Analysing the premise of financial planning recommendations

Abstract

Wealth Management Firms provide financial planning recommendations to individuals with varied objectives. On the one hand are people who wish to have recommendations for maximizing their long-term returns, while on the other hand are people who want recommendations for maximizing their returns in the short run. Based on their requirements, Wealth Managers advise people about the appropriate proportion of their wealth to invest in various instruments like Savings Account, Fixed Deposits, Recurring Deposits, Mutual Funds, Equities, etc. This advice is based on a rigorous analysis of the present investment scenario, the possibility of freeing up bad financial investment in the present case, minimizing the risk associated with the investments and eventually targeting capital growth to meet the goals of the respective individuals. India has the fastest GDP growth rate among the emerging nations in the recent past, and it is slated to improve further fuelled by various structural reforms. Increasing growth rate has led to an increase in both earnings as well as consumption, which in turn has resulted in an increase in middle-class population in the country [10]. Increased Earnings not only result in increased consumption but also results in a greater tendency of exploring various options of Wealth Creation through Investments. A vast majority of population saves a good amount of their earnings and holds them in the form of Bank Deposits (Term Deposits, Savings Accounts). Although this provides them the flexibility of accessing the money whenever they want, these investment options fetch them an extremely low rate of return from a long-term perspective. Investments yielding a higher rate of return, come with caveats of fluctuating values and lower liquidity as compared to the former. Due to this, the Investment Culture has not been prevalent in India thus far. This includes investing in Equity Linked Savings Scheme (ELSS), Mutual Funds, Gold, Real Estate, etc. Wealth managers provide investment advice such that an individual can maximize the return on his/her investments, minimizing the risk and thereby enabling them to achieve their respective goals. It is intriguing to know the mechanism such wealth managers use to arrive at the numbers for the individuals looking for advice. Hence, the need for a study arises.