Ramalingam K, founder and director of Holistic Investment Planners, in an interview with Yogita Khatri of myiris.com, shares his views about home loan rates, new ULIP plans, advice for retirement planning and more.
> What led you to choose financial planning and wealth management as a career?
Earlier I used to work for an investment broking company. They work based on targets they have taken from various companies (companies accepting company deposits or mutual fund companies). So as an employee I am forced to sell the schemes for which they have taken a huge target.
I was not able to do justification to the clients. Irrespective of the clients` needs, I have to recommend some scheme which my earlier company decides. There is no advisory part happening. I felt the need for an advisory business.
Also investors have the habit of doing investments through different brokers. Say for insurance, there will be an insurance broker, for mutual funds the investors will have a different broker and for a stock broking account they have different association. So no one except himself knows the complete picture of the client.
If I need to do only investment advisory then that will be very limited. That will not be complete and comprehensive. That is why precisely I have set up Holistic Investment Planners as a financial planning and wealth management company where we will get to know the big picture of the client and will be able to come out with end to end solution.
> With hardening interest rates, how will you advise home loan borrowers to take their decisions? Which route they should go for, according to you, floating or fixed home loan rate?
If you know for sure that the interest rates have softened to the bottom, then you can go for a fixed rate loan. Otherwise you can go for a floating rate loan.
Now the interest rates are hardening and definitely need to come down over a period of time. So taking a floating rate loan will be of advantageous to you.
> What are your thoughts on ULIPs after the recent IRDA regulations? How would you recommend going for new ULIP plans? What things one should consider before choosing a plan?
I agree that the charges have come down. But still then it is much higher when compared to mutual funds. One more limitation is immovability. You can`t move from one insurance company ULIP to the other company ULIP at ease. Whereas in mutual funds you can move from a mutual fund to another at very ease. There will be very less exit load and there is no entry load.
So ULIPs cannot be considered as an investment avenue. It is always better to separate insurance from investments. Go for Term insurance plans if you are looking for insurance coverage. If you are looking for investment go for mutual funds, FDs, PPF, Gold ETF… Not to ULIPs.
> How can a hard-working family strike a healthy balance between rewarding themselves for working hard and planning for a secure future?
The answer hides in effectively managing their cash inflow and outflow. We assist them to create a workable budget that gives them extra money and life.
> What piece of financial advice would you provide to the person who is five years from retirement?
1. Get rid of all your debts
2. Establish a retirement budget
3. Grow your retirement corpus
4. Develop a withdrawal strategy that minimizes taxes after retirement
5. Get sufficient mediclaim coverage
6. Oversee your estate planning
> What do you feel are the two biggest mistakes people make regarding money management, and how can they be corrected?
Mental Accounting: Rs 100 in lottery winning, Rs 100 in salary and Rs 100 tax refund should have the same significance and value to you since each Rs 100 has the same purchasing power in the market. If we spend from our salary account we will dine or shop consciously, if we or spending out of gift or meal vouchers, then we spend them lavishly.
Biggest Investment Mistake; Choosing an investment option or investment technique which is not in sync with investment principles.
Take for example the Risk-Return Tradeoff Principle. This is a very basic and profound investment principle. Low level of risk is associated with low potential returns, whereas high level of risk is associated with high potential returns. So as to generate high returns one need to tolerate high risks. If you are comfortable only with low risks, you can expect only low returns.
No one can defy this basic principle. A scheme cannot deliver high returns with low risk. There were no such schemes in the past. There are no such schemes in the present. There will not be such schemes in the future too.
Finance company deposits which assured high interest rates have defaulted. One of the latest examples would be the ponzi scheme by Madoff.
Whenever you hear about such schemes with low risks and high returns, you understand it is only an illusion. It is better to ask more questions and get it clarified, instead of making assumptions.
So the biggest investment mistake is to mindlessly following a technique which is against an investment principle.
> Can you give a brief overview of how should one`s portfolio be at different ages... E.g. at 25 years, 35 years, 45 years etc.
The general view is as the age goes up the equity investment or other risky asset classes in your portfolio should come down. That is at the younger age, you can go for more equity exposure and at the older age you should have lesser equity exposure. But this view is more GENERAL.
Depends upon a client`s SPECIFIC situation, it could change. Say client needs, risk taking ability and appetite, required rate of return to achieve the various financial goals, time available between now and achieving a goal - All these things play a vital role in constructing one`s portfolio.
> What`s the one thing that you would change in the financial services industry, if you had the power to make that happen?
If I have the powers I will make it mandatory to have a retirement plan for each and everyone at the beginning of their career itself. Today`s generation, want to retire early, but they don`t have any plans. Most of the cases, I have seen that they want to retire before 50 years, but when I prepare a plan for them, it is not possible for them to retire before 55yrs. So having a retirement plan and reviewing it every year is something that everyone should start doing without any delay.
> Any other thoughts, comments would you like to share with our readers?
> Don`t invest just to save taxes.
> Stock market will not earn you quick bucks
> Timing the market is less important. Time you spend in the market is more important.