Have You Done Your Financial Spring Cleaning

ULIP : Unit Linked Insurance Plan.It is a product offered by insurance company which gives investor both insurance and investment under a single integrated plan.

Portfolio : A collection of investments owned by the same individual or organization.

Fund : An amount of money saved or collected for a particular purpose

It is a type of pure insurance plan where the beneficiary will get the benefit only in case of death of the policy holder during the policy term.

Mutual Fund NFOs are nothing but commencement of a new scheme. During the NFO period the investors will be able to buy the units for its face value of Rs.10.

Stocks that are traded in the market at very low price.

Amount deducted UPFRONT from the investment generally in insurance for sales charges/ agent commission which will in turn reduces the investment value

Amount paid to the insurance company for the purpose of the person's insurance.

It is the maximum amount, the insurance company agreed to pay in case of claim by the policyholder. The amount depends on the amount of damage/loss happened and the premium paid by the policyholder. It is also known as sum assured.

A set of assets which an investor holds. This may contain equities, mutual funds, insurance and other cash equivalents.

Wealth is accumulation of resources or as on date value of assets a person own. Commonly Net worth is the measure of Wealth of an individual.

Liquidity or marketability is the ability to convert an asset in to cash quickly.

It is the raise in the value of Consumer Price Index. That is the rate of increase of the price of a goods or services.

A Financial Planning experience with a client:

It was just another day that a new client came to us for financial Planning. He wanted to know if he had planned well for his family finacial goals . As a general procedure, I suggested that a study would help me come out with a comprehensive financial planning to meet his goals.

Explaining the Financial Planning Concept:

I told him that financial planning lies in addressing 4 important areas namely, risk management, wealth creation, wealth preservation and wealth transfer. It is an ongoing process throughout life. Financial spring cleaning done regularly helped to stay focused and keep track of your finances.

It is best to understand that financial spring cleaning involves collecting and assimilating data. This included various investments, present financial situation of the client. Then an appropriate plan was prepared and reviewed regularly considering changes. It is best to get a financial plan prepared by a certified financial planner or advisor that has the expertise, education and ethics and believes the plan would work for you.

Analyzing Life Insurance:

My collection of data told me that my client had more insurance coverage on his wife and dependent children than on him. In addition he had been sold certain unit linked plans by his investment consultant. These ULIP’s were disguised like profitable part of his overall portfolio.

So the first thing that I emphasized to him was to increase the term insurance coverage on him, so that his family was secure in his absence caused by sudden death. This was essential considering that he was the sole earning member of his family and still had various financial commitments before his children settled down.

Online term policies with nominal premium rates would be best for the purpose. I then told him that buying ULIPsare not good investments because of its heavy front Loaded Charges and under performance. As a part of portfolio revamp i suggested to the client that he surrender certain policies and take up more of online term coverage on him.

Evaluating Health Insurance Requirements:

Client already had a general health insurance policy for him and his family. I also suggested that he should take additional health insurance coverage in the form of critical insurance. An additional critical insurance coverage would provide for income in case of critical illness eventualities.

Examining other investments:

Stocks and MFs: A closer review of his investments in stocks, mutual funds and other portfolios convinced me that my client had gone wrong in many of his investments. I was surprised to find that he had been misguided to invest in Penny Stock and closed ended NFOs of mutual funds. These stocks and mutual funds were not just risky but also lacked adequate liquidity and profitability to cater to long term inflation.

PMS: His portfolio management that was done by 2 portfolio managers lacked consistency that was vital for growth. They had repeatedly bought and sold stocks of big stocks like Larsen & Toubro, Tech Mahindra and Siemens just to book minimal profit and paid high costs on entry, taxes, brokerage and exit.

It was also seen that my client had an unwieldy portfolio that consisted of certain stocks that were bought on momentary emotions. In addition both his portfolio managers were buying similar stocks and mutual funds that made for laying all eggs in a basket. In addition to lack of diversity in stocks, they had sold off more profitable funds to invest in least known. I suggested that he invest more in diversifiedLarge and Mid Cap funds.

Fixed Income investments: We suggested moving of fixed deposits that earned just 6.5% post tax to fixed maturity plans that yielded 8.75% post tax. We also suggested that he increase his contribution to Public Provident Fund and in the senior citizen account of his parents.

Client Reaction:

My client understood very well that his broker had not suggested investments taking into consideration his financial goals, risk tolerance and return expectations. We also rendered the service was to help our client create a cash flow management strategy. This would help him ensure surplus funds were appropriately invested in a diversified way.

To conclude once the first step was taken to embark on his new journey to a strong financial backing, we advised him to keep himself well informed about financial planning with knowledge from various sources. Finally he understood that it was worth taking help in financial spring cleaning due to the rich long term gains that would accrue to him.

This financial spring cleaning puts you on the right financial track. But what makes you move forward on the right financial track to achieve your financial goals is having a personalized financial plan. If you are really interested in creating a personalised financial plan, then I would suggest you to test-drive our services by opting for


Leave a Reply

Your email address will not be published. Required fields are marked *

three × five =