Wealth Management vs Financial Planning

Authored BY: Ajit Panicker

Wealth management according to Wikipedia is "Private wealth management (PWM) is the term generally used to describe highly customized and sophisticated investment management and financial planning services delivered to high net worth investors. Generally, this includes advice on the use of trusts and other estate planning, vehicles, business succession or stock option planning, and the use of hedging derivatives for large blocks of stock."

Financial Planning according to FPSB India is " "Financial Planning is the process of meeting your life goals through the proper management of your finances. Life goals can include buying a house, saving for your child's higher education or planning for retirement. The Financial Planning Process consists of six steps that help you take a 'big picture' look at where you are currently. Using these six steps, you can work out where you are now, what you may need in the future and what you must do to reach your goals. The process involves gathering relevant financial information, setting life goals, examining your current financial status and coming up with a strategy or plan for how you can meet your goals given your current situation and future plans. "

The definition of both these diciplines of the financial field are too close and yet too far. Where wealth management is manging the funds, the wealth of the High networth individuals of the scoiety, financial planning is about helping all kinds of clientele meet their lif goals with their available resources by pruning and by scissoring at many places.
Wealth management is about helping the client accumulate wealth through all those investment tools which provide great returns, while financial planning will see to it that the client's desired goals are met, but all this is done in a very organized and systematic manner by examining the present status and then strategising.
The focus in the financial planning process is to help client achieve " FINANCIAL FREEDOM"

The  three basic questions that you will answer during financial planning:

• Where are you today? What is your current financial situation?
• Where do you want to get to? What is your vision of your future financial situation?
• Will you be able to get there? How do you plan to achieve your vision?

During the financial planning process you analyze what your financial needs and goals are. Then, you quantify in money terms what resources you need to meet those goals, and quantify the time period during which you want to achieve these goals. Finally, you write an action plan on what you need to fulfill your plan in terms of what products to buy and what types of savings to make.

What are MIPs and how are they different from FDs?

Authored By: Ajit Panicker

Monthly Income Plans, or MIPs, are hybrid instruments that invest a small part of their portfolio (around 5-25 %) in equities and the remaining (75-95%) in debt and money market instruments. Their portfolio is essentially biased towards debt, but a small exposure to equity is added as a kicker. MIPs aim to give a monthly income to investors. The investor can decide the periodicity at which he wants dividends, which could be monthly, quarterly, half-yearly or annually. In addition to this, a growth option is also available, where gains come in the form of capital appreciation.


MIP returns are market-driven. That means, the fund manager is under no obligation to declare a monthly dividend, though most fund houses try their level best to declare dividends regularly. This is the main difference between MIPs and fixed deposits (FDs) that offer assured interests. However, compared with FDs, MIPs are tax-efficient as dividends declared under MIPs are tax-free.

Typically, retired people or those nearing retirement (in their late 50s) can opt for MIPs as they can generate an adequate income flow that can help them meet their monthly expenses. However, investors should remember that dividends are not guaranteed. If the stock market runs into rough weather, the fund manager may not declare dividends for that period. This is a risk the investor should be able to factor in. In short, MIPs can only be an additional source of income to the regular income form pension, annuity and so on.

Apart from retirees, novices to the market who wish to take a small exposure to equity can also consider investing in equity. The modest equity exposure will generate extra income, while the debt portion will preserve the capital. They can also pocket extra returns, thanks to the stocks in the portfolio. However, always remember that equity is a risky investment option, despite the fund manager’s best effort it could underperform in certain periods due to bad market conditions.

Saving today will create an excellent Future tomorrow- My Life experience

Authored by: Ajit Panicker

Yesterday in the morning in the gym, while working out, I was having a discussion with my neighbour about the spending patterns of consumers and what makes them buy the most frivolous of things. He said there was a time when he would himself buy things on a whim, especially through a credit card. Now, he says, he has turned over a new leaf. He has cancelled his second gym membership that he had paid thousands for, reduced eating in restaurants and has started investing in various plans in a systematic manner. “Live simply today to live lavishly tomorrow,” he calls this plan.
My friend, unknowingly, has managed to save more in three months, than he would usually have in several months, if he had continued his lifestyle. He got me thinking. Can it be that uncomplicated to save for the future? The answer is Yes. When you get money, do you save first or spend first or spend by borrowing?

Usually, when we spend on buying things, we end up borrowing. You may think, “How can I borrow when I am spending from my own pocket?” What you don’t realise at that moment is that every penny you spend on buying something that is more of a want than a need, you are borrowing money from yourself . You may think that you don’t have to pay yourself back, but this tendency pulls you away from your life dreams and goals since you do not have the money to save or invest.

