THE BIG STORY. Her Money Mantra

Richa Sethia is a young MBA from the Indian School of Business (2015 Batch), where she majored in Finance and Strategy. She also holds the CFA Charter. She currently works as a senior finance specialist at oil & gas major, Shell. She is single and living on her own. She has life insurance and employer-provided health insurance.

Monthly math

Richa’s salary is her income source and she has a sizeable education loan. Her monthly household expenses are 30 per cent of the take-home salary, but travel and the prepayments on education loan take away 50 per cent. She currently saves about 20 per cent of her salary.

Investments

Richa has a well-structured portfolio. She rates herself high on the ability and willingness to take risks. About 60 per cent of her investments are in equity. This is in the form of direct stock investments as well as investments in equity linked mutual funds and ELSS. About a quarter is in fixed income investments such as FDs, PF and long-term corporate bonds. Gold and other jewellery form 10 per cent of her holding and the rest is in cash and liquid assets. She has been an active stock investor since 2010. Market corrections are opportunities to increase her investments in sectors such as banks and healthcare which she is bullish on.

Financial goals

Richa’s near-term goal is to pay off her education loan. She also wants to buy an apartment and is planning to save towards that once the education loan is paid off.

In the medium term, she hopes to start her own venture and wants to plan her finances for that.

Her parents, currently living in Kolkata, are not dependent on her, but she wants to provide them funds for a happy retired life.

Tax saving

Richa’s education loan provides her a large tax benefit. She has invested in tax saving mutual funds and life insurance endowment.

She has taken additional medical insurance that also offers tax benefits. Provident fund and PPF are other investments she makes.

Our take

Richa has done her ground work in understanding the risks and returns of various investment options.

Given her young age, stable financial position and market knowledge, her choice of tilting towards equity is right.

After paying off her education loan, she can consider increasing allocation to equities; that will help her save for her home purchase.

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She plays it safe

A C Kantha, a State Bank of India employee, is six years away from retirement. Her husband died of cancer three years ago. Her elder son is married. The younger one is also employed. She lives with her 21-year old son in her own home and cares for her 79-year old mother who lives next door.

Monthly math

Kantha’s family income includes her salary and her son’s. She has paid off her housing loan but has taken a car loan recently. Her savings average about 20 per cent of her salary. The family has company-provided medical insurance and life insurance. Large expenses are typically for travel. She took a group tour to Singapore and Malaysia some time ago.

Investments

Kantha is extremely conservative in her investment. The couple never took interest in stocks, mutual funds, property or gold. All her savings are in fixed deposits.

Retirement plan

Kantha will receive pension and plans to continue living in the same house. She has saved in PF and put away emergency funds over the years to build a corpus.

Tax savings

Kantha invests in PF for the entire tax exemption limit of ₹1.5 lakh. In the past, she used to buy infra bonds for tax savings but feels that the long lock-in period and delays in redemption do not make it worthwhile. She also does not think other investments for tax saving are worth the hassle or turn out profitable.

Our take

Kantha’s willingness to take risk is very low. With no financial goals to worry about, she can still consider building a portfolio with a slightly broader group of assets such as tax-free bonds, debt and balanced mutual funds. Balanced funds have the flexibility to switch between debt and equity instruments. They can contain downside market risks and also spice up returns during market rallies. She can consider parking a portion of her surplus in Tata Balanced Fund and L&T India Prudence Fund – these two funds have consistently delivered top quartile returns within the balanced fund category. Inflation for certain expenses such as healthcare and other services can be high after retirement. She must calculate her pension and other income and ensure it will continue to meet her needs over her lifetime.

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She has set well-defined goals

Priya Sadashivan is a software engineer in Bengaluru, with a nine-year old daughter. Her husband is also in a similar line of work. The couple partially support their parents. The family and their parents have health insurance. The couple also have life insurance cover equivalent to three-year salary.

Monthly math

Priya’s family income includes the couple’s salary. Their main expense is their daughter’s school education and extra-curricular classes. The family takes local holidays for 4-5 days every year. Average saving is 10-20 per cent of income.

Investments

Priya and her husband are conservative investors. Their savings are in fixed deposits. She is not a gold buyer — jewels, coins or ETFs. Nor does the couple believe in home as an investment, except one primary residence. She dabbled in stocks but did not have the time to read, understand the market. She, however, knows that to meet her financial goals she needs to earn more returns that what her FD offers.

Financial goals

Her big long-term worry is retirement. Since she works in the private sector, there will be no pension and she wants to plan for a regular income, post retirement. Medium-term, she wants to save about ₹12 lakh to tide over two-years of her daughter’s college education and put away money for wedding expenses. The couple’s immediate goal is to buy a house.

Tax saving

Priya invests in tax saving mutual fund schemes. She is not a believer in life insurance schemes as a way to save tax as the returns are not good. In the past, she used to buy any tax-saving scheme sold during year-end without doing proper research. She is now wary of agents who she thinks particularly target women to sell unprofitable schemes.

Our take

Given Priya’s financial goals, saving ability and knowledge of financial markets, she must consider equity investments. She can do this through mutual funds, given her time constraint. This can, over the years, help build a sizeable corpus that can provide income after retirement. So, starting a Systematic Investment Plan in equity oriented balanced funds such as L&T India Prudence and ICICI Pru Balanced Fund is a good idea. Large-cap oriented funds such as Franklin India Prima Plus and UTI Equity are also options to consider. She can move at least 10 per cent of her portfolio into equity andincrease it to 30 per cent over the next five years.

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She sets store by stocks

For the Chennai-based sexagenarian Uma Sekhar, who was a home maker in a joint family, life took a turn for the worst when she was barely 37. Her husband passed away due to cardiac arrest. Uma was saddled with the responsibility of supporting her two sons, who were just 14 and 10 years old, then. She began to dabble in stocks on her own and has been an active trader/investor since the early 90s.

Monthly math

Both her sons are well-settled and support her both emotionally and financially.

She receives interest on a small corpus invested in FDs and continues to trade in equities actively. There is also rental income from the two portions of the house she had let out. However, Uma’s family plans to reconstruct the house. Uma’s life is frugal with expenses limited to minimum family expenses. She has a medical insurance cover to take care of hospitalisation needs.

Investments

Almost 90-95 per cent of Uma’s portfolio is in direct stocks. She holds bluechip stocks such as HDFC and ITC since 1990s as well as short-term trading bets. She picks the stocks based on her own research and keeps herself abreast of the market developments. About 5-10 per cent is in fixed deposits. Barring the jewels she owns, she does not have any investments in gold. The house she currently lives in is in her husband’s name. Post the reconstruction, she plans to transfer the property in favour of her children

Financial goals

She does not have any financial goals to save for, given that her children are financially sound and support her retirement. With the property transferred, she does not have much inheritance to give away, either.

Our take

While a portfolio heavily tilted towards equity is not recommended for a senior citizen, Uma’s case may be an exception. Given a supportive family and her market knowledge, her direct equity investments have helped her reap the benefits of compounding. She can also systematically withdraw her trading gains and move it into fixed income instruments such as FDs.

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