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+"<s>[INST] Question What is Financial Planning? [/INST] Answer is Financial planning aims at ensuring that a household or individual has adequate income or
+resources to meet current and future expenses and needs. The regular income for a
+household or individual may come from sources such as profession, salary, business or even
+investments. The normal activities of a household or individual and the routine expenses are
+woven around the regular income and the time when this is received. However, there are
+other expenses that may also have to be met out of the available income.
+The current income that is received must also provide for a time when there will be no or low
+income being generated, such as in the retirement period. There may be unexpected
+expenses which are not budgeted, such as a large medical expense, or there may be needs in
+the future that require a large sum of money, such as education of children or buying a home,
+all of which require adequate funds to be made available at the right time. A portion of the
+current income is therefore saved and applied to creating assets that will meet these
+requirements. Financial planning refers to the process of streamlining the income, expenses,
+assets and liabilities of the household or individual to take care of both current and future
+need for funds. </s>"
+"<s>[INST] Question Example of Financial Planning [/INST] Answer is Example
+Vinod is 40 years old and earns Rs.2 lakhs a month. He is able to save about Rs.40,000 a month
+after meeting all the routine expenses of his family, paying the loans for his house, car and
+other needs. His investments include those for tax savings, bank deposits, bonds and some
+mutual funds. He pays premiums on life insurance for himself and his wife. Vinod is the sole
+earning member of his family and he believes he takes care of his finances adequately to take
+care of his current and future needs. How would financial planning help him?
+The following are a set of indicative issues that financial planning will help Vinod resolve:
+LEARNING OBJECTIVES
+a) As the sole earning member has he made provisions for taking care of his expenses by
+creating an emergency fund if his current income is interrupted for any reason?
+b) Does he have adequate insurance cover which will take care of his family’s requirements
+in the event of his untimely demise?
+c) Does the family have adequate health insurance cover so that any medical emergency
+does not use up all the accumulated savings?
+d) What are his specific future expenses and how will he fund them?
+e) If Vinod has to create a corpus to fund large expenses in the future, what is the size of the
+investment corpus he should build?
+f) Given his current income and expenses is he saving enough to create the corpus required?
+g) Will he have to cut back on his current expense or can he increase his current income so
+that his expenses in the present and the savings for the future are met?
+h) What is the wealth Vinod has so far built from his savings and how can he best use it to
+meet his needs?
+i) How should his saving be deployed? What kinds of investments are suitable for Vinod to
+build the required corpus?
+j) How much of risk is Vinod willing and able to take with his investments? How would those
+risks be managed?
+k) How should Vinod ensure that his savings and investments are aligned to changes in his
+income, expenses, future needs?
+A formal treatment of the issues that Vinod faces will require a financial planning process to
+assess the current situation; identify the current and future needs; determine the savings
+required to meet those needs and put the savings to work so that the required funds are
+available to meet each need as planned. </s>"
+"<s>[INST] Question Understand the need for financial planning [/INST] Answer is There is a large range of financial products and services that are available for investors today
+and these need to be linked to the specific needs and situations of the client. Not every
+product may be suitable to every client; nor would a client be able to identify how to choose
+and use products and services from the choices that are available in the market. Financial
+planning bridges this gap as the Investment Adviser possesses the expertise to understand
+the dynamics of the products on the one hand and the needs of the client on the other. This
+makes them best suited to use such products and services in the interest of the client. </s>"
+"<s>[INST] Question Role of the Financial Planner [/INST] Answer is The Financial Planner has a significant role to play when it comes to advising clients because
+the needs of each person is different front that of the other.
+a) The financial planner has to recognise the exact needs and goals of an individual and a
+household or family and then make efforts to ensure that these needs or goals are achieved.
+b) Personal financial management requires time and attention to recognize income and
+expense patterns, estimates of future goals, management of assets and liabilities, and review
+of the finances.
+c) Individuals do not have time to undertake all these detailed financial activities in a busy
+world and they need someone like a financial planner to focus on this area and help them in
+their efforts.
+d) It is not easy to set financial goals and this requires specific expertise and skill which may
+not be present with most individuals.
+e) Every financial goals requires finding a suitable product and a proper asset allocation to
+different asset classes so that this can be achieved, which is where the financial planner steps
+in.
+f) Selecting the right investment products, choosing the right service providers and managers,
+selecting insurance products, evaluating borrowing options and such other financial decisions
+may require extensive research. A financial planner has capabilities to compare, evaluate and
+analyse various products which enables making efficient choices from competing products.
+g) Asset allocation is a technical approach to managing money that requires evaluating asset
+classes and products for their risk and return features, aligning them to the investor’s financial
+goals, monitoring the current and expected performance of asset classes and modifying the
+weights to each asset in the investor’s portfolio periodically to reflect this. Financial planners
+with technical expertise enable professional management of assets.
