Home >money >calculators >Absence of equity was affecting wealth creation

You don’t really need to be in a crisis to go to a financial planner. When Ghaziabad-based Ashish Kaushik, 30, met Jitendra Solanki, a Ghaziabad-based Securities and Exchange Board of India (Sebi) registered investment adviser, in 2013, he wasn’t at the brink. On the contrary, he had not done anything. He had dreams but didn’t know how to get there. What’s worse, he had already taken steps that would take him away from his goals.

Apart from money lying idle in his bank account, a customary tax-investment he used to make every year (around 40,000 in Public Provident Fund), and a failed attempt to sustain a recurring fixed deposit in a bank, he had not made any other investments. His Employees’ Provident Fund was his only other outgo.

“I had seen families where seniors had reached their retirement and realised they don’t have enough money to live a decent life, despite having earned well in their careers," said Kaushik. The inaction was enough to shake him up and he sought advice.

An online search led him to Solanki. But being a Sebi-registered adviser, Solanki charged fees. Was Kaushik comfortable with that? “I was well-prepared to pay fees; if the adviser is making an effort to help me make money, there will be fees," said Kaushik.

The first thing Solanki saw in Kaushik’s portfolio was a complete absence of equities. His asset allocation was about 56% in cash and 43% in debt. But Kaushik had dreams. He wanted to upgrade to a bigger home. He was living in a 1,500 sq. ft, 2-BHK and wanted a 3-BHK of at least 1,900 sq. ft. He also wanted a bigger car. Solanki made him understand that without equities, such dreams would be unachievable.

But there were other priorities. Kaushik was single at the time but had plans to marry. He also had dependent parents. He used to—and still does—contribute to his household savings every month. His father was a cardiac patient and had undergone a bypass surgery by then. Since his father didn’t have insurance, his health weighed on Kaushik’s mind. Solanki suggested a specific heart-related health plan with a sum assured of 4 lakh for his father, which came with an annual premium of 44,000.

For Kaushik, Solanki recommended a term cover of 1 crore. Kaushik already has a health cover of 5 lakh from his company, but would soon buy his own health and personal accident covers. The plan to buy a car was shelved and house purchase deferred.

Kaushik was put on systematic investment plans (SIP) of equity funds of 10,000 a month. Every year, Kaushik invest 8% more—or what is commonly called as top-ups—in his SIPs. For Kaushik’s dream home, Solanki suggested putting aside 50,000 every month in ultra short-term funds and a lump sum in an equity savings mutual fund. “We have delayed this goal by another five years as his current finances don’t allow Kaushik to go in for higher EMIs," said Solanki.

Apart from this, Kaushik’s expenses have consistently been in control and he saves more than 50% of his income.

Another area of change was in debt holdings. Earlier, 43% of Kaushik’s assets were in debt instruments but no debt funds. A part of Kaushik’s assets are now in debt funds. “If you want to build wealth over time, approach the portfolio holistically. Equities are important, but debt instruments, and bit of gold and cash are necessary," said Solanki.

Now married and with a child on the way, Kaushik will soon enter the second stage of his financial life, which is to plan for his child’s future.

Mistakes I won’t repeat:

1. Splurge and spend without analyzing

2. Investing money without a balance of equity and debt

3. Future goals and retirement were not on my mind before

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