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Business News/ Money / Personal-finance/  Need to keep financial goals in mind

The year 2018 was eventful for equity as well as debt investors.It is natural for investors putting in savings for long-term financial goals to get worried in such situations. In this scenario, Melvin Joseph, a Sebi-registered investment adviser and founder of Finvin Financial Planners, tried to keep it simple for his clients. The entire focus of Joseph’s communication with his clients, every time the market witnessed turbulence, was to remind them about their financial goals and act accordingly. 

According to Joseph, a typical WhatsApp conversation with some of his clients on the evening of the day when markets fall goes like this:. 

“Client: Melvin, what’s happening in the market? 

Joseph: What happened? 

Client: The market fell today by 1,000 points. Is my invested money safe? 

Joseph: What is your next financial goal and how far is it? 

Client: My kid’s higher education, 10 years from now. 

Joseph: Then why are you bothered about the market falling now? Your SIP next month will bring you more units of the fund. If your goal is 10 years away, even if the market remains low for the next 3-4 years, you remain happy." 

Variations of the conversation take place depending upon the client’s financial goals. For someone with a goal within three years, Joseph does not recommend equity allocation. “I do not allow any of my clients to keep their money in equity till the last day. If the goal is, say, 15 years away, invest in equity. When it is 10 years away, gradual balancing should start each year. In the last 2-3 years, the entire money, including SIPs, for that goal should be in debt," he said. 

But once in a while, there are instances when his clients do not entirely follow his advice. One of his clients, who is a senior official in a large conglomerate, has maintained equity investments for his child’s higher education goal which is less than three years away. “He is aware of what he is doing, and has realised that his portfolio for that goal has depleted by 10%. And he is doing that because he can mobilise other resources or get an education loan. But someone else with not enough financial strength might be seriously worried if this happens," he said. 

Not just equity markets, even debt funds were impacted during the year, mainly due to the defaults by some IL&FS Group companies. Such defaults have happened more than once in the past few years, hence Joseph has changed his recommendations in the debt category. 

“Ideally I do not recommend anything other than a liquid fund or ultra short-term bond fund in the debt category. For me, for long-term goals, debt funds come into the picture only after the person is fully invested in EPF and PPF. I stopped recommending dynamic bond funds after the Amtek Auto default. Now, I recommend debt funds that have exposure to 50-60 securities, so that even if something goes wrong with one (there’s not much impact). Most good ultra-short term bond funds have this practice," he said. 

Market volatility is largely creating panic among new equity investors. For a disciplined investor, with an eye on her financial goals, market volatility can be good, Joseph added.

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Updated: 31 Dec 2018, 08:40 AM IST
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