+h) Financial planning is a dynamic process that requires attention to the constantly changing
+market and product performances and matching these with the dynamic changes in the needs
+and status of the client. This kind of attention can be provided by a financial planner. </s>"
+"<s>[INST] Question How is financial planning different from a typical financial advisory services? [/INST] Answer is Financial planning requires following of a specific process wherein the client along with their
+overall needs and goals are at the core of everything being done. Other financial advisory
+services would normally look at meeting just a specific need like advising on stocks or debt
+but the relation with other aspects might be missing.The financial planning effort is a comprehensive process as it covers all aspects of a client’s
+personal financial requirements including retirement, insurance, investment, estate and
+others. A typical financial advisory service is more likely to look at just a small part of the total
+financial requirements.
+Goal setting becomes the central part of the financial planning process and all efforts are then
+directed towards meeting the goals. Overall goals might not be given too much importance
+in a normal financial advisory activity, where some specific target is sought to be achieved.
+Financial planning looks to ensure that all the financial activities are not at cross purposes
+with each other. As against this, a typical financial advisory service might not even realise that
+some steps suggested would be working against some other goal or requirement. For
+example, financial planning would ensure that the asset allocation for an older individual
+meets their risk taking ability and that their equity exposure across asset classes is kept in
+check. This might not happen when normal advise is taken just for say equity mutual funds
+investment without knowing the equity exposure elsewhere.
+Monitoring the situation and then taking action to ensure that things remain on track is a key
+part of the financial planning process. It is inbuilt to the entire effort, so this becomes a natural
+part of the activity. This might not happen with respect to a normal financial advisory where
+the individual might have to take the initiative themselves and see that things are going
+according to plan.
+Financial planning looks to select what is right for an individual and this would differ from
+person to person. This takes into account both the returns as well as the risk which is vital.
+This might not happen for a normal financial advise, where the goal might be completely
+different like earning higher return and where risk might be ignored.
+There has to be continuity in financial planning efforts which sets it apart from other financial
+advisory wherein this could be a short one time exercise or even piecemeal efforts at different
+periods of time. </s>"
+"<s>[INST] Question Personal financial analysis: [/INST] Answer is • Goal setting with prioritizing of goals
+The financial planning process starts with the goal setting process. Goals refer to what has to
+be achieved. This gives a clear target that has to be reached. There are several features that
+are important when the goals are set. There should be some specific detail with respect to
+the goal. For example, saying that I want to be rich is a vague term because it can mean
+different things to different people. Saying that I want to earn an income of Rs. 50 lakh a year
+is specific. The goals have to be measurable, so that a person knows the exact amount that
+will help them reach the goal. At the same time the goals have to be realistic. If an individual
+is able to save around Rs 20,000 a month, then a goal which requires an investment of Rs
+50,000 a month is not realistic. Finally, goals also have to be time bound so the individual has
+a clear idea of when they need to be reached. A goal of wanting to retire in 20 years with Rs
+5 crore as corpus is clear because there is a time period attached to it which will help in
+planning to reach the goal.
+Once all these features are considered in the goal setting process there will be a list of goals
+that will be available. However, every individual has restrictions in terms of the income earned
+and amount saved. This will require that the goals be ranked in order of priority. Important
+goals need to be put first. So, things like children’s education and retirement should come in
+front of something like spending on a luxury car or other expense that does not create an
+asset. It is easy to look at short term needs but this can come at the cost of long term
+disruption of the goals. This is why there has to be priority to goals that improve the financial
+health of the individual. For example, there might be a large credit card outstanding and some
+extra income is earned by the individual. In such a situation, instead of spending the amount,
+it should be used to pay off the credit card debt. This might not add to an asset but it still
+improves the financial condition of the individual.
+• Focus on important goals
+Goals such as retirement and education of children are important financial goals for which
+adequate provision of funds have to be made. Long-term goals such as retirement often get
+
+lower priority for allocation of savings because it has time on its side. The urgent, shorter-
+term goals often get higher claim on the available savings. While this may be acceptable for
+
+shorter-term goals that are also important, such as accumulating funds for down payment on
+a home, it may not be right to prioritize consumption goals, such as holidays and large
+purchases, over long-term important goals. The delay in saving for such goals will affect the
+final corpus, since it loses the longer saving and earning benefits including that of Clients often believe that the provident fund, superannuation and gratuity corpus they will
+receive on retirement will be adequate to ensure a comfortable living during the retirement
+years. In many cases, it turns out to be inadequate. Therefore, every client needs a retirement
+plan.
+The Investment Adviser needs to go through the numbers and demonstrate the inadequacy.
+The objective is to ensure that the client saves enough during the earning years for a
+comfortable retired life.
+• Staggering the timing of certain goals
+The financial situation of an individual may not allow all the financial goals to be provided for.
+Some financial goals may have to be deferred to ensure that the critical financial goals are not
+compromised. There are situations when it is not possible to achieve a financial goal in a
+specific time period. An example could be a person wanting to buy a house within the next
+year, which would require a down payment of Rs 20 lakh plus an Equated Monthly Instalment
+(EMI) of Rs 30,000 a month. It could be that the current income situation is not able to support
+such a situation. Instead of cancelling the goal there is another route available. This is to push
+back the goal by some time, which will enable the individual to get the required finances in
+order. Instead of 1 year, if the goal is sought to be achieved after 3 years, then there is a good
+chance that the desired financial position will be achieved by then.
