For women, as with all individuals, investments form an integral part of financial planning; investments generate returns for the future and take care of your financial needs. This is especially necessary in light of the big question — ‘What if’? ‘What if’ your husband has not planned your finances well enough? ‘What if’ there was an eventuality in your family? ‘What if’ your children’s career plans cost you a few lac rupees? With women taking to work, disposable incomes of households have also increased. And naturally, along with income has come the additional responsibility of planning and investing. Apart from working women, homemakers too should take to financial planning. The fundamentals of investing are no different for women; so you have to plan your investments, execute the investment plan and track it regularly.
6 steps to financial planning
Step 1: Define your objectives
The most important thing to do while you sit down to plan your finances is ask yourself why you want to invest. For a married woman with kids, the answer could be child’s education or child’s marriage. So you could have a variety of objectives; when you get down to penning them down you will notice that the list is a lot longer than what you had imagined. e.g your financial goals could be:
Once you have the investment objectives in place, the next step is to prepare an investment plan to achieve those objectives. This may sound daunting, but it isn’t, when you consider that it’s your investment consultant who has to draw up the investment plan and your role is limited to giving him inputs in terms of your investment objective, appetite for risk, investment time frame etc.
Step 2: Identify the investment consultant
Since your investment consultant has such an important role to play in helping you achieve your investment objectives, it is important that you ‘connect’ with the right consultant. There are several instances of agents getting their clients to invest in unsuitable investments only to boost their commissions without a thought to the client’s investment objective and risk appetite. In the long run, this could have a ruinous impact on your investment plan. Does your investment consultant offer a complete investment solution? Or is he the type who only collects the application form, cheque and submits it to mutual fund/life insurance company? Remember you are looking for an investment consultant not a delivery boy. An investment consultant should be competent enough to understand your financial objectives and chalk out an investment plan that can best help you achieve them. It is critical that investment consultants are objective and unbiased in their advice. Being objective means placing the client’s interest over your own. How do you discern that your agent isn’t taking you for a ride? There are ways to find out. For instance, if you are a low-risk investor and your agent recommends a sector-specific mutual fund or an aggressive ULIP (Unit Linked Insurance Plan) then you can be sure that your investment objective is being sacrificed to fill his pockets. The investment consultant should be faithful to the plan that he has prepared for you and his advice must revolve around it.
Step 3: Preparing an investment plan
Once you have identified the investment consultant, you must get down to actually implementing the investment plan keeping in mind the investment objectives. For this you need to tell him exactly what you want to achieve, the time frame over which you want to achieve the investment objective, the amount of money you want to invest. If you find this a little too detailed and even unnecessary remember it’s important for the consultant to know this so that he can prepare a well-defined investment plan. It’s a bit like telling your doctor everything so that he can prescribe the right medicine.
Step 4: Executing the investing plan
After preparing the investment plan, your investment consultant will help you execute it. This involves, for instance, taking the diversified equity fund to build a corpus to buy property after 10 years. All the investments options that have been outlined in your investment plan have to be bought. Of course your consultant will help you with it, but it pays to be personally involved up to a level.
Step 5: Review the investment plan
Setting the investment plan in action is an important step towards achieving your financial goals. But to ensure you stay the course, a regular review of the investment plan is necessary. This will also be done under the guidance of your investment consultant. There could be several reasons why your investment plan may need to be adjusted from time to time. One instance is when stock markets change course over a period of time, they disturb your asset allocation. So you may have to redeem some of your equity investments or buy more of them depending on how much risk you are willing to take. As you approach the milestone (child’s medical admission or marriage), you need to get out of equity investments since equities are risky in the short term. That money should be invested into short-term debt, which is relatively safe.
Step 6: Redeem your investments
As the event you have been saving for, is upon you, you need to redeem your investments. With a mutual fund investment this involves signing on the redemption slip and having your consultant submit the same to the mutual fund. In case of a life insurance policy that you have taken, it involves having your consultant submit the policy documents to the life insurer and follow up for the maturity proceeds.
Setting financial goals, outlining an investment plan, executing it, reviewing it, is not really a difficult task. It may be time consuming but it’s certainly not difficult.