6 steps to financial planning for women

(Source : Equitymaster.com)

The most arduous of journeys begin with a small step. When it comes to something as important as planning for child’s education and marriage, that small step means setting yourself an important objective. To put it plainly, the fundamentals of investing are no different for women; so you have to plan your investments, execute the investment plan and track it regularly. If this sounds a little complicated, don’t worry, we have simplified the process for you.

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. For a woman whose kids are already married, the desire to invest could stem from a dream to set up a small boutique, for instance. For a woman who is yet to get married, it could be for her 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 bargained for.

When we began compiling a list of likely objectives for women we came up with some interesting options:

1. Saving for your own marriage 5 years from today.
2. Saving for your child’s education 15 years from today.
3. Saving for your child’s marriage 20 years from today.
4. Saving for a small business that you want to set up at a later date.
5. Saving for an overseas trip, maybe even a pilgrimage 5 years from today.
6. Saving for a gift for your spouse or parents.
7. Saving for your retirement 30 years from today.

This seemingly long list could be even longer when you take into consideration objectives that are peculiar to you. Some of the more popular investment objectives like saving for child’s education and marriage we have discussed in detail in ‘Plan for your children’s future.’

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 equity-linked investments, investment time frame, tax-efficient returns and the like.

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. If you have been reading the newspapers even cursorily, you would have observed 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. To make your job simpler, we have prepared a checklist to help you select the right investment consultant:

1. Both insurance and mutual fund consultants need certification before they begin advising clients. Insurance agents must be certified by the IRDA (Insurance Regulatory and Development Authority), while mutual fund agents must be certified by AMFI (Association Mutual Funds in India). The agent must have the certification on his person, so it’s relatively simple to affirm whether your consultant is qualified.
2. 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.
3. 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.
4. Value-add investment services is another area that your consultant must treat as priority. Tools and calculators, stock and mutual fund alerts, portfolio tracker, research on mutual fund schemes and life insurance plans are some of the value-added services that investment consultants provide. Of course, there are few consultants who do this, but those are the ones you must identify. Some of these tools are web-based and should appeal to women who are net-savvy.
5. Even after you have taken the insurance policy or invested in a mutual fund scheme, you relationship with the investment consultant continues. You may need feedback on your investment, account statement, premium cheques to be submitted to the life insurance company, follow-up on dividends on your mutual fund investments and the like. It is the responsibility of the mutual fund agent to provide prompt after-sales service and resolve these issues efficiently.

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 bare your ‘financial’ soul and 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 in equities (this is important because equities can give a push to your savings, but also carry higher risk). 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 child insurance plan for your child’s education/marriage, or the diversified equity fund to build a corpus to buy property after 10 years. All the investments and insurance 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 upto a level.

For instance, to the extent possible fill the application forms yourself so you learn about the relevant details. While filling the insurance application form, you have to give a true and fair picture of your medical history, accurate information on your weight and height and other details of this nature. Giving inaccurate information on these points could lead to rejection of claim at a later date. Your investment consultant is unlikely to know these details better than you, so personal involvement is necessary. Likewise, appointing a nominee is common across mutual funds and life insurance, so ensure you have those details correctly filled in.

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. Of course, 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. Again, all this may sound very complicated, but your investment consultant is the one who will keep his eye on such events and will make necessary adjustments to your investment plan. On your part it helps to be informed since it’s your money on the line.

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. Then you will need to sit down with your consultant and understand the taxation issues involved with the redemption of your investments.

As you can see, 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. With a systematic and disciplined approach to investing and by identifying the right investment consultant, financial nirvana could be closer than you think.

Infrastructure: Plethora of opportunities

Source: Equitymaster.com

It is a widely acknowledged fact that a world-class infrastructure is a necessity for faster and consistent growth of any economy in the world. And this applies for India too if it has to become a major world economic power. Thankfully, this realisation has started to creep into the minds of those who control the reins of power in India, which has consequently initiated the transformation of India into a land of opportunities, as far as the infrastructure sector is concerned. The potential here is enormous, as many infrastructure segments i.e. roads, ports, rail and air, are being opened up for private participation and investment. However, amongst these, the pace of reforms has varied significantly, due to commercial and regulatory issues. Consequently, the progress and opportunities varies across segments, some of which have been highlighted in this write-up.

