Alternative Investment - The Diamond in Your Portfolio


Alternative Investments That All Investors Should Know

Alternative investment is an investment in asset classes that is not composed of stocks, bonds, and cash.

(A)Personal Financial Planning is the process of managing personal finances so that the current and long term financial needs are met in the best possible way.It involves estimating your future needs for funds based on current income, expenses,current liabilities , future aspirations (financial goals), projected incremental income,expenses.

A systematic plan involves preparation of a household budget, assessment of present financial position,defining and setting financial goals, estimating the future value of the goal,planning to fund the future goal, assessing one’sown risk profile , asset allocation and so on.

(B)Wealth management pertains to the process of deciding and executing a plan aimed at conserving, growing,existing wealth consistent with the liquidity, taxation, and legal aspects.Needless to say in wealth management ,having a significant corpus is a pre-requisite as opposed to financial planning where the money is managed in consonance with the fund flows.Wealth management services may also include liasoning with bankers, financial institutions, private equity firms,chartered accountants, lawyers, tax consultants,estate planners etc.It can also include evaluating and deciding on aquiring stakes in businesses and /or also selling them.

(C) Retirement planning is a part of both Financial Planning and Wealth management.It pertains to preparation for a smooth availability of funds for the entire remaining tenure of one’s life after his ceasure of active professional or business activity therefore generation of regular income.The corpus saved or invested during one’s earning life cycle needs to be deployed so as to maintain the same living standard as before. The calculations must include the effect of inflation, decrease of income from fixed income instruments, provide for major medical contingencies.and so on.

The need for retirement planning is more now than ever in the past because of nuclear families, rising cost of healthcare, longevity on account of better medical facilities and absence of social security schemes.

(D) Estate planning is the process of transferring your assets to the person(s) whom you want to, in the manner you want to and at the time you wish to.It includes the physical, financial, nontangible assets you owned before your death and also anything you may own after your death.The physical assets consists of land and building ,precious articles and such other tangible easily identifiable items.Financial assets cover cash, deposits, shares , mutual funds etc. Non tangible assets can be your good will, email –to cite examples. Govt or airline compensation declared on the death of passengers in and accident or calamity is an example of an asset one may own post his death.

In India, there are different laws pertaining to legal heirs based on one’s religion. Creation of different types of wills is one of the common instruments of estate planning.

Estate planning helps in a smooth transfer of assets to one’s near and dear ones so that one can leave a legacy of strong bonded relationships for his heirs and not bitter legal cases leading to broken relationships.

(E) Tax planning is the fourth but an extremely important aspect in financial planning and wealth management given the complex nature of our laws and their equally varied interpretations. All planning can be upset without due consideration of taxation rules and in extreme cases may land oneself in undue legal hassles. Taxation laws change very frequently from year to year. Investments spread over a long period are therefore influenced by their applicability and also by factors like cost inflation index, the constitution of the investing entity etc. This aspect of investments is therefore best handled by a dedicated tax consultant.

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