Google PlusFacebook

Automated Savings Plan

By on Jan 26, 2016 in Behavioral Finance, Budgeting, Financial Planning | 0 comments

Aren’t these two words “Savings” & “Automatic” antonyms? Can savings happen automatically? My answer is with you – No. Savings do not happen automatic because of the very human nature of “pleasing yourself first”. One tries to dodge all hard functions first and tries to shift/delay the real painful measures. But we all know savings are must for present and future. So what if a mechanism is developed and implemented so that in the end a person is bound to save his chosen amount? This is called Automated Savings Plan, your very own ASP. “Automated Savings Plan” is an automated system where the contributor can transfer his savings moment he has a positive cash flow. This is done using various technological platforms, implemented with the help of Banks/Financial Institutions like Mutual Funds and deposit companies. A typical structure of can be like investing in the various combination of fixed deposit, recurring plans and mutual funds from the savings account in the first week of the month. So when a person receives his salary, a certain portion goes automatic to these savings instrument without writing cheques, filling forms and calling middleman every time. Why do you need an Automated Savings Plan (ASP) It is important to believe in the following equation: Income – Savings = Expenses If you are following the reverse one – Income – Expenses = Savings, then most likely the outcome will be “zero” or negative savings. So it is important to save for following reasons: To fund long-term goals like Retirement, Education, Vacations, Major Purchases like house or car or any other long term goal. To save for emergencies like career hiccups, medical problems and accidental events like robbery or disability. Get benefits/discounts offered when making full payments/cash payments. To show your kids/spouse that savings have advantages and help, they build this habit by showing that you are doing it too. Benefits of ASP No struggling with savings for long-term No delay/default payments for the loans. You will never say that “I don’t have enough to save”. Builds habit of being disciplined in personal financial matters. Keeps accounts separate for investments and expenses. The majority of it is automated, so no more juggling between different banks or remembering dates etc. Saves time and efforts. Just sit and let your money grow. How to set up an Automated Savings Plan The best way to set an ASP is from the bank account where you get earnings. The idea is to hold the bull by its horn. The moment you get an inflow, it should be directed to your savings instruments.   I have just put a snapshot of my ASP template which I use when I do my planning for the month. Do you have an ASP in place? If yes, share your learnings with us. If not, do you wish to plan it now? Share your views and concerns in the comments...

