Financial independence is crucial amid job losses

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If everything goes as planned, the 30-year-old lecturer in Hyderabad should be able to semi-retire and achieve financial independence by the time he turns 48.

“The idea is to work on my terms without worrying about money, spend more time with family and travel more often,” said Sharma. Most individuals who have joined the FIRE movement stay frugal and invest as much as they can.

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While he is not frugal, Sharma avoids buying unnecessary things like expensive gadgets. He invests the majority of his salary towards his goals.

He is also concerned about the changing dynamics of different professions. For example, evolving technology and consumer preferences are making many jobs redundant. “The education industry, which I am part of, has changed a lot in the past year with edtech becoming prominent,” he said.

When he started at 25, he invested through a mutual fund (MF) distributor. Three years later, he read about fee-only advisers and the way they function. He took stock of his MF portfolio and got an impression that the fund distributor probably suggested funds that helped him earn a commission.

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“In 2018, I decided to opt for a fee-only adviser as I wanted to be organized about savings and investments and didn’t have the time to do it myself. I came across an adviser on an online investment forum, liked his suggestions, and opted for his services,” said Sharma.

The first thing that Chandan Singh Padiyar, a Sebi-registered investment adviser, asked Sharma was to stop investing through the regular route and start direct investments to save on commissions.

Sharma had invested in six equity MFs via the distributor. The portfolio was entirely equity-oriented and comprised of two mid-caps, one multi-cap and three large-cap funds.

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Sharma’s portfolio now has an index fund that tracks the Nifty50 for large-cap investment. Another based on the Nifty Next 50 Index to get exposure to quality large and mid-cap funds. There’s a multi-cap fund and Padiyar asked him to continue with the aggressive hybrid fund he had earlier. For debt, Sharma has a money market and arbitrage scheme.

“We continued with the aggressive hybrid funds as it has returns similar to a large-cap scheme and volatility is low. Part of his debt investment is in an arbitrage scheme as Sharma is young and doesn’t have kids. As his priorities change, he may need to alter the portfolio, which is equally distributed between equity and debt. Arbitrage funds are more tax-efficient than debt funds while returns are in the same range as short-duration schemes,” said Padiyar.

Padiyar also advised Sharma to buy adequate life, health and personal accident insurance policies.

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After taking the help of a financial planner, Sharma is investing higher amounts towards his goal than before. He sticks to a budget, tracks his expenses and knows the funds available for travel or other discretionary expenses.

The adviser also helped him realize the benefit of taking insurance that Sharma had never paid attention to. Padiyar shaped his portfolio the way he wanted it—take limited risk while keeping things simple.

Earlier, Sharma was investing 15-20% of his salary. Around the time he took the services of a financial planner, he also got married. Despite the increase in responsibilities, he invested 75% of his salary towards his early retirement goal before the coronavirus lockdown.

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When the lockdown started, Sharma’s investment plan did take a hit. As the market fell, he used his emergency fund to invest more in it, which left him with money that could only sustain him for two months. Earlier, he had an emergency fund worth six months of expense. He took the risk of using his emergency funds to increase his investments as professionally things looked fine then.

But a few months later, the education institute where he works cut his salary as students were not coming for classes. The future looked uncertain while he had dipped into his emergency fund.

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“I had to stop my investments for some time to replenish the emergency fund that could sustain me for at least 6-8 months,” said Sharma.

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“An emergency fund was important during the uncertain times. So, we decided to first focus on it,” said Padiyar.

In February, Sharma resumed his investments. But due to the pay cut, he is unable to invest as much as he did before. However, he hopes that things will improve in the coming months, and he will be on his savings journey.

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