In an interview with Shweta Dhoka of Myiris.com, Ashwini Bidwalkar, Head FP and Asset Advisory Services, VSK Financial Consultancy Services (P), says, ''It is important to find an ideal set of investments for a client's specific level of risk tolerance and rebalance periodically to ensure the portfolio maintains its desired risk profile.''
What got you started as a financial planner? How long have you u been in this field?
Being an I.C.W.A., finance was my area of interest. During my stint of 13 years as Class I officer with an autonomous government organization, I had observed the changing face of the field of personal finance. The capital market, insurance sector and personal banking sector had started offering a host of products ranging from equity mutual funds, insurance schemes linked to equity markets to traditional fixed deposits and the ubiquitous personal and credit card loans, to the common investor. The dynamic nature of the investment products area and the easy availability of loans warranted greater analysis while taking any financial decision.
On this background, Yogin Sabnis, Managing Director of VVSK Financial Consultancy Services (P), introduced me to this educational course on financial planning - CFP (Certified Financial Planner) certification, which is completely focused on the dynamics of personal finance. Financial planning is a profession which assesses the financial needs and wants of a person and builds a roadmap to achieve them in a risk managed manner. I found the simplicity of this approach very appealing and for the past three years I am in this field of financial planning and asset advisory services.
How is an advisor different from an agent?
To put it simply, an advisor is expected to be familiar with the client's background, his financial goals and the time horizon to meet these goals and his risk profile. He helps the client in choosing a financial product by explaining him the rationale behind the choice. The advisor client relationship over a period of time evolves as fiduciary in nature.
On the other hand, an agent is an authorized person of the Principal (product manufacturer), for example insurance agent, mutual funds agent, etc. The agent is on other side of the table representing the financial product manufacturer, whereas the advisor is on the same side of the table looking after client's interests.
What are key tasks for financial advisor?
> Understand the client's background
> Understand the purpose of his financial requirements and assess the time frame of the requirements.
> Assessment of risk tolerance of the client, risk needed to be taken to achieve his target and the risk he can afford to take.
> On the basis of above risk profile, determination of asset allocation.
> Thorough analysis of the financial products and the economic conditions which can have an impact on their behaviour.
What are the key areas where you would advise a client to invest?
It is important to find an ideal set of investments for a client's specific level of risk tolerance and rebalance periodically to ensure the portfolio maintains its desired risk profile. A client's portfolio is a mix of asset classes consisting of debt (fixed income instruments like fixed deposits, debt mutual fund schemes, etc.), equity (shares and equity mutual fund schemes), gold and real estate (excluding residential property). The proportion of these asset classes in his portfolio is designed on the basis of his asset allocation.
For short term & long term investment, what is the best investment plan?
As a thumb rule, short term investments are done to meet near term financial targets. Since the targets are around the corner, the thrust is on capital protection. Hence the instruments chosen are fixed income or debt market securities. On the other hand, equity investments are to be done with a much longer Investment horizon so as to benefit from both bull and bear phases of equity markets (ups and downs).
Hence the instruments to be chosen for any period less than 10 years will be a mix of long term fixed income instruments, gold ETFs, MIPs and equity oriented balanced fund schemes of mutual funds. On the other hand, far away targets need to be chased by an exposure to equity, both shares and mutual funds. The key to success of an investment plan is asset allocation and regular and disciplined investments over a long period of time.
Ideally how much of my investments should be in stocks & bonds?
Here again we are talking about asset allocation between equity and debt. This asset allocation is a function of a client's present financial position, his future income generating capacity, the approximate financial goals he wants to achieve and his risk taking ability. It will suffice to reiterate the age old cliche that a young earner with no responsibility can aim to invest more in equity, whereas a retired person who is dependent on his investment income for livelihood, needs to protect his corpus by investing in fixed income instruments. The equity portion in the latter's portfolio will be just enough to enable him beat rising cost of living expenses.
What would be the best area of investment for a person who wants to secure his retirement after 15 years?
15 years is a decent period to invest in equity (both shares and equity mutual funds). An individual needs to stay invested in quality equity products with an eye on their performance. The investments need to be reviewed periodically to check whether they are compatible with the respective bench marks as well as peers. However, to diversify risk associated with equity investments, you need to have exposure to debt (fixed income instruments) as well. Among host of available debt products, the top contender in this category will be 15 years tenure-PPF (Public Provident Fund). With features like eligible government scheme to claim tax benefit at the time of deposit (Section 80 C benefit), tax free compound interest and tax free maturity corpus, the PPF is a powerful retirement tool.