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Judicious Investments

Indraneel Sen Gupta 
Updated on 25 April 2021


Selling insurance and mutual fund together might seem as an difficult task for any advisor but it’s the best weapon to achieve the financial objectives. Insurance and mutual funds help to maintain the future cash flow and mitigation of risk during the adverse situation of life. An investor has two part of inbuilt wealth(1).Tradable financial assets and (2).Human capital. Human capital is defined as the present value of the future labour income of the investor.

The below chart depicts the true picture of human capital and tradable wealth of an investor. The amounts of financial capital and human capital over an investor’s working years (pre-retirement) from age 25 to age 65. When the investor is young, his human capital far outweighs his financial capital. As the investor gets older, the investor will continue to make savings contributions and, with the returns from the existing financial portfolio, the amount of financial capital will increase.

Financial Capital & Human Capital

Insurance and mutual fund when used judiciously can help a common man to fight easily against the rising cost of living. One doesn’t need to compensate and cut back his expenses as cost of living each day is going up. One can maintain and improve the living standards despite of rising cost through financial planning .Insurance is never sold but bought in India as a burden or as an forced sell product . But we never went into the other aspects of insurance than death coverage or life protection.
Retirement is the end of active employment and brings with it the cessation of regular income. ULIP is the best product generate the future cash flow during much higher living cost .A young fellow of 18-25 years will refuse to go for retirement investments but he must understand that his human value will get reduced day by day which needs to be compensated through asset increase. At the age of 45 his human value will be over by more than 60% and at that age he will enter into retirement planning will only fetch asset value only 40% of the left over life.
To make it more simple I will give two examples:
Let us take an example of Gaurav & Hari. Both of them want to retire at the age of 60. Gaurav starts investing Rs. 10,000 every year from the age of 25 till the time that he retires. In all, he would have invested Rs. 350,000. If his investments were to earn 7% return every year, at the time of his retirement, Gaurav will have a retirement corpus of Rs. 13,lac (approx)
Now, Hari starts investing 10 years later (i.e. at the age of 35) and in order to make up for the lost time, invests Rs.15,000 every year (which is 50% more than Gaurav’s annual investment). So, by the time of his retirement, he would have invested Rs. 3,75,000. And assuming the same annual return of 7%, he will end up with a retirement corpus of Rs 9lacs (approx).
Human value and wealth creation or asset creation is need illustrated in diagram 1 below

Human Capital

Tuition fees of schools and teachers are increasing like any thing. In fact food prices are climbing very slowly as compared to tuitions fees of school and colleges. I will not go into higher studies. I will keep it small and simple. Apart from conventional schooling, it becomes important to expose your child to different activities such as dance, painting and sports training for holistic development. As a parent, you want to ensure that their development is not hampered either due to rising costs or unforeseen circumstances. ULIP and mutual funds investments can generate the cash flow as well as long term protection of education through the maturity of the insurance policy.
Mutual funds in simple words takes care of the cash flow and also if viewed from an different angel can also reduce the burden of paying premiums over the years. This is possible only with the use of the two products judiciously. Hence make judicious investments..

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Indraneel Sen Gupta 

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