The Right Start for 2016

By on Jan 21, 2016 in Behavioral Finance, Financial Planning | 0 comments

After almost 20 days in 2016, I know most of you will already be haunting under guilt shadow of breaking most of the resolutions that you made for 2016. We take decisions in moments of spurts (like New Year) and wishfully think that lives would improve. But the old habits die hard and then we start breaking these resolutions as the reason fades. And, that is the reason resolutions fall flat at the end of the year. It’s better to make and follow rules and not decisions where the echo to break it sounds constantly in the second ear. However no studies have been done but my gut feeling says people are most guilty of breaking the resolutions related to – Health and Personal Finance. Health part I leave to professionals and pray someone helps me too): But in personal finance, I can help for sure. And to start with let’s put things straight – We will have no resolutions. The first month has still 10 days and let’s make most of these.  In the coming days before the year sets in fully, following things need to be taken care of, checked and planned. These are: (The list is for all so well done!!! From my side, if you have already satisfied any or all of the below pointers) My Goals Review: Not most but some goals may change or an alteration be needed for certain goals under fulfilment. You may addition (or demise) in family and the goals related to that person may require change. These need to be accounted and proper change must be discussed with your financial planner. Even modifications like change in vacation destination or car model need to be communicated. Year start is just the time to set the goals right. My Investment Options Evaluation: Although your financial planner must have done asset allocation and review as per schedule but you as a person have evolved during a year constantly in touch of the world and knowing new things. Is there any investment option or a venture you want to try, this is the time to communicate your financial planner. My Credit Worthiness Check: Each year we do small mistakes like bowing to calls to apply a new credit card, applying for consumer loans to avail benefits of a sale season or delaying some monthly payment. This is the time to evaluate what has been done wrong in past and making a mental note not to repeat these in new year to come. Credit worthiness is what makes you eligible for respect in eyes of people you deal your finances with. Protect this virtue with care. My Contingency Coverage Review: Have I made some use of my contingency fund? Or claimed any of my insurance policy? It’s the time to replenish the line of protection that you have used last year. Discuss with your financial planner, what needs to be done in case of insurance lapse or use of partial coverage. My Records Updating: This is the time to recheck if all your records are complete and all details are proper. All nominations are recorded and necessary changes have been made in will if required. If case of change in address, marital status, minor attaining majority or death in family member the changes in details have been made to necessary authorities. My New Rules related to Budget & Savings: The rules related to budget and savings are not exact science as people tend to learn and develop new ways when they start practicing. So if you wish to make changes to these, the New Year is perfect time start these. So in case you are planning to increase your savings by 10% or planning to increase savings by changing your cable plan or any other thing, just get started in January itself instead of procrastinating it. My Planning for Family & Society: It’s my personal experience that, successes in earning money or business has no real happiness if it is not shared with family and friends. Everyone needs time to relax, meditate for a while and laugh & play like a kid. These gateways need planning in advance. It’s time to put a calendar for 2016 in front and plan those escapes with the family. Plan the events that will benefit society like planting trees in your city or participating in city events. A bit of planning makes entire year a fun year. As I said no resolutions are required if you are following basic rules of financial planning. Just an overhaul and a tightening a screw here and there will make a great year ahead. Share your views in the comments section and your itinerary for the year...

How Assets Classes Behave in Real Life? A Pictorial Story

By on Jan 13, 2016 in Behavioral Finance | 2 comments

Recently I received a data how much returns assets classes gave for calendar years 2004-2014 – for a ten-year gap. And this was India specific data of assets we invest, advice and deal on daily basis. I also was eager to confirm what we get to hear from fund managers and finance gurus– Does investment yield in short horizons? Why Long Term horizon is prescribed in volatile assets like Equity, Gold and Gilt? Are safe assets like Government Securities safe in short horizon? Do you expect to get similar returns from FD or Liquid funds for 5 Years or more? Do your returns depend on year or month you choose to invest? Decking up the Assets (2004-2014) Decking is used as an analytical tool, where the subjects under study are decked up in ascending order or descending order. Here I decked each asset classified by a distinct color in descending order of returns that they gave in a  particular year. The decked image looked like this:   The first thing that comes to mind is that – Asset Class have very low correlation with each other. They can move in any direction based on the factors their price is determined, without any relationship to another asset. In fact if I tabulate the correlation it comes like this: Now a closer look at each asset class: Equity (Large Caps & Midcaps) Equity in its typical fashion either was on top or fishing bottom. That why to earn from equity one has to rely on time spent invested in the asset rather than time of investment. Debt (Short Term Debt & Long Term Debt) Typically they performed when equity funds did not like in year 2008 and 2013. Short term always had stiff competition with Bank FD, which is reasonable in a matured market. Bank Fixed Deposits Did not remain fixed in any year. Range for 10 year period is 5.5% to 10.3% with long lull periods of similar returns (2005 to 2007 & 2012 to 2014). When nothing works investor run for them (2013). Government Securities Although this asset is called “Risk-Free”, but gave very volatile returns in a range less than bank FDs. Money Market (Call/CBLO Market) Barring 1-2 years the range was 6%-7% without any major ups and down. Asset class that never topped means some other asset class outperformed every year. Hence you can invest here for short term and not look at fulfilling long term goals with this asset class.   Gold Is it shiny as it looks or sounds traditionally? Because out of 10 year 3 times it gave negative returns. But as it is a fact that commodities cycles are greater than normal equity cycles, the gold rallied from 2005 to 2011 and from then it has come down. And no signs of reversal are seen in present times.   Hope you like the study done on your favorite asset classes. I have not used more words and let pictures do the talking. Do share what you feel in the comments section....

