Get App
Last Updated : Nov 21, 2018 11:35 AM IST | Source:

Steps to create a successful long-term financial plan

To identify the fund's suitability and the percentage allocation to each category and fund, it is really important to identify the risk profile and financial goals of the investor.

Navneet Dubey @imNavneetDubey

It may sound very easy and doable thing when one simply read about the financial planning process. However, when it comes to implementing the process practically in daily routine, it becomes very difficult for one to follow it. Thus, the simple way to start with it, you should know yourself first.

Anil Rego, CEO, Right Horizon said, “whenever we do financial planning, the financial planner asks the customer to fill in a questionnaire that helps the advisor to understand the risk profile which helps them to prepare an appropriate financial plan for the client with proper asset allocation for different goals.”

Investing randomly can ruin your finances. Therefore, it should always be made with a certain purpose. However, there are a lot of investment avenues available in the market. Among them, choosing a mutual funds can be a difficult task since there are number of funds available under different categories. But every fund is not suitable for everyone. In order to identify the funds suitable for one and to identify the percentage allocation to each category and fund, it is really important to identify the risk profile and financial goals of the customer. Therefore, at every step you have to follow a certain strategy to fulfil your desired financial goals of life and to do so, you need to go through the proper financial planning process.


Here are 5 steps to take to have a viable financial plan:

Know your financial goal

Are you planning your retirement after 25 years? Or, are you planning to buy a new car after 5 years? The first approach to select funds is that one should identify the financial goals and the time horizon it will require to accomplish that financial goal. Once you are prepared with it, then check the list of funds available in the financial market which can help you achieve this goal.

Do your risk-profiling

Make sure that the fund also suits your risk appetite. Analyse your risk taking capacity by answering a set of questions which will help you get to know your risk appetite. One of the important aspects of financial planning is risk profiling. It helps an investor understand how much risk they can take vs how much risk they should take to achieve their goals.

Rego says there are 3 criteria which determine the risk profile: emotional risk tolerance, financial risk tolerance and risk perception. “Analysing these three and formulating the risk profile of the customer, helps the financial planner to decide on the allocation of debt equity mix to be incorporated in the portfolio, what kind of investments is required to be incorporated into customers portfolio in order to achieve their financial goals within the specific timelines and risk levels,” he said.

Know how much you can invest

While getting your financial plan made, you can actually calculate the exact monthly investment you need to make towards a particular financial goal. Through this plan, you get to know which goal is for short term and which goal is for long term and accordingly, plan your investments towards achieving them. The amount of investment is derived by assuming a certain rate of return as per your risk profiling and the duration of the financial goal.

Evaluate your risk and then invest

After analysing your risk appetite it is time to make the investment. Rego said that one should not select funds randomly for their goals, for example, we can’t suggest a small cap fund alone for a customer with short term goals. Here even though the customer is of higher risk profile, the need is short term. In this case, we have chosen funds in such a way that the need is taken care and at the same time there is a growth of investment is also considered and hence we would rather choose to have a mix of balanced and debt funds in order to achieve the goal taking into consideration of risk profile. “Therefore, it is really important to evaluate risk and financial goals before choosing a fund as different scenarios need a unique portfolio mix in order to achieve financial goal taking into consideration of the risk profile,” he said.

Review and rebalance

It is important to review your financial plan twice a year or at least one’s a year during the planning tenure. Make sure you follow this process until all your financial goals are achieved successfully. The process of reviewing your goals is necessary because the market condition is not same all the time and therefore, most of the time you are required to rebalance your portfolio from time to time taking help from financial adviser so as to achieve your financial goals on a particular defined time frame.

Moneycontrol Ready Reckoner
Now that payment deadlines have been relaxed due to COVID-19, the Moneycontrol Ready Reckoner will help keep your date with insurance premiums, tax-saving investments and EMIs, among others.

First Published on Nov 21, 2018 11:35 am
Follow us on