Hope you are sticking to New Year resolution for a wash board ab. And sure it must be hurting very badly. Here is one more resolution-a financial one, for a change-which won’t cause any pain. It is very simple: have a plan. According to financial advisors, absence of a “proper plan” is the main reason why many individuals fail to achieve their financial goals.
When most of the clients walk in for the first time, they are completely blank. They have made some investment in an ad hoc fashion, sometimes with the help of their bank, distributors of investment products or family friends. They may also have some bad experience of buying wrong products. They also mostly do not have any well defined financial goals.
Most people go about their investments in mechanical manner. They may have some ideas in mind like they want to fund their child’s education or buy a house in, say, two year. But they believe that their regular investments like employee provident fund or bank fixed deposits will take care of their needs. This need not be the case.
According to financial experts, the first thing you have to do is to identify a financial goal in life. For example, your child’s higher education or your retirement plan. There are some goals in life which are certain. For example, you would retire one day. Whether you want to do that at 50 or 55 is your choice. You would be able to achieve it only if you have clearly defined the goal in the first place. Once you have a goal, you should also try to quantify it. For example, take stock of your situation and find out how much more money you need to achieve that goal. Once you know how much time you have and how much money you need to make, you have to create a financial strategy and choose investment vehicles to achieve it. For example, if you are investing for your child’s higher education which is 15 years away, you can take the route of the stock market to create the corpus.
However, if you have only a few years to achieve a specific goal, you shouldn’t take the equity route. You are better off sticking to the debt. Finally, review, your investment plan periodically to ensure it is working fine.
You should review your investment plan every six months or as and when there is a change in the internal or external environment. This will help you take corrective measures.
A strong rally in the debt market, attractive returns from bank fixed deposits (FDs), a slew of corporate debentures offering good returns and tightening of regulatory norms seem to have sounded a death-knell for fixed maturity plans (FMPs) from mutual fund houses. FMPs are debt mutual fund schemes which offer definite returns to investors.
Industry players pointed out that over the last two months there has not been any FMP of more than three months maturity. This is in sharp contrast to last couple of years when over Rs1lakh worth of money was mobilized through FMPs by almost all the fund houses. At presently, only one application for launching an FMP, from Fortis MF (formerly ABN Amro MF), is pending with Sebi.
Collections from FMPs have reduced since from investors’ perspective these are no longer attractive asset classes. The recent rally in debt markets has also prompted FMP investors to shift money to income funds, industry watchers said.
The recent change in some key rules governing FMPs has also affected investor sentiments relating to FMPs.
The change in rules came after it was observed that to lure investors at the time of marketing FMPs, several funds houses had included top investment grade papers in their FMPs while the final portfolio differed as much as 50% from what was shown.
Additionally, in many FMPs the final yield was also less than what was projected, leading to investor dissatisfaction.
The regulator, to stop pre-mature withdrawal directly from the fund houses, also made listing compulsory, for all FMPs. And to make the market price of each FMP linked to its NAV, fund houses were also asked to mark-to-market the portfolio.