Best Wishes for New Year 2016

By on Jan 1, 2016 in Miscellaneous | 0 comments

May the New Year brings joy, prosperity and happiness to You and Your Family.             From, WealthWisher    

Rules for Withdrawal of Employee Provident Fund (EPF) – All Scenarios

By on Dec 28, 2015 in Financial Planning, Fixed Income | 2 comments

EPF details are available on number of platforms, but rules related to withdrawal are still unclear. The subscribers especially one who are in private job, are not made aware by the employers about the rules of withdrawal. The EPFO allows number of opportunity wherein a subscriber may withdraw partially and based upon his needs can use the funds. These rules are summarised below: Hope its an eye opener and useful information. Share your views in the comments section....

When to Buy & When to Postpone? The Litmus Test

By on Dec 14, 2015 in Behavioral Finance, Budgeting, Financial Planning | 0 comments

You come home from office and wife starts the pep talk… Winters on the way … we need a room heater this time… you know last time you said “this is the last stretch and winters will be over soon”,… and it continued for another 15 days… not this time, please. And probably you are again thinking should you buy it or again postpone this year… This is just another classics of life when you have to commit a purchase or postpone it or completely reject it. And if it is a repeated demand of family (especially your wife) you need to explain the logic of your decision. But my point is how do you make a purchase? Do you purchase everything as per availability of money? Means you just say yes, when you have money and you reject when you are short of funds. Do you think this is the right way?… No for sure, if you don’t want to convert your house a warehouse of China made plastics and multiple obsolete equipments. The Decision Making Process How to take a decision to do or not to do something is actually a science. Several theories called by the name “Decision Making Theory” have been part of literature related to management and marketing. Remember the 8 steps of making a decision- identifying the decision, gather information, identify alternatives, gather facts for each alternative, list pros & cons, identify the alternative, take action & finally review the action. But is it really so complex… especially the buying/incurring expense decisions? The Layman’s Way to make Buy or Postpone Decision My family has always been a middle class as we were not made by economics policies started by Sh. PV Narasimha Rao in 1991. My grandparents were way ahead of time in terms of thinking as they were conversant with English, and read a lot especially my grandfather. And one of the learnings he gave me was – how not to be lured by the marketers. He said “don’t let them sell, you buy”. This means I had to be sure of what I want and what I wish to buy. And when I made mistake, he laid a simple process which I am going to tell you now. This was what he told me in year 1999, so he did not have guessed the Chinese invading our markets but still most of it is relevant: When you should be SURE of what you are BUYING The needy/priority one first- Are you sure you need this? If yes, is it the top priority? Are you happy you are buying it? Postponing is loss of opportunity- You are convinced that you will lose a great deal of time, money and effort if you don’t buy. Aware of impact cost of buying- You have limited money, so are you sure you are not sacrificing something else for this money. Feasibility of merchandise- is it for a fairly long time, hope you will not behave as it was a toy. Will it last long in terms of quality and changes in preference? You are sure this is the best price & time- Farmers waited for cattle fare to find the best livestock- is there an opportunity to save even if you have made mind to buy it. When you should be SURE to POSTPONE Yes vs. Stress Test– The stress accompanying the buying decision is not bearable you need to postpone or revisit the decision. When you make the payment the face turns gloomy, not a good sign health wise too. You do not have down payment– You need to have basic funds in hand, you have wings but you need air to push through. You already are in debt- You have exhausted the safe limit to repay or you have bad debt payment record, it is better to sober up first. You are not aware of usage- No point buying a car which will be garage since you do not know how to drive it. Postpone till you learn how to use what you are buying. Turmoil in present status– You are about to make a career transition or someone terminally ill in family or sentiments are volatile or atmosphere is dull or itchy- postpone. As I said, these are what a man read, experienced and gathered after a tough life. All reasons may not be scientific as they may have some spiritual indulgence. But, I see a great solution to a complex problem that we all face. Do you face such dilemmas? What’s your mantra? Did you find the above test interesting? Do share your views in the comments...

