Joseph Bhaskar Iswariah, 93, a celebrated retired Major General of the Indian Army, is settled in Coimbatore. With years of experience, Iswariah has been investing mostly in traditional fixed-income products. While serving the Army, his finance team would help him with his tax compliance and investment decisions. After retirement, he was living on his pension, which was taking care of his monthly expenses. He did not take much interest in financial matters. When Rowthri Sivashanmugam of RP Investment Services met him, Iswariah’s investment portfolio largely comprised of bank deposits, unsecured Non-Convertible Debentures (NCDs), and high-risk Portfolio Management Services (PMS). With regular fixed income products, Iswariah had a healthy tax bill every year.

Sivashanmugam had several rounds of interactions with Iswariah, which helped her understand his financial needs better. It was evident that Iswariah’s needs were limited. His investments were supposed to be passed on to the next generation - his son, two daughters, and the grandchildren. However, his tax payments were reducing the effective returns on his investments. It was important to devise a suitable strategy to grow the existing investment portfolio. Iswariah was worried about his high tax outgo. To address these concerns, the tax incidence on existing investments was reviewed and switched to more tax-efficient options.

While considering different options, Sivashanmugam advised on investing across different products like long-term debt, balanced advantage funds, hybrid funds, among others. While Iswariah’s age was not best suited to invest in equity, his primary financial goal was to pass on the legacy to the future generations. This required investment in longer tenors with higher returns. Slowly and steadily, Iswariah became comfortable investing in different asset classes.

With a regular review and timely rebalancing of debt investments, the portfolio became healthy. His entire investment in fixed deposits and bonds were soon shifted to mutual funds. This helped in doubling the portfolio value. The corpus was further cushioned with the sale proceeds of his property in Bangalore.

Iswariah was also introduced to the concept of indexation. It enables investors to pay tax only on real returns instead of absolute returns. Investors can avail of the benefits for long-term capital gains on non-equity schemes. These gains are taxed at a special rate of 20 per cent, instead of the prevailing maximum marginal rate of 30 per cent. Another major benefit, of investing in mutual funds, is the tax incidence from returns. This is applicable only at the time of redemption, as against tax payable on an accrual from the interest income on traditional fixed deposits.

All efforts in bringing tax efficiency to the investment portfolio paid off well. Iswariah was pleased to have a lower tax payout. Suitable action has been taken to enable nomination on all his investment to his family tree till his grandchildren. This process always helps the nominees to claim their investments after the investor’s demise.

While Iswariah did not have any financial goals to meet, the regular annual portfolio review became a social get-together over tea. Iswariah and Sivashanmugam would often exchange their thoughts on how his investments were growing and if there was any need to modify the strategy. Sivashanmugam and her team have been monitoring his investment portfolio and regularly advising on allocating in the right asset class. With a proactive approach, healthy profits were booked timely from a few credit schemes.

Sivashanmugam and her team have been helping several investors like Iswariah to build their financial fortunes. A disciplined approach can help the investors in taking several steps towards their financial goals effortlessly. Happy investing!

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Rowthri Sivashanmugam shares her advisory experience with Iswariah:

Understand the investors’ needs and concerns: When it comes to investment advisory, there is no ‘one-size-fits-all’ strategy. The needs and aspirations of every investor are different. For example, a young professional with less financial commitments may be willing to take higher risks. In contrast, an investor nearing his retirement may be willing to protect the accumulated wealth, instead of exposing himself to the equity market’s short-term volatility. As such, one should always understand the need and concerns of the investor before giving any advice.

Asset allocation is paramount: Asset allocation refers to the proportion of different asset classes in an investment portfolio. Since no single asset class can outperform every time, one should stay invested across different asset classes to benefit from the market rallies. It also helps investors in balancing their risk profile with the investment portfolio. They can also consider balanced advantage funds to automate the allocation process. These funds align the investment portfolio into debt and equity as per the respective asset classes and their relative valuations.

Regular interaction during tough times boosts confidence: Investors tend to get comfortable when their financial advisor interacts with them regularly. This renders a sense of confidence. Iswariah was a bit stressed about his dwindling fortunes during sharp corrections in the market due to pandemic. However, a short interaction during the lockdown was enough to rebuild his confidence. Had Iswariah taken the harsh step of redeeming his equity investments around March 2020, he would have missed the ongoing market rally, which later helped his investment corpus grow significantly.

Disclaimer

Financial Planning of Joseph Bhaskar Iswariah is based on the “personal opinion and experience” of Rowthri Sivashanmugam of RP Investment Services. It should not be considered professional financial investment advice. No one should make any investment decision without first consulting their advisor and conducting research and due diligence.

Rowthri Sivashanmugam Partner, RP Investment Services