UnTying the financial knot

Despite a late start in financial planning, this doctor couple—planning to get married in November this year—can make up through disciplined investment in equities.

Print Edition: November 13, 2008

Zubin Ruttonji & Sumitha Ganapathi
Name: Zubin Ruttonji & Sumitha Ganapathi

Age: 30 and 27 years

Monthly Income: Rs 40,000 (post tax)

Financial Dependants: None

At an age when his peers in the finance and engineering streams are dreaming of their third or fourth promotions, Zubin Ruttonji, 30, has just kickstarted his earning life. While his friends are probably lamenting the loss in their portfolios, he is beginning to build one. No, he is neither lazy, nor careless. Ruttonji is a doctor and has recently completed his studies. He is also planning to get married soon. Not surprising, as the woman he wants to marry is also a doctor. Sumitha Ganapathi, 27, is still pursuing her MD in medicine. It is not a long wait though as the doctor couple is set to marry in a month’s time. They want to do everything right, which includes having a sound financial plan for their married life.

Though the reasons are justifiable, it is definitely a late start and comes with the usual disadvantages. Or so you would think till you find out Zubin’s perspective: “We may have lost out on the early bird advantage, but we will also be earning for a longer period.”

He is right. As both Zubin and Sumitha intend to start private practice eventually, they haven’t fixed any age for retirement. This helps in increasing the number of investing years and reducing the amount required for their retirement corpus.

However, Zubin does not want to overrule the possibility of hanging his boots at the age of 60. The confusion about such long-term goals can be addressed with a flexible financial plan. But first, let us look at the couple’s starting corpus.

Zubin earns a monthly salary of Rs 25,000 after tax. Another Rs 15,000 is added to the kitty through various incentives. Sumitha receives a stipend of Rs 8,000. Of this, Rs 3,000 is deducted as payment for a laptop. Zubin has asked us not to include the net income of Rs 5,000 in our calculations as it is spent in travelling.

Financial Pre-nups

If you are planning to get married like Zubin and Sumitha, it is important that you have a new financial plan. Here are some tips:

Review insurance cover: The era of zero responsibilities is over. If it is not your spouse, then it could be your parents who could be dependent on your income. So increase your life insurance cover. It won’t hurt to buy a health insurance plan worth a couple of lakhs too.

Frame your financial goals: Work out your financial goals and the amount you need to save for each of these.

Reduce your debts: It is best to start without any financial liabilities. But if there is a car or a personal loan you are repaying, bring it to the table to help decide about future debts.

Make a budget: There are too many new expenses on the anvil. Sit with your partner to decide where you want to spend and how much. Make a budget and stick to it.

Decide on managing the finances: Do you want to operate separate accounts or a joint account? Who will take care of the expenses? Who will invest and where? Structure your finances to allow for maximum mileage from a combined income and ensure that there is financial freedom for both.

Decide how to distribute the financial errands: Identify each person’s strengths, availability of time and other responsibilities. Then assign financial tasks accordingly.

Currently, Zubin pegs his expenses at about Rs 9,000 a month. After marriage, he estimates that it will go up by another Rs 3,000—a reasonable 30% of his income. This means that the couple will have a monthly investible surplus of about Rs 28,000 till 2010 when Sumitha starts working. Her income will shore up the surplus by at least Rs 25,000.

Eight months ago, Zubin started investing in equities through systematic investment plans (SIPs) of Rs 4,000 in three mutual funds. He has stacked up Rs 45,000 in six other funds through lump-sum payments. The recent downturn in the market has inspired many newbies to try their hands at bottom-fishing for stocks. Zubin has also been struck by the bug and has invested Rs 15,000 in the shares of ICICI Bank, Adlabs, Reliance Petroleum and Reliance Industries.

The thrust of the couple’s infant portfolio is on the mark—equities. Zubin has stayed away from debt instruments except for a fixed deposit of Rs 25,000. There is also a recurring monthly deposit of Rs 2,000, which Zubin started on his mother’s insistence. She believes that some money should be invested in ultra-safe financial products.

It is sound advice. But Zubin and Sumitha are close to the end of the golden period of their high-risk appetite. As they grow older and their responsibilities increase, the couple’s risk appetite will dip. Hence, focusing on equities for the next few years is a good idea.

The catch is that the equity instruments should be relatively safe. Topping the list of these products are equity diversified funds. Zubin has already invested in nine such funds. We cannot call it a bloated portfolio, but the choice of funds is not appropriate for someone with the risk appetite and investment acumen of Zubin. Sector-specific funds like HDFC Infrastructure are best for investors who have a firm understanding of the sector and can time their entry and exit according to the sector’s growth curve. Hence, Iris suggests that he exit this fund (see Streamlining Funds). Reliance Natural Resources and Reliance Diversified Power also need to be out for the same reason.

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