All about helping parents in managing their finances3 min read . Updated: 01 Dec 2018, 12:16 PM IST
Guaranteed return investment not the only option. Keep eye on inflation adjusted returns, liquidity and fraudsters
Mumbai: Not just teaching technology, helping your parents manage finances — operational or complete financial planning — too, deserves a real shout-out.
For Mumbai-based Akshay Brijesh Gautam, 29, financial data analyst at a public sector, it was operational. “It became a cumbersome exercise to consolidate different bank accounts, fixed deposits and physical shares," said Gautam. So he asked his parents to focus on fewer bank accounts.
Bengaluru-based Giridhar Chakravarty, 29, IT consultant, said he made a list of all investments, insurance policies, identity proof documents and account numbers to double check their validity. “I make sure all sensitive information is in a secure location or in a password-protected mobile app," said Chakravarty. To make payments easier for his parents, Chakravarty considered “setting up auto-online bill pay for house loan equated monthly installment, credit card and milkman charges".
Both Chakravarty and Gautam took the online route to make things easier for his parents. “It became difficult for them to visit bank branches for passbook updates and bank statements. So I told them about the usage and features of mobile apps of banks," Gautam said.
Many find handling physical shares tough. “When my father retired, I first converted physical share certificates to demat form and explained them the benefits of a demat account, as my parents were unaware of this," said Gautam.
Choosing the right investment instrument to park money can be challenging. “My father worked in a private organisation, where there was no pension system. When he retired, another problem was investing his retirement fund," said Gautam.
He invested his father’s retirement funds in different financial instruments such as senior citizens savings scheme (SCSS) and fixed deposits in banks. He started a few systematic investment plans (SIPS) in equity-linked saving schemes (ELSS). He keeps track of all investments as most of them are linked to his email ID and discusses finances regularly with his parents.
Vigilance is one of Chakravarty’s priorities when it comes to managing parents’ finances. “I keep noticing the red flags – signs that show my parents may be having trouble managing their finances. For example, unusual purchases on bank account statements, unpaid bills or bills paid more than once or skipped payment dues," said Chakravarty.
If you want to handhold your parents with money management, review their investment first and realign it according to their risk taking ability and cash flow requirements.
“Even if they were aggressive investors earlier, with age, risk taking ability will come down. If they have a large portfolio, which is more than their monthly withdrawal requirements, the extra amount can be invested in a bit aggressive way. But the amount required for their living expenses should be in conservative investments. The products should be chosen which is more tax efficient," said Mumbai-based Melvin Joseph, a Sebi-registered investment adviser and founder of Finvin Financial Planners.
Also, ensure sufficient health insurance cover for them.
“If possible, get them added in your corporate health insurance plan. Keep a medical emergency fund to cover expenses which are not covered under the policy," Joseph said.
Senior citizens should not just invest in guaranteed instruments.
“They should also consider liquid and inflation-beating instruments," said Deepali Sen, founder partner of Mumbai-based Srujan Financial Advisers LLP.
Financial products such as SCSS, post office monthly income scheme (MIS), tax-free bonds and long-term FDS provide guaranteed returns, but come with a lock-in and considering the increasing life expectancy with medical advancement, you should also look at products with higher liquidity for easy availability of finances, said Sen.
“Keeping 100% in debt is not ideal even after retirement. Depending on the risk profile, 15%-30% should be in equity. This can be gradually moved to debt," said Joseph.
If your parents need help with finances, here’s where to start:
■ Streamline numerous bank accounts
■ Vigilance over key red flags
■ Organise their investments
■ Make them aware of how to use apps, internet for finances
■ Keep track of the investments and rebalance the portfolio when required