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Often financial planners are asked questions like ‘where should I invest ?’, ‘How much should I invest ?’, ‘Does investing in gold still makes sense or is real estate the next big sector?’, ‘What should be my asset allocation given my age and profile?’ and so on. However, there is no generic answer to any of them, because for each individual, depending on several factors, the answer could be different. It is like asking a doctor which medicine one should take without actually knowing what the illness is. A right portfolio mix is highly specific to each individual /family and has to be customized and not generalized. Here we will try to look at how one can go about choosing the right portfolio mix.

Why should I invest?

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Planning for finances is an indispensable activity for businessmen, student, self employed, professional etc. However planning becomes all the more critical for a salaried person. The reason for this is the limited and fixed resources for generating a flow of income. Not only that the resources are limited, the major share of contribution comes from the salary.

The need for financial independence is a commonality across most of the salaried class people. One has to be pro active in taking steps towards this financial independence. It is important to understand the spending and saving patterns. One has to fill the gaps by spending frugally for the purpose of consumption and saving more for a productive activity – income generating activity. Being productive alone is not sufficient, it is critical to be more efficient and effective moneywise. This will inch you closer to financial independence!

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For most of the educated people and especially for those who do not have anything to do with finance at their work places, asset allocation is apparently a puzzling term.

There are broadly five types of asset classes viz debt, equity, commodities (understood mainly as gold and silver), real estate and cash. In each of these asset classes there are various instruments or investment options available in the market

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When Krishna Patel and his son Amit (names changed) walked into our office, they had a simple problem: The senior Patel (59) was to retire in a year’s time and needed to effectively use his retirement corpus.

The father expected his provident fund (PF) maturity to be around Rs 60 lakh. He had a fixed deposit (FD) balance of Rs 10 lakh, about Rs 1 lakh in savings account, an equity portfolio of around Rs 4 lakh and owned a small, self-occupied flat in the Mumbai suburb of Vile Parle. He had a personal health insurance cover of Rs 5 lakh that also covered his wife (56), a homemaker.

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Mr. Sudhir Agarwal (name changed) visited our office a few days ago for reviewing his financial plan.

While discussing his current financial scenario, he mentioned that he had just incurred an expenditure of over Rs. 2 lakhs on a vacation abroad which was his dream holiday. The question here was “at what cost did he take the vacation?”

The money was initially earmarked for his daughter’s primary education and it was rather lavishly spent on something less important.

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It was a Tuesday afternoon, around two years ago, when Priya Nath (name changed) met us for the first time. Priya was a thirty four year old single mother of an eight year old daughter, Aditi (name changed). Priya had recently lost her husband. She was working for an MNC and was very worried about her personal finances. Till his death, her husband was handling all the finances and she never paid much heed to it. But now she had to take charge

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The problem with the 21st century seems to be that of having too many options. Right from buying a mobile phone to buying a car to choosing an investment product there are a number of options available today.

What becomes crucial is how one decides which products to choose from, when to invest and for what time horizon?

The fact is that there can never be one good product which suits everyone’s requirement. So it is indeed important to know what factors one needs to consider before making the right investment decision.

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We have always come across people saying that no two persons can have the same set of Fingerprints. This theory remains unchanged even in case of financial planning. Financial planning, in common terms, is a roadmap which ensures that you reach your destination without any difficulties.

There are several reasons why a financial plan can never be the same for two people.

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