The Ratios: Your Financial Health Report- Part 2

By on Dec 7, 2015 in Financial Planning | 2 comments

In part one, we saw some of the basic ratios which can clearly see if a person’s finance is under stress or if he has the capability to plan for future. In this post we shall know more such ratios which look very simple to calculate. Once you have the numbers and you run the given below formulas, they will speak large volumes. The whole idea behind working on these numbers is to: See the current foundation strength (and weakness) in terms of current financial status. This gives a starting point to the financial planner to lay out a plan over the foundation. Picture the readiness of an individual to meet his future as per his goals and retirement. In investments, there are risks involved. The ratios identify the current and future responses to face these risks and counter them. Ratio related to Risk Coverage Life Insurance Coverage Ratio  The ratio shows whether a family is able to meet its living cost, other expenses and reach critical goals in event of untimely death of the principal wage earner of the family. The ratio is calculated as: Total Liabilities / Total Insurance Cover The ideal ratio should be 100%. And this can be achieved by taking a combination of Term Insurance policies and Personal Accident covers as specified by your financial planner. Many investors overlook this and leave their family unsecured in hands of creditors who never forgo their principal and interest. Ratio’s related to Liquidity 2. EMI Stress Ratio: also called as Debt Servicing Ratio Few goals, especially for salaried individuals can only be met by leveraging. For major purchases like House or Education involves taking loans and paying back for long-term. The ratio checks the outgoing towards loans vis-a-vis income. It’s calculated by: Total EMI / Total Income The Ideal Ratio should be less than 35%. The extent of EMIs also depends on the stability of job or business and age of the person. But an amount more than 35% can put pressure on accumulation for future goals and current family lifestyle. 3. Liquid Assets to Monthly Expenses Ratio – The Contingency Fund This ratio measures your ability to sustain a temporary halt in income. It measures numbers of months you can sustain if your income ceases due to any unforeseen event. It is calculated as: Liquid Assets / Monthly Expenses (Liquid Assets: Your savings in hand/bank and instruments which can be converted to cash to meet daily expenses.) The ideal ratio depends on your line of work and your family lifestyle. Ideally you should have cash for 3-6 months. Maintaining a contingency fund also help you to manage accidental expenses like replacing any household article in case of breakdown like a refrigerator, enjoying a trip with friends or medical requirements, without breaking your long-term investments or resorting to credit. However, you should really think before using the contingency fund and if you use it your first aim should be to replenish it. 4. Financial Assets Ratio Assets are classified as Financial Assets (like Shares, Bonds, Mutual funds, and Fixed Deposit etc.) and Physical Assets (Like Real Estate, Gold and other Precious Metals, Work of Art etc.). So if you plan to say start your own business, you shall try to ascertain what assets you have which can be disposed of quickly to generate capital. Financial Assets have better liquidity, flexibility, markets to exchange and easy to maintain. Financial Assets Ratio is calculated as: Financial Assets / Total Assets A higher proportion of financial assets is preferred especially when the person is advancing in age and closer to his goals. In total, we have discussed 8 kinds of ratios in this and previous post and their importance in financial life. I would urge that you run these calculations on your own finances and expect some interesting result. My experience has been that we all are aware of our financial situation but do not counter them as no such evidence is in front of our eyes. These ratio test help you see clearly your financial strengths and gaps which need your attention. Do share your views and interpretations in the comments...

