Tag: Wealth Management for armed forces officers

10 May 2017
Where are your 6th Pay Commission Arrears

Where are your 6th Pay Commission arrears?

The bonanza

1st Jan 2006 was a magic year for Govt servants round the country. The 6th pay commission was operational from that day and had started working on the 10 Year ritual. It did take some time to give its final recommendations, but it was touted as one of the best pay commissions that Govt servants in India had seen. People got a good increase in pay and allowances, hefty arrears and there was rejoice all around.

Even before it had come around physically to all, most of the defence officers had already planned its expenditure. Some had to buy a new car, some a great vacation (alas! there were no selfiesof the vacation spot to post on facebook at that time), some for white goods and some to pay off loans etc. Some even indulged in risky bets like direct stocks or commodity/derivatives play without an understanding. And since it took a long time for the arrears to actually come, they were pretty hefty when they finally came. So lots of dreams got fulfilled and financial satisfaction achieved.

While the bulk receivables were planned for, hardly anybody planned to deploy the good monthly increase in take-home pay even after the hefty taxation. Consequently, the increases got absorbed in the routine and the lifestyle expenses adjusted to take it in without any real long-term benefit accruing to most of the officers.

But where’s all that money now?

Today, do you remember where haveyour 6th pay commission arrears or increase of pay gone to? Or for that manner the 5th or 4th pay commission monies? Has it really contributed to your family’s lifestyle or got something tangible or intangible for you? Most of the people would not really be able to answer this question unless, by chance or by design (or by mistake!), they invested the bulk amount in a credible financial or physical asset or used the monthly increases in salary to pay installments of a loan, or better still, start fresh Systematic Investment Plans (SIPs).

Are you on the way to repeat the same with your 7th Pay Commission (CPC) money – bulk as also monthly increases? Have you made a credible plan to utilize both effectively so that when 8th CPC comes around, you can look back with satisfaction and pinpoint how the decadal exercise adds real value to your family’s life?

So, What should you be doing then?

You have many options for the bulk that will be received as also the monthly increase that will come in your pay. Our suggestion is as given below:-

Bulk Amount: You should use this to pay off your large loans – definitely the expensive credit card and personal loans, car loans, loans against property (LAP) and any other loans that you’ve taken like the white goods loans. It also is a good occasion to at least part pre-pay your home loans and bring down your overall interest burden. If you are fortunate enough not to have any such loans, look at investing this money wisely.

Monthly Increase in Pay: Whether you realize it or not, this is the part which will create your future wealth and give you the ability to meet your long-term obligations. As they say, little droplets make the mighty ocean. You are likely to receive about 15% increments in your gross pay. Instead of following Murphy’s Law and let your expenses increase to absorb the hike like the last pay commission, use this for systematic investing on a monthly basis. And start the process of setting up this systematic investing now, rather than wait for the money to start coming in. Research has shown that if the plans are put into motion well before money actually comes in, the chances of the investment plans surviving beyond a few months are almost 100%.

And what should you invest in?

Getting into a carefully worked out combination of Equity and Debt funds would be a very good idea for the long term as per your future requirements and risk profiling. Make a good and balanced portfolio of mutual funds and start off with monthly SIPs (Systematic Investment Plans) of a MF portfolio. If you don’t have any requirements of the bulk amount, plough that bulk too here. If the requirement for the bulk amount is later, use Liquid Funds to park them and get a better return with flexibility to take it out whenever you want in whatever number of installments.

Make your money count. When 8th CPC comes, you shouldn’t be left wondering where did your 7th CPC money went!!

Need help in planning or organizing this? Give us an email at contactus@humfauji.in or Buzz us in on tele numbers 011-4054 5977 / 4240 2032 / 4903 6836 or send us a SMS / Whatsapp on 9999 053 522

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27 Nov 2016


Till that fateful day a few years back, Sachdevas’ (names changed) was an armed forces family, like any other, leading a happy and contended life in Delhi. Group Captain Sunil Sachdeva was doing well in his career and had been selected to undergo a prestigious training at Hyderabad. Aruna had a satisfying job as a teacher, and both the girls were doing well in their studies. Their household belongings were all packed and ready to be shipped to their new posting destination. But that road accident, which took away Sunil and Aruna, was not something anybody could’ve imagined even in their wildest dreams for a family so loved by all those who knew them.

The teenage girls got no time to even absorb the cruelty inflicted on them by life. While the Air Force and their friends went beyond their call to help the two little girls, there were limitations to which they could be helped – good friends got posted out and remote help could not be as good, and some family decisions had to be taken which friends and organisation could not take. The ‘family’ for them meant only two aged grandparents in a small town in central UP who could not move from there due to age and ailments. Being in the services and posted at faraway places, the children especially get distanced from the larger family. Finally all decisions of life, finances and relationships had to be taken by the two girls who were ill-equipped to shoulder that responsibility.

