Sameer Damania, a 40-year-old computer scientist, was one of those investors. According to Sameer, he’s a good saver, a habit he picked up from his parents. The covid-19 pandemic has not affected his job, and his habit of parking the surplus in banks has helped Sameer meet some financial needs over the past two years.
However, after the outbreak of the covid-19 pandemic, he realized that his current savings growth may not be enough to help him meet his long-term goals. Sameer, who is married to beauty professional Natasha, has dependent parents.
“My investments were not giving me sufficient returns to beat inflation. I wanted to know how best to plan for my future and the available investment options so that we can maintain our current lifestyle even when we are retired, ”Sameer said.
This led him to seek help from Harshad Chetanwala, a registered investment advisor by Sebi (Sebi-RIA) and co-founder of MyWealthGrowth in January. “Sameer knew the benefits of investing in equity funds, but the investment convenience was lacking. So we started to gradually divert savings into equities. Their monthly cash flows are now invested in equities via systematic investment plans (SIP). You can’t build a long-term portfolio without stocks, ”Chetanwala said.
Prior to approaching Chetanwala, Sameer’s investments had been mainly in savings bank accounts, two unit-linked insurance policies (Ulips), contributions to a voluntary provident fund (VPF) and a pension plan. equity linked savings, or ELSS, mutual fund, which was made for tax savings.
While Sameer had sufficient contingency fund for five to six months, Chetanwala advised him to increase it to last for one year. Additionally, Chetanwala worked on increasing the equity allocation in Sameer’s portfolio.
“The plan was to be aggressive on stocks because Sameer’s goals were mostly long term. To start with, we started with a large cap fund and a flexible cap fund, plus the existing ELSS fund, ”said Chetanwala.
From 25% investment in equities before seeking professional help, Sameer’s asset allocation now stands at around 50% in equities and 50% in debt, which will gradually increase to 65-70%.
“In some cases, people are initially uncomfortable investing larger sums. So you go step by step and start increasing the investments gradually. This is what we did with the Damanias, ”said Chetanwala.
Experts say investors shouldn’t expect a repeat of the stellar performance of stocks over the past two years and keep their expectations in the 10-12% range over the long term.
Then Chetanwala and the Damanias worked on the insurance part. Although Sameer took Ulips, he did not have term insurance, which is a plan that provides coverage for a set period of time in exchange for a specified premium amount.
Sameer was insured at approximately 25% of the required life insurance coverage. Thus, for the uninsured part, Chetanwala suggested that he take out temporary insurance.
The good thing, however, was that the Damanias had decent health coverage in the form of a group policy and a comprehensive plan that covered outpatient and inpatient treatment.
Sameer had taken a family floating shot between him and his wife and another floating shot for his parents.
According to experts, individuals should not rely solely on a company policy and should take out comprehensive personal insurance plans that cover outpatient and inpatient treatment, including consultations, medical tests and hospital stays. ‘hospital.
“We plan to add a critical illness element to Sameer’s health insurance policies,” Chetanwala said.
Then Chetanwala started working on the Damanias’ goals, which were mostly long term. Luckily for Sameer, he had no loan burden, but he was planning on getting a home loan and other goals included retirement and planning for children and their education.
Chetanwala thinks that since Sameer’s risk appetite was moderate, with a long-term horizon, the plan should be to switch to a mid-cap fund after a few months once it gets better. comfortable with stocks as an investment class.
According to Chetanwala, one of the main takeaways from Sameer’s case is that individuals should always keep an eye on debt-to-equity asset allocation, especially when investing more through VPF, because by default, this allowance goes to debt.
“Although this is a very good instrument, if you need more money on hand it needs to be redesigned with that in mind. Another key learning has been that if you have long term goals, you can’t just rely on provident funds and bank deposits to help you out, ”Chetanwala said.
While Indian banks pay interest in the range of 4-6.5% on DF for one to five years, the VPF gives a return of 8.50% per annum. However, VPF contributions come with a blocking period. A total or partial withdrawal before the period is taxable.
“You will need to use stocks to grow your wealth because it is one of the best asset classes to invest in for the long term,” Chetanwala said.
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