By Trinath Lenka | Founder & Director – WC Wallet Advisory Pvt Ltd, Orissa

Your financial advisor is like a homoeopathic doctor. If you do not tell him the beginning and the end of your entire financial history, he may not be able to help you with the most effective plan. Unlike an allopathic doctor, he/she is not treating your current symptoms/needs only; it is more about your body as a whole.

Whether you are a first-time investor or a retired individual looking to revamp your portfolio, the first step in your new financial journey is the need-analysis. Let us understand this with the case study of a retired individual.

Ramesh has recently retired from a government organisation and wants to realign his investment portfolio to his changed priorities. Below are the steps involved in his need-analysis-

1. Household Expenses- Ramesh needs to first determine his monthly household expenses. Then assuming a life expectancy of 25-30 years, he needs to ensure that he has an investment plan that allows him to maintain the same lifestyle for the next 25-30 years. Add to this, the inflation of approximately 5% and then calculate the total sum required.

2. Contingency Fund- A contingency fund at this age can be any amount upward of Rs 5 Lakh. It can be held in any of the debt schemes with no exit loads.

3. Medical Insurance- One of the first checks for Ramesh and his wife is the amount of medical coverage they have and if it will suffice given their current or unforeseen medical issues. If not sufficient, then he must consider an additional cover or a new policy more specific to his and his wife’s needs.

4. Children’s marriages- Ramesh has a son who is expected to get married within the current year. Keeping the expenses in mind, Ramesh must decide on the amount expected to be spent and invest that in a short-term or liquid mutual fund scheme depending on when exactly it is needed.

5. Vacations- Your life starts at 60! If you keep travelling, you feel younger and keep your spirit alive! Ramesh may plan for at least 2-3 such short/long vacations in a year.

Being retired, what Ramesh can avoid is an investment in real estate and investment in mutual funds via Systematic Investment Plan (SIP). These may not be the most appropriate investment choices for a senior citizen. Most of Ramesh’s investments may be focussed at debt or hybrid schemes.

These are some of Ramesh’s needs that may need immediate attention. Specific to each individual, the needs are likely to change and hence, there can’t be a framework of investments for anyone to follow. The investment advice will need to be customised to Ramesh, and likewise for any other individual.

To earn money is difficult, to lose it, on the other hand, is a left-handed job

There needs to be a lot of emphasis on the kind of mutual fund schemes that constitute your portfolio, else you may end up suffering losses and not meeting your goals. When you select an equity scheme, for example, you need to check which companies’ stocks is the scheme investing in, the expense ratio, fund manager’s credentials and the risk-adjusted returns. Or for a debt scheme, you need to check what kind of papers is the scheme invested in and what is the quality of these papers.

Once you invest based on your needs, you need not check the performance every day. The volatility in the market will not worry you as long as you know your investments have married your needs.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.