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Here’s an ideal portfolio construction strategy for every mother

This Mother’s Day, we can urge every mother, working or non-working, to arm herself with financial knowledge, requisite to make sound investment decisions.

May 10, 2020 / 11:07 AM IST
Representative image

Representative image


Rahul Jain

At a time when stock markets have nosedived, production has come to a grinding halt and being confined within four walls of our homes has became the new normal, one thing that remains constant is mother’s love and care for her family.

Women around the world, continue to work and care for their families, just as they always have, for centuries.

Mothers are considered as the epitome of nurturing and usually juggle various roles in their life, managing each of them with ease and elan. Their selfless contribution to our well-being and prosperity, cannot be recompensed.

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Tough balancing act

Balancing household budgets with income, managing expenses and every expectation is a daunting task. Exercising utmost precision and prudence to stretch finances just a wee bit more, a mother’s knack has been legendary. And in the current situation, it is a worthy challenge for a superhero.

Adding to the mix, are possible pay cuts and job losses, school fees, and EMIs, not to mention day-to-day expenses and four square, healthy meals for her family, every single day.

The prayer on every mother’s lips today is to find the right solution that allows her to balance the needs and wants of her family, without compromise and with as much relative ease as she can muster.

However, I firmly believe that the portfolio shared below can help every mother tide the current financial crisis, with better management of household income.

With this in her arsenal, she can meet essential expenses, save considerably despite limited resources and also address her own priorities, with ease.

Structure of the portfolio

Dedicated and disciplined investments in different asset classes such as equity mutual funds, unit-linked insurance plans (ULIPs) and debt mutual funds, can help every mother address two crucial needs — her children’s education and the well-being of her family.

To give you a simple example, assuming you are 35-years-old with a child aged five, you would need over Rs 40 lakh, for his/her graduation.

This is assuming that the cost of graduation is approximately Rs 15 lakh, today. This would, with an annual rate of inflation of 10 percent, escalate to Rs 43 lakh, 11 years down the line.

In order to achieve this, you would need to consistently set aside a monthly investment of Rs 18,000 for 11 years, to generate an annual return of 10 percent.

You can easily achieve this by investing in a systematic investment plan (SIP) investing in equity mutual funds and in unit-linked insurance plans (ULIPs), offering annualised returns of 12 percent.

This would amount to Rs 12,600 per month, which when coupled with a monthly investment of Rs 5,400 in a debt fund offering 6 percent per annum for 11 years, can help build the above corpus.

SIPs in equity mutual funds infuse much-needed discipline into your investments and ULIPs offer investment and protection, within a single product.

Additionally, SIPs help you better navigate through market volatility, offering a pause option to be exercised, should the need arise.

In times like now, this option to pause your SIPs can come in handy. This option helps you take a brief break from your SIP payments and also allows you to restart them later, without the need for an exit given lack of funds. Debt mutual funds, on the other hand, prevent erosion in corpus due to market volatility.

ULIPs offer partial withdrawal facility after a mandatory lock-in period of five years, which comes handy to ride any liquidity crunch, especially amidst black swan events like the one we are currently witnessing.

In case of any untoward incident, the life cover kicks in, and the proceeds can help your family tide over your absence, without any financial stress

Conclusion

This Mother’s Day, I would urge every mother, working or non-working, to arm herself with financial knowledge, requisite to aid, and make sound investment decisions.

She should actively participate and contribute to financial discussions within the family and be aware of her rights.

The women of our household should take an active interest in money matters and must bank on her skills while making investments.

As for us, the biggest gift we can give our mothers is the necessary encouragement and support she needs when embarking on this financial journey.

(The author is the head of Edelweiss Personal Wealth Advisory)

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Moneycontrol Contributor
first published: May 10, 2020 10:15 am

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