Financial Planning

When you run a marathon, there is a predefined finish line, you run keeping that finish line in mind, and when you reach that line, you've achieved your goal. Your life is similar to a marathon, but with two exceptions:

1. There is not just one finish line, there are multiple goals to be achieved during a lifetime, and you'll be simultaneously running for all of them.

And 2. The life goals, unlike the finish line, they aren't constant, as you move towards them they'll drift a little further, not necessary in the north.

So, resting on the above attributes, we arrive at: Goal Setting is not a once in a lifetime process. It is an ongoing affair, you need to revisit and review them time and again.

Having said this, why aren't our goals fixed? why do we need to revisit them repeatedly?, often comes into the investor's mind. So the following paragraphs will explain the reasoning behind the constant motion in your goals.

Firstly, your lifestyle exercises a significant impact on your goals. Let's assume, you are working in a junior management grade in a company, and you feel Rs 1 crore will be enough to meet your lifestyle needs post your retirement, and you invest accordingly. After some time, you get promoted to a middle management grade, so now with an increase in your income your lifestyle will also upgrade, and to maintain this upgraded lifestyle after your retirement, Rs 1 crore may not suffice. This concept is not just applicable to an increase in your daily living expenses, it is also applicable to the size of your other dreams, they will also move in conjunction with your income. The dream of owning a basic hatchback will transform into a dream of owning a comforting sedan, the dream of a Kashmir vacation will translate to a Dubai vacation, and the like.

Secondly, there can be a change in your footing which may require you to modify your goals. There may be goals which were paramount for you earlier, but now they've lost their meaning, so they need to be put off the table. For example, five years ago, your sole aim in life was to own a Harley Davidson and you were passionately saving for actualizing your dream. But recently you had to undergo a major knee replacement surgery, and you have to take the back seat now. So, the goal has lost its significance. Conversely, a variation in your position may require you to elevate or alter your goals too. Let's say you wanted to stay ahead in the race and you started planning for your kid's education while your wife was pregnant, but things didn't move as planned, and she delivered twins, so now you need to account for the second kid too while planning for the kids' education.

Thirdly, Inflation is the villain which pushes your goals away, away from your reach. It is because of inflation, that you have to run faster and sweat extra to reach your target. In our previous example, Rs 1 crore was enough for the investor to enable him meet his post retirement needs “today”, but not 10 years ahead when his retirement approaches. Assuming an average rate of inflation of 6%, his retirement corpus requirement to maintain his “present standard of living” will be Rs 1.8 crores after 10 years.

The fluctuations in our life goals are a product of the above factors. These changes are inevitable, and hence we need to keep on incorporating these changes into our goals and make the necessary modifications in our financial plan. If you do not keep revisiting and modifying your goals, you would be moving in a random direction which may or may not be leading you towards your targets.

To conclude, this marathon called life is really long, the number of laps are endless, the targets are many and are constantly evolving. So if you want to win the race, you have to be fast, run at a speed higher than the speed of the goals, you have to be flexible, align your direction with the direction of the targets, and you need to be attentive to the change throughout the run.


Date : 28 April 2017

Whenever the subject of discussion is planning for your future, the hot topics are "Buying a car in the next five years or upgrading the car in 3 years","Buying a house in the next 10 years", "Funding for kids' education after 15 years", "Planning for Retirement after 25 years", etc. And then we save and invest for each goal. The agenda is to organize your finances by following the plan, and live a peaceful life. Our investment planning revolve around these long term goals. And that is what Financial Planning all about.

But then while planning for your goals in the "years to come", what is often ignored is the "months to come". We seldom plan for the near term goals. We are so organized with our child's higher education expenses, that we somehow forget about his quarterly school fee. We care for upgrading our car four years down the line but forget about the annual insurance of our car which is due six months hence. And then when these expenses suddenly arise, you strain your brain, you drain your accounts, you look for money kept at home, at times go to the length of even asking a friend, and after all this physical and mental labour, you pay off the dues.

And after all this exercise, when your energy is completely sucked out of your body, two days later, your wife comes to you and says, "Our anniversary is coming, Kahin ghumne chalte hain". You just can't control your temper and the RDX comes out, "Pura budget bigad gya hai" "Monu ki fee bhi deni thi, upar se chacha ji ke bete ki shadi ka kharcha, aur tumko anniversary manani hai". Your wife goes away without saying a word. This is "Toofan ke pehle ki shanti", and you know your wife well. So, now you have two more expenses coming up: One, the cost of taking your wife for dinner that very night, or else you are not getting dinner for time immemorial. And Two, the anniversary trip expense.

