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Your Plan Your Investments

Feb 6, 2016 by Priyanka Chakrabarty | 27 Downloaded
Picture courtesy - PICJUMBO

We love knowing what is cooking at our neighbour’s place. Some might even point out and say we are more interested what is happening next door than in our lives. Some of us are also forced to become engineers because Sharma Ji ka beta is an engineer. Nobody asked if Sharma Ji ka beta if he wanted to be an engineer and nobody asked you either. Hate it or love it, you dealt with four years of it. You lived someone else’s plans and with every passing year you realized maybe you could have some things differently. A plan tailor made for you, to suit your needs and passions. Often in college we went on trips with our friends and hated them. They sounded good but that because they made it sound so. Maybe you went on a camping trip when you wanted to go on a scuba diving trip or the seaside. You stuck to somebody else’s plans and instead of having the time of your life you felt time stop because of boredom.

That is the drawback of going along with someone else’s plans. It simply is not designed to cater you our needs. Two people are never alike and neither are their needs. We are moving into an increasingly individualistic world where we look for our dream jobs and passions. Aspirations are also branching out in to various fields. In such scenarios, why should your investments needs be based on somebody else’s choice? Nobody understands your needs better than you! Your investment plans are connected to your current income, your financial or life goals and your personal circumstances. Your age and the conditions around you determine how you will go forward with your investments. How do you create your own financial plan?

Assessing Your Current Situation

  • Current Age & Your Investment Options:

    Age is one of the determinants of your investments. Young investors invest differently from middle aged or old investors. The former goes for high risk instruments because of the long investment period ahead of them. Aged or middle aged investors have to keep incline towards moderate to less risky investment products due to the gradual shortening of their investment horizon. A 25 year old investor might incline towards Mid & Small Cap fund and Sectoral funds or high risk volatile funds much more than a 40 year old investor who may prefer Diversified, Balanced and Large Cap Mutual funds along with Debt Funds or other debt prodcuts.

  • Current Financial Situation:

    Another factor that determines your investments are your current income. Your current income and expenses determine how much you will be able to save and invest. It is imperative that the transition from savings to investments has to happen otherwise the money remains stagnant and deprived of its potential. Young investors who have just started earning may invest small amounts compared to experienced investors who has been working and investing for a longer period of time.

  • Risk profile:

    This determines the amount of risk you wish to take on your investments. A young investor could be wary of risk while an experienced investor may take high calculated risk. Calculated risk in equities often lead to higher returns. However, it poses the threat of loss as well. This may push some investors to take risk and some prefer not to. Risk profiling allows you to understand the kind of investor you are and the extent to which you allow your exposure to equity investments to generate desired and superior returns.

Inclining Investments to Your Goals

  • Start Investments for Goals:

    Blindly investing will not reap you any benefits because there is no motivation or intrinsic factor to keep investing. If your goals are aligned to the ongoing investments, it provides a sense of direction. For example, you have been investing in an Equity Linked Savings Scheme or ELSS fund and suddenly because of a salary hike your taxes have also increased. The goal of an ELSS fund is to save on taxes and an increased investment in the ongoing fund fulfils the goal of tax saving. Hence, you aligned your investments with your personal goal.

  • Timeline for Goals:

    The “why” of an investment determines the reason for your investment. Most of the reasons or goals are time bound and the value of investment is only to the extent it enables you to fulfil your goals. Some goals mature faster than the other goals and some are lifelong. The short term goals usually have a time frame of five to seven years where aggressive investments create a corpus. Like a family holiday or personal expense. Intermediate goals are ten to twelve years usually for child education where once the fees have been paid you need not keep investing for the same goal. Some goals are long term and lifelong, like retirement goals. You have to keep investing for your retirement to maintain the same standard of living and cover medical expenses. Hence, the time of investment determines the amount you will need to put in every month or all at once.

