‘H’ is a veteran of sorts when it comes to investing. He has been investing in stocks and mutual funds in the last seven years. However ask him how his portfolio is faring and you would get a blank stare in return. Actually he is not being rude; in fact, he would confess later, he has been making a mental note to make a neat file of all his investments in the next few days. Stocks he has some vague ideas, but it comes to mutual fund schemes he is really clueless. He says he must have invested on more than 20 mutual fund schemes, including tax-saving schemes, the other equity schemes and debt schemes, in the last six or seven years. It is very difficult to remember all of them according to him. That is also correct.
But then how does he track the performance of these schemes? In other words, has he ever sold any of those schemes based on their performance? That is the trouble. He has been thinking about getting his papers in order ever since the market has started going through a rough patch recently. Otherwise, almost every scheme was performing well in the past few years.
H has a large company of people out there. It is a common thing among a majority of them. When they come for a financial plan, they are normally give forms to fill, which would require them to fill up their investments, insurance and so on. Some people fare okay when it comes to investment, but most people go completely wrong on insurance. When you ask them how much cover they have, they would reply that they have five or six policies or that they pay a premium of Rs 50,000.They have absolutely no clue about advisor who doesn’t want to be identified adds that the lack of details as one of the reasons why many clients fail to show up again with the form filled.
They think it is embarrassing. So, they decide to give up their attempts to get financial plan drawn and go their own way.
There are many reasons. One, losing track of investment is as good as not having any investment. Two, you may be actually losing money in some of your investments, but have no clue about that. People earning around Rs 5 lakh per annum, but have a portfolio of a few crores they didn’t have any clue about. If they knew it, they could have used the portfolio to generate additional income or restructure in a way that would suit their future financial goals. But why do people fail to keep a record of their investment. From the level of 3,000 in 2003, the sensex has climbed to 21,000. But how many people made money from it? Mostly it was the FIIs which made money from it.
Well, just like you go for a heath check up once or twice a year, do a financial health check-up as well. Most people who file tax returns with the help chartered accountants also don’t have a balance sheet of their finances. So, the first thing for them to do is to draw up balance sheet of their financial assets and liabilities.
Don’t let the phrase balance sheet scare you. It is just a simple process of listing all your financial assets on one side of the paper and liabilities on the other. Once you finish the process, you have all your investments (they will be on the asset side) for your ready reference. You would also come to know about your liabilities like housing loans or personal loans. Financial planners claim that once their client get to know about their investments and liabilities and begin to understand the process financial planning, they really get involved in the process. Everything will happen after that.