Then one of their well-wisher referred them to us at Hum Fauji Initiatives, a financial planning firm in Delhi, catering solely to armed forces officers and their families. Due to the tenderness of their age, wedecided that the need of the hour was first to impart appropriate financial education to them. This would make them aware of the need for looking ahead, far ahead, since they had a long financial journey to do in their life. Once the basics of long-term financial planning were clear to them, they would not hesitate to embark on the journey and understand the minor hiccups that would likely come on the way.

We explained to them issues like inflation, taxation, power of compounding, concepts of future value of things, various avenues to invest money with their pros and cons, future requirements (financial goals) that they needed to plan for, and the optimum balance to be maintained to invest in various financial avenues.

The girls had been receiving family pension of the father in addition to the bulk amount of insurance, gratuity etc that had been received earlier on the death. They had been wise enough not to spend the money unnecessarily but then it was scattered all over and had not been invested in any manner which could benefit them. The elder sister, Isha, in the meantime, cleared the tough entrance processthrough sheer gritand got commissioned as an officer in the Indian Air Force. The younger one was studying in Delhi University with hostel accommodation provided by the Air Force. Hence, both of them did not require any immediate financial assistance from the bulk corpus accumulated.

We got down to working out their future needs, costing them after taking inflation and taxation into account, allocate asset allocation ratios amongst various investment avenues, and withdrawal plan for anticipated needs as also for emergency requirements. The financial plan, for investment of the bulk amount and regular Systematic Investment Plans (SIPs) due to monthly investible surplus available from the pension, was put into action once they understood the complete roadmap designed and agreed to it.

Regular reviews and re-balancing have resulted in the moderate portfolios growing strongly over a period of time. Isha recently got married to a fellow Air Force officer, which necessitated some withdrawals from the portfolios.

Life may have dealt the two young girls a nasty blow which shook them forever but their future financial life is bright due to the decision they took to plan systematically and stick to it through ups and downs.


Col Sanjeev Govila (retd), CFPCM,

CEO, Hum Fauji Initiatives

Sebi Registered Investment Advisor (RIA),

For more information, feel free to reach us on, contactus@humfauji.in or call + 011 – 4240 2032, 40545977, 49036836

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07 Apr 2012


Errors Investors Repeatedly Make in Choice of Investment and Timing

Behavioural Finance is a very interesting field of psychology. It studies and analyses the reaction of people and their bias when faced with investment decisions. Please read the instances given below – do you relate yourself to any one or more of them?

You have your investments in various stock-related instruments – equity and equity-diversified mutual funds. Some of these are in profit while some are in loss currently. You need some money urgently. You sell the profit making ones.

  • Effectively you have sold the ones doing well since you keep hoping that you will ‘recover back your loss’! This explains why people realize the gains of winning stocks too soon. The flip side of the coin is people hold on to losing stocks for too long; unfortunately, many of the losing stocks never recover, and the losses incurred continued to mount, with often disastrous results.

You have some money to invest. You can either invest it in Real-estate where it is likely to double, or in equity-diversified mutual funds which will give you 15% returns per annum over a period of Five years. You go ahead and invest in real-estate since it looks like a better deal.

  • Actually both returns are the very same – only money seen in bulk rather than in percentage terms ‘seems’ a better deal. As such, real-estate being a physical, ‘holdable’ investment, gives more comfort than a paper investment even though, compared to stocks or mutual funds, it has a lot of hassles!

Question 1 – You have Rs 1 lakhs and you must pick one of the following choices:
Choice A: You have a 50% chance of gaining Rs 1 lakhs and a 50% chance of gaining nothing.
Choice B: You have a 100% chance of gaining Rs 50,000.

Question 2 – You have Rs 2 lakhs and you must pick one of the following choices:
Choice A: You have a 50% chance of losing Rs 1 lakhs and 50% of losing nothing.
Choice B: You have a 100% chance of losing Rs 50,000.
Take your pick of the two questions above

Majority of people choose “B” for question 1 and “A” for question 2. People are willing to settle for a reasonable level of gains (even if they have a reasonable chance of earning more), but are willing to engage in risk-seeking behaviour where they can limit their losses. In other words, losses are weighted more heavily than an equivalent amount of gains.

You’re shopping for cars and you’re down to a final choice between a Honda City and Verna. Both have distinct advantages and you finally choose one model. Next time, if you have to buy a car or to recommend one to somebody else, you recommend the same model that you have bought.

  • You will remember the advantages of the alternative you selected and not the advantages of the one you didn’t choose. This bias affects future buying decisions, which is why we often get into a “rut” of buying the same product type over and over again. When we go to make a selection, it is much easier to recall the positive attributes of the product we purchased rather than the product we didn’t purchase. Same bias is reflected in investment decisions too – a person investing in Provident Fund or another one in stocks will continue to do so without doing a fresh review for every purchase.

