If fee is fixed, I won’t think about ‘hiding’ my investments from the planner

All that Pune-based software engineer Gaurav Sakhardande had was investments, but no specific goals against them

Pune-resident Gaurav Sakhardande’s first step towards finance was not that of getting an adviser, but to study for it himself. “I wanted to do some type of a certification (course) after which I could give personal financial advice myself. But I realised that it’s not simple because there are many regulations in place," said Gaurav. Instead, he came across a group of fee-only advisers online. His search led to Chandan Singh Padiyar, who was also based in Pune. “Location was important for me as I wanted to meet the person," said Gaurav. He also wanted a planner who was registered with the Securities and Exchange Board of India (Sebi) “because I didn’t know the person myself." 

Gaurav was sure that he wanted advice from a fee-only planner. “I thought that if the fee is fixed, I won’t think about ‘hiding’ my investments," he said. What he meant was that if there is a fixed fee, then the amount being invested doesn’t matter—whether it is a lot or a small amount, the planner’s fee remains the same. 

For all his self-education and interest in personal finance, Gaurav admitted that while he was organised in terms of “maintaining" investments—he had reminders set for paying premiums and instalments on time—his finances were “unorganised". “When I went (to Chandan Padiyar), I realised I had more than 80% allocation to direct equities. Even the mutual funds I had were all small-cap funds. I had invested in whatever came to my mind," he said. Gaurav knew about direct plans in mutual funds and was investing through these but “when it came to choosing the instruments to invest in, and how much to invest—for example how much was needed for emergency funds and insurance—I was unaware."

The initial steps included filling an extensive spreadsheet detailing Gaurav’s income, existing investments, expenses, liabilities and more. “I had seen similar sheets with my colleagues. But since I had opted for a financial planner and he was following up, I was forced to fill it. On my own, I would probably be reluctant to fill in so much data," said Gaurav.

One of the things this exercise revealed is that while Gaurav was saving a lot, he was also spending a lot—“on eating out," he said. For professional enhancement, he was attending many conferences, and since he could go only during weekends, the mode of transport was flights. “I realised that I was spending Rs1-1.5 lakh just on conferences." He was advised to make a list of all the conferences and see which were important; and if there was another way to gain the same knowledge.    

Another part of laying the foundation of a financial plan was setting and fine-tuning goals. “For example, one may know what sort of amount is needed for retirement, but does not know whether he can buy a house on his own or a loan will be needed. Accordingly, he has to target the down payment so that it becomes an achievable goal," said Gaurav. 

While Gaurav plans to buy a house in 3-4 years, to reach a realistic estimate they considered some property locations in Pune and used that as a benchmark. “I realized that a 2-BHK in these areas cost around Rs70 lakh. So, we took 20% of that as down payment, and inflation was added to it."

Gaurav also got help in setting deadlines—albeit flexible— for his goals. “I was reluctant to set deadlines as I was confused; for example, for marriage. The important thing was to go ahead with an assumption. Otherwise, a plan can’t be made." Goal-based investing was a big change for Gaurav, who feels that it is acceptable if the goal doesn’t materialise or a deadline is not met, but at least the plan should be in place. 

Once the targets were set, investing pattern was altered accordingly. He realized that even though the stock market can give a lot of profit, wealth creation is a long-term process and with a full-time job he would not have been able to track companies on a daily basis. This led to a fresh look at mutual funds, especially equity-linked savings schemes (ELSS), which he used to consider only for tax-saving purpose. “I don’t have EPF (Employees’ Provident Fund). So, I was totally into equity (including ELSS)." His planner explained that Rs1.5 lakh every year (the limit till which tax benefits apply) for retirement planning is insufficient, and one should look at these schemes as long-term instruments. “In terms of retirement, a lock-in of 3 years is not much. Also, my investments in ELSS will not be simply Rs1.5 lakh divided by 12. It has to be according to a goal," he said.

Apart from investments, Gaurav’s insurance covers were also recalibrated. He earlier had two term plans and two personal accident policies, but no health insurance. So, the first change was to buy a suitable health policy and then to buy a single term plan of the appropriate cover. “Otherwise, my nominee would have had to go to two insurers." His personal accident cover was enhanced to be equal to his term cover. 

The biggest revelation of the financial planning process, according to Gaurav, was that he was able to say no to colleagues who used to come to him for advice. “They would say, I have Rs2,000 extra; which SIP should I start?" Now, he tries to explain to them that they should first think about their goals. For himself, too, Gaurav knows that if someone suggests a financial instrument, he will know whether to consider it or not. “I feel relaxed. At least I know what I am doing."

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MY PLAN

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Name: Gaurav Sakhardande

Age: 27

Profession: Software engineer

Financial planner: Chandan Singh Padiyar, Sebi Registered Investment Adviser

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