When Its About Investing, Youre Never Too Late

Vicky Gujral,43 is married to Simarjeet,40. They have a son Arshdeep,15. Both Vicky and Simarjeet are techies with fast track career in India’s leading software companies

Vicky is a self-made man and his financial plan is focused on buying a house quality education of his son and retirement planning. They have started investing into mutual funds in 2016 with some allocation to traditional instruments like PPF and FDs. Their asset allocation is more tilted towards debt. 

When Vicky started investing, the key challenge was: 

1. Comprehensive financial plan for achieving his goals
2. Beating inflation
3. How to select funds as all funds looks similar in good markets
4. Building corpus as he is a late starter
5. Is it safe to invest in mutual funds, capital markets As Buffet says, 

“Risk comes from not knowing what you are doing”. 

We first listed the family goals and bucketed them into – 

1 Long term – retirement, children marriage
2 Medium term – child education, reduction of debt
3 Short term – buying a house 

At the current savings rate of 10% of monthly surplus of 3 lakhs,these goals were unrealistic, coupled with a fact that he is a late starter. Incremental savings including any lumpsum payments like bonus, ESOPs need to be added to keep pace with the set goals. 

After working on the abovefacts, we shared our view on each asset class and explain the concept of asset allocation. With a fair understanding of these concepts the familyhas startedinvesting 10% of their take home cash flow. 

Streamlining the Financial Plan 

Vicky is doing SIPs and been actively participating in balance funds as and when he is getting any lumpsum money. He is adequately covered through life insurance and mediclaim policies.

My role as a planner is to streamline the plan through
1. An increase monthly SIP contribution from Rs 30000/month to Rs 70000/month. The portfolio needs to be complemented by adding some Balanced funds for medium-term goals.
2. A contingency fund to be built through annual bonus or any sudden lumpsum gains.
3. A nicely drafted Will, covering all tangible and financial assets to be made for succession planning and asset protection. 

A more balanced asset allocation, increase in equity weightage through SIPs which compliment his existing portfolio and stepping up the monthly contribution to SIPs will carve out the path of financial independence. Periodic review of the portfolio, fund performance and moving to safer buckets as the family starts approaching their goals is equally important. 

Way forward 

1. We have assumed overall inflation at 6%
2. Return from equity is assumed at 12%-13% and from hybrid @ 10%
3. Goal planning –Vicky has a low-saving rate and he has agreed to increase his SIPs to 25% of cash flows to meet up his goals.
4. SIP allocation will be – Large cap- 40%, Multicap-40% and Midcap-20% We wish Vicky and his family a very healthy and prosperous life.