The Ratios: Your Financial Health Report- Part 1

By on Nov 23, 2015 in Financial Planning | 0 comments

Before we start learning the important ratios or indicators of financial health, I promise I won’t bombard you with mathematical concepts or explain theorems. This will involve some basic calculations using addition, subtraction, multiplication and division and nothing more than that. If you have observed a pathological report, you will note the last column which says “Healthy Range”. This is the range where the test report observation should be of a healthy person. A reading above or below is an alarm for the doctor to decide your future medication. For us, as your financial health keepers the ratios are similar to the medical tests that doctor prescribes when you show symptoms of illness. We carry out these tests or calculate ratios to know your present condition and your future prospects. The figures used in these test are Income, Expenses, Assets and Liabilities. Each of the ratios is the interplay of these basic elements and when put to the test (when the ratios are derived and matched with what they should be), can open up a lot of hidden mysteries of one’s financial life. Let’s see how this is done applying some BASIC RATIO TESTS: So we start with The First Test– Savings Ratio or Expense Ratio Savings Ratio or Savings to Income Ratio determines what part of income a person is saving, as this saving can be invested for fulfilling his mid and long term goals. So if a Ram aged 40, is earning Rs 6 Lakhs a year and saves around Rs 60000/- his Savings Ratio is 10%.  (60000/6000000 multiply by 100). Savings=Retained income after expenses plus all money received from previous investments (eg savings bank interest or dividends from investments in mutual funds etc.). Alternatively, Expense Ratio or Expense to Income Ratio is the opposite of Savings Ratio. It determines what a person is incurring as recurring expenses for that year. So for above example the expense ratio is 90% (554000/600000 multiply by 100). Significance: These ratios measure the preparedness to meet long-term goals like retirement. The appropriate level of this ratio depends on the age of the person as in the early thirties and forties a person has more expenses and is likely to be servicing loans to accumulate assets like home or car. So to start from 20% from young age and going to 50% during early retirement days is a healthy sign. Clearly Ram in the above example will have a tough time ahead. The Second Test – Leverage Ratio In today’s scenario, it is likely that a person has acquired some assets through loans or savings and also he may be servicing some loans used to make large purchases like house or durables or he may be financing a larger expense like an education loan etc. So at a time a person should know if his assets are over his liabilities or he is in risk zone of servicing high liabilities. So Leverage Ratio = Total Liabilities/Total Assets. So Ram discloses that he owns real estate worth Rs 50 lakhs, which was bought for Rs 30 lakhs loan and still Rs 10 lakh of loan is pending. Also, he has investments and bank balance worth Rs 10 lakh and Rs 5 lakhs in PPF. He has credit card dues of Rs 1 lakhs and has to repay 1 lakh to his friend which he took as a loan. Ram’s Assets: Rs 50 lakhs + Rs 10 lakhs + Rs 5 lakhs = Rs 65 lakhs Ram’s Liabilities: Rs 10 lakhs + Rs 2 lakhs + Rs 1 lakhs = Rs 13 lakhs Leverage Ratio= Rs 13 lakhs/Rs 65 lakhs multiply by 100= 20% Significance: If your liabilities are more than assets it is alarming (Ratio above 100%). If the person is not adequately insured, in the case of death or incapacity, the person shall be in debt or the survivors will have to service the debts. This ratio is likely to be immediately high after a larger purchase. So it is a measure to see the debt servicing capability of a person. The Third Test – Net Worth Test A person may have assets of 1 Cr made from loans of 90 lakhs. This cannot be a good situation. It is important to check the Net worth of the person over a period of time. Also, all liabilities are not bad as they help to build assets which provide future revenues and valuation. So the financial position is measured using Net Worth Statement. This is not a ratio, but a figure to be compared over years. Net Worth = Total Assets – Total Liabilities So in case of Ram, his Net worth = Rs 65 lakhs – Rs 13 lakhs = Rs 52 lakhs The Fourth Test – Solvency Ratio A person can be insolvent despite having a good amount of assets. If the liabilities are high he will have a negative net worth. The extent of person’s can be calculated through his Solvency Ratio, Solvency Ratio = Net worth Divided By Total Assets Ram’s Solvency Ratio will be his Net worth / Total assets Rs 52 lakhs/Rs 65 lakhs multiply 100 = 80% Significance: The ratio measures the percentage of your Total assets to Net worth. As in the case of corporations, this ratio explains the quality of assets a person has and the cost, fixed or recurring, behind the accumulation of...

