Knowledge Centre - Aspects of Financial Planning
Financial Planning for Your Future
Make smarter money decisions for a secure tomorrow
Financial planning is the process of making informed money management decisions to secure your future. Financial planning helps to achieve financial goals and meet personal priorities, taking into consideration available resources, responsibilities, risk appetite and lifestyle. A financial plan lays down the allocation of savings across various asset classes to achieve an appropriate risk-reward balance.
Financial planning may include :
- Asset allocation
- Investment planning
- Retirement planning
- Insurance planning

Plan your investments
To create wealth over time, one has to be a successful investor. However, to become a successful investor, one needs to have a plan as well as a strategy to implement it. Being an integral part of the investment process, one must consider certain key factors like the current financial situation, investment objectives, attitude towards risk and the time horizon.
There are three simple steps that can help determine an action plan. Firstly, make a list of personal and financial goals in the short, medium and long-term. For example, in the short term, you may want to buy a car; in the medium term you may aim to provide for children’s education; and in the long run, retirement funding could be an objective.
Secondly, you need to assess your current position in the financial lifecycle. Thirdly, you must decide as to how much risk you are willing to take while investing. This is particularly important as different financial objectives require different investments.
Asset allocation
Asset allocation is a method that determines how you divide your portfolio among different investments and provides you with the proper blend of various asset classes. In other words, asset allocation helps you to control risk in your portfolio as different asset classes will react differently to changes in market conditions such as inflation, rising or falling interest rates or a market segment coming into or falling out of favour.
There is a thumb rule for asset allocation; it says that whatever your age, that percentage of your portfolio should be invested in debt instruments. For example, if you are 25, you should have 25 percent of your investments in debt instruments. However, in reality, different circumstances and financial position for each individual may require different allocation.
Asset allocation is different from simple diversification. For example, if you diversify your equity portfolio by investing in 5 different equity funds, you really haven’t done much to control risk in your portfolio. In case of an adverse reaction, all these funds will react in a similar way. On the other hand, as mentioned earlier, different asset classes will react differently in any given situation.
Mutual funds are the most appropriate vehicle to practice asset allocation successfully. They not only provide diversification but also offer a “family of funds” to suit investment objectives of investors in different age groups with varied time horizons and occupations. Moreover, they also provide opportunities to re-balance the portfolio, which may be required as a result of changes in the circumstances.
Understand risks and rewards
Many investors make a mistake of underestimating risk and/or overestimating reward from an investment. One needs to careful about this aspect of investing. By estimating the risks associated with each of the investment options, you can improve your chances of building a greater wealth. The right way to succeed is to invest as an optimist and manage risk as a pessimist.
Select an appropriate investment option
In an ever-changing financial environment, it is essential to invest in smart options like mutual funds. Though investment risk and economic uncertainties can never be eliminated, mutual funds, thanks to their mix of experience, research and analysis are in a much better position to ensure that investors in different segments achieve their investment objectives. However, to benefit from the expertise of professional fund managers, it is necessary to invest in the right type of fund i.e. the one whose objective matches with yours.
Keep an eye on your asset allocation at all times
It is quite common to see investors allowing their portfolios to ride on in a bull market. Obviously, in times like these, the original mix of equity and debt is ignored in their quest to maximize the returns. No doubt, equity market requires a long term commitment, it is equally important to maintain the proper asset allocation. In other words, re-balancing, either up or down, is a necessary ingredient for the long term success. Portfolio rebalancing is a process of bringing the different asset classes back into a proper relationship following a significant move in one or more.
Remember, rebalancing is more about risk than return. It is equally important to decide on a time interval, like once a year, and examine the portfolio. If the asset allocation shifts a little, there is no need to bother. If it shifts by more than 5 percent, you should rebalance. This can occur naturally over time or following an abrupt rise or decline in one or more asset classes.
Another important ingredient for success is not to lose sight of your long-term objectives. Many a time, we shift the focus on short-term goals at the cost of our long-term goals. While at times it might become necessary to do so, you will do well to explore other possibilities rather than abandoning your long-term investment plan in a hurry.
Tax Benefits Under Section 80 C
There are certain approved investments that allow investors to save taxes under Section 80 C of the Income-tax Act. Under this, a taxpayer can claim tax exemption up to an investment of Rs.1.50 lakh. The following options offered by mutual funds are eligible for this tax benefit:
Equity-Linked Savings Schemes (ELSS)
ELSS are the most efficient tax-saving instruments under Section 80C. These diversified equity funds invest in equity shares of companies across market capitalization. However, being an equity-oriented fund, investors in these schemes have to withstand volatility from time to time to earn higher returns than other option under Section 80 C.
Being a tax saving option, ELSS have a lock-in period of 3 years. Capital gains and Dividends are taxed on the lines of other equity funds.
Pension Funds
SEBI defines a retirement scheme as an open-ended retirement solution-oriented scheme having a lock-in of five years or till retirement age, whichever is earlier. These schemes usually come with a lock-in period and they also qualify for tax deductions under Section 80C. Currently, Pension funds launched by HDFC Mutual fund, Reliance mutual fund, UTI and Franklin India MF offer Pension funds that are eligible for tax benefits under Section 80C.
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Setting Goals & Choosing the Right Investments
Turn your financial goals into a smart investment plan
- Every successful investment journey starts with clear financial goals.
- Define what you want to achieve in the short term (e.g., buying a car), medium term (e.g., saving for college), and long term (e.g., retirement planning).
- Once goals are set, distribute your money across various asset classes such as equity, debt, and others — a strategy known as asset allocation.
- Asset allocation helps you balance risk and reward, ensuring your investments are aligned with your timeline and risk tolerance.
- Mutual funds are a popular investment choice due to professional management and built-in diversification.
- Tax-saving options like Equity-Linked Savings Schemes (ELSS) and pension funds allow you to grow wealth while benefiting from deductions under Section 80C of the Income Tax Act.
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Stay Consistent with Review & Rebalancing
Review regularly, rebalance wisely, and stay focused
Financial planning doesn’t end once you invest—it’s equally important to monitor and adjust your plan as life and markets evolve. Reviewing your portfolio at least once a year helps you ensure your asset allocation stays in line with your goals and risk level. If the balance between your equity and debt shifts by more than 5%, it’s a sign to rebalance. Rebalancing is not just about maximizing returns—it’s about managing risk and staying aligned with your long-term objectives. Even when market conditions fluctuate, staying committed to your plan and avoiding impulsive changes can be the key to lasting financial success.

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