Financial Planning: No readymade solution

Whenever some reputed institution launches a solution we tend to sign on the dotted line. There is no one-size-fits-all solution available in the market

Written by Kartik Jhaveri | Published: January 16, 2012 2:25 am

Pay just Rs 10,000 per month and get benefits worth Rs 8.5 crores. If Rs 10,000 can give Rs 8.5 crores,then automatically 20,000 would give Rs 17 crores and 30,000 would yield Rs 25.5 crores. This is mathematical possibility created by savvy financial planning so let us expand to explore.

Creating wealth

* Invest just 10,000 every month for 20 years and create a large sum of money i.e. a special fund.

* Earn an income stream every month for 25 years thereafter. Standard income stream begins at Rs 1 lakh a month or 12 lakh per annum.

* Each year this income rises by about 6 per cent over the previous year. So in year one you get Rs 12 lakh,in year two you get Rs 12.7 lakh,in year three you get Rs 13.5 lakh,so on and so forth for 25 years.

* You can choose to get higher than Rs 1 lakh per month or lower or any amount that you like (within reasonable limits). You can vary this income amount any time for any number of times.

* If you choose the standard income stream you also get a large single inflow of about Rs 1.5 crore at the end of the planning period of 20+25 = 45 years.

* Get tax benefits i.e. save taxes while making this investment,no tax on returns,no tax on income stream earned from this special fund.

* No entry load,no exit load,no upfront or backend charges,no other loading etc.

* Cost of doing this: zero – if you can do it yourself.

* Ask professionals to do this for you: Expect to pay about 1—2 per cent per annum of the market value of the fund you have on the table.

The only assumption for the above to materialise is that India continues to progress; sometimes slow and maybe sometimes fast. This we can safely expect.

The irony

Such a product does not exist. No one has it. No insurance company,no mutual fund,no institution has anything that comes anywhere closer to this. This product does not exist because it is not a product. This is a financial planning concept; a financial planning design.

Hence a concept or design cannot be manufactured for world at large; it is unique,it is a solution in the true sense and thus it can only be customised and designed for a family in question. The design would be different for each family because each family and their circumstances are different. The design would use available products simply as tools to achieve underlying objectives. Naturally tools may change over time but the basis of change is design and not personal preferences as is normally the case.

Readymade solutions are only good to an extent. For example,a pension plan or a bond or a deposit can give you a regular income per se but then the income is level i.e. the same each year and it is taxable. Even the income itself may not be adequate.

Another example is a traditional child policy or a ULIP child policy. While such policies give you life cover and payouts at designated time points what if you needed to change the quantum of payout i.e. get more or less or if you wanted to change your time frame or schedule of payouts.

A mutual fund investment target is based on probability and possibility of returns which will happen sure as far as the assumptions and expectations are fair but it may not happen at the exact time point at which you need this to happen. Hence at any point of time what we need is an overall design to go by which is inter-linked with what we have,what we need to have,what we have saved and what we can save in time to come.

We all have an idea that we need some solution like this. But due to lack of availability of such customised solutions,whenever some reputed institution launches a solution we tend to sign on the dotted line. Even if we have someone guiding us we still tend to believe that the institution is right. This as we know normally results in disgruntlement in years to come.

Find an advisor

The fact is clearly established; that planning is about creating a design so we need a financial designer or a concept creator or in simpler words an authentic and experienced financial planner.

Therefore,the first investment is to look out for this person who would be happy to create such customised solutions just for you.

Discuss what you need and there are ample options i.e. tools that the planner has to be able to create such unique cashflow solutions for each financial aspiration.

The next time you are making financial decisions remember that a skilled planner can do things with numbers that may be almost magical.

— Author is Director,Transcend Consulting

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