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Indian investors are known for their fondness for fixed deposits (FDs), as shown by the growth in bank deposits by 15.45 trillion to 151.13 trillion during the financial year 2021.

Sameer Damania, a 40-year-old IT professional, was one such investor. According to Sameer, he is a good saver, a habit which he imbibed from his parents. The covid-19 pandemic did not affect his job, and his habit of parking the surplus in banks helped Sameer meet some financial needs over the past two years.

However, after the covid-19 pandemic broke out, he realized that the current growth in his savings may not be adequate to help him meet his long-term goals. Sameer, who is married to Natasha, a beauty professional, has dependent parents.

“My investments were not giving me adequate returns to beat inflation. I wanted to know how best I could plan for my future and the investment options that were available so that we can maintain our current lifestyle even when we are retired," said Sameer.

This led him to seek help from Harshad Chetanwala, a Sebi-registered investment adviser (Sebi-RIA) and co-founder of MyWealthGrowth in January. “Sameer knew about the benefits of investing in equity funds, but the comfort in investing was missing. Therefore, we started diverting savings into equities in a gradual manner. Their monthly cash flows are now getting into equities via systematic investment plans (SIPs). You cannot build a long-term portfolio without equities," said Chetanwala.

Before approaching Chetanwala, Sameer’s investments had been predominantly into savings bank accounts, two unit-linked insurance policies (Ulips), voluntary provident fund (VPF) contributions and an equity-linked savings scheme, or ELSS, mutual fund, which was done for saving tax.

While Sameer had a contingency fund that was adequate for five to six months, Chetanwala advised him to boost this to be good to last one year. Also, Chetanwala worked on increasing the equity allocation in Sameer’s portfolio.

“The plan was to go aggressive on equities, as Sameer’s goals were predominantly long term. To begin with, we started with a large-cap and a flexi-cap fund, plus the existing ELSS fund," said Chetanwala.

From 25% investment in equities before going for professional help, Sameer’s asset allocation today stands at about 50% in equities and 50% in debt, which will gradually be increased to 65-70%.

“In some cases, people are initially uncomfortable about investing bigger amounts. So, you go step by step and start increasing investments gradually. This is what we did with the Damanias," said Chetanwala.

Experts say investors should not expect a repeat of the stellar performance in equities of the last two years and keep expectations in the range of 10-12% over the long term.

Next, Chetanwala and the Damanias worked on the insurance part. Although Sameer had taken Ulips, he had no term insurance, which is a plan that provides coverage for a defined period in exchange for a specified premium amount.

Sameer was insured about 25% of the required cover in terms of life insurance. So, for the uninsured part, Chetanwala suggested that he purchase a term insurance.

The good thing, though, was that the Damanias had a decent health cover in the form of a group policy and a comprehensive plan that covered outpatient as well as inpatient treatments.

Sameer had taken a family floater plan between him and his wife and another floater plan for his parents.

According to experts, individuals should not solely rely on a corporate policy and must take personal comprehensive insurance plans that cover outpatient and inpatient treatments, including consultations, medical tests and hospital stays.

“We do plan to add a critical illness element in Sameer’s health insurance policies," Chetanwala said.

Next, Chetanwala started working on the Damanias’ goals, which were mostly long term. Fortunately for Sameer, he didn’t have any loan burden, but he planned on getting a housing loan and other goals included retirement and planning for children and their education.

Chetanwala believes that since Sameer’s risk appetite was moderate, with a long-term horizon, the plan should be to look at a mid-cap fund after a few months once he is more comfortable with equity as an investment class.

According to Chetanwala, one key takeaway from Sameer’s case is that individuals should always keep an eye on debt-to-equity asset allocation, particularly when they are investing more through VPF, because by default that allocation goes to debt.

“While it is a very good instrument, if you need more money in hand, it needs to be relooked from that perspective. Another key learning was that if you have long-term goals, you cannot just rely on provident funds and bank deposits to take you through," said Chetanwala.

While Indian banks pay out interest in the range of 4-6.5% on FDs for one-five years, VPF gives a return of 8.50% per annum. However, contributions under VPF come with a lock-in period. A full or partial withdrawal before the period is subject to taxation.

“You will have to use equities to grow your wealth as it is one of the best asset classes to invest in from the long-term perspective," said Chetanwala.

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