DEVELOPING A FINANCIAL PLAN
Define your goals: To develop your own financial plan, define your short, medium and long-term goals. Short-term goals are those that are to be achieved within the next year, medium-term goals in the next five to 10 years, and long-term goals beyond 10 years. You also need to decide which of these goals will be met by your income, which through insurance and which with borrowings.
Identify your restrictions: Next, identify the restrictions that could check your financial plan’s progress. For instance, you might want to go on a world tour, but have to pay your house installments.
After identifying goals and restrictions, decide whether you prefer separate portfolios for specific goals like buying a house or a single portfolio geared to meet your needs.
You should always have three types of financial investments in your portfolio: liquid investments such as fixed deposits and money market mutual funds; regular income investments, ranging from income schemes of mutual funds to debt instruments; and growth investments like equity based schemes of mutual funds. Further, balance your investments between the three categories in such a way that your wealth grows to meet your various requirements.
A host of factors determine an individuals’ financial plan, as a result, drawing up a model financial plan is a futile exercise. Still, for purposes of convenience, Bajaj Capital Investors India outlines some basic guidelines for financial planning specific to young qualified professionals in medium and high salary bracket, with regular or irregular income sources.

CREATIVE POWER
For a fairly well known, young artist, musician, dancer, or painter, the source of income is irregular and moderate. If the investor is of a conservative risk profile, the main objective is of preservation of capital and generating adequate return. Also the primary need for an artist is to ensure adequate life protection cover. The cover should be sufficient and also come with bearable cost. Keeping this in mind one can consider ICICI Prudential’s Lifeguard or LIC’s New Bima Kiran. These are term assurance plans, which means they primarily provide life risk cover but no return on the premium. The premium on these plans is the lowest compared to other insurance plans. Plus the premium is returned at the time of maturity.
These are low premium plans with various benefits. Anyone between 18 to 45 years can opt for New Bima Kiran. The maximum term of the plan is restricted to 30 years and the maximum maturity age is 60. In comparison, the age limit to take Lifeguard is between 18 to 50 years. The maximum term of the plan is also restricted to 25 years and the maximum maturity term is 65 years. Accidental benefits are available under both plans.
There is difference between the premiums charged on the two plans. Assuming the age of the policyholder to be 30 years and the term of the plan to be 20 years and the sum assured of Rs 5,00,000, the annual premium under New Bima Kiran is Rs 6,239. In comparison the premium under Lifeguard is Rs 4,845. Although the premium under New Bima Kiran is higher, one gets a free life cover for 10 years after the expiry of the plan. So one needs to weigh the pros and the cons of the two while selecting the right option.
Savings however small but regular are essential for the creative professionals. For Aarthi Shankar, Bharatnatyam danseuse, “I usually put most of my earnings in a savings account or Fixed Deposits, and divide my money into two parts - spend and save. There is no fixed amount for saving or spending. I try and maintain a balance between the two.”
Small and regular saving could be put into Systematic Investment Plan (SIP) of any debt fund. This encourages disciplined savings. Debt funds ensure stable and safe investment. The accumulated savings over a period of time would grow into a big lump sum in future. (Refer to Table No. 1A to see how SIP in a debt fund helps in growth of the investment.)
“My saving style lacks consistency. I save or invest only when I have a good amount,” says Salil Bhatt, emphasising the importance of Monthly Income Schemes. If one already has a lump sum and intends to utilise it as source of a regular income then one can invest in Monthly Income Scheme of Government Saving Scheme. The investment in this scheme gets interest @ 9% per annum payable monthly. Besides this one gets 10% bonus on the investment at maturity. This is one of the most tax efficient incomes as interest up to Rs 9,000 in a year is tax free under section 80L of the Income Tax Act.
In order to boost your investment kitty, the creative professional also needs to contain expenses. A great way of doing this is by maintaining a budget. “This not only helps you track expenses but also helps you plan purchases,” says Aarthi, who has been budgeting for a year now. Also, avoid expensive credit card debt.

