Why this 24-year-old trusted a fee-only adviser for financial guidance

However, 24-year-old R. Jeevitha from Bengaluru is committed to helping her parents repay loans and plans to invest a portion of her monthly salary to meet her financial goals.

“It hit me hard how financially illiterate students from non-finance backgrounds, as I am, are,” says Jeevitha, a technical writer at a tech firm in Bengaluru.

“Although we have heard about stocks, mutual funds and bonds, we are unsure how to make them work for us. I wanted to organize my finances with a proper system in place. The money should work for me instead of lying idle in my bank account,” she says.

Why a financial adviser?

Jeevitha had always been wary of the commission-based financial services industry. “It made me feel that those people will only suggest products with vested interests in mind,” she says.

She discovered a podcast where Melvin Joseph, one of India’s first fee-only financial planners and Securities and Exchange Board of India-registered investmentadvisers (RIAs), spoke about independent financial advisers who are not associated with any company but only charge for their financial advice.

“I was unaware that such advisers existed. I had spoken to some advisers who charge a percentage of profits as a fee. That did not sit well with me,” she says.

In the podcast, Joseph mentioned Ajay Pruthi, the founder of PLNR, a Mumbai-based fixed-fee advisory platform, among others. Jeevitha reviewed their profiles and decided to proceed with Pruthi.

“What I liked the most was that I could learn to manage my finances by myself. He is there to guide me, but I have to execute it myself,” she says.

Jeevitha reached out to Pruthi last year just after landing her first job. It has been seven months since he created her financial plan.

Investments and loans

Jeevitha had no investments or substantial savings when she onboarded PLNR. She had an education loan at an interest rate of 9% (still running) and a couple of family loans at substantially higher interest rates of around 27% for which she is paying equated monthly instalments (EMIs).

The instalments for all loans combined comprise 44% of her monthly expenses. Moreover, living away from her parents adds to her living expenses.

“Ajay advised me to first create a contingency fund of six months of living expenses in a bank account or a liquid fund. I was also told to keep 3 months of salary in savings accounts and open a sweep-in facility in the same,” says Jeevitha.

A sweep-in facility ensures that whenever funds in the savings account cross a predefined threshold, the surplus goes into a fixed deposit (FD) and starts earning a higher interest. Getting it back in the savings account does not incur a penalty or affect the interest rate on the FD.

Pruthi did not rush Jeevitha into investments. “The next step was to accumulate funds to pay off high-interest-rate loans. He suggested four mutual fund (MF) schemes for investments but told me to do it only after six months,” she says.

She recently started her MF investment journey. “In all, 20% of my salary goes into servicing loans, 40% comprises living expenses and the rest 40% is for investments,” she says.

Jeevitha plans to go on her dream vacation in two years. She will be investing her monthly surplus and any office bonuses in recurring deposits to accumulate funds for the trip. Another goal is to save for her marriage. This, too, is a short-term goal and will be achieved via recurring deposits (RDs).

“I’ll be depositing a fixed amount in RDs that will help me collect the inflation-adjusted amount that I have in mind,” she says.

 

For her retirement goal, Pruthi considered her desired retirement age of 45 years. This goal will be achieved through a combination of EPF (Employees’ Provident Fund), PPF (Public Provident Fund) and equity MFs.

Goals have to be realistic. “I want to purchase a house with a budget of ₹1 crore after 5 years, but Pruthi suggested that I postpone this goal as it will impact my other goals,” she says.

Insurance

Insurance is the first step in financial planning. Jeevitha only had her employer’s medical insurance, which was insufficient. Pruthi suggested she purchase individual health insurance of ₹50 lakh now and gradually increase the cover to ensure decent health coverage for her post-retirement days. “I am supposed to purchase a ₹10 lakh individual policy and a super top-up policy of ₹40 lakh with ₹10 lakh deductibles. I am in the process of doing it,” Jeevitha says.

She also plans to buy a personal accident policy of ₹1 crore which will offer disability benefits. “I suggested that she include ₹20 lakh cover for temporary total disability in this policy. This offers a weekly benefit of ₹20,000 per week for 100 weeks in case of temporary total disability due to an accident,” Pruthi says.

He also told her to buy ₹30 lakh health insurance cover for parents if their health conditions permit.

Life insurance is crucial. Shewasadvised to buy a term plan of ₹1 crore coverage now and an additional ₹1.2 crore after she gets married. “An online term policy is the best option to purchase life insurance cover. Such policies do not have any maturity benefits,” says Pruthi.

The advisory fee

Pruthi charges ₹12,000 for a year to create a full-fledged financial plan. From the next year onwards, the portfolio can be reviewed annually for ₹6,000.

“I must say that the fee I am paying is low for the value I am getting. My biggest worry was ongoing loans. He created the loan repayment schedule in a way that not only will I be able to close them sooner, but also pay less interest cumulatively in the process. This saving will be more than the fee I paid,” she says.

There are only 1,300-odd RIAs in India, and most of them cater to high-net-worth individuals. Pruthi is among the very few who specifically cater to young clients.

“Youngsters, due to a lack of quality advice, tend to buy investment-linked insurance or get lured into stock trading. They need unbiased financial advice more than anyone else so that the beginning of their financial journey is on a strong footing,” he says.

Jeevitha inspires people of her age to make the right choices. The earlier investments start, the better the chances of reaping the fruits of compounding.