An associate of mine recently presented me a study that analysed spending patterns.
An important fact put forth was that individuals forgo long term goals for instant gratification. Most of us just get a certain “high” while buying a particular product for e.g. a new pair of shoes, or going to the best restaurant in town. This habit increases borrowings.

A way to break this pattern is by making a clear demarcation between what you want and need. They are always two separate things. Though instant gratification is fun for the moment, on a long-term basis, it might not be what you need. Commit yourself towards creating reserves for your future, instead of just thoughtlessly spending money.

Investing for the future is not an easy task. I often suggest a simple trick to friends which helps them stick to their plan – I ask them to create a collage of pictures of their dreams and desires. It could have pictures of your dream house, holiday, retirement or anything thing else that you are working to achieve.

This will provide you the motivation that you need to turn these dreams into reality . But remember to not shape your future by borrowing. Make the distinction between good and bad borrowing. Any borrowing that can help you buy/build an appreciating asset (like house) is good borrowing.

Another important lesson that you need to understand is that you will need to downgrade on your current needs to move in on your future. You can cut down on some unwanted expenses and instead use that amount in a financial plan that can help you achieve your dream, goals and plan for emergencies.

The idea of downsizing now is to create a foundation to stabilise your future. Over time, this will help you become financially independent. And your dreams will be your own, no matter what...

PPF- Best instrument to create corpus , without paying TAX

 Authored by: Ajit Panicker

PPF account is the best investment option where you can put good amount every year and build a huge corpus without paying taxes. With a little planning, it can be an important part of your financial portfolio. Here are a few tips that will help you make the most of this option:

Maximise limit:

The 8.8% compounding interest you will be earning from now on, the latest news today declared , on the balance can work wonders for you, especially because a PPF account is a long-term investment. There is an annual limit of Rs 1,00,000 that one can invest in the PPF. You may feel it is a waste to be investing Rs 1,00,000 in this option when your Rs 1 lakh tax saving limit under Section 80C has already got exhausted. But don't let the tax savings alone guide your decision. Invest as much in PPF as you can afford to. If you contribute Rs 1,00,000 a year to your PPF for 15 years, your investment would grow to a gargantuan Rs 35.43 lakh on maturity.
And remember, this is tax-free money. In the 30% tax bracket, this is equivalent to receiving almost 12.8% interest on a bank fixed deposit. “The PPF offers the highest post-tax returns among all fixed income options since no tax is levied on the investment, income and withdrawals,”

Distribute income:

There are benefits in store if you open a PPF account in the name of your spouse or child. Tax laws say that if any money gifted to a spouse is invested, the income from that investment is clubbed with the income of the giver. But since PPF income is tax free, it will not push up his tax liability. This way, you can invest more than Rs 1,00,000 a year in this tax-free haven and benefit from its various advantages.

This strategy does not work in case of minor children though. You can open a PPF account in the name of a minor child but the combined contribution to your and your child's account cannot exceed Rs 1,00,000 a year.

Invest for children:
However, if the child is over 18 years, up to Rs 1,00,000 a year can be invested in his name separately. The taxman insists on clubbing the income of minor children with that of the parent. But once they turn 18, they can have a separate income. “A PPF is an ideal way of building a fund for your child's educational needs instead of falling for all the ‘high-commission-paying’ child plans of insurers,”
 “In a child plan, you are not sure of the final returns.

What is micro-insurance?

Microinsurance is one of the many ways in which the lower sections of the society which are deprived of even the basic needs of their families, are protected for the perils they can encounter. This is done by providing them protection inform of insurance cover where the regular premium is very low and is proportionate to the risk and its cost involved.
This arrangement is being made so that every section of the society can be adequately insured according to their living expenses and which can be insured by paying very small amount of premiums.
Microisnurance provides greater economic and psychological security to the poor as it reduces the exposure to multiple risks and cushions the impact of the disaster.
There is an overwhelming demand  for social protection among the poor

Microinsurance in conjunction with microsavings and micro credit would therefore go a long way in keeping this segment away from the poverty trap and would truly be an integral component of financial inclusion.

Microinsurance is synonymous to community-based financing arrangements, including community health funds, mutual health organizations, rural health insurance, revolving drugs funds, and community involvement in user-fee management. Most community financing schemes have evolved in the context of severe economic constraints, political instability, and lack of good governance. The common feature within all, is the active involvement of the community in revenue collection, pooling, resource allocation and, frequently, service provision.

