Equity, the key ingredient for building long-term wealth

40-year-old IT professional Sameer Damania was one such investor. According to Sameer, he is a good saver, a habit he learned from his parents. The Covid-19 pandemic didn’t affect his job, and his habit of parking the surplus in banks helped Sameer meet some financial needs in the last two years.

However, after the outbreak of the Covid-19 pandemic, he realized that the current increase in his savings may not be enough to help him meet his long-term goals. Married to beauty professional Natasha, Sameer is the dependent parents.

“My investments were not giving me enough returns to beat inflation. I wanted to know how can I best plan for my future and the investment options available so that we can maintain our current lifestyle even when we retire,” Sameer said.

This prompted him to seek help from Harshad Chetanwala, a SEBI-registered investment advisor (SEBI-RIA) and co-founder of MyWealthGrowth, in January. “Sameer was aware of the advantages of investing in equity funds, but lacked investment comfort. So, we gradually started converting savings into equity. His monthly cash flow is now coming into equities through a Systematic Investment Plan (SIP). You cannot build a long-term portfolio without equities,” Chetanwala said.

Before contacting Chetanwala, Sameer’s investments were mainly in savings bank accounts, two unit-linked insurance policies (ULIPs), voluntary provident fund (VPF) contributions and an equity-linked savings scheme, or ELSS. mutual fund, which was done to save tax.

While Sameer had a contingency fund that was enough for five to six months, Chetanwala advised him to boost it to stay good for a year. Simultaneously, Chetanwala worked on increasing the equity allocation in Sameer’s portfolio.

“The plan was to be aggressive on equities, as Sameer’s goals were primarily long-term. To begin with, we started with a large-cap and a flexi-cap fund as well as an existing ELSS fund,” Chetanwala said.

From 25% investment in equities before going for professional help, SAMEER’s asset allocation today is around 50% in equities and 50% in debt, which will be gradually increased to 65-70%.

“In some cases, people are initially uncomfortable about investing large amounts. So, you go step by step and start increasing the investment gradually. This is what we have done to the Damanis,” Chetanwala said.

Experts say investors should not expect a repeat of the stellar performance of equities in the last two years and keep expectations in the range of 10-12% over the long term.

Thereafter, Chetanwala and Damania worked on the insurance portion. Although Sameer had taken a ULIP, he did not have any term insurance, which is a plan that provides coverage for a specified period of time in exchange for a specified premium amount.

Sameer was insured about 25% of the required cover in terms of life insurance. So, for the uninsured portion, Chetanwala suggests buying a term insurance.

However, the good thing was that the Damanis had a good health cover in the form of a group policy and a comprehensive plan that included outpatient as well as inpatient treatment.

Sameer had taken a family floater plan between himself and his wife and another floater plan for his parents.

According to experts, individuals should not rely only on a corporate policy and take individual comprehensive insurance plans that cover outpatient and inpatient treatment including consultations, medical tests and hospital stays.

Chetanwala said, “We plan to add critical illness to Sameer’s health insurance policies.

Thereafter, Chetanwala started working on the targets of the Damanis, which were mostly long term. Fortunately for Sameer, he had no debt burden, but he planned to get a housing loan and other goals included retirement and planning for children and their education.

Chetanwala believes that since Sameer’s risk appetite was moderate, with a long-term horizon, the plan should be to look at mid-cap funds after a few months, when he can consider equities as an investment class. become more comfortable with

According to Chetanwala, an important takeaway from Sameer’s case is that individuals should always keep an eye on the debt-to-equity asset allocation, especially when they are investing more through VPF, as by default that allocation will be in debt. He goes away.

“While this is a great tool, if you need more money in hand, it needs to be looked at from that perspective again. Another important lesson was that if you have long-term goals, you can only invest in provident funds. And banks cannot rely on deposits,” Chetanwala said.

While Indian banks pay interest in the range of 4-6.5% on FDs for one-five years, VPF gives a return of 8.50% per annum. However, the contribution under VPF comes with a lock-in period. Full or partial withdrawal before the period is subject to taxation.

“You have to use equities to grow your wealth as it is one of the best asset classes to invest in from a long-term perspective,” Chetanwala said.