So before we discuss about Financial Plan let us ponder over what is Planning. Before undertaking any activity, it is necessary to consider its scope, activity, pros, and cons of various alternative course of action. Keeping this in mind one has to draw the board outline of the Plan. The more realistic the more detailed and the more imaginative this Plan, the more is the possibilities of its implementation. So for Financial Plan the light house is Financial objectives. Your Financial Objectives should be specifically and categorically spelled out.

Your Financial objectives should be specific, quantified and should be time lined. Then Risk profiling/ Risk tolerance and risk appetite of a person should be measured. Asset Allocation of a person will be decided on the basis of risk profiling. Asset Allocation simply means, how your investment should be channelized between different Asset Classes.

Broadly speaking different Asset Classes are Gold and other Metals, Interest and interest bearing securities like F.D., PPF, NSC, BONDS and Government Securities, Real Estate,Equity and Equity Related Instruments like Mutual Fund, ETF, PMS and AIF and Art and collection.

So every doctor poor or rich needs Financial Plan like any poor or rich person needs medical aid.

In doctor case Financial Planning is more imperative because there is sizable case flow and it needs proper management. Further and most important like majority of other fellow society members, doctors do not have any social security so one has to plan for Retirement and Contingencies and Unforeseen circumstances. I always love to say that Risk is not that people die early. Risk is that people live very long. One more contingency doctors nowadays has to deal with is Professional risk such as Professional liabilities and lawsuits. Although this can be mitigated partly by insurance the premium of the same is getting high day by day.

In my journey of 30 years of this financial planning practice, I have come across many doctors and specialists and have had the privilege of creating a portfolio for many of them From my experience and interaction, I have made some observations and characteristics which I am enunciating in the following para.

Doctors need a very peculiar and specific Financial Planningmodel . Their life cycle clock is very different from any other profession or category .

Because of their education demands, they start very late and most of them can start their practice only after the age of 30. Further, first 3 to 5 years of practice can be very challenging. Their requirements of funds for premises and capital equipments and other infrastructure is very huge and they end up committing to huge interest and liabilities or rent payment.

In this above scenario let us draw out the financial plan for a doctor. First and foremost is to take care of emergency fund. Emergency funds of approximately six month of expenses should be parked either in liquid fund or any savings bank account.

Next is to take care of insurance. Term insurance of sizeable amount should be opted which is available at very nominal amount. Instead of going for endowment and money back types of insurance where outflow of funds is very large despite that, also are you underinsured; should be avoided.

Suitable health insurance also should be sought. Now a days floating health plan is more reasonable .

Only after you have covered all this basic needs can we cater to your wealth creation plan. This can be guided by your financial objectives. You have to narrate your financial objectives and their time cycle because this will decide the size and duration of investment which we are contemplating .

Once financial objectives are identified, your risk appetite should be quantified which will eventually decide your Asset Allocation.

So risk profiling is very crucial and Asset Allocation is the pillar on which the financial plan will succeed and stance.

Asset Allocation although may look to be boring and insignificant but is quintessent in financial planning and overlooking the same can be a very fatal mistake.

From my experience in this practice Indians and more so Doctors go overboard in Real Estate and generally Debt or Fixed Income instruments like Fixed Deposit, PPF & LIC. Most of the investors and Doctors are underweight on Equity or Equity related instruments which is the fastest growing and most liquid Asset class in long term.

I have always said that Men/ Women has 3 real friends .An old dog, an old spouse and money with Mutual Funds.

In our next series we will discuss about creating an equity/ mutual fund portfolio.

Meantime, if you have any question regarding any investment please mail me on tutiramit@yahoo.co.in But before parting I would love to narrate a line by Peter Lynch.

“In the case of mutual funds, for which the investor isn’t required to analyse companies or follow the market, it’s often what you know that can hurt you. The person who never bothers to think about the economy, blithely ignores the condition of the market, and invests on a regular schedule is better off then the person who studies to time his investments, getting into stocks when he feels confident and out when he feels queasy.”