This Dussehra 9 Financial Planning for New Parents

1. During the last 5 years, we have come across clients with an array of expectation from their investments. We have clients who are just 23 years of age to clients in their late 70's. Given this large dispersion, their expectations differ, so does their portfolio allocation to meet those expectations.

With over 10,000 investors in advisory and another 170 in the PMS, we have been fortunate and hand hold clients not just at the beginning, but as they mature through their financial stages.

2. The most crucial point along the journey is when you become a parent.

This is the most difficult stage. You have wealth, a host of upcoming big ticket purchases, and a plethora of investment options, so much so that it becomes overwhelming. There's mutual funds, life insurances with guaranteed returns, personalised portfolio management, alternate funds, foreign equity, and much much more.

3. Dialling back a step, first you need to understand and plan your upcoming expenses or responsibilities. Child education and household expenses are crucial to plan for. It's important to note here that when household expenses have rose by 6-8% over the last 10 years, while education expenses have rose by 11-12% per year.

4. As parents, leisure expenses on vacations are inevitable. Plans for these must be sketched at least three months prior and liquidity must be arranged for the same. Other major big ticket expenses for personal vehicle and down payment for residential property must be planned for at least 3 years in advance. Planning at the last minute isn't called planning. Planning well in advance gives an opportunity to understand where the shortfall may occur and revise the goal accordingly.

5. Plans translating into precise outcome happens once in a blue moon, but it's necessary to plan, and achieve if not precisely with a slight deviation. Pre-plan your monthly budget, if not by every individual line item, have a high level planned budget every month. The unplanned emergencies like healthcare can be mitigated best by purchasing health insurance early on. Even though this might seem like a heavy one time expenditure, the peace of mind you experience is priceless. We have heard stories how a family despite meticulous planning lose it all due to an unfortunate accident. Its highly recommended that you take a comprehensive health insurance early on in life for you and your family.

6. Speaking from experiences shared by our clients, overconfidence is very common as a new parent. Having the unwavering faith of yes, I will be able to meet the expense no matter what, is a very common pitfall!

7. Try using an SIP calculator and assume a growth rate. This calculator will either break your faith or bring a smile on your face. It important to be a realist, that's my point here.

Aim to generate a compounded return of 15-20% through regular SIP's and investing from your income consistently. At the same time, maintain a constant allocation towards your emergency fund which is available for spending at any minute. Don't get too carried away by equities and don't expect windfall gains - it's called windfall gains for a reason.

8. FD's, Gold and real estate is the most preferred investment vehicle in India. Given how ferociously rental rates, education expense and cost of living has increased, the returns generated by the above mentioned instruments only help you protect wealth rather than grow it.

FD and gold can be part of your emergency fund portfolio. These are very liquid and you would be able to convert this into cash the very next day. Now, most importantly, to grow your wealth, you need some equity allocation, something that grows your wealth.

9. India is one of the fastest growing economy and most if not all factors are going right for India. It isn't unreasonable to expect a return of 15% where we are today and the opportunities available.

Within equities, you're better off going for a small + mid cap allocation. Picking stocks in this segment is difficult, in fact very difficult. Hence, it's recommended that you either opt for Smallcases or Mutual Funds that has exposure to small and mid-cap segment.

Our target audience is exactly this, gladly the average age of our clients, among 10,000 clients is somewhere between 32-35.

By Divam Sharma, smallcase manager and Founder, Green Portfolio