ASSET ALLOCATION: Most important aspect of Financial Planning

India has saving rate as high as 30% in comparison to the US and UK of avg 17%: Source – World Bank. But majority of our investment options are Fixed Deposits, Gold. Further the most common mistake we Indians fall prey to is considering insurance option as an investment more than protection & security.

Asset allocation spectrum in Indian scenario is limited keeping in mind few things.

For example, we save keeping in mind our child’s future educational needs and their marriage expenditure.

The inflationary rate of developing nation as ours is quite higher. We need to keep this in mind while we plan our investment. For example, today the educational course you aspire your child to study in future is costing 10 lakhs. Higher inflationary trends would make education costs, marriage expenditure expensive in future. Here, financial planning is a concrete step to ensure that your return on investment then is considered keeping in mind the inflation projections.

Financial goals can be attained through effective financial planning which takes care of aspects: future financial goals, current position, risk ability.

Asset allocation is the most important step towards financial planning.

Prior to attaining this step of asset allocation, it’s the duty of every financial advisor to make the investor financial literate. The common and startling myths we come across in Indian investors are as follows:

  • 67% of the Indian understands insurance is the investment…*
  • 93% Indians think gold is an investment,* in fact this asset class is used for hedging…
  • Returns should overcome the inflation means exactly what? *Only 2%  Indian answered it…*
  • 22% of Indian think MF SIP is the name of a scheme…*
  • 88% of Indians do not know what is assets allocation…*
  • 63% of the people consider investment in mutual fund is like buying a insurance policy.* They call we bought MF policy…
  • 92% people after their retirement depend on the children* 8% who plan for retirement  61% of it resort to  insurance which gives returns less than 4.5%…
  • Only 0.042% people aware about complete Financial Planning…*
  • Only 5% of people have health insurance,* in Japan this percentage is 92% & in other developed countries this proportion is 79%…
  • In India 36% people invest in insurance out of which only 7% people have taken term insurance…*

Financial literacy will help build our nation. 90% of the population barely knows what returns, protection and security their investments, insurance are deriving.

Individual financial advisors, trainers & financial institutions play a vital role in this process. Let us aim towards a “Financially Literate India”.

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