Financial planning is not just about choosing the right investment avenues, correct products and balanced portfolio allocation of your investments. Getting the planning and investing process right so that systems fall in place and the money works for you even when you cannot manage it yourself is crucial for both you and your dependants especially if you are not savvy about money and finances. “No doubt what you invest in is important as it will determine your returns, but the way you go about it is also crucial as you should have access to your funds when you need it,” says Gaurav Mashruwala, a Mumbai-based financial planner. Here are some of the basic needs to be kept in mind.
Keep it simple: While some may be savvy about money and money management, others might find it difficult to give meaning to numbers and still others may just not have the time for it. The solution to this lies in keeping the investments as simple as you can if you believe you are one of those who feel inadequate to deal with financial complications. For instance, while some products such as gold and systematic investment plans in mutual funds are easy to manage, asset classes such as real estate are complicated. Mashruwala adds, “Buying a house to live in is important, but as an investment avenue, besides being complicated real estate is also not liquid enough.” Leasing out a residential or commercial property will earn you an additional income, but you have to go through various processes such as looking for a tenant, making the agreement and getting all the required documentation in place and most importantly collecting the rent.
Apart from opting for the right investment avenues, it is also advisable to maintain a consolidated record of all your investments and track them regularly. If you think you can’t manage your finances, opt for services of your bank’s wealth manager, or an individual professional practitioner to ensure that your financial life is secured.
Maintain a logbook: Maintain a logbook with details of all your investments, contact numbers, list of documents, agent numbers, identity cards, bank accounts, bank lockers and anything else that is important. “Ensure that at least two-three others are aware of the mediclaim policies you hold, policy numbers and papers, helpline and agent numbers so that they will know how to file a claim in case of an emergency,” says Mashruwala. These could be your family members such as spouse or parents or even children if they are grown up and matured enough, close friends or neighbours.
Nominations: It is extremely important to have nominations in place for all your investments. Although the nominee is not the legal beneficiary but just a guardian or a trustee till the rightful heir or beneficiary is determined, having a nomination in place will ensure that the funds are released quickly in case of any casualty. Investors are often careless about nominations. Says Ranjit Dani, a Nagpur-based financial planner, “People usually don’t have nominations in place for bank accounts. If it is jointly held then the nomination is not very important, but if not then it is. Similarly insurance policies have nominations in place. But if the policy had been assigned as a security, the earlier nomination is not valid. People often forget to get a new nominee in place.”
A nomination is also a better option compared with a joint ownership or holding if you prefer to maintain your finances separately from your spouse or if you are single. While it is easier to change a nominee, in case of joint holding it is difficult to change the co-holder and in some cases not possible at all. So you would then have to close the account or investment and open a new one as a joint holder cannot be changed and will enjoy equal access and rights to your assets.
For instance, if you open a joint bank account with your mother instead of making her a nominee, she will have as much right as you to withdraw money from the account. Besides, after you get married, you might prefer to have your spouse as a co-holder or applicant rather than your mother. So if your mother was just a nominee, you could easily file a new nomination, but if she is a co-holder, you might have to close the account and open a new one.
Power of attorney: Most investors worry about assigning a power of attorney to someone else as they fear that it can be misused. However, a power of attorney would be important if someone needs to administer your assets or accounts on your behalf. So you might have to consider this only if you are a non-resident Indian (NRI) or are single, you or someone in the family has a major illness or if your job is migratory.
You can assign a general or a special power of attorney. While a general power of attorney would allow the person to fill in for you anywhere and take a decision beneficial to you, a special power of attorney would mean allowing access to the person to a single bank account to withdraw money for your medical expenses in case of an accident or allow him rights to manage a certain property only. This power of attorney can come into effect from the moment the document is signed, or at a predetermined future date or in case of the occurrence of a specified event. You can also revoke the power of attorney granted to a person and entrust it to someone else by following the prescribed legal procedure.
Track it regularly: Track your portfolio regularly. Says Dipika Kalra, associate financial planner, International Money Matters Pvt. Ltd, a financial planning-cum-investment advisory firm, “Track your investments regularly, and ensure that you have a consolidated statement of all your investments every month-end. That way you will know where you stand.” So every month end, Kalra sends her clients a consolidated statement of all her investments including those such as equity that are not handled by her. It is very important to go through all your statements periodically so that any inconsistent expense or charge will most likely stand out and you will also have a fair idea of what the state of your finances is.
Regular reviews: Even if you track you portfolio regularly, it is good to review and realign it at regular intervals. Says Dani, “Your portfolio is like a garden, it has to be cleared of weeds. You might buy certain products or make investments anticipating specific needs or situations. If those don’t arise, then you might want to reallocate that investment.” Similarly your needs and goals will change with age and these will have to be weaved in your investments.
Succession plan: And last but not the least, plan your succession. As you go along, you are bound to accumulate assets which need to be taken care of after you are gone. You might want to pass it on to a friend or a relative or donate it to somebody, but it has to be passed on to someone. A will and a succession plan is thus as essential as asset allocation or portfolio management. “You don’t want to leave bad blood in the family while your relatives sweat it out in the courtrooms,” adds Kalra. Besides, it is also very important that someone is aware of the process of liquidation of your assets and can execute it as per your wishes.