+For instance, around the time that the family proposes to buy a house, the annual holiday
+may need to be reviewed. The holiday may be shorter or planned at a less expensive location.
+Some financial goals need to be fulfilled within a specified time frame. For instance, education
+of the child has to happen as per the normal age and progression. Prudent use of debt in the
+form of loans can be used to tide over any shortage of funds. </s>"
+"<s>[INST] Question Cash flow management and budgeting [/INST] Answer is There is a certain income that is earned by an individual along with the expenses made.
+Having a plan to ensure that there are savings and these are invested is one part of the
+process. It is also vital that there is a cash flow match so that the household or the individual
+does not run into any cash flow problems. This happens when the inflows and outflows of
+cash do not match. There can be a situation wherein a person spends less than what they
+earn but still run into cash flow problems. For example, if there is a large expense made at
+the start of a month it can lead to a cash crunch if there is a delay in the receipt of income
+unless there is a reserve present. In fact, it could lead to short term borrowings which are
+extremely costly in terms of interest rates. This could lead to a part of the amount that is
+being finally saved to be directed towards paying off the debt incurred due to the cash flow
+mismatch.                                                                                                                                                                    One of the ways to ensure that there is no cash flow problem is to have a budget. A budget is
+nothing but a list of the inflows and outflows that an individual will witness along with the
+time period when this will take place. A monthly budget will help a person to know whether
+they are managing their income properly. A budget has a list of all the items of income and
+expenses along with their amounts. This ensures that with a single look it is possible to know
+what the exact financial position is and whether there is adequate savings taking place. Every
+person should make their own personal budget. A lot of people pay attention to the Union
+Budget but fail to do budgeting for their ownselves. </s>"
+"<s>[INST] Question Insurance Planning [/INST] Answer is Several unexpected expenses that can cause an imbalance in the income and expenses of a
+household can be managed with insurance. Insurance is a risk transfer mechanism where a
+small premium payment can result in payments from the insurance company to tide over risks
+from unexpected events. The temporary loss of income from disabilities and permanent loss
+of income from death can be covered with life insurance products. Health and accident
+insurance covers help in dealing with unexpected events that can impair the income of a
+household, while increasing its expenses on health care and recuperation. General insurance
+can provide covers for loss and damage to property and other valuables from fire, theft and
+such events. Insurance planning involves estimating the losses to the household from
+unexpected events and choosing the right products and amounts to cover such losses. </s>"
+"<s>[INST] Question Debt management and counselling [/INST] Answer is Investment Advisers help households plan their liabilities efficiently. It is common for
+households to borrow in order to fund their homes, cars and durables. Several households
+also use credit cards extensively. To borrow is to use tomorrow’s income today. A portion of
+the future income has to be apportioned to repay the borrowings. This impacts the ability to
+save in future and in extreme cases can stress the ability to spend on essentials too. The asset
+being funded by borrowing may be an appreciating asset such as property, which is also
+capable of generating rental income. Or the loan could be funding a depreciating asset such
+as a car, which may require additional expenses on fuel and maintenance, but provide better
+lifestyle and commuting conveniences.
+Evaluating which assets or expenses can be funded by borrowings is a function Investment
+Advisers can perform. They can advise households about how to finance their assets, how
+much to borrow, how to provide for repayment, how to ensure that credit scores are not
+unfavourably impacted. Sometimes, excessive borrowings may lead a household into a debt
+trap. Such borrowers need counselling and handholding to be able to get out of debt.
+Sometimes assets may have to be liquidated to pay off debts. Advisers help households to
+deal with their borrowings taking into account their need and ability to repay debt. </s>"
+"<s>[INST] Question Investment Planning and Asset Allocation [/INST] Answer is A crucial component in financial planning and advisory is the funding of financial goals of a
+household. Investment planning involves estimating the ability of the household to save and
+choosing the right assets in which such saving should be invested. Investment planning
+considers the purpose, or financial goals for which money is being put aside. These goals can
+be short-term such as buying a car, taking a holiday, buying a gift, or funding a family
+ceremony or can be long-term such as education for the children, retirement for the income
+earners, or high-expense goals such as marriage of children. An Investment Adviser helps with
+a plan to save for these goals, and suggests an appropriate asset allocation to pursue.
+The Investment Adviser does not focus on the selection of stocks or bonds, but instead takes
+a top down approach of asset allocation. The focus is on how much money is invested in which
+particular asset class in order to deliver the expected return within the risk preference of the
+investor. The adviser’s job is to construct a portfolio of asset classes, taking into account the
+goals, the savings, the required return, and the risk taking ability of the investor. This is one
+of the core functions of the adviser and many specialise in asset allocation and investment
+planning. </s>"