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Financial Planning Is Not Limited To Mutual Fund Investments

Updated on July 21, 2011

As understood by many young investors in India, financial planning is not only limited to investments in mutual funds. Financial planning is none of whatever has been written in finance articles in Indian finance portals. It is just not limited to identifying your goals and multiplying them by straightjacketed formula but it is a lot more than that. One of my young friends is a qualified certified financial planner and makes plans for American clients for a financial firm based in Delhi. According to him, most young investors in India make the mistake of investing in just two types of instruments, equity and debt funds. They think balancing of these two according to your age is the art of financial planning but they need to start by knowing this, invest in as many sectors as are available to you. Do not invest only in equity, but also invest in real estate, invest in gold, invest in international equity diversified funds, and invest in commodities, not only in mutual funds.

Your perfect hedge will come only after you diversify as much as possible. The current world conditions are not very friendly for a businessman. With the things getting from bad to worse, only things most valuable in the future will be commodities, so one should not care whether it is gold or its the food prices, but you are going to see a double digit return on them CAGR (Compound Annual Growth Rate), and it will be very irrational to just limit your self to equity and debt funds and just switching them regularly.

Set your goals, understand investment basics, take the route of diversification, invest consistently, and learn about new investment market products.
Set your goals, understand investment basics, take the route of diversification, invest consistently, and learn about new investment market products.
Financial planning
Financial planning

Go two to three years back and look at the returns of DSPML Gold fund when the market was falling and compare it with the performance of Templeton India Equity Income Fund, which invests in international markets with the devastating performance of India equity funds, you will understand why diversification is important.

A new fund from Mirae Asset Global Investments has opened doors to commodities world so make sure you go for that too.

The above three will not complete majority of your diversification so you can also invest in REITs (Real Estate Investment Trusts) in India or REMF (Real Estate Mutual Funds that invests directly in property.

If you go a little far, you can also invest in currency market but that would be not necessary a lot.

Investing in the above four funds will cover majority of your risks since all these sectors will never fall altogether. This is the major reason why I say that financial planning is not only limited to mutual fund investments as most young investors in India believe but it is a much broader topic.

Also review financial plans regularly including home budget, estate planning, protection with retirement plans, investment in shares and bonds, etc.

So what I have learned are the must have things in the world of financial planning and investment:

  • Well-defined goal and vision
  • Understanding of all major investment instruments
  • Diversification in real sense
  • Discipline and consistency in investment
  • Continuous learning in investment

I will discuss about these must have things in financial planning in my upcoming articles.


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