In an exclusive interview with Yogita Khatri of myiris.com, Arvind Rao, founder of Dreamz Infinite Financial Planners explores the business of financial planning and how investors can use it to their advantage.
Arvind Rao, founder of Dreamz Infinite Financial Planners, a fee-based independent financial planning institution, has over 5 years of experience in the field of financial services. A chartered accountant (CA), certified financial planner (CFP) and certified financial manager by qualification, he has special expertise in strategic financial planning and tax planning. Prior to this has worked with UTI Asset Management Company Private Limited and Deloitte Haskins and Sells.
> What led you to choose a career in financial planning?
Financial planning, when done ethically, is akin to doing social service and being paid to do so. Rising affluence among Indians has only aggravated the need for such ethical service. In addition, this field offers tremendous scope for offering innovative and value-additive inputs to clients. These are the just few of the many other factors that prompted me to choose a career in financial planning.
> How important is it nowadays for people to actively manage their personal finances?
Managing personal finance has evolved as a full-time activity today. Gone are the days when you could afford to spend only 3-4 hours on weekends for your finances and things could be easy. At the same time, active financial management does not necessarily mean constant reshuffling of your investments to time the market or chase better performing funds. Active management would imply keeping a 360 degree view on your finances 365 days. Insurance, investments, retirement, loans, savings, expenditure patterns, taxes, etc are just some of the various aspects in personal finance. These require constant attention and if not properly attended to can lead to some major mishaps over the long term.
> What are some of the most common financial mistakes you see people making?
The most common mistakes are listed below in the descending order of importance:
# Hesitation to take the help of a full-time professional to manage their finances;
# Unwillingness to pay fees to a professional for his time and expertise;
# Non-maintenance of proper financial records;
# Exerting too much pressure on investments to generate higher returns in short term
> Could you describe the steps to developing a comprehensive financial plan?
A comprehensive financial plan can be developed by the following steps:
# Selecting the right planner for your finances;
# Complete data collection;
# Data Analysis and identification of problems in one`s financial life;
# Formulation of strategies for goals and objectives;
# Formulation of risk management plans;
# Proper execution of the strategies;
# Regular follow-ups to the plan.
> What is the best way to create a budget and stick with it?
Regular reviews by a professional is the only way to actually help you stick with your budget. It is always easier to make a budget than to actually stick to it.
> What is the most common challenge a family faces these days with their personal finances?
Inability to control their greed and fear is the most common challenge which almost every family faces with their finances. It is these 2 fears that prompt a family to commit financial mistakes.
> What can you tell us about dealing with debt? Other than the obvious -reduce credit card spending etc.
It is always advisable to take up a debt only when you have a debt management and repayment plan ready. Always try to keep a buffer of at least 20% between what you can borrow and what you actually borrow to keep your finances healthy.
> What is your take on current market situation? What are the key factors that will drive the stock markets in 2010?
Markets seem to be consolidating at the current levels at around 4850 - 4900 levels of Nifty. The consolidation should help the markets to move higher in the next 2-3 years.
Some of the key factors to drive the markets further on would be:
# Sector specific reforms introduced in the Budget;
# Lower inflation levels;
# Continued better quarterly results by companies.
> What is your view on interest rates and how is it likely to affect an investor`s fixed income portfolio?
Interest rates are definitely set to inch higher in the next 6 - 8 months. The same could have a deep impact on an investor`s fixed income portfolio in terms of returns and opportunity losses. To avoid such a situation, every investor should ensure to alter his/her debt portfolio to keep it flexible enough to adapt to any changes in the interest rate scenario.
> Finance Minister Pranab Mukherjee will roll out his budget on Feb.26, 2010, your wish list for him?
# Raising the limits of non-taxable income to Rs 300,000 (from the current Rs 160,000);
# Increasing the limit of deduction u/s 80C to Rs 300,000 (from the current Rs 100,000);
# Higher limit of exemption for gratuity u/s 10 to Rs 10,00,000 (from the current Rs 350,000);
# Offer separate tax-sops to expenditure on children`s education other than clubbing the same under section 80C;
# Reintroduction of standard deduction for salaried individuals.
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