‘Planning early can result in higher wealth creation’

On a trip to Europe soon after their wedding in June 2018, travel enthusiasts Chintan Shah (31) and Ankita Kothari (29) ended up spending nearly three times their original budget. This was when they realized that they need to better plan their expenses.

According to experts, financial planning can get a lot of things organized and if taken up at a young age, can lead to a much higher amount of wealth creation.

Thankfully for Kothari and Shah, the covid lockdown didn’t bring any disruptions to their lives in terms of salary cuts or job losses, as they both worked as business finance partners at leading e-commerce firms. In fact, there was a positive impact from the pandemic.

“Before covid-19, we were spending a lot of money, which we are now saving. We used to go out every weekend to eat, watch a movie or hang out with friends and shop whenever we felt like it. The lifestyle has completely changed after the pandemic,” said Kothari.

Investing began early for both, as Kothari started systematic investment plans (SIPs) right from the time she got her first salary in 2014, while Shah delved into investing in 2012. There was also direct investing in stocks, which he stopped after not getting the desi-red results over the past few years.

The couple had designed a financial plan and was keeping a close watch on their expenses and income levels, but last year, they came to a realization that their plan was not structured and investments were not allocated to goals.

However, one good aspect was protection covers. Both had adequate term insurance plans of ₹2 crore each and decent group health covers from their respective firms.

“Two things happened when we realized that we need professional help; one was that we got married and second was that we both switched our jobs last year, and we weren’t able to give enough time and dedication and focus and ensure that we are doing the right investment and at the right time,” Shah said.

The couple used to save 18% of their combined income in bank accounts, with 45% going into equity and the rest in debt. Their investment mix involved SIPs, provident funds and equity-linked savings schemes (ELSS) and a couple of investments to meet the Section 80C target.

In November, they approached Harshad Chetanwala, a Sebi-registered investment adviser and co-founder of MyW-ealthGrowth, as they wanted to take a step ahead and invest as per their goals.

“There are many people who end up saving their money in bank accounts. Some of them may have 15-20%, or sometimes 25% of their overall net worth lying in bank accounts. This hurts over a period of time. After meeting Kothari and Shah, we started deploying that money in different asset classes based on their needs,” said Chetanwala.

The couple had accumulated a total of 18 funds, which were predominantly into multi-cap and small-cap categories. The couple, which also wanted to amalgamate their style of investments and club the portfolios after marriage, is in the process of reducing this high-risk component in their portfolio.

“There are some theories that say that at this young age you can have a higher allocation in small-caps, but 20% is a big number, and they also had another 18% of their equity portfolio in sectoral funds. The risk on the portfolio was high, which we had to reduce,” Chetanwala added.

Experts advise that even an investor with a high-risk profile and a long investment horizon shouldn’t have more than 10% allocation to small-cap funds in his or her equity portfolio. Kothari and Shah are trimming their sectoral fund holdings and are re-deploying the money into large-cap funds.

At present, as much as 45% of their equity allocation is in flexi-cap, large- and large and mid-cap categories. They are aiming to have an 80% equity and 20% debt allocation within the next two years.

For their short-term goals such as an international trip every alternate year, the investments are in debt funds. With the plan in place, they can look to accumulate wealth as there are no liabilities now, and down the line, they can also fulfil their goal of buying a house in Bengaluru or Mumbai.