Personal Finance is no longer a subject of discussion limited to four walls. Open chatter on this topic is growing by the day. With higher disposable incomes & proliferation of information, people today are more exposed to unqualified random advice or products, from multiple sources – online & offline.
DIY (Do it yourself) product buying is the ongoing trend.
Flashback, a decade or two ago – random financial advice still existed, however limited to personal connections – friends, colleagues, relatives or agents.
In both scenarios, a product focused approach ignoring the compliance, legal aspects & attendant risks – have created & will create complexities sooner or later! Often the situation is better described as a mess, leading to losses, and challenging to sort out without professional help.
Let’s understand with two real life scenarios –
Case 1
Shri Raghav (name changed for anonymity) a senior citizen was always good at savings. Living a modest life, the family vowed to put aside money to build a secure future & they did. He picked multiple financial products during his career – conventional life insurance policies, mutual funds, shares and few bonds. Other assets included real estate & bullion.
At age 60, it was now time to utilise his assets to begin a passive income stream. Proceeds from PF (being a private sector employee) & insurance annuity would fall short of requirement. A solution was needed.
Enter financial professional – appointment taken, meeting scheduled. Shri Raghav walked into the office with a bag full of documents, proof of investments held in physical mode. Exact accumulated value of his investments unknown. Upon scrutiny – gaps emerged & so did compliance lacunas. The sellers of most of those products were no longer in contact to reach out. The challenge was on!
It took four months & approx 300 manhours to put things in order & get all financial assets streamlined in a de-materialised (Demat) mode, with compliances in place. Shri Raghav was happily surprised (startled would be the right word), to know the total accumulated value. Other assets were restructured & monthly passive income created. A clear blueprint of his networth with asset class wise holding rendered him more confidence. Today, Shri Raghav is living a fulfilled retired life; free of worry & financial dependency.
Take Away – Financial Planning is a continuous, life long process; not a random product buying activity. The end part of the process being seamless transfer of legacy. When random approach is replaced by scientific process, the benefits are both – tangible & intangible!
Case 2
Prem (name changed for anonymity), a savvy Gen Z software professional was putting aside some money using DIY approach. He selected products based on views of social media platforms & ranking websites. Over two years he was invested in 12 mutual fund schemes and 08 stocks, through three different online aggregator platforms. Prem was excited to see the double-digit returns on his equity investments. However, monitoring his investments seemed tedious and a bitter Crypto experience made him cautious.
It was time to seek professional support to know if he was on track.
During pre-meeting evaluation, Prem’s eCAS (Consolidated Account Statement) unfolded a different story. Having opened three Demat Accounts – 100% of mutual funds held by him were in physical mode! 50% with ‘no nomination’. A detailed awareness session, helped Prem understand the purpose and gave him direction. Today, with a defined Financial Plan, the young professional is applying skills to his own domain, & making strides to fulfil his goals.
Take Away – Opening an investment account on an online platform does not ensure that investments are held in ‘de-materialised’ or Demat Mode. Physical folios may seem easy to pick, but difficult to manage since any updation/amendment, transmission of units to nominees requires signatures & paperwork.
Moreover, ‘Asset Allocation’ plays vital role in Wealth Creation. Keeping the financial plan dynamic with needful re-structuring is therefore the key.
In financial context, DIY must have a new definition – Did I Yo-Yo!
By – Akanksha Tandale, CFP®
18 Jul ‘24