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A Guide To Your Financial Planning
A monthly series in The Finapolis where we talk to a diverse set of families to understand their attitude towards financial planning. Our in-house financial advisor offers his suggestions for a more robust portfolio.
     | Nov 2014
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Anant Vasant Rao Jagtap, 60, retired man. He served as a Universal Teller in Bank of Baroda and currently draws a pension of Rs 24,000 pm.

Investments

Jagtap’s family comprises his wife and two children. His daughter has been married for years and so is his son. His son, daughter-in-law and two grandchildren (a grandson and a granddaughter) live in the same house. Jagtap’s wife and daughter-in-law are both home-makers and it is his own and his son’s incomes that help run the family. His son works as an Assistant Manager with Volkswagen and earns Rs 62,000; added to Jagtap’s pension this totals up to Rs 86,000pm. His monthly family expenditure is as less as Rs 7500; all the groceries come from his farms. The family spends only on their kids’ education and other essentials like toiletries.

Jagtap is an ideal investor as he started investing right from the time he received his first paycheck of Rs 500. He has been religiously saving up 10% of his salary every month for 38 years now that has matured and given him a retirement kitty worth over Rs 80 Lakhs. Jagtap has investments like this: Bank FDs worth Rs 53.76 lakh; mutual funds worth Rs 23.59 lakhl; Stocks worth Rs 2.83 lakh (he had stocks worth Rs 42 Lakhs which were sold at the time he made his house); non-convertible bonds worth Rs 2.51 lakh; savings in bank A/C worth Rs 2.31 lakh for liquidity; Total investments worth Rs 85.30 lakh.

The Road Ahead

Jagtap’s asset allocation strategy has been that of investing regularly. He invested 25% in government securities, 25% in FD, 25% in shares and 25% in savings bank account. He always ensured that he saved at least 10% of his salary right from the time he got his first salary in 1978.

Jagtap and his family have 25 insurance policies with a cumulative sum assured of Rs 42.78 lakh. Annual premium payment is Rs 2.55 Lakhs for himself, his wife, son and daughter-in-law. He has 17 LIC policies, 1 each in Birla Sun Life, HDFC and Kotak Life insurances. He has 3 policies in Max Life, 1 in India First and 1 in Tata AIG.

Health insurance was earlier provided by Bank of Baroda and currently his son has a family cover from Volkswagen worth Rs 12 Lakhs and premium paid is Rs 27850 pa. Jagtap believes he was a risk-taking investor at one point till he had shares and huge MF investments, but currently he believes himself to be a safe investor. While working, Jagtap used to invest Rs 20,000 in PPF and with so many insurance policies, there was hardly any need for investments in other tax saving instruments. Both his wife and daughter-in-law save almost Rs 80,000 a year with the help of various household initiatives for helping other women.

Jagtap’s retirement plan is to get back to his family profession; agriculture. His parents and siblings continue to live on the money that comes in from selling sugarcane, turmeric and other vegetables that comes from their farms. Rs 2.8 lakh of the net family income which is Rs 8 lakh pa, comprises Jagtap’s share. His message to other retired pensioners is, “be cautious with your retirement kitty. Don’t blow it up in frivolous luxuries”. 

Jagtap never had a financial advisor. His knowledge and exposure to investments was pretty much from his job as a Banker. Starting July 2014, Jagtap has started saving Rs 72,000pm in an RD from his Rs 85,000 monthly family income.

Expert Take

Jagtap in his own words is an ideal investor, investing right from drawing the first paycheck apart from saving 10% of the salary, which is commendable for the dedication and determination. His advantage lies in the fact that the monthly expenses are less than 10% of the family earnings which might not be the case for most investors. Though the investment pattern looks good there still seems to be considerable void in terms of the coverage under life insurance which at this age might be difficult to fill. They have many policies but the overall sum assured of around Rs 43 Lakhs does not look sufficient, even when the monthly expenses are very low.

If we look at current investment portfolio: out of the total investments, almost 65% is in fixed deposits, which might be of various tenures followed by mutual funds. The break up within the mutual fund is not available; however, if Mr. Jagtap as a cautious investor has missed out on the liquid investment, it might be a good option to explore. As they do not require any immediate cash flows, they might just put the money in a liquid fund which offers the liquidity as and when required as a part of contingency/emergency fund. 

The reason why we feel it is an ideal option is because Mr. Jagtap has only Rs 2.31 lakh in savings account for liquidity and considering the phase they have just entered (post retirement), keeping higher liquidity is advisable and since liquid funds can offer higher interest than the savings account it might be a better option.

Although equity is not advised at this age because of the risk involved, he might look at some SIPs in equity mutual fund that should be added to the portfolio, if not other risky investments like direct equity.

 

 

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