How this Mumbai couple got into goal-linked investments

“My wife and I have been disciplined investors. We had investments in real estate, as also a sizable mutual fund portfolio. Our investments were just not based on any financial goals. And, we didn’t know how to build an investment portfolio based on our risk tolerance ability8,” said Kiran. “During the pandemic, we realized that we didn’t have enough insurance coverage to safeguard us against such unforeseen events. What we had were underperforming Ulips.”

The couple then searched for an investment adviser to solve their investment issues, and came across Tarun Birani, founder and director of TBNG Capital Advisors. Birani had a holistic discussion with the family to understand their money behaviour, financial goals, and risk tolerance. He then examined the portfolios of Kiran and Deepti and found that the couple had not aligned investments with their financial goals. They had almost 80% of their net worth in debt and real-estate and just 20% in equity. Besides, they didn’t have enough contingency funds and insurance coverage.

“Though they had some financial planning hiccups, the couple came to us with an open mind. This helped us educate them on how to make wise decisions and plan their finances to achieve their financial goals at an optimum time,” said Birani.

Birani explained that people usually consult a financial adviser either after suffering some investment losses, or on finding that there is a requirement to save for retirement and children’s education planning, or after receiving a windfall. “However, in this case, it was a wake-up call for Kiran and Deepti when they realized that their investments weren’t in line with their financial goals,” he said.

Investment journey: After analysing their financial status, Birani decided that “it was time to rebalance the couple’s portfolio by swapping their illiquid assets for liquid ones and ensure that their portfolio remained well-balanced.” He advised the couple to sell one real estate holding and build financial assets to make payments for a house they want to purchase in the next five years. He recommended they surrender their underperforming Ulips and reinvest the same in better risk-adjusted assets. Birani found that the couple bought policies on an insurance agent’s advice every year. That is why the policies were neither aligned with their goals, nor tax-efficient. Birani assessed these investments and found that they merely exceeded inflation targets. “Clearly, these Ulips added no value to their portfolio. The CAGR returns of Ulips were in the range of 6-8% for various policies and meant for long-term retirement goals. After some discussions and ideation, their MF portfolio was restructured, reinvested, and realigned towards their retirement and children’s goals. A mix of debt instruments and gold, too, was included to ensure diversification across asset classes,” said Birani.

“Today, in 2022, their asset allocation conforms with their risk profile, and their portfolio consists of 43% equity, 45% debt, 8% real estate, 3% liquid assets, and 1% gold. Kiran and Deepti have been disciplined investors and are now debt-free and navigating in the right direction to achieve financial freedom. They have a good amount of financial cushion through the right contingency fund and insurance. They are now on track to take care of their children’s financial future through their systematic monthly investments,” said Birani.

Funds for contingency: Birani advised the couple to build optimum financial protection by having a sum equivalent to at least three months‘ expenses parked in cash or cash-equivalent instruments. He said that the need for an emergency fund could not be undermined, especially after the pandemic, a complete lockdown and the turmoil it caused to businesses and incomes. Similarly, the need for proper insurance coverage is equally necessary for medical emergencies.

Insurance coverage: For any family, having a good financial foundation is paramount so they can remain invested in long-term goals without hassles. The couple currently have a family floater health insurance of ₹10 lakh. Moreover, Kiran has a ₹5 lakh individual medical group policy through his company and a ₹1 core term insurance. “Kiran and Deepti understand the importance of protection planning and have a contingency fund, besides adequate insurance coverage,” said Birani.