Investment objectives lie at the very heart of personal financial planning and investment advisory services. The investment objectives can be broadly considered to be of two types – an explicit return objective in percentage terms either absolute or relative to a benchmark or a specific goal based approach, to accumulate a certain amount of corpus given a time horizon in order to meet a future funding need.

Considering the latter approach, most of the time people have almost the similar kind of goal expectations – retirement corpus, education fund for children, wedding corpus for children, philanthropy, second home and vacation corpus. These are more popularly called planned goals. There are also the less explicit unplanned goals like a out-of-the-pocket medical expenses, property repairs, funding for work projects after retirement.

While people are ambitious and diligent to save for a vacation home in retirement, they forget to plan for the additional expenses that accompany such a purchase. The property related expenses can be lump sum requirements such as cost of a new fridge (Rs.50,000/-), contribution to installation of solar panels in the apartment building (Rs.60,000/-), contribution to the painting fund for the apartment (Rs. 45,000/-) or even money to repair the roof of the attic as in the recent episodes of the show Downton Abbey: A New Era.

Assuming to be rent and EMI free, the routine expenses can include the property tax, maid, gardner and cleaning services, annual maintenance charges for the apartment complex, AMC for the electronics, household repairs, electricity, water, gas, insurance premium and so on.

In Downton Abbey: A New Era; they have to look out for an additional source of income to get their roof repaired; most of us will be in the same position unless we plan for the same. The main challenge is to list out all the expenses were are likely to incur and their current costs, so as to calculate the expected future values of such expenses and thus the corpus required. In addition we also need to be cognizant of the fact that each property is unique in terms of the maintenance required.

Though it seems daunting, we can get started by-

[1] Listing out the expenses we are incurring currently for the property and monitoring the actual cash outflow. Add the new unexpected expenses that crop up and keep re-evaluating at the current budgeted cost.

[2] Add Property Repairs as a goal in your financial plan and review the actual cost incurred each year in order to recalculate the future value required.

[3] Each property is unique and hence the maintenance expenses required will be different too. Anticipate and ask for the type of maintenance required with time horizon for the specific property.

The funding requirement can be met by simple mutual fund portfolios consisting of debt and equity asset classes. Keep it simple and you can choose-

[1] Balanced Advantage Fund which by default has both debt & equity exposure OR

[2] Multi Asset Fund which has exposure to commodities like gold and silver in addition to debt and equity OR

[3] A separate equity MF and a debt MF

The choice of investment will depend on your individual risk tolerance which needs to be first evaluated and the risk profiling is again a building block of the financial planning and investment advisory process.

A little work today for a better tomorrow!

Till next post, take care !!