Roads - Readying for the ride
Roads occupy an important position in India’s transportation system, as they carry nearly 70% of freight and 85% of passenger traffic in the country. Presently, India’s road network spans a distance of around 3.3 m kms. The focus of successive Governments on improving road connectivity across the country has brought about significant investments in road development in the last few years. As per the National Highway Authority of India (NHAI), total of 23,546 kms of roads would be constructed in the next two years. One of the most important programmes under the NHAI is National Highway Development Programme (NHDP). The NHDP consists of the Golden Quadrilateral, North-South and East- West Corridor, Port connectivity and other projects. Beside this, there are two Non-NHDP Projects, which include Pradhan Mantri Bharat Jodo Pariyogna (PMBJP) and the other is Pradhan Mantri Grameen Sadak Yojana (PMGSY).

The government recognises the importance of private participation in development of roads in the country .It has thus framed requisite policy measures to encourage private investments in the sector. Some of the private sector participants in the road development are L&T, HCC and IVRCL. Besides this, in order to promote the involvement of private sector in the construction and maintenance of roads, the government has now decided to offer large number of projects on build-operate-transfer (BOT) basis. The importance of BOT in the national highway segment can be gauged form the fact that they carry more then 40% of the traffic even though they constitute just about 2% of the total road network in the country.

Ports - Anchoring for growth
India occupies strategic location on the global maritime map. Indian ports handle 95% of India’s foreign trade in terms of volume and 70% in terms of value. The traffic handled at ports has been growing steadily over the past decade .The government has fixed an ambitious target of US$ 150 bn for exports by FY09 (current US$ 100 bn) to double India’s share in world exports from the current 0.8% to 1.5%. Futher the Ministry of Shipping has projected India’s port traffic to grow to a level of 850 MTPA by 2012 (from about 500 MTPA currently), which has necessitated major capacity expansion by Indian ports. Deregulation in the ports sector (100% FDI is allowed) and favourable terms of BOT have attracted domestic and foreign players to this sector. Further, private joint venture partners are being included to improve the operating efficiency of Indian ports.

Railways – On the right track
Indian Railways is the largest rail network in Asia and the world’s second largest under one management. The scope of public private partnership is enormous in railways, ranging from commercial exploitation of rail space to private investments in railway infrastructure. In order to have an integrated development of transport system, National Rail Development Programme was launched in December 2002 envisaging an investment of about US$ 3.5 bn in the next 5 years. The programme envisages removal of capacity bottlenecks in critical sections of railway network.

Civil Aviation - Ready to take off
Currently, the airport infrastructure in India is relatively less developed as compared to other means of cargo/passenger transport in the country. Despite the fact that the cargo carried by air in India constitutes less than 1% of the total cargo exported, it accounts for almost 30% to 35% of the total value of exports. Further, the importance of air transport cannot be undermined, as tourism is India’s second largest foreign exchange earner. Further, with domestic air travel becoming more affordable, thanks to increasing competition consequent to the opening up of this sector, air traffic in India is witnessing rapid growth. Though the entry of low-cost air carriers has been a key factor that triggered this growth in civil aviation, India’s economic upswing, increased FDI in various industrial sectors leading to higher business travel and the growing popularity of India as a tourist destination has all necessitated higher investments into the domestic aviation sector to meet the increasing traffic, which is projected to continue to rise 6% CAGR over the next decade.

India, as one of the fastest growing economies in the world, has recognized the need for all round development in the important infrastructure sectors. With increasing political consensus towards reforms, clear policies and regulatory framework pertaining to investments in and development of infrastructure are being put in place. India, having established conducive policies for foreign investment, both with respect to centre and state projects, has gradually opened up as a preferred destination for infrastructure financing. Further, with innovative options of participation, there are now tremendous opportunities available in most of the sectors