ACADEMIC POWER
A young MBA or IIT engineer or IT professional falls in the high and regular income bracket. With a regular income flow he can indulge investing in risky investments comprising of equity or direct shares.
Nitin Navish Gupta, Senior Associate, Evalueserve (An expert knowledge services provider) invests 10 to 15 % of his income in risky instruments like the stock market or equities. “The profits are high and since at my age I do not have any commitments I can afford to handle some losses,” he states.
One basic requirement for professionals like him is to take a life insurance product having an adequate risk cover. This would ensure regular income for the dependents in case of unfortunate death. Endowment plans like ICICI Prudential’s Save‘n’Protect and LIC’s Jeevan Anand are very useful and practical plans.
Both are basically fixed term plans in which one pays the premium regularly during the term. On the unfortunate death of the life assured, the beneficiary gets the sum assured, the guaranteed additions and the vested bonuses. In addition, one gets an extended term insurance cover after the maturity date of the policy without payment of an extra premium.
Any investor between 15 years to 60 years of age can take Save‘n’Protect but the maximum maturity age should not exceed 70 years. While any person between the age group 18 to 65 years can take Jeevan Anand but the maturity term should not exceed 75 years. Accidental benefits are available under both the plans.
Let’s compare the premiums under the plans. Assuming the age of investor to be 30, the term of the plan to be 30, the premium for sum assured of Rs 10,00,000 under Jeevan Anand is Rs 32,573 and under Save‘n’ Protect it is Rs 26,896. The difference lies in the coverage after the maturity of the plan. Whereas Jeevan Anand provides the coverage of full sum assured after maturity, Save‘n’Protect provides the coverage up to 50% of the sum assured only.
Diversification is another aspect a young professional should look into. According to Nitin Gupta, “I have invested in NSC, Infrastructural bonds, LIC schemes, FDs and directly in to the stock market. Also I keep liquid cash in my bank account for emergencies.” This type of diversification is essential, as it promotes higher returns from different sectors. “Do not cross your risk capacity, but diversify your portfolio,” believes Rahul Saxena.
For these professionals, the flow of income is high and it requires careful canalisation into saving products so that savings could give support in case of depletion of income due to possible loss of employment. Systematic Investment Plan (SIP) of an equity fund is a good option in this scenario. Investment by way of SIP helps in making the volatility of securities market work in the favour of the investor. As regular investments are made at periodic intervals the units are allotted on the basis of prevailing NAV on the date of investment. Since the amount invested every month is constant the investor buys more units when the NAV is low and higher units when the NAV is high. Thus the average unit cost per month is always less than the average sale price of the units, irrespective of the movement of the market. (Refer to Table No. 1B to understand how SIP in equity funds work.)
As savings at this stage of life is higher than what it could be in the coming years, one can plan for retirement with a pension policy. ICICI Prudential’s ForeverLife is a comprehensive retirement solution that is developed keeping in mind ones various needs, with respect to your retirement planning.
Ideally, one should be between 25 to 35 years of age to take the maximum benefit of this plan. Longer period for retirement plan more the advantage of compounding over a long period of time to create a sizeable retirement kitty.
The plan has two phases — premiums paying period and the pension receiving period. Premiums are paid till vesting age chosen by the plan holder. From the vesting date pension is paid for the lifetime of the policyholder. One gets life cover also during the premium payment period. Tax benefit under 80CCC(1) i.e. deduction up to Rs10, 000 is available with this plan.
This option also gives one the flexibility to buy a pension from any other insurer of his/her choice, at the time of vesting. Other choices are life annuity; life annuity with return of purchase price; life annuity guaranteed for 5, 10, 15 years; joint life, last survivor with return of purchase. One can also convert 25% of the accumulated corpus and receive it as tax-free lump sum on the vesting date. Add-on benefits/riders available with this plan are Critical Illness Benefit, Major Surgical Benefit, Accident and Disability Benefit, Level Term Assurance Benefit.

GLAMOUR POWER
Parties, outings, fast life, loads of money, these are the main constituents in the life of a DJ, anchor or model. The income generation period for a person engaged in such a profession, though it starts earlier, is of a lesser span than that of person engaged in any other profession and also higher than the latter. Thus it is essential to ensure the same earning potential as that during the earning years continues during non-earning years as well.
For these professionals it is essential to ensure that sufficient money should be with him/her for the days when he/she is not earning as high income as before. Thus one needs to find instruments in which he/she can invest during the high-income days and that it returns a good lump sum later on. One of such plan is Limited Endowment Plan from Life Insurance Corporation of India.
The plan provides for payment of premium for a limited period, followed by a deferment period at the end of which one gets the sum assured back. To understand this better let us take an example of a person whose age is 25 and he chooses the term of the plan to be 25 years. The sum assured chosen by him is Rs 5,00,000. Now, if he opts for payment of premium for first 5 years only then he would have to pay Rs 24,520 per year. At the end of 25 years he would get Rs 5,00,000. Keeping other factors constant in the above example, the premium gets reduced as he chooses longer premium payment period. For 10 years term it is Rs 14,699 p.a., for 15 years it is Rs 11,498 p.a. and for 20 years it is Rs 9,922 p.a.
The premium however increases with age. In the above example, if we just change the age of the person to 30 years then his premium for 5 years term would be Rs 25,054 p.a., for 10 years it is Rs 15,039 p.a., for 15 years it is Rs 11,789 p.a. and for 20 years it is Rs 10,189 p.a.
The plan besides providing the tax benefits under section 88 of provides life risk cover also. By paying a little extra premium one can also get accidental coverage.
For famous model, Annie Thomas, “Monetarily I do not get to save much money each month. I have to pay my house-rent, plus the installments on the new house that I am buying. So that takes up most of my earnings. But if I get money in a lump-sum, I usually put it in FDs.” But there are other options to invest lump sum also. For example GOI Relief Bonds which give tax-free return of 8.00%. One can invest up to Rs 2,00,000 in a year. The maturity period is 5 years. The strategy could be to invest Rs 2,00,000 every year up to next 5 years and after that renew the amount maturing each year at maturity.
For investors in glamour professions, even if they start off with a good income, their expenses are high, and this leads them to dip into their savings. So theoretically, though one is in a great position to take on high risk by investing in equities, they might find it difficult to achieve the critical mass of savings to do it meaningfully.
But experts insist one must invest as much as possible in equities since historically, over the long term, equity has outperformed all asset classes. The bulk of your remaining portfolio funds should be invested in liquid instruments, since many small and large expenses have to be met. Depending on your requirements, you need to keep at least three to four months of income in these investments to tide over contingencies.
For DJ Jazzy Joe, “At this point of life I am not saving much apart from a small amount in my savings account. I am consolidating all my assets into advancement of my new company - Juice. But I would be interested in investing in equities as soon as my company takes off and I can spare some cash.”
While tax saving may not be easy for these professionals, experts feel this must be done. You could consider getting the maximum tax break by investing Rs 10,000 under Section 88, in equity linked saving schemes (ELSS) of mutual funds. This will give you a growth element, even in your tax-related savings. Another benefit of tax-saving investments is that since many of them such as public provident fund (PPF) are long term in nature, they serve as perfect vehicles for retirement savings.