Why HNIs need financial planning

Kavya Balaji   /   August 25, 2020
financial planning

High Networth Individuals (HNI) usually have vast surplus to handle. For them, making wealth is a lot of hard work and when you have a lot of money, it will be tough to manage the mix of assets that you may invest in as years go by. This might include investments such as term insurance, health insurance, stocks, real estate, bonds, fixed deposits mutual funds, and commodities such as gold among others.

Why is it difficult to handle these investments? The conditions in the different investment markets such as commodity, stock or bond markets, keep changing dynamically. So, when one has too many investments, it will be tough to monitor all the assets. Also, if you have made profits in one asset class and take it easy, you might miss checking out the loss-making investments that you need to sell off. This is where a financial plan will be essential.

How will it help? If you have a good financial plan in place, it will help you earn income, maximise returns and minimise losses for your portfolio. The financial plan will make sure that your portfolio is aligned to your risk profile and financial goals.

Here are more reasons why you as an HNI need financial planning.

Making more money

You might have started with being a crorepati and then the crores could have added on to become hundreds of crores. As your wealth keeps increasing, doing the same investments over and over again may not be enough or right. You need to find out the investments that will help boost your portfolio. You may need to revisit your asset allocation and financial goals more frequently.

The more money you make, the more you will need to plan your investments to maximise your returns. As you keep investing, your portfolio mix will keep changing. For instance, let’s say your asset allocation was 80:20 where 80% is in equities and 20% in debt. If you make profits of more than 50% in equities, your portfolio will have more money in equities. This is where a financial plan can help you stay aligned to your asset allocation.

Managing stock investments

You know that equities are great investments for the long term and are known to beat inflation if you stay invested for more than 5 years. However, just investing is never enough. You need to make sure that your portfolio is diversified if you want to minimise risks.

One way to diversify is to allocate money to different companies and sectors. Now, which are these sectors and companies? That will need a bit of research. A financial planner can help you. Your financial plan will help manage investments across companies and sectors and make sure that you remain diversified. It will also help make sure that there is no concentration of investments in a particular sector or a company.

Managing mutual funds

There are many different types of mutual funds and each of them cater to different needs of investors. For instance, liquid funds are often used by those who want to make their short-term cash for earning income that’s a bit higher than savings account interest. However, before investing in mutual funds, you need to align it to your financial goals. This will make sure that you use the money only for that particular goal. This isn’t easy if you don’t have a financial plan. A financial plan will list your goals and help link them to your investments.  

While you need to use equity mutual funds for long term goals, debt funds might work for only short-term goals. A financial plan will also help allocate your money among equity and debt funds based on your risk profile, financial goals, and time horizon needed to reach the goal. Diversification is essential for mutual funds too. A financial plan will help you invest across various categories of mutual funds to minimise risks.

Diversified portfolio

Just like diversification is important within an asset class, you need to diversify across asset classes too. Your portfolio needs to be balanced and not skewed towards an asset class. This will help you minimise losses. A financial plan makes sure that you invest across asset classes and it keeps track of your ideal asset allocation.

So, essentially a financial plan will help you set up your investments, link them to your goals and look at the implications of taking increased investment risks. It is a comprehensive document that includes details on your cash flows, savings, loans, investments, insurance and other financial elements of your life. A good financial plan will help you prioritize your goals, and will show clear strategies for achieving them. This will actually make sure that you are saving enough money and that your wealth is increasing at the right pace to achieve all your financial goals.

A good financial plan will reveal your assets and liabilities at a single glance. The difference between your assets and liabilities is your personal net worth. Sounds like hard work? Then, you will need the help of a financial planner like Wealthzi. Financial professionals look at your personal profile, risk profile, and finances before they make a financial plan for you. You can view all your investments in one place. It will take just a few minutes to register for our financial services.

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