The Magic of “WHY” : Mr. Swapnil Ekande

 

The Magic of “WHY” (In Financial Planning)

Efforts without goal is worthless ! Many times it happens in life that we keep doing many things just for the sake of doing ! We might be enjoying  what we are doing. However,  do we ask ourselves a question “Why am I doing the this particular thing ?” Those people who already know the cause or goal behind their activities or work find success in majority of the cases. They are generally successful in their profession and also in peaceful state of mind ! These are the ones who are working for the cause & not for its effect or result.

 I will explore more on through my experience as Investment Advisor. I find that, most of the investors do the investments by asking what me details of the product or scheme of the investment. During the discussion, they all are prepared with questions like “What are features of scheme?  What will be the returns? What has been the past performance of the scheme?” etc. etc. I find that, majority of the investors are not concerned about “Why they want a specific product?”. As a Financial Advisor, I come across many investors who do the investments in real estate, gold, equity market, fixed deposits, insurance policies just because of some driving source (in fact force) by some relative of his or her or due to recommendation of a friend! They keep making such blind investments under peer-pressure or due to over-trust on recommender. They don’t ask question to self as “Why this scheme or product?”. Because of such behavior they easily get trapped into wrong financial products. Since no or very little thought is put on objectives behind choosing a financial product, during the financial audit of the people, I usually find that, they have chosen such a product whose maturity value is not promising enough for the underlined theme such as retirement, marriage or education of their kids.   

So, what should be the thought process behind choice of a financial avenue? I will explain this with the example of “why?”.  Meet Mr. Sachin (Age 35) who wants to invest for the future of his daughter ( Age 3 yrs).  So while doing the investment for the daughter, the two “why” questions should trigger as “Why I want to invest for her?” The obvious answers that come out are: Education & Marriage ! Once these goals are finalized, period of the investments get finalized.  Say, the amount for the first the goal (Higher Education)  will be required after 20 years and the other amount for other goal (marriage) will be required after 23 yrs. Now, after the tenure of the investment is set, second thought needs to be attached to it as “how much amount will be required to fulfill these goals?” Then role of inflation rate comes into picture. Say if today's higher education cost is assumed to be Rs.5 lakhs, then to achieve this goal after 20 years,  considering the current education-inflation rate, we will require Rs.15.50 Lakhs (assuming 7% inflation rate). Also, if today's expenditure for the marriage is comes out as Rs.7 lakhs ,then to achieve this goal after 22 years, we will require at least Rs.31 lakhs (assuming 7% inflation.). Now at last the investor

should see,  “what are the investment schemes available in the market and whether they will be adequate to serve the purpose?”.

I find that, people usually have resistance for thinking logically and doing survey of schemes. They want someone to tell them “name of the scheme” ! For such a class of people, I suggest that they should find out their “Why” questions and select appropriate investment basket / portfolio. I will share an example of my client. He has created various portfolios in mutual funds, P.P.F. schemes, Equity Shares. His money for his education & marriage of his kids, goes into children gift mutual fund which is a hybrid fund & will approx. generate 10 to 12 % interest per annum. Also, he has created one portfolio for his international tours & travels planned for every 5 years! For this goal, he is investing into Debt Funds which have shown consistent performance in giving returns. For his retirement, he has created 2 portfolios - one is P.P.F. & other is Equity Funds. The money he invests in these funds will fetch approx. 12% returns, so that he would have good retirement corpus. Moreover, he also invests in children gift fund for his brother’s daughter as well, on a monthly basis , the Maturity amount of which will be gifted at the time of her Marriage. More interestingly, he has created one other basket for his donations to various trusts for which he is contributing monthly and from time to time he is donating the funds from that particular folio. Isn’t this a good example? I also suggest that we should also create a safety basket first (just like a safety net found in the circus) for covering the unpredictable risks that may arise. Say, for paying the premiums of all life, health, accident insurances this basket is to be used. My said client contributes money to liquid funds that generate approx. 6% interest. This contribution is done on a monthly basis just to make sure that he is not burdened with the premium-payments in any month. 

I think this example demonstrates that a little bit planning of your money done with “WHY” analysis helps to get expected results and hence assist to lead a peaceful & balanced life on monetary aspects. All your financial decisions should be “why” oriented and should not be “driven by any force”!  Make and follow a discipline of doing “why” analysis of all your financial goals. These goals should be SMART means Specific, Measurable, Realistic, Achievable and Time-bound!

 Wishing you all the financial freedom that you desire!

- C.A. Swapnil Ekande,

Head, Pune Branch,

SWS F.S.P.L.