Financial Planning a Two Way Process

I keep on meeting many people who often quote me “I know a lot or everything about Mutual Funds and markets. I have been doing this for so many years. In the end it’s a loss making investment and I have lost a lot of money in this”. Then I get to know a lot of explanations about why they only want to stick to the traditional FD’s, PPF and NSC’s.  At the end of this conversation I always wonder that if somebody knows so much about Investment Products / Markets then how come did he lose money.  The chances of a learned or properly guided investor to lose money in a long run are negligible. As a person who has planned his investments will have his goals and time frame in mind and shall select the product accordingly. 

I am not against any product whether it is traditional, market linked or exotic structured product. Traditional investment products like PPF, NSC’s, PF etc are designed keeping all sections of the society in mind and are still a favourite choice of investment. Whether downturn or boom they have consistently given decent returns.  However they may not serve all investor goals depending on their inherent structure. On the other hand Property Investment requires liquidity in Hand, Equity Investment requires a long horizon, Gold (Favourite Investment for Indian’s) is more of a hedge etc etc.... Investment in every asset calls requires a reason. Hence Financial Planning is required with a proper asset allocation depending upon the timeframe or investor goals.

Financial Planning is a two way exercise. Banks/Asset Management Companies/Insurance companies are doing a lot to educate the investors. Awareness Programmes are organized by various organizations. Lot of information is published in newspapers by organizations. Educational Mails are a regular phenomenon. Steps are also taken by regulators to educate the customers. Various campaigns are being rolled out via print and electronic media. In short there is no dearth of information on Investment products.

Now it is the advisors job and responsibility to guide the investor!! Agreed and also this advisory has to be done from a long term view and not from a short term revenue perspective. Right advisory without miss selling means a happy investor. This might lead to lower revenues in short term but over a long term it helps in building a trust, reputation, more no of customers and eventually shall translate into higher revenues for the advisor.

With all this in place it is also the investor’s responsibility to become proactive in planning his investments. Most of the time we go by word of mouth in deciding our investments without even evaluating the options.  We avoid investing in products which could be the best investment options without any valid reason. This is where we tend to miss the bus.  Many investors do not understand the nitty gritty of the products because of which they form their opinions (mostly negative especially about Equity and Equity MF’s) and further spread the same via word of mouth. Hence choosing a right advisor becomes very important. At the same time it is also the investor’s responsibility to at least have a look at where he is investing and clarify all doubts.  

Financial Planning being a two way exercise hence Trust and Information Exchange has to be done from both the ends.