Chennai-based Madan Sudarman and Prerna Madan, both 42, hold the financial values they learnt from their parents close to their hearts. “Our parents were risk averse and predominantly focussed on real estate and jewellery and never took unwanted loans," said Sudarman.
The Madans stuck to investing in bank fixed deposits for most of their lives and forayed into debt mutual funds only last year. “We invested in debt funds across categories (ultra short-term, short-term, medium-term and credit risk), hoping for better returns than FDs," said Sudarman.
Unfortunately, the 2018 debt crisis hit the funds they had invested in. “The defaults from IL&FS, Dewan Housing Finance Ltd and others started impacting the NAVs (net asset values) of our funds," said Sudarman. Unsure of how to handle their debt fund portfolio, they sought professional guidance and contacted Shashi Singh, a Sebi-registered investment adviser and founder, FinMyn.
Though initially the purpose of meeting a professional was specific—to simplify and protect their debt fund portfolio—subsequent discussions made them realize they needed to take a holistic approach to their portfolio.
However, this made little difference to their risk appetite. “Though they have the capacity to take risk, they don’t have the appetite for it, so their portfolio needed to be designed accordingly. That is why their proposed portfolio includes only 20% allocation to equity and that also through the conservative approach of index fund-based investing," said Singh. A financial planner is someone who tailors your financial portfolio according to your needs and helps you achieve your financial goals in line with your risk appetite. This idea seems to have appealed to Sudarman and Prerna. “What I wanted from my adviser is that he should understand my risk preference and my persona. More than money, I need peace of mind, and the uncertainties attached to equities may not provide that as there are constant ups and downs in the market," said Sudarman.
However, the couple is not completely averse to the idea of increasing their equity allocation in the future if the need arises.
Within the stated risk parameters of the couple, there were several issues that needed straightening. The couple had unknowingly bought some debt funds that were not suitable to their risk profile. “They assumed that the debt funds will give slightly higher returns than FDs with similar kind of safety. They invested in it based on a colleague’s advice but were not aware about the risks," said Singh.
Another key area that needed to be addressed was insurance. “Securing finances for my family has always been a priority for me. I had decent life cover, but it is a little expensive. I am planning to replace this with a cost-effective e-term policy," said Sundarman. The family has since reduced the number of whole-life, endowment and unit-linked insurance plans.
The planner also recommended increasing the amount of health insurance for his mother. Sudarman also has a family floater that covers his wife and two daughters, who are 12 and 14 years old.
Another thing that Singh worked out for Sudarman was having him invest his mother’s money in government-backed, high-return savings schemes such as SCSS (Senior Citizen Savings Scheme) and PMVVY (Pradhan Mantri Vaya Vandana Yojana). “As a senior citizen, she gets more interest on some instruments and a higher amount of her income is tax-free," said Sudarman.
The assets they have accumulated have been apportioned into long- and short-term investments to cater to the couple’s goals—the education and marriage of their daughters and their retirement. Sudarman has invested in a farm land at a prime location, which he plans to liquidate at the time of his daughters’ marriage. Apart from that, he has a house in which the family lives and has no intention to increase allocation to the asset class. “Maintaining a flat is too cumbersome. So even before I met the planner, I decided not to add any more real estate to my portfolio," said Sudarman.
Among the family’s short-term goals is travelling for leisure. “We have become more cautious about reducing unnecessary expenses but it doesn’t come at the cost of having a good time with the family, say, for leisure travel," said Prerna.
The family is on course to achieve their goals with minimal exposure to risky assets, and having a planner has smoothened their risk-averse financial journey.
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Mistake I won't repeat
