Do not invest in a house too early in your career

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In April-May 2017, Mint carried out a survey of 19 financial advisers, on the biggest mistakes that investors make. You can read it here and here. Over the next few weeks, we will talk to more advisers about the mistakes investors make. You can read about them here: This week, we talk to Gajendra Kothari, chief executive officer, Etica Wealth Management Pvt. Ltd.

When to buy a home

When is the right time to buy one? When you are fresh out of college? When you get your first paycheck or should it be later? Kothari says that one of the biggest mistakes is to buy a home too soon. Apart from taking on a big loan burden so early in one’s career, what happens if the young investor relocates? “When you are starting your career, you never know where you’ll end up. You could be in India, but in another city or you could even move abroad,” he said. Kothari too had moved quite a bit before settling in Mumbai.

Hasty tax-planning

This could lead to operational issues. Kothari remembers a client who had invested in a tax-saving mutual fund on 29 March 2017. The fund house allotted the units and dispatched the account statement on 30 March. But by 6 April, his client saw that the money was still in his bank account as the transaction had failed. As a result, his client had to pay Rs45,000 as tax (30% of Rs1.50 lakh; the maximum amount that is eligible for Section 80C tax benefits). “Last minute, if there is a hiccup, you don’t have time to repair the damage,” said Kothari.

Equity or dividend

Kothari said that many people buy mutual funds “thinking the dividends they receive are similar to those from stocks.” They don’t realise that equity funds are meant for the long term; it doesn’t make sense to collect dividends and deposit it in bank accounts. He recalls a client who had 150 folios, all in dividend option. “We had to convince him to change it to the growth option,” he said.

Ignore mutual fund

A bigger problem is that people don’t invest enough in mutual funds, he said, as compared to traditional financial instruments such as Public Provident Fund, insurance, and fixed deposits.

“There is very little financial awareness. Most investors don’t want to invest time in learning about personal finance. That’s also why many such investors rely on informal advice from family, friends, or colleagues,” he said.

What’s the solution? Apart from taking active interest in personal finance, Kothari nudges investors to involve their families. “Stay abreast of what’s happening in the financial markets,” he said.

Too many funds

This is a common problem. Many financial planners complain of seeing bloated portfolios. On his part, Kothari said, investors have come to him with as few as 10-15 schemes to as many as 30-40 funds.

“Too many funds easily lead to duplication. Multiple funds could be in the similar categories that would be doing the same thing. Just having more funds in a portfolio makes it harder to track and we end up with an overload of communication from fund houses in the form of account statements, and so on,” he added.

Kothari also said that a mutual fund portfolio should ideally not have more than 6-8 mutual fund schemes, “to make the portfolio more manageable.”