Wrong advice can upset money goals

Bengaluru-based Shamba Ghosal, 38, started working in 2004 and was advised by his parents to invest in traditional insurance policies. Until 2015, when he learnt about mutual funds, traditional insurance policies were his only investments. “A few of my friends were investing in mutual funds but by then it was too late because I’d already parked a large chunk of my money in LIC without evaluating the real returns,” said Ghosal, a business process consultant. Though not in a big way, Ghosal started investing in mutual funds, but didn’t really put too much thought into picking the right funds. He went with the funds that an online platform recommended.

In 2016, Ghosal moved to the UAE for a year. When he got back, he invested all his savings in mutual funds on the advice of a “no-fee financial planner”. But this didn’t go down too well. “In 2017, I saw a report by the National Stock Exchange which showed how much commission brokers get. I had invested about ₹15 lakh and paid 1% as the commission, which is almost ₹15,000. I realized I was being scammed because he was actually a broker and not a financial planner,” said Ghosal.

Damage control

Once Ghosal and his wife Antara realized the need for credible advice, they started following the advice offered by Basavaraj Tonagatti, a Sebi-registered investment adviser and certified financial planner, on social media. After about a year, they got in touch with him to streamline their financial life. “Their mutual fund portfolio was completely messed up with a lot of funds, picked without any strategy. They also had many unwanted traditional life insurance products. So my priority was to streamline their portfolio by reducing the number of funds and insurance policies,” said Tonagatti.

Before meeting Tonagatti, the couple’s asset allocation was skewed too. They had a high exposure to real estate and debt (life insurance policies mostly). This left them with no money to invest in equities, which could help them achieve their long-term goals. Their equity exposure was just about 15%. “I asked Ghosal to either surrender the insurance policies or convert them into paid-up immediately because the premium was almost 15% of his total income,” said Tonagatti. In the process, Ghosal also lost some money (though it was a short-term setback) because the financial planner asked him to get rid of the policies which would be no good in the long term. They would neither help him create wealth nor meet his life insurance needs.

Since the couple already own a house, they don’t have too many short-term needs. “I wanted to buy a car but I felt this would push up my monthly expenses, so I postponed it. I also plan to repay my home loan in the next 10 years, so I don’t want to overburden myself,” said Ghosal.

The couple has one child and is planning to have another one soon. They want to ensure that the education and wedding needs of both children are met. “Considering Ghosal’s cash flow and accumulated wealth, I’ve advised him to prioritize retirement and children’s education,” said Tonagatti. Since the couple’s investments were not in line with their goals, the planner explained to them the importance of prioritizing goals.

Finding solutions

When Ghosal started investing in mutual funds, he went overboard and ended up investing in too many. His portfolio was largely tilted towards mid- and small-cap funds which Tonagatti said was unsafe, considering his appetite for risk. Also, Ghosal has stopped buying dividend-based funds, which he doesn’t need. He is still in the process of exiting the ones he already has.

With the help of his financial planner, Ghosal is now restructuring his portfolio by bringing down the number of mutual funds. “I’ve asked him to stick to three to four equity funds, and a couple of debt funds,” said Tonagatti.

It will take at least two more years for the couple to completely restructure their portfolio and streamline their investments. “I’ve already surrendered some policies. I had invested in about 15 mutual funds but I am now consolidating them as suggested by Tonagatti. A couple of funds are undergoing side-pocketing so I am still stuck,” said Ghosal.

The current environment of market volatility and malfunctioning of banks does bother Ghosal. “To mitigate the risks, I am not keeping more than ₹5 lakh with one bank because in case something happens, I’ll at least get the deposit cover of up to ₹5 lakh,” said Ghosal. But when it comes to investments and the fear of losing money due to market volatility, Ghosal said he trusts his financial planner.

Taking a cue from the Ghosals, Tonagatti said it is very important to accept one’s mistakes. The longer you take to fix your mistakes, the more difficult it becomes to achieve your financial goals. When it comes to money decisions, it is not easy to trust anyone. But if you feel like you lack the necessary knowledge, like the Ghosals did initially, working with a certified financial planner will help.