The purpose of this fable was not to scare you off, "Beware of your wife", rather it's about don't leave the short term expenses to luck. At times, near term expenses all bump in together, and sums up to a huge amount, which can disturb your finances and peace.

So how to plan for short term expenses?
Planning for short term expenses is also an important part of your overall financial planning. Many near term expenses are known, like you know you have your anniversary coming, and many of them are unexpected, like you may not know at the start of the year that your kid has to go for an educational trip next month for which you'll need an extra 10k.

1. Provide for the expected: Look at the brighter side, you know beforehand that you will need an X amount of money on an X date. So, you can set aside the required amount for these expenses. After all, celebrating birthdays and anniversaries are also a part and parcel of life, they give you the small doses of happiness which, may be unknowingly, but keep you going.

2. Provide for the unexpected: Like you plan for long term emergencies, be prepared for the short term urgencies as well. Keep aside a small amount for these expenses, so that whenever something pops up, you can close it by paying the requisite amount from your short term piggy bank, without turning your happy life topsy-turvy.

3. Don't stretch your investments to the extent that you cannot afford to buy milk: We do advise you to save and invest. Yes you do need to stretch a bit and invest to have a secure financial future, but don't stretch to the extent that you break your bones. If your monthly income is Rs 30,000 and your fixed expenses are Rs 15,000, so you cannot afford to invest the entire remaining Rs 15,000 for your long term goals. You need to keep a buffer to meet your upcoming near term non-discretionary as well as discretionary expenses.

4. Invest in Liquid Funds for Liquid Expenses: Do not invest in bank fixed deposits or PPF for short term expenses, because you may not be able to access the money, when you need it, or even if you do, you may incur a penalty on withdrawal. Do not keep your money at home or in your bank saving account either, as they will give you zero or meagre returns which will not even cover the cost of inflation. Invest these funds in Liquid Funds, so that you can withdraw the money whenever you need plus you get the benefit of yielding higher returns as compared with the above mentioned options.

5. Do not take Risk for short term goals: When it is about short term goals, it is advisable to stay away from volatile asset classes. For short term goals, the factors to consider are Liquidity, Safety of principal and Taxation. So there are two options which can provide you liquidity, safety and returns that are better than the traditional bank saving deposits. One is Liquid Fund in the Debt category and the other one is Arbitrage Fund in the Equity category. Arbitrage Funds, though are Equity funds, but they are least volatile and their returns are comparable with Liquid Funds, and they may offer certain tax benefits. The choice between Arbitrage funds and Liquid Funds should be made depending on your income profile after consulting with your financial advisor.

So, the bottomline is, Financial Planning is very important to keep your finances organized and lead a peaceful life. But peace can come only when you plan for both short and long term term. Planning only for the long term and ignoring the short term can break the constant of your life every now and then.


Asset Class is a often used word in finance, especially investment & portfolio management. We also used the term many times in our articles. In this article a take a academic look at the various asset classes.

As informed investors, we should be familiar with the different investment routes or facility of investing offered by mutual funds. You may already be aware of SIP but likewise, there are also other facilities offered by mutual funds to invest, redeem or switch between investments, which are relatively unknown. We have explored the SWP in one of our previous issues. This month, we would be exploring the STP or Systematic Transfer Plan in detail.

What is a STP?
STP is the facility that allows an investor to regularly transfer (i.e. switch) a pre-defined amount from one mutual fund scheme into another scheme. Every month on a specified date an amount you choose is transfered from one mutual fund scheme, called as the Transferor scheme, to another mutual fund scheme, called as the Transferee scheme, of your choice. The STP is similar to a Switch transaction with the difference that it is regularly done at the predefined frequency. The STPs are generally used by investors to create regular cash flows between different schemes for meeting portfolio management objectives or as part of financial planning for certain objectives /goals. The following graph clearly depicts what an STP looks like.

Options available under STP:
There are certain additional options offered by mutual funds within STP. As far as time intervals are concerned, the options generally available to withdraw are on monthly, quarterly or annual period basis. In terms of the nature/type of withdrawal possible, investors normally have two options to choose from... Fixed Plan: Wherein specific fixed amount of money can be transferred.