All you want to know about Gold Monetization Scheme 2015

By on Nov 2, 2015 in Banking, Fixed Income | 11 comments

This is Diwali time and as my family many of you will see your family gold that will be released from lockers and safes for LaxmiPuja. We Indians are classics when it comes to gold. All traditional investor fancy it, generations pass it, and everyone has it- You, me, your relatives, my relatives and above all the temples in our country. We do not wear it; we do not trade it, but we just accumulate it. Although people argue that no one wears gold these days, the import of gold shows a different story. India is a net importer, means- we need more gold than we produce domestically! And what does it yield? It is not a hidden fact that gold has not beaten the inflation. Hence, it is a negative asset. But still as a country we have it in tons… If you ask me I have stopped purchasing gold since last ten years as I don’t see any usage in future, but honestly admitting, I have a locker running to keep safe the family and gold received my wife at our wedding. But I think I will save the locker cost starting this year… Introducing the Gold Monetization Scheme 2015 The Government of India (GOI) is all set to solve this Gold Love Problem that we have. Very soon the Gold Monetization Scheme will be launched in which the investor will get interest on the gold that they wish to deposit with the bank or financial institution. It is very much like the savings bank deposit, but here you will get interest on gold in place of cash. The scheme was announced in Budget for 2015-16 and finally announced on September 15th and gained popularity when PM Modi introduced in his Mann Ki Bat Program. Features of the Gold Monetization Scheme The gold can be deposited by Resident Individuals, HUFs, Trusts, MF/ETF Companies. It can be in the form of bars, coins &jewelry excluding stones and other metals. The Lower limit is 30 Gms Gold with 995 fineness and no upper limit. Banks will accept the gold offered by investors. The gold has to be certified by Purity Testing Centers certified by Bureau of Indian Standards. They will issue the purity certificate. As on March 31st, 2015, 331 centers have been certified pan India. There are three terms prescribed: 1-3 Years as short duration deposit, 5-7 years medium term deposit and 12-15 years as long term deposits. The GOI will announce the rate of interest in coming 7-15 days possibly before Diwali. As estimated by market participants it will be in therange of 2 on the lower side for short duration deposit and can go high as 2.5% for long term deposit. Banks are free to decide the rate of interest. Bothe the principal and the interest will be ‘valued’ in gold. So if a customer deposits 100gms of gold at 1% interest for one year, he will get maturity credit of 101gms. The investor has to comply with KYC formalities of the bank. The clause for premature withdrawal and penalty will be announced by individual banks when the scheme is launched for subscription. The investor will have the option to take gold or equivalent rupees as per prevailing rate of the gold. The option will be decided while making the deposit. The rules regarding joint holders and nominations will be same as bank deposits/accounts. Since banks will offer the deposits, the grievances and complaints will be handled by RBI’s Banking Ombudsman. What happens to Gold that you deposited? The gold received by the bank will be melted down and can be used by banks to fulfill statutory liquidity deposit (CRR, SLR), may sell to generate foreign currency, convert to coins to sell, trade through exchanges and lend to jewelers and earn interest. Emotional Point to ponder: a lot of us have emotional linkages to jewelryespecially which is received through gifts or received from elders. So reactions are still awaited as the government is targeting the same gold reserve. Will we get practical enough to allow melting of a long time treasured gold? If not, the scheme may not be a hit. So this how the system will function under GMS 2015: So this is how you can open GMS account Step1– The investor goes to the bank to open a Gold deposit account with the physical gold. He is directed to the assigned Purity Testing Center for preliminary checking. Step 2– The center will conduct the preliminary test (XRF machine-test) and will intimate the investor of the approximate weight of gold. If he agrees, he will do the KYC and consent to melt the gold. If not, he can take back his gold. Step 3– The same collection center will clean the gold of dirt, other metals, meena, studs, etc. (these are handed to investor there itself) and net weight will told to the investor. The gold will be melted in front of him (viewing galleries will be provided) using the fire assay and purity of will be ascertained immediately Step 4– When the investor receives the result of fire assay test, here also he can refuse to deposit taking back his gold by paying nominal procedure charges. If he decides to invest, he receives a certificate of weight and purity of the gold. The center also reports to the bank. The investor approaches the bank with...

