Give your financial portfolio a realty check

  • When the Jains met a financial planner, they realized the importance of asset allocation and why they shouldn’t have tried to time the real estate market
  • Jain said retirement planning is essential as life spans have increased and critical diseases such as cancer have become common

In 2013, Siddharth Jain, a senior manager at an MNC, invested in a flat in Gurugram, hoping to sell it at a higher price to buy a larger apartment later. However, to his disappointment, the real estate sector took a hit soon after; currently, the value of his property is down by as much as 15%. He held on to the property in the hope of recovering his principal, but also started investing in mutual funds with the help of financial planning blogs. He contacted a financial planner a few months ago to get a handle on his large mutual fund portfolio.

Jain had invested in about 14 funds through commission-based portals. His planner, Basavaraj Tonagatti, a Sebi-registered financial adviser, helped him reduce the number to six. He also switched all his systematic investment plans (SIPs) to direct funds.

Discussing the pros and cons of their investments helped Jain and his wife Vidhi take informed decisions about their money. “At one point I had some surplus money and I wanted to know if I should repay the principal amount for my home loan and reduce the EMIs or invest in a mutual fund to get good returns. Having a financial planner helped me," said Jain.

Before the Jains met Tonagatti, their mutual fund investments were completely directed towards equity and a large chunk of this was in high-risk schemes like small-cap funds and sector funds. “Linking the current portfolio to their goals and allocating their assets according to the time horizon was a priority when I started working with them," said Tonagatti. Earlier, the couple had high exposure to real estate (almost 76%), followed by debt instruments (12%) such as Employees’ Provident Fund and Public Provident Fund and the remaining into equity mutual funds. However, considering their two major goals, Tonagatti had to rework their asset allocation. The couple wishes to accumulate 1 crore in the next 15 years for their daughter’s higher education and 2 crore in the next 20 years for their retirement. They also want to take an extended holiday in the US in a few years and want to save 15 lakh for the same.

“The two major goals, retirement and child’s education, are long term so I suggested them to have an equity to debt allocation in 60:40 ratio. This is in addition to their real estate investments," said Tonagatti. For their holiday in the US, which is a short-term goal, the planner advised them to invest in a liquid fund.

Jain said retirement planning is essential as life spans have increased and critical diseases such as cancer have become common. “We have a realistic figure for our retirement and are on track to achieve it," said Jain. The planner also noticed that though both the spouses were working, they were underinsured. In fact, Vidhi didn’t have a life cover at all. So they had to work on this as well.

The couple has an emergency fund worth three months’ of expenses and they’re working towards increasing this corpus. They’ve now stopped investing in FDs and gold completely. They’ve also exited the three traditional endowment policies they’d bought after the relationship manager at their bank pushed them into buying it in exchange for a locker.

Jain regrets the decision of trying to time the market and investing in real estate in 2013. Like most people, Jain also regrets starting late. He started investing only five years after he started earning. He began with investing directly in the stock market and booked some losses. He then shifted to fixed deposits and gold exchange-traded funds (ETFs) and bought endowment policies for tax saving. However, he’s finally understood that investments require one to stay put and wishes to stick with mutual funds for the long term in order to achieve his goals on time. “I am going to allow the power of compounding to help me," said Jain.

Tonagatti said for young couples, it’s important to stick to the basics, start early and be patient.

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