Capital Appreciation Plan: Wherein only the amount of capital appreciation only can be transferred and the initial investment stays protected. This option is available only under growth option and not dividend plan. One thing that investors need to keep in mind is the amount of load applicable would generally be similar as if there is a redemption from the Transferor scheme and a new investment in the transferee scheme. The tax treatment would also be on same lines.

Ways how you can use STP in your lives:
STP can help meet your portfolio management needs for achieving any temporary or long term investment objective. It is one of the many ways available for planning regular cash flows between different schemes, different asset class or scheme types. The following real life situations can help you realise the ways in which STP can be planned

  1. Mr. Vikramsingh has received good bonus and he plans to invest same into equity mutual funds instead of keeping money in bank but is cautious of investing lump-sum into equity schemes.
  2. Mr. Imran has just retired from his private job and he plans to invest in debt schemes. However, he desires to set aside some money regularly into equities to also create some wealth.
  3. Mrs. Ramakant has a sizable investment in equity. He however wants ensure that the appreciation on this equity investment be set aside into debt to also slowly build a debt portfolio while keeping the equity portion intact.
  4. The wedding of Mr. Suraj's daughter is due in the next 2 years. He already has adequate equity investment but he feels the need to protect the investment from market risk.
  5. Mrs. Desai wants to keep maintain a fixed asset allocation on her mutual fund portfolio and is looking for a way to do that periodically. In each of these multiple scenarios, STP can be effectively used to meet your investment objectives. The STP can be a very powerful facility if we can smartly use it and incorporate it as per our portfolio and investment needs. It can potentially play a very critical role as part of a holistic financial planning for your family.

STP: Tool for Investment Strategy
As a tool, the STP facility can be effectively used to meet diverse investment objectives, financial planning needs. Some of the ways it can be used is:

A Portfolio Rebalancing and/or Asset Allocation Management tool To minimise risk of investing lump-sum in equity schemes Create debt or equity investment portfolio with time where your primary investment is in the opposite asset class To meet financial goal planning objectives like emergency funds, provisioning for maturing goal, creating wealth, reducing portfolio risks, etc.

The STP option works wonderfully when we have an STP from a Debt scheme > to a Equity Scheme. This option can be exercised when your risk appetite for equity is low or markets are volatile or the market valuations appear fair or overvalued wherein there might be some risk in the short-term. In all such situations, lump-sum investment can be confidently made in debt portfolio with a STP into equity scheme. This will work like an SIP into equity scheme while ensuring that your money is invested into a more productive instrument than bank deposit. While planning for maturing financial /life goals, STP can also be used to slowly transfer money from equity schemes to debt schemes. For eg. If you need say Rs. 25 lakh in say 2 years time, you may start an STP from an equity scheme of say Rs.1 lakh today. The idea behind this is to ensure that at the time of maturity you do not carry any risk on the amount that you need by keeping same exposed to equity market volatility.

Way forward:
These are times when as investors we should be adequately informed and aware of the options & facilities available to us. We also need to take efforts to understand these options /facilities and how they can help us in achieving our financial objectives in a better way. The STP is one such important facility. A single STP can be seen as a combination of SIP, SWP or Switch. It is upto you and your financial advisor to explore the full potential of this valuable feature available exclusively in mutual funds schemes. We should be open incorporate this to manage our wealth and thus our lives in a better way. We hope, the next time you are thinking of managing your portfolio, the idea of STP shall definitely cross your mind.


As it is said there are two unavoidable events of human being's life cycle : Death & Retirement. Although we can not really predict the first, we can really foresee our retirement and plan for it.However, retirement, although the most important and unavoidable event of life, it mostly remains unplanned due to other priorities in life. We plan for all important events of life - be it buying a home, planning for kids marriage, but fail to plan for this most challenging part of our life-stage . We all need to retire in peace and when asked we all would like to have a happy retired life but without quantifying the same in financial terms definition of 'HAPPY Retired Life' remains very vague.

But before we go ahead and discuss about how to go about retirement planning and things to consider, lets try to understand at first as to why do we need retirement planning.