Financial Planners are your Financial doctors, specialists in the Financial Field

Authored By: Ajit Panicker

In past decade and strongly in past few years the banking and the financial markets, the regulations and the investors have all become very active and alert. If i talk about insurance, for about 60 years Life insurance co. Ltd(LIC) was synonymous with insurance until early 2000's when private insurers arrived in india. Mutual funds became a popular in past 15-20 years, and people have now realized its importance for which the moderate risk takers and all those who want to diversify their investments look towards mutual funds as a good investment option. Stocks have always been an option in this country, but many have burned their fingers and even their homes due to less information about the option or due to wrong guidance. Real estate as an investment option has become public in past decade very strongly. But since time immemorial people have kept land as a great investment option, because this particular option in long term gives good return, inspite of it having a number of timely advantages and disadvantages attached to it.
Gold has always been an option suggested and practiced by our grannies, irrespective of belonging to any part of the world, and has been always more in india. Bank deposits, corprate deposits, saving accounts , post office deposits, have all been investment options or savings options been used since a very long time now.
BUT, these all investment products as they are called has been bought either by your own understanding about them or suggested by agents, advisors or bankers. All the people involved in selling these products are motivated to bring fee income to self or the organizations they are working for, with very minimal concern about the investor or the client.
Here comes the FINANCIAL PLANNER as a FINANCIAL DOCTOR, a specialist in the field, to the rescue of the client. He meets the client with the sole objective to make him realize the importance of planning. Carving a chart and the course of action of how to achieve all the short term, mid term and long term goals , with proper risk adjusted, inflation adjusted and tax adjusted returns to the investments made by the clients. He helps the clients decide their objectives, analyses their current investments, the inflows and the outflows of the cash component, the assets and the liabilities, calculates the present net worth and help the client achieve the desired networth.
He treats the client(patient) with all the ill-investments, replaces them with best options with full analysis. Creates an emergency fund, plans for his retirement, plans his estate, plans his taxes, plans his consumptions and savings pattern, lead them to a disciplined financial life. With all these he finally achieves the FINANCIAL Freedom.
Consult a Financial planner, the specialist

Equity investment - an excellent option to build corpus and achieve the best returns

Authored by: Ajit Panicker

The markets globally have been uncertain from past 4-5 years, coupled with the recession globally. Then countries like US, UK, and many european countries being effected due to sub prime crisis and the recessionary forces. The growth rate was really under the negative quadrant for too long. The political upheavals alongwith economic downturn in middleeast, israel had all contributed to a large extent to make investors largely the retail investors make opinion that in this uncertain market conditions, the equity market should be kept away with. if required one should largely invest in debt market and hence the debt market has been very promising in past 2 years, atleast in india and the subcontinent.
But out of all the investment tools , i feel if one is ready to invest a good amount and want to keep it decently long term for atleast 7 years , EQUITY is the best option. Daily traders would not gain substantially from EQUITY, it is just that they are earning their daily bread and some small gains. But there is an equal chance of all the gains garnered in the past weeks by a washout when the market falls and situation is bearish.

"Siegel is a professor of finance at the Wharton School of the University of Pennsylvania argues  that given a sufficiently long period of time, stocks are less risky than bonds, where risk is defined as the standard deviation of annual return. During 1802–2001, the worst 1-year returns for stocks and bonds were -38.6% and -21.9% respectively. However for a holding period of 10-years, the worst performance for stocks and bonds were -4.1% and -5.4%; and for a holding period of 20 years, stocks have always been profitable."

The above situation is obviously being taken in US, but the STOCKS as an option of investment instrument behaves almost alike in all countries across the globe, differing minutely due to political and economic heat or coldness in the country, which is locally dependent.
What i am putting forward as a financial planner is, that there is no time to enter any kind of market, all situations are to be invested or to come out. No one has ever managed to time the market. But yes the decisions to exit or enter has to be judiciously taken alongwith the equity or for that that matter the financial expert.
India's growth in next 20 years lies in investing in equity for long term minimum 7 years and there is no maximum tenure. Equity does not offer you any lock in period, but this lock in period has to be disciplined by your self.
The returns of the equity in indian market

1.     Top Diversified equity mutual funds have given compounded annual return of more than 35% per annum for the last 10 years.

2.     The annual growth rate of reputed Indian companies is 20-30% p.a.

3.     Diversified Equity Mutual funds invest their money in Indian and multinational companies engaged in manufacturing and services industries. The demand for their products will go on increasing every year because of increase in population and increase in purchasing power in India. The value of their shares will go up when companies make more money, In turn the value of investment made by the mutual funds in these companies will also go up. Hence the investor who has invested in these mutual fund would get handsome returns.

4.     Your money will be invested by the mutual funds in number of reputed Indian and multinational companies engaged in different industries, hence your risk is reduced as you “do not put all your eggs in one basket”

5.     Indian economy is on the growth path according to Indian and international economists

6.     Your investment will be handled by highly experienced and qualified mutual fund managers who have excellent track record

Therefore do not turn your back completely from the share market, and invest in equities wisely under the guidance of financial experts and financial planners.