But in 2016, Mittal realized that the after-tax return on his investments didn’t even beat inflation. “I wasn’t married at the time, I was doing well in my career, and I didn’t have a lot of EMI bonds. Most of my investments at the time were in tax-advantaged products/policies, but were perhaps not efficient in terms of yield,” Mittal said.

It was then that she decided to take the help of a financial planner and approached Anupama Aggarwal, Senior Vice President – ​​Consulting at International Money Matters Private Ltd.

Based on this risk profile, it was decided that Mittal was a moderate investor and could have around 45% of portfolio exposure in growth assets (opportunity for capital appreciation with relatively higher risk) .

Financial plan

Mittal’s financial goals included retirement/financial freedom at age 50, annual vacations, and buying a car every five years.

Previously, 50% of Mittal’s assets were in real estate. And, most of the financial assets were stable assets (without risk of capital loss) such as Employee Provident Fund (EPF), Public Provident Fund (PPF), Fixed Deposits (FD) and bank balances . She had also used home loans against some of the properties.

For the provident fund and insurance, Aggarwal suggested that Mittal maintain adequate liquidity for a provident fund (equivalent to 6 months of expenses) and immediate short-term goals. In terms of life insurance, Aggarwal felt that Mittal did not need it because his mother (the only family member at the time) was financially well off. However, Aggarwal insisted that Mittal take out health insurance from ₹10 lakh at the earliest, in addition to health coverage provided by the company Mittal previously worked for. Over time, the sum insured was increased to ₹15 lakh with HDFC Ergo optima restore with better features.

Portfolio redesign

Aggarwal suggested asset diversification to reduce exposure to the real asset class.

“We recommended that she leave the property idle to make it income generating and lighten her real estate base by selling land holdings for which she had no future goals,” Aggarwal said. As a result, in 2018 one property was sold and the proceeds were reinvested.

“Proceeds from breaking a few low-yielding fixed deposits and redeeming some insurance policies were reinvested in mutual funds to create exposure to growth assets, and monthly SIPs started to grow at long term,” Agarwal said. Restricted stock units (RSUs), issued as part of salary, held by Mittal were also rolled into growth assets, according to Aggarwal.

Change of plan

The financial plan should be reviewed periodically to reflect changing needs.

As a result, after working for 21 years, in 2019 Mittal decided to take a break from work. “I checked with my adviser if I could really afford to take a break without discarding my financial goals, including retirement,” Mittal said. “She told me I could take a two-year break while still achieving my short-term financial goals, with some delay in short-term milestones,” Mittal added.

At that time, Aggarwal suggested that Mittal stop his SIPs since it came from his monthly salary; has prepared a Systematic Withdrawal Plan (SRP) for monthly withdrawals in lieu of her salary to ensure she is comfortable during the sabbatical.

Mittal rejoined the job after a three-month hiatus. “With the comfort of knowing I’m covered for two years, it was a well-planned decision,” Mittal said.

Mittal recently got married, quit her job, and joined as executive director and chief growth officer at a start-up company, Bert Labs, which her husband had founded.

“Since his financial priorities may change now, we are maintaining the status quo and giving him time to work out his preferences, including retirement,” Aggarwal said.

Mittal’s portfolio is now well diversified, says Aggarwal. “Financial assets are 50% growth assets (mutual funds) across the market. He includes international funds in his portfolio for exposure to the dollar – 4%. Index funds – Nifty Next 50 and Midcap 150 as well as other active funds were also considered. Hybrid allocation built from 10% to 18% of the portfolio. MF debt investments are mostly over 3 years in long term and short term funds, but only with high quality paper,” according to Aggarwal.

room for error

Good financial planning helps build long-term wealth and achieve financial freedom. But, due to market conditions or human judgment errors, the investments made may not produce the desired returns.

For example, Mittal and Aggarwal mutually decided to invest in Franklin Templeton Credit Risk Fund. But, the program has been frozen for redemptions since April 2020. “The invested funds were recovered during the year as the program was paid out,” Aggarwal said.

In addition, an investment by Mittal in a debt arbitration fund as part of a portfolio management service (PMS) did not produce the expected returns. Therefore, they decided to leave the PMS.

Thus, a sufficient reserve must be maintained and diversify the portfolio to cushion the financial loss.