Financial Planning is a more comprehensive process. We have to plan our finances to create a roadmap for finances throughout our lifetime.
2) Investing in mutual funds gives you the chance to earn returns and appreciate your wealth. Financial Planning includes many things like -
- Assessment of current income and wealth status
- Creation of Budget
- Listing of money goals,
- Plan on how to achieve the goals
- Tax Planning
- Estate Planning
4) In financial planning, the entire portfolio will have to be looked in its entirety. Asset allocation and portfolio balance has to be done taking all assets into consideration including the types of Mutual Funds invested in. Mutual Funds are a subset of the broader portfolio which can include, Gold, Bonds, Stocks, Real Estate and Mutual Funds.
5) Financial Planning takes care of the financial health of the person. Mutual Funds are a part of the financial portfolio wherein it has to be decided as to how much money should be invested in MFs. This decision has to be taken after considering other assets and liabilities and current financial situation and financial profile. For example, if you have recently joined the workforce and have a well paying job in an MNC, you can invest in equity mutual funds. If you are a retired person, your allocation to debt Mutual Funds should be more. Mutual Funds are a part of the bigger financial portfolio and you can invest in different types of funds like Equity funds, Balanced Funds, Liquid funds etc.
6) Financial planning should be done professionally. If you do not have know-how, time or confidence in your skills, you should outsource it to a financial planner. You may end up investing in poor products or unsuitable products if you are not knowledgeable. You might make losses. Mutual Funds are strictly regulated by SEBI. They are transparent in reporting and have to follow strict rules on compliance. The fund manager will also have the responsibility for tweaking the profile to minimize losses. It is not the same with all assets of your financial portfolio. For example, if you invest in gold or real estate, the prices can move either ways.
An appropriate financial plan will steer the investor in investing in the right mutual funds so that the overall portfolio remains in balance and returns are optimum. Mutual Funds play a part in the financial plan which help the person achieve his/her financial objectives.