Compared to yesteryears during the period of high interest rate region planning for retirement was much easier with fixed income products offering interest rates as high as 12-13%, which have gradually come down now and expected to fall further in future. Against this, life expectancy of an average Indian has gone up with medical advancement. Now aspirational levels have gone up as people want to fulfill their dreams and hobbies during their retired life, which they were unable to do during their professional life. Let us summarize the Why factor of retirement planning as under:

  • Falling interest rates (Interest rates on fixed income products have now become market linked and have come down considerably in last one decade or so).
  • Aspirational levels are going up with more and more people wanting to pursue their hobbies/dreams during their retired life.
  • Change in social structure with growing urbanisation, trend of nuclear families with children often staying away from parents.
  • Higher life expectancy due to advancement of medical science.
  • Ever increasing medical cost and 78% of total health expenditure is privately funded.
  • The most important factor: Inflation

Among all, inflation can be considered as the most important factor affecting retirement planning with ever increasing cost of living for developing country like India. With an average inflation rate of around 7%, your monthly expense of around 25000 can grow to around 1 lakh in 20 years time and close to 2 lakhs in next 30 years.

(Inflation assumed @7%)
As can be seen from the above graph just to maintain the same standard of living for a family with monthly expense of .25000 one would require 1 lakh per month after 20 years. Again this is just with an assumed inflation of 7%.

This was about the importance of retirement planning. Now another important question to be answered is how much retirement kitty should one have? Although there are no simple answers to this as there is no single figure that can apply to all. Every individual has to calculate on his/her retirement corpus requirement after considering the following important factors:

  • The age at which one needs to retire.
  • His/her current life style. (Mainly monthly expense)
  • Assume realistic rate of return during your working life as well as during the retired life.
  • Rate of inflation
  • Consider any of your current retirement savings plan (pension plans, insurance, provident funds etc)
  • Any specific dream/hobby one likes to pursue during retired life.

(Note: Assume that the above list is not comprehensive and just for example purpose. One needs to consult his adviser to do know about retirement planning process)

After assigning specific numbers to all the above questions one can arrive at retirement corpus required and then arrive at investment required to be made with the assumed rate of return.

The idea of retirement fund is that the money should last for all of our retirement years, meeting our expenses. The income from kitty and withdrawals from later years should match the expenses (growing with inflation) in post retirement years.

This is very critical, since with better medical services, average retirement years have increased and it is possible that a person retiring at say age 60 would easily have nearly 30 years as retirement. Developed countries have higher life expectancy, something India will sure achieve in the next coming decades. The criticality can be very simply understood by acknowledging that we may normally have 35 working years (age 25 to 60 years) in which we have to save for the 30 retirement years (60 to say 90 years) when we will not be working. Thus it is very critical that we realize this requirement and start planning immediately. Ever increasing cost of living will only add to our misery during retirement years when we mainly have to rely on our savings without having any major source of additional income.

Be vigil and open for course correction:
To arrive at a retirement corpus is just first stage of planning process. As we all go through different phases in life it is very important to keep one self open to make necessary changes on a regular basis. Major life events which require modifications in retirement plan are:

  • Change in employment status ( One can increase contribution with promotion/increment in job)
  • Change in family status (Getting married, arrival of a child etc.)
  • Change in tax laws
  • Getting any lump sum financial benefit through inheritance

Retirement Planning Options Available:
There are different retirement benefit solutions available in the market like insurance products aimed retirement benefits, planning through SIP in equity mutual funds, pension plans, employer sponsored retirement benefits etc.

As retirement planning is mostly done with long term investment horizon of above 5 years it should ideally be done by getting maximum exposure to equity as an asset class as over long time horizon equity has the potential to outperform all other asset classes. Investing systematically on a monthly basis through SIP route in equity mutual funds can benefit investors by taking advantage of power of compounding. Although one is always advised to keep his/her asset allocation in check to make sure that one does not overboard on a single asset class.

Another idea is to create assets that will give returns post retirement, like property, which can be put on rent or land which can be farmed, etc.

Conclusion: Retirement planning is an ongoing, lifelong process which requires commitment, patience and consistency on part of investors to reap rich dividend of final payoff of retirement kitty. No matter how big retirement corpus requirement may look like, one needs to start at some stage no matter how small that start may be. So don't wait for the right opportunity or the right time to come as the right time is NOW to make your retired life comfortable.


We offer our services through personal counsel with each of our clients after understanding their wealth distribution needs. Our approach is to enable our client's to understand their investments, have knowledge of investment products and that they make proper progress toward achieving their financial goals in life.

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