Mumbai-based Raksha, 31, and Sachin Acharekar, 37, both pharma professionals, want to hang up their boots a few years before the usual retirement age. The couple decided to do so early in their lives and also started planning for it. Initially, like many others, they relied on the relationship manager from their bank and a brokerage firm for their investments.
However, driven by their goal, they put more thought into their finances, and soon realized that they need a more structured approach towards financial planning. “There were also some negative experiences from the bank. Unless you understand the other side, you end up thinking that whatever you are doing is correct. There was an element of bias in what the bank-appointed adviser was selling to us," Sachin said.
They began looking for a fee-only financial planner and eventually met Melvin Joseph, a Sebi-registered investment adviser and founder of Finvin Financial Planners, a financial planning firm, in early 2019.
“Being heavily invested in real estate, having inadequate life and health insurance and having little exposure to equity were some of the immediate concerns for them," said Joseph.
Over-reliance on biased advice is something that Sachin is most upset about their financial decisions in the initial years. “We went for an additional home loan just to save tax, invested in futures and options in equity markets based on what the broker suggested, only to realize that the return from real estate was not more than 2-3%," he said.
The equity investments through futures and options also did not give the desired results. They also realized that the investment-linked insurance policies they have may not be good for them. In fact, though Sachin had a term insurance policy, it was one that gave a life cover till 85 years of age and had a high premium in the initial years. For health insurance, both Sachin and Raksha were dependent on health insurance provided by their respective employers, which was very low.
“We also had some regular mutual funds. After some calculations, we realized how we would be spending a lot over the years in distributor commissions," he said.
On the advice of the planner, the couple started moving their existing investments to direct mutual fund plans. The premium payment for investment-linked insurance policies has been stopped. The high-premium term plan has been replaced with an online term plan with much lower premium. Also, the couple has taken a family floater health insurance with a high sum assured.
It will take some time for the couple to put their investments in order. For instance, Raksha said, she realized only recently that the Public Provident Fund or PPF can be a good investment. “Since I started working even before marriage, I was kind of financially independent but I was always invested in FDs. When we went to Melvin, we got some clarity. We are gradually shifting to mutual funds. I should also have started a PPF much earlier," she said.
The couple is now working towards three goals. They want to get a bigger property in Mumbai in the near term. They plan to achieve that by liquidating some older real estate assets. Their second major goal is to have a corpus ready for their child’s education and marriage when they start a family. The third long-term goal is to have a sizeable retirement fund, since both want to retire eight to 10 years before the standard retirement age.
Apart from these bigger goals, they are also planning for short-term goals like periodic vacations. “We now realize the difference between wants and needs. Through proper planning, you can achieve both," Raksha said.
The couple seems to have realized their mistakes just in time. “Both of them are actively taking interest. With most of their goals being long-term, they are well-poised to reach them," Joseph said.
Mistakes I won't repeat
1. Excessive exposure to real estate
2. Investment-linked insurance plans
3. Delayed exposure to equity
4. Depending on employer-provided health insurance