How staying confident in stocks in 2021 helped the Goels

Then the pandemic struck, upsetting their financial calculations. Their equity investments were hit hard, and even their children’s higher education mutual fund investments fell sharply. The most affected were mutual funds for their eldest son’s college education.

The couple had launched systematic investment plans (SIPs) of ??10,000 each in two multi-capitalization equity funds in 2016, with a target of ??30 lakh in 2024. “The stock market crash of March 2020 reduced the accumulated corpus by almost half. I didn’t know what to do, ”Saurabh said.

The accident was a wake-up call for the couple. They realized that they had not taken sufficient precautions or protected their investment portfolio against volatility. On the one hand, they did not have emergency funds.

Saurabh was prompted into action by stories of people having difficulty raising funds for the treatment of sick relatives. He immediately put away ??1 lakh in a liquid fund for contingencies and added ??20,000 to the fund each month. The contingency fund has now almost ??5 lakh, which is enough to meet the expenses of the family for five to six months.

When the Covid crash happened, the only saving grace for Saurabh was that his home loan was almost paid off. The last of these IMEs at 10 years of ??35,900 were reimbursed in October 2020, which took a heavy toll on Saurabh. “I can’t imagine how things would have been if I had also had to pay off the EMI home loan,” he said.

More importantly, they realized they needed professional financial advice to navigate the ups and downs of the investing landscape.

“I discussed my financial portfolio with my friend, and he advised me to contact a financial planner who would charge a fixed fee and earn no commission on the products I invest in,” he said. .

After that, financial expert Raj Khosla, managing director of MyMoneyMantra.com, looked at their portfolio and convinced the couple that the crisis was an overreaction.

“Lucky for the Goels, they didn’t lose their temper when there was blood on Dalal Street,” Khosla said.

Markets eventually recovered and their stocks and mutual funds regained their lost value. Saurabh continues to put ??10,000 per month in two of the three equity funds.

Parag Parikh Flexicap has performed particularly well during this period, thanks to the global equities lining its portfolio. The corpus has become ??14 lakh, generating SIP returns of 21.5%. The Canara Robeco Flexi Cap Fund corpus has grown ??12 lakh, with SIP returns of 16.15%. The market has hit new highs again, but Saurabh is now wiser.

In early 2021, markets were taking a break after a strong rally in December 2020. Khosla said, “They stayed in the range for four to five months before resuming their ascent.”

Given his age and his (moderately aggressive) risk profile, Khosla advised Saurabh to keep a balanced 50:50 allocation to debt and stocks.

Saurabh was reluctant to pursue SIPs after markets limited to the fork when the second wave of covid hit India. But the planner advised him to continue SIPs as it would allow him to buy more at lower prices. Khosla advised him to periodically rebalance his portfolio if the allocation deviated too much from the predetermined ratio of 50:50.

Khosla said: “By rebalancing the portfolio, this will ensure that any decline in the stock markets does not affect it as badly as it did at the start of 2020.”

The planner also advised Saurabh to reduce the risk in the portfolio as the goal gets closer. “My oldest son is 15, so we’re going to need the money in about three years. Therefore, I started to systematically switch from equity funds to a borrowing program to record profits and protect capital, ”he said.

Khosla said that since the Aditya Birla Sun Life Flexicap has not performed well, with the corpus at ??10 lakh and yields of 12.7%, Saurabh began to gradually move the corpus to the Aditya Birla Sun Life short-term fund with a systematic transfer plan of ??50,000 per month.

However, the strategy for medium and long term goals is different.

Saurabh’s twin sons are 12 years old, so their college education is still six years away. Given the longer time horizon, the planner advised Saurabh to pursue SIPs in the three equity funds chosen for this purpose.

After three or four years, when the target is two or three years away, it should gradually shift from equity funds to a borrowing program to protect capital, Khosla said.

On the advice of the financial planner, Saurabh also purchased a ??Floating health insurance plan of 5 lakhs for his family in addition to the collective coverage of his employer. He already had two life insurance policies, but they were traditional plans with very little coverage.

The financial planner urged him to buy a term insurance plan of ??1 crore, for which he pays an annual premium of ??13,600.

The other goal of Saurabh is planning for his retirement. He put an additional amount in the voluntary provident fund, but reduced it after the interest on contributions exceeding ??2.5 lakh in one year became taxable.

The financial planner also advised Saurabh to focus on equity funds that could earn him better long-term returns.

“My retirement is still 18 years away, so equity funds make sense. Either way, my contingency fund is already taking care of the bond part of the portfolio, ”Saurabh said.

Khosla also advised Saurabh to invest in the National Pension System (NPS) for his retirement. The low cost structure of the NPS makes it an ideal investment for long term goals.

In addition, it also offers tax advantages that are not available on any other instrument.

Thus, in the 30% bracket, Saurabh can reduce his tax by more than ??15,000 if he invests ??50,000 in the NPS under section 80CCD (1b). This saving is greater than the overall fiscal investment provided for in Article 80C of the Income Tax Law.