A.R. Rahman's Journey to the Oscars - International Indian

TII INVESTORth16ANNI V ERSARYAnd yes, the importance offinancial planning cannot beoverstated. Among others, twofactors are mainly responsiblefor the same i.e. inflation andchanging lifestyles.Inflation is a situation whereintoo much money chases a limitednumber of goods. This leads toa fall in the value of money. Itis also expressed as a rise in thegeneral price level. For example,a product that costs Rs 100 atpresent would cost Rs 105 a yearfrom today, assuming that prices‘Financialplanning canensure that oneis equippedto deal withthe impactof inflation,especially inphases likeretirementwhen expensescontinue,but incomestreams dry up.‘rise at 5% pa. This is the impact of rising prices over one year; overa 30-Yr period, assuming that inflation continues to rise at 5% pa, thesame product will be available at Rs 432!Financial planning can ensure that one is equipped to deal with theimpact of inflation, especially in phases like retirement when expensescontinue, but income streams dry up.The second factor is changing lifestyles. Over a period of time, whenindividuals have higher disposable incomes, it is common for them toupgrade their standard of living. For example, objects like cars that wereconsidered luxuries not too long ago, have become necessities today.Financial planning has a role to play in helping individuals both upgradeand maintain their lifestyle as well.Finally, there are contingencies like medical emergencies orunplanned expenditures that an individual might have to cope with.In times like these, when pink slips have become commonplace, it isimportant to have an ‘emergency corpus’ to sail through periods of lossof income.Financial planning for NRIsFinancial planning for NRIs isn’t very different from that for residentIndians. Sure, some peculiarities have to be accounted for. However,the same principles are applicable in both cases. Among others, NRIslargely invest in India for the following reasons:1. To create a corpus for their retirement when they return to India2. To provide their dependents back home in India with a regular income3. To accumulate monies for buying a property in IndiaHowever, one factor that separates the financial planning exerciseof an NRI from that of a resident individual is the tax implication.Furthermore, there are certain investment avenues that NRIs are noteligible to invest in. While drafting a financial plan for an NRI, suchfactors need to be accounted for.Basic PrinciplesAt its core, financial planning is not a very difficult task. All ittakes is discipline and religious adherence to the principles of financialplanning.Discipline has a part to play at every stage, from setting objectivesto executing plans meant to achieve those objectives. In fact, an adhocapproach while dealing with finances is one of the major reasons forthe financial distress individuals find themselves in.Setting objectives, investing in line with one’s risk appetite and assetallocation are some of the fundamental principles of financial planning.In conclusion, it can be stated that achieving financial nirvana isn’tas difficult as it is often made out to be. To get there, all one needs to dois, stick to the basics of financial planning and the rest falls into place.THE DOWNSIDE OFCONVENIENTINVESTINGFew would dispute that the adventof technology has broughtabout a sea change in the manner inwhich investments are made. Overthe past few years, an increasingnumber of investors have migratedfrom an off-line to an on-line investmentmode. And the NRI investorwould certainly agree thatinvesting is virtually a cakewalknow, thanks to technology.Remember the time whenmaking investments in India wasnothing short of an ordeal. TheNRI had to coordinate with hisfamily in India, discuss variousinvestment avenues, take care ofthe paper work, issue cheques andfinally hope that the investmentswould pan out as intended.Thanks to technology, thatstyle of investing is passé. Internetbanking and on-line investing arethe new buzzwords. And that’s notall. Brokerage firms, banks anddistributors who offer the facilityto make on-line investments,are also armed with a legion ofrelationship managers who are justa phone call or an e-mail away.Increasingly, the relationshipmanager/investment advisor hasemerged as a “one-stop-shop” forall investment needs. Investmentadvice flows seamlessly at theclick of a mouse. A phone call oran e-mail and the investments aretaken care of. A couple of minutesand minimal effort is all it takes.The cost factorAlthough the convenienceenjoyed by NRIs while investingis undisputed, investing hasn’tnecessarily become any better. On the contrary, the convenience maycome at a cost – the risk of landing up with unsuitable investments.Don’t be surprised! A closer look at the relationship manager mightreveal that there is more than what meets the eye. He is the polite,suave and efficient individual, who regularly sends e-mails and updates(NRI) investors of attractive investment opportunities. But how canthe investor be confident that the relationship manager is honest andalways offers advice that is in the former’s best interest? Maybe hedoes, but what if he doesn’t?Let’s not forget that the relationship manager’s interests are served, whenhe gets the NRI to invest. Every investment made translates into income(commission earnings) for him. The more the investment made, the higheris his income. Investment avenues fetching the highest earnings are clearlymost beneficial to him, but they need not be in the investor’s best interests.So we have a “conflict of interest” situation. What’s right for the investorneed not necessarily be right for the relationship manager and vice-versa.Evaluate your relationship managerEvaluating the relationship manager is vital. It will help the investorunderstand whose interests, the advisor really serves.1. Ask the relationship manager to disclose the commissions he earnson the various investment avenues recommended by him, comparethese with the funds that have not been recommended.2. Investors must check if the relationship manager routinely gets themto switch their monies from one fund to another on the pretext thatother fund is likely to perform better. This is commonly referred toas churning. If the recommendations were honest and accurate in thefirst place, frequent changes to the portfolios shouldn’t be necessary.Every “fresh” investment in a mutual fund made using the servicesof a broker/distributor translates into income for the latter. This is onaccount of the entry load charged by the fund house.3. When the equity markets were surging northwards, what was the adviceoffered - to aggressively make equity investments (typically the sametranslate into higher remuneration) or to adhere to asset allocation?While the above list isn’t exhaustive, it will certainly offer investorsan insight into their relationship manager’s modus operandi.The solutionThe solution lies at the core of the problem itself - the conflict ofinterest, so separate the two i.e. advice and investing.Investors being advised by a research outfit can rest assured theywill get unbiased and accurate advice. For investing they always havethe option to fall back on their reliable relationship manager, ensuring theproverbial “best of both worlds.” With new age investing, the hidden costscan be a bit more than what you bargained for.78 The International IndianThe International Indian 79