  • Emergency & Liquid Funds:

    Time and emergency waits for none. It is only wise to be prepared for any kind of emergency that may befall you or your family members, if you are the only bread earner. Ideally in an emergency fund you should have enough to take care of your expenses for six months to one year. Such a fund should be liquid in nature and easily accessible. Investors often make short term investments in Mutual Fund Liquid Funds for emergency funds and stay invested rather than letting the sum stagnant in a bank account.

    Apart from emergency requirements, you may also decide on the ratio of liquid assets to investments. For example - If you want a part of your investments to be liquid then you cannot invest in ELSS Funds as it has a lock in period of three years. You may also want to avoid Equity investments as short term capital gains are taxable. Maintaining a balance of liquid assets to non liquid assets solves any liquidity issue during a financial crunch or emergency.

Creating & Monitoring Your Plans

  • Deciding upon Your Asset Allocation:

    There are various classes of assets and deciding upon the ratio of investments in those asset classes your future returns are determined in the long run. Investing in a mixed set of asset classes is a risk regulating factor for your investments. Your age and the degree of risk you wish to take determine your asset allocation.

    Asset Allocation at Various Life Stages

    Source: Advisorkhoj.com

    The table above shows the various asset allocation possibilities depending on the age and risk profile. Experts are of the opinion that it is asset allocation that churns returns for a portfolio rather than individual investments. One can also see how different the asset allocation for a 20 year old is compared to the asset allocation of a 45 year old investor.

  • Deciding upon Diversification:

    Allocating your assets further within an asset class is called diversification. Diversification is done to regulate risk in a portfolio. Equity investment is a vast class consisting of a range of investment options. As an investor you may be inclined to equities with a moderate risk appetite. Your investments will be in moderate risk equity options like Balanced Funds, Diversified Funds and if you are a low risk taker you will invest in Large Cap Mutual Funds. You may be a low risk taker and still invest in Equities through diversification of your investments.

  • Consulting a Financial Advisor:

    You may not understand the process of investment as well as you would like to. It does require a certain amount of time and effort which you may not have or do not want to give. This may result in lack of information or misinformation both of which could be fatal to your investments. What do you do then? You get yourself a financial advisor who is knowledgeable and experienced and get your investment planning and transactions done through them. A financial advisor is supposed to give you neutral investment advice based on your investment needs and income. You may have heard of mis-selling and if you feel any dubious advisor is trying to mis-sell, you may want to look for another advisor. Having a financial advisor makes the task of investing much easier and hassle free. Some advisors may charge for services that he or she is offering but it is a small price to pay for the convenience you are availing.

  • Time Frame for Reviewing:

    Kick starting the process of investing is an immensely satisfying one. However, you have to take some personal interest in to this process. It is great if you have an attentive financial advisor who is looking in to all aspects of your investments. You still have to review your portfolio. You do not have to review it every day or even once a month. However, a quick glance once in six months or annually will assure you that your investments are still in track. You also have to make some more investments or watch the average performers. Thus, set a time period within which you will monitor your portfolio and keep boosting your investments.

  • Occasional Rebalancing:

    All investments do not perform the same way. Some perform better than the rest and some take some time to catch up and then perform even better than its peers. The differences in performances make rebalancing a crucial part of your investments. You wish to generate a good corpus within a short period of time then you increase your investment in the best performing fund to get better returns. Rebalancing can be done anytime but do not rebalance after short period of time as it will disrupt the process of compounding and negatively impact the time value of money.


Investment is an individualistic activity that needs to be carried out in a manner that is best suitable for you. You cannot allow the noise of other investors to determine your investments. A financial plan needs to be made depending on who you are professionally, how much you earn and what are your future goals and if all your investments have been done with that objective. If you wish to get some guidance getting professional advice is the wise way to go. Your plans determine your investments.

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Priyanka Chakrabarty

A literature enthusiast who loves to write. An ardent social worker who dreams of bringing about change and hopes to do so through her writing. A firm believer of the saying pen is mightier than the sword, Priyanka is an English Honours graduate. She also pursed Diploma in Wealth Management Practice from IIFP and is a certified social media expert.

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