Until he turned 40, Pranjal Khalap, a senior sales executive who is based overseas, saved regularly but his investments were unplanned and mostly in real estate. “Coming from a family where both parents were salaried, saving was inherent. But I never had exposure to the right way to invest," said Khalap, now 45.
Other than real estate, Khalap bought physical gold when there were corrections in prices, invested in a couple of life insurance policies based on his friends’ recommendations and parked money in fixed deposits. “I was investing, but with no clear objective or target saving in mind. My portfolio was not well balanced and hence returns were sub-optimal," he said.
All this changed when he went for a casual meeting with Arvind Rao, founder of Arvind Rao & Associates and a Sebi-registered investment adviser.
Khalap met Rao on the recommendation of a common friend to seek casual advice on investing. “My retirement was a mere 20 years away and I wanted to consult with someone to structure my portfolio and seek professional guidance," said Khalap. When Rao probed him on his pattern of saving, spending, and goals, Khalap got more interested and went for a financial plan.
Giving a structure
In the second meeting, Rao took Khalap and his wife Pallavi, 43, through the detailed plan he had prepared, showing him how and where he needs to invest and the timelines for each goal they had discussed.
Rao said structuring Khalap’s investments was easier as he didn’t have investments locked away in long-term products like life insurance. He relied on his existing savings (FDs), property and life insurance for the education and marriage of his two daughters, Maahi, 15, and Mihika, 11. Rao made him realize that he needed to invest in equities to meet these goals. The elder daughter was around 10 when Khalap met Rao. He wanted to have a corpus for her graduation in around seven-eight years. Rao used a mix of large-cap and multi-cap funds for the goal. There was still time to create a corpus for the younger daughter’s education. Rao, therefore, used a mix of multi-cap and mid- and small-cap funds.
Khalap and his family had adequately life and health insurance when they met the planner.
Khalap attributes lack of interest in financial planning to the late start and unorganized savings. Even now he prefers to leave the financial planning mostly on the planner. “I believe in letting the experts do their job," said Khalap.
Khalap’s primary focus was reducing his loan for a house he had bought for investment. “Khalap doesn’t like liabilities. He was clear that he would increase allocation to goals only after his home loan was cleared," said Rao.
At present, Khalap’s portfolio mix is 65% in real estate, 20% in equities and 15% in debt. “As the allocation increases towards his goals, in two years, we expect real estate to be 50% of his portfolio, debt will be 20-22% and the remaining will be in equities," said Rao.
He invests in equity via mutual funds only, and is ahead of his goals at present.
Khalap had never invested in mutual funds or stocks before, so when the planner introduced him to equities, he made it clear that he didn’t have a significant appetite for risky investments.
Rao showed him how equities behave over the long term, and why short- and mid-term volatility shouldn’t be a concern. “We told him that it’s best to have a different risk profile for each goal rather than going by his overall risk appetite. Khalap agreed to it," says Rao.
For contingency, Khalap has created his own fund based on his comfort. The planner doesn’t manage or look after it.
One thing Khalap regrets is that he started investing systematically a little late in life. He feels that if he would have initiated the financial planning process five or 10 years earlier, he would have already achieved some of his goals and would be closer to others. Another thing he regrets is that he reached out for professional guidance late to structure his investments.
As he increases allocation to his goals, he expects to achieve his goals much faster.