Diversifying investments is the biggest challenge for Shabbir Patel.

BEFORE THE CHECK-UP

• Assets concentrated in equities–65.34%
• Invests in equity through mutual funds, especially in ELSS
• No life insurance cover

WHAT WE SAID

• Diversify portfolio by investing in real estate and gold
• Pare down number of funds
• Take a life cover of Rs 20 lakh for 25 years, buy health insurance for parents
• For short-term goals, consider investing in fixed maturity plans

ACTION TAKEN AFTER OUR PRESCRIPTION

• Bought a term insurance plan of Rs 10 lakh for 20 years
• Taken a family medical policy of Rs 2 lakh each for parents and himself
• Started investing in direct equity through a basket of six stocks
• Mutual fund spread remains untouched

FINANCIAL HEALTH NOW

Everything was fine with Shabbir Patel’s investment approach. He planned expenses well and invested 65% of savings in equities. But within this asset class, confusion reigned.

To begin with, there were too many funds in his kitty. Also, Patel made the common mistake of assessing the return potential of a fund on the basis of its net asset value (NAV). And though he invests aggressively in the markets, he lost out on some good earning opportunities by betting on funds with lower NAV.

Returns on a fund are earned on the total amount invested, irrespective of the number of units you have purchased. A higher NAV only means you can buy smaller number of funds and vice-versa.

Patel seems to have grasped the concept and changed his evaluating technique for funds, though he can’t exit current tax saving funds. Instead of NAV, it is long-term performance of mutual funds which will influence his future investments.