Financial Planning: Getting the Basics Right!

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Like many other young management students, I, a BBA student from the NMIMS University was very confident about my knowledge especially about saving, spending and personal finances. Little did I know that this confidence was actually overconfidence! Investment Planning was taught to us as a subject in college by Mr. Jai Adiani and that’s when my eyes opened up and I got enlightened about personal finance and the sheer importance of having sound investments.


Just as one would expect a young boy to be at my age, I was aggressive and risk taking. I believed in spending for the good times but also believed in saving a significant amount of money. However, the catch comes here… I felt that equity investments were the only good form of investments that can give good returns. While the latter may be true in many cases, the former is not! The underlying principles of investments are to understand the needs, objectives, and goals of an individual and his family, assessing his risk appetite and then choosing appropriate investment products! Many individuals however first decide on the investment instruments by merely taking random advices from friends and relatives, without assessing and calculating their needs, goals, and requirements of the future! I used to criticize the government saving schemes and other debt instruments. I did not understand why someone would invest in a post office scheme when he can invest in the stock markets and earn a much greater income! Also, I felt that investing in gold can give high returns and so can real estate.
However, Investment Planning module broke all the above myths!


The objectives of investing can be many. It can be done for security of money, for appreciation of it, for regular incomes and even for saving taxes! Moreover, it can be a combination of all as well. When I got to know about this, I had become sure that I actually knew nothing about investing and financial planning as a whole.At first, I realised that I wasn’t even aware of all the investment avenues. For example, I never knew that there are affluent people who invest in art, watches and even wines! On the other hand, there are humble earners who are benefitted by investing in the Government Monthly Savings Scheme, Recurring deposit a/c’s and so on. So, the first lesson learned was that there are many things to learn!


As the lectures proceeded I started understanding more and more about financial planning and investing in a sound manner. For instance, stock market investments do have higher returns but with it comes with higher risks. So, it is not advisable for a retired person to have a lot of money invested in equities. Again, even in equities, small cap stocks are more risky than large cap stocks! Also, I realised the meaning and importance of beta, alpha and various other technical terms which can help an individual take a much better and informed decision while investing. Such terms help a person to expect how much return he will get from his investments. Going further technical I learned that it is very import to diversify investments and not keep huge chunks of money in a single product. For example, if a person has say 60% of his investments in IT stocks and if there is a problem in the IT industry, then his entire portfolio can go for a toss. The situation can worsen if he was working in the same sector as well. Imagine a condition in which such a person has lost his job because of slowdown in the sector and his investments also get beaten up! Atrocious! Therefore, proper allocation of funds is very important while investing!


The most important philosophy one must remember about investment is that “It is not the timing but the time that is important!” For example, an irrational person might feel that return of 15% p.a. is too less, but that is not true. It is, in fact a very good rate of return. Consider this: A man invests a Million Rupees at 15% p.a. With ‘time’ being more important we’ll assume he stays invested for 50 years. The investment of a Million becomes a Billion after 50 years. This means, that the money multiplied 1000 times! That’s the power of compounding!


So, we may understand that investing is all about having a variety of products in the right proportion so as to minimize risk and maximize returns! Investing is in fact, a science. Sound investments are never a coincidence! It is important for each one of us to at least understand and get the basics of financial planning right. Ultimately, it is not how much you earn that will make you rich but the proportion you save and rightfully invest! My investment planning classes have been an eye-opener and a great boon to me and hope this article will be, to many others!

 

This article has been written by Kunal Zaveri.
Fpguru.com in its efforts to spread financial enlightenment organises financial planning article-writing competitions in colleges. Kunal was the joint winner in the competition held for the BBA program of NMIMS University ASM School of Commerce. We thank the Management & Dean of NMIMS  for their support.

Comments  

 
0 #13 Roshni Bhatia 2012-02-20 13:19
In the absence of proper financial planning, no individuals would save money to invest. If there is no investments, then we would face a liquidity problem.As compared to past few years, as the trend is observed, savings have already reduced which is a serious concern for the economy. Hence, Financial planning is a Must!
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0 #12 Kanika Gorwara 2011-12-26 13:38
Kunal, you're a terrific writer..!
Very well potrayed and the line that actually struck a chord for me:
"The first lesson learned was that there are many things to learn"
Keep expressing.. you're really good :)
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+2 #11 Parul Mehta 2011-05-16 15:15
Kunal

You have set high benchmark by writing this impressive and eye-catching article. Keep up the good work.
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+3 #10 Ekta 2011-05-13 08:09
Hey kunu very well written.Wish u gud luck n hope u achieve all the very best in life. May sound exegegrative but trust me ur achievement touched me in such a way that lil tears dwn the cheeks accompanied my broad smile....Very well done kunu. God bless u always.
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+1 #9 Priyank pethani 2011-05-12 15:47
really good basics taught which one will only realise after experience.
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+1 #8 Harendra Mehta 2011-05-12 10:00
Good work Kunal...Keep it up..wish u goodluck..
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+1 #7 Dhairav 2011-05-12 05:53
Kunal

Very Good Article. All the Best. The Best way to learn is explore on your own. I feel that's happening with you.

Dhairav
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0 #6 Shalmali K 2011-05-12 04:51
nicely written...congratulations kunal...
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0 #5 Malav Mehta 2011-05-11 21:47
Kunal...thats good work...All the best ..
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+1 #4 VAIBHAV ZAVERI 2011-05-11 06:23
the show has just begun!!
good luck..
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