
Think that Financial Planning is for when they get older.
Think that Financial Planning is the same as retirement planning.
Wait for a money crisis to begin Financial Planning.
Expect unrealistic returns on investments.
Think that using a Financial Planner means losing control.
Believe that Financial Planning is primarily tax planning.
What is PMS
Portfolio Management Services (PMS) is a sophisticated investment vehicle that offers a customized investing
into stocks, fixed income products, cash, other structured products and mutual funds units etc. to meet specific
investment objectives. Though, PMS is managed by a professional managers, it has potential to address the
personal preferences tailored into the investment portfolio giving the freedom and flexibility required for achieving
the financial goals.
Different ways in which PMS can be managed
Discretionary: This service gives the flexibility and freedom to investment manager to operate on behalf of the
Non-Discretionary: Under this service, the investment manager recommends the investment ideas. Appropriate
time to execute the transaction is left up to the investor. However the execution is done by the investment
Advisory: Under this category of services, the portfolio manager only suggests the investment ideas. The choice
as well as the execution of the investment decisions rest solely with the Investor. In India majority of PMS
providers offer Discretionary Services.
PMS benefits investor in following ways: