Our Philosophy
Our Recommended Process

DATA GATHERING

Data gathering means collection of information relevant to the financial planning process. In this step, a financial planner collects information about the client’s financial goals, income, expenditure, investments etc. This is the first step in actual financial plan preparation & it plays a foundational role in construction of a financial plan. Success of a financial plan wholly depends on the given data and to make sure that the data given is accurate is solely the client’s responsibility.


SETTING UP OF FINANCIAL OBJECTIVES

This is the second step in financial plan construction process and in this process a financial planner converts the needs and aspirations of the client into tangible numbers, especially the quantity of money required at various stages for each goal such as retirement, children's education, marriage, purchase of new house/car, foreign tours etc.


CASH FLOW ANALYSIS & DERIVATION OF EXPECTED RETURN

Once the Financial Objectives are set up, all the cash inflows and outflows (both current and projected future cash flows) are mapped on to a worksheet and detailed analysis is done in order to derive the expected return on investment of surpluses generated in each year. There could be two outputs for this exercise.

  1. 1. The expected return based on the income, expenditure, financial objectives, time availability for fulfillment of goals and life stage. This method is used for individuals having a limited source of income.
    Eg: salaried individuals, professionals.

  2. 2. The income requirement for keeping the expected return within the acceptable range based on life stage. This is suggested for individuals with variable income possibility and possessing the capacity to leverage time and money.
    Eg. Businessmen

RE-ALIGNMENT OF FINANCIAL GOALS

Once the expected return on investments/ expected income is derived, and if it falls beyond the acceptable criteria, it means that some of the goals are beyond reach as on date and should be either postponed or ‘cancelled for the time being’. If any goal is cancelled, it could find its way back into the system at the time of review or whenever cash flows change substantially in the positive direction. Multiple scenarios involving re-alignment of various goals could be looked at before making the final decision.


CASH FLOW PROTECTION /INSURANCE PLANNING & IMPLEMENTATION

The financial plan is heavily dependent on two factors.

  1. 1. The cash flow generated by the bread winner/s of the family
  2. 2. The returns/passive income generated by financial and real assets

Therefore careful consideration has to be taken in order to protect these factors in the event of occurrence of an unfortunate incident such as death, disability, theft, fire, natural calamities etc. This is ensured through adequate Insurance planning for all assets (Life, Health, Property etc.)

For health and property, it is a very simple exercise to compute the amount of insurance since their monetary values are readily available.
eg: A house can be insured to the extent of ‘cost of reconstruction’ in the event it gets destroyed completely Health can be insured to the extent of the cost of treatment for various ailments/surgeries with sufficient allowances based on the health history of the individual/family.

However it is impossible to determine an appropriate value in the case of Life Insurance as there cannot be a monetary value attributed to human life! Therefore we need to resort to some complex methods using some alternative logic as given below:

  •  Need Based Approach

    This approach looks into the financial goals set by the individual in the order of priority and filters out those objectives which have to be accomplished irrespective of whether the person concerned is alive or not. These filtered goal values are used for estimation of insurance requirement.
    Further optimization can be done in this approach by using our unique method of ‘Life Insurance Laddering’
    Since this method gives a very realistic and efficient estimate of life insurance requirement , it is used in our Comprehensive Financial Planning engagement.

  • Human Life Value method

    This uses the income generated by the individual as a benchmark for insurance calculation. However this method may not give us a realistic estimate in certain extreme cases and therefore is considered to be inefficient. Therefore we use this method only in the 2 hour Financial Health Check engagement, where we have to estimate the insurance requirement in a quick fire manner and that too with limited data.


REVISED CASH FLOW ANALYSIS

The insurance premium is considered as a cost/expense by us and NOT as an investment since we recommend pure risk coverage products only as they are the most efficient and excellent value for money. Now, since we use the ‘Need based approach’ for life insurance computation, the Cash flow analysis has to precede the insurance calculation and therefore the costs relating to fresh insurance implementation could not be factored into the cash flow analysis. Further, there is a possibility of the actual premium being different from the indicative value owing primarily to the medical condition of the individual. This presents a catch 22 situation. The only way out is to repeat the cash flow analysis step after incorporating the fresh insurance costs! The result of this step is the ‘revised expected return’, which will be used to prepare the investment portfolio.


CREATION OF INVESTMENT PORTFOLIO & RISK MITIGATION

Once the required rate of return is known, a financial planner would be in a better position to create an appropriate investment portfolio. This is the reason why contrary to popular belief, financial planning is NOT about ‘dealing with investments’. It is more of a philosophy and process, which, if practiced would give a more logical, realistic and consistent result. Very few people understand this, though!

The major challenge in this step is to ensure an appropriate spread across various asset classes without hampering the expected return! Also care needs to be taken to choose the most optimum combination which gives the least measurement of risk in without hampering the balance in the asset allocation! This interplay between return, risk and asset allocation is the sensitive balance that has to be maintained on a continuous basis which cannot be achieved without in depth study
Once the portfolio is made, it is highly recommended that it be re-balanced on a yearly basis, taking cognizance of the realized return during the year and the changes in the cash flow pattern of the individual.


IMPLEMENTATION OF INVESTMENT PORTFOLIO

The process so far has been only a blue print of your financial plan and will bear fruits only if it gets translated into reality in terms of actually investing the recommended amount of money in the respective asset classes. Further, care has to be taken with respect to the proportions of investments suggested across the various assets within an asset class. Though we recommend investments in fixed income instruments such as NSE, PPF or FD to be made in the lump sum mode, investments into variable income instruments such as direct equity, mutual funds etc has to be done in a phase wise manner so that the market fluctuations could be taken advantage of. Our specialty in this step is that specific recommendations would be given from our end in terms of what portion of the variable income instruments should be invested from time to time and we call this ‘Market Sensitive Implementation Strategy’. This generally gets compared with a systematic investment plan. However the truth is that though it looks similar, the major difference between the two strategies is that SIP is a passive strategy and MSIS is an active strategy incorporating continuous market intelligence based on local and global economic factors. Simply put, since it is difficult to time the market at the lowest level with a large amount, we’ll try to time the market at every dip during the market cycle with small amounts.


REVIEW

A financial plan can be humorously described as a continuous battle between futuristic projection and accomplished reality!
Therefore it is highly recommended that the whole process may be repeated at regular intervals (generally in an annual mode) to take cognizance of the difference between the winner and the loser. If the accomplished reality is the victor, then the investment strategy for the next year would shift towards a more conservative side and in case it is the loser, a more aggressive stance would be taken.

The deviations between expected and realized values could occur primarily in the cash flows, goals and the investment returns. This would have a secondary impact on the expected return for the next year, insurance requirements and the composition of the investment portfolio. It may sometimes happen that the changes happen anywhere during the year before the regular review becomes due. In such a scenario, the client can initiate what we call as an ‘Accelerated Review’. There are no restrictions on the number of accelerated reviews during the year provided the reasons cited are genuine and could have a substantial impact on the financial plan.