Type of Financial Planner – As Per Regulators Eye

By on Oct 27, 2015 in Financial Planning | 6 comments

You might ask, why I am endeavoring to differentiate between Financial Planners. This is because the type of Financial Planner you engage, has a direct bearing on SCOPE OF ADVICE you are bound to receive. Every day we hear about mis-selling happening at all levels, be it a bank or an individual advisor. How can you expect an industry to flourish if it suffers random attacks on the participating party? Hence regulator has clearly defined the types of financial planner and their scope of work which they can undertake for an investor. It is a known fact that different financial advisors have varying skills, capabilities, knowledge level and business model. So when a bank employee, a wealth manager, an insurance advisor or any financial intermediate, with whatever name it calls itself, sells a product and earns revenue from the product maker, their lies a conflict of interest. The seller may push the product which may be offering higher revenues and intermediary may choose to hide the risk involved. Hence regulator have intervened to define the intermediary or the person who is advising the product. The commission or the remuneration that an advisor earns on selling a particular product creates a push in the market. This sales push may not be aligned with the investor’s need. We are witnessing the same push that prevailed before 2008-09 in insurance industry and moment investors realized (read suffered) that, the sales have dropped now, even though the markets are soaring. But still we often meet people who burnt their hands with mis-sold insurance contracts. Hence regulators are very clear- There will be 2 intermediaries: Advisor: This person will not receive any commission or remuneration from the product manufacturer like mutual fund companies or insurance companies. He needs to be registered with SEBI and has to follow all regulations and duties as laid by the SEBI. Distributor: Will only execute the transaction and will earn revenue from the product maker. Shall not take the advisory role and shall confine itself to selling single financial product (if somebody dealing in multiple products he needs registration). They need not to get SEBI’s registration but require to fulfill the licensing requirements as required by the product, for eg to sell mutual funds the distributor needs to have mandatory AMFI Registration Number. A quick-chip here: These distinction is from the Regulator. But in reality market is mile away from what they think. I will very soon write a separate post on real financial advisors faced by the public at large. Traditionally there was no regulation, hence no differentiation. But since SEBI has clearly divided the roles- the new financial advisors and old ones are existing with following Business Models: Fee-Only Financial Planners or Advisors: This is like a practitioner aligning with you closely to work on your finances comprehensively. Like a planner they set up your budget, goals, investments and future reviews of portfolio based on the 6 steps of financial planning concept. They are capable of advising on all aspects of personal finance. They get compensated by one-time fee initially at the time of start and then as agreed upon for review of your plan and based on assets they are managing with you. They don’t get any revenue from the manufacturer i.e. any mutual fund company or insurance or a loan company. Hence they do not get any direct commissions from anyone and hence their advice is not influenced by revenue. Fee-Based Financial Planners or Advisors: These advisors offer both- Advisory and Execution. Hence they earn fees from clients and commissions from the companies for which they sell products. These are generally companies and regulation requires that they keep an arm length distance between the two function so that the bias of commission does not shadow advice. Both verticals need to function independently and full disclosure need to be provided to investors. Execution Only: They do not charge their investors and their sole remuneration is the commissions that they earn. The core function is distribution of multiple products. They sell almost everything like insurance, equity investment, loan products etc. They do their own short listing and promote products based on self-appraisal. They may second products with their own research and execution platforms like online services or dedicated relationship managers etc. Majority of Banks, Individual Agents and Companies with presence in multiple states fall under these. Which one will you choose? The answer to this question lies in just 1 question itself: Whose hands do you want to take care of your money? I will not dwell more on this subject as I leave it for future interaction between us. Yes I will provide you an answer to it after a while as this has been marked as an unfinished task for me. Till then keep sharing your...

Page 1 of 3112345...102030...!!!