You find that the stock of a company, which you believed to be good, has fallen considerably in a very short amount of time. You go ahead and purchase a large amount of it believing that the drop in price provides an opportunity to buy the stock at a discount, without conducting any further research.

  • It is true that the fickleness of the overall market can cause some stocks to drop substantially in value, allowing people to take advantage of this short- term volatility. However, stocks quite often also decline in value due to changes in their underlying fundamentals. For instance, suppose XYZ stock had very strong revenue last year, causing its share price to shoot up from Rs 25 to Rs 80. Unfortunately, one of the company’s major customers, who contributed to 50% of XYZ’s revenue, decided not to renew its purchasing agreement with XYZ. This change of events causes a drop in XYZ’s share price from Rs 80 to Rs 40. Investor erroneously believes that XYZ is undervalued. Keep in mind that XYZ is not being sold at a discount; instead the drop in share value is attributed to a change to XYZ’s fundamentals (loss of revenue from a big customer).


Some other documented Investor Behaviour

  • People are often impatient to sell a good stock.
  • People often make a distinction between money easily made from investments, savings or tax refunds and their ‘hard-earned’ salary – money‘easily’ earned is more readily spent or wasted.
  • People feel the loss of a Rupee to a far greater extent than they enjoy gaining a Rupee.
  • Investment in stocks and mutual funds are often thought of as pieces of paper rather than as part ownership of a company. That’s why investments in Gold and real-estate (the physical investments) are always valued more than paper investments.
  • People tend to think in extremes – the highly probable news is considered certain, while the improbable is considered impossible.
  • People often take a short-term viewpoint. Recent market losses lead to suspicion and caution, while recent gains lead to action. Long-term losses or gains get forgotten, even if they are of a greater magnitude.
  • Most people will avoid risk when there is the chance of a certain gain. But faced with a certain loss, they become big risk takers.
  • People often assume that lack of market or price movement represents stability, while volatility represents instability.
  • People follow the crowd, and are heavily influenced by other people or compelling news; they fail to check out the real facts themselves.


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With regards,


CEO, Hum Fauji Initiatives,
Your long-term partner for wealth creation

9999 022 033, 011 – 4054 5977 (Off), humfauji.in

13 Aug 2011
Retirement funds investment for Defense, army army Officers,


Guaranteed pension, assured returns from government schemes, relatively low inflation and the security of a joint family – all the four pillars on which has previous generation’s retirement planning rested, have either gone or will disappear soon. Tomorrow’s retirees will balance high income with uncertain returns, better means of capital appreciation with longer lifespan, and all new earning and career options with an urge to hang up their boots early. And all this, without wanting to compromise on their lifestyle.

The other big challenge for retires comes from an enemy that is both stealthy and relentless – inflation. Just as compounding works to grow your corpus, inflation eats away at its value. The sum of Rs 1 crore may seem like a lot of money today but over 30 years, an inflation of 8% can reduce its equivalent purchasing value to less than Rs 10 lakhs of today!! And to think that consumer-level inflation today actually is in double digits. A low-to-moderate inflation rate of 7-8% does not attract attention of the working class. That’s because incomes prices of products and services do not seem to be shooting up ‘fast’ but it nevertheless erodes your money-value ever so quietly!

Dangers of Living Long Only on Govt Pension

Let’s take the example of a Colonel who retires at the age of 54 in June 2011. He will get a pension of approx Rs 26,000 pm after tax (assuming 50% commutation of pension) which grows by approx 5% per annum due to the DA component. We assume that his household expenses are Rs 25,000 pm which increases with inflation at approx 8%. The calculation further assumes he has no other liability and lives in his own house. A very preliminary calculation shows that, if he is dependent only on his pension for his living, then, due to this difference of 3% in the growth rates of his pension and inflation, his pension will fall short of his expenses by Rs 1394 per month after 3 years. This figure will shoot up to Rs 9641 per month 9 years after retirement, Rs 25252 pm 15 years after retirement and Rs 83166 pm 25 years after retirement. Remember, since we live well and maintain ourselves well, our life expectancy is comfortably at 85 years of age – ie, we will live more than 30 years after our retirement!!

And in case somebody feels that he has approx Rs 50 lakh corpus of retirement benefits which will help him live well, calculations again show that if he invests this sum at 8% per annum in very safe investment avenues and gets the returns, he will start eating into this corpus from the age of 66 years (ie just 12 years after retirement) and by the age of 80 years (ie 27 years after retirement), there will be no corpus left! Also remember that we are only talking about normal day-to-day living, no big purchases – not even change of a car ever or gifts for children / grand-children or holidays or repayment of a home loan. And if inflation goes into double digits as it is today, heavens will surely fall!

So it is clear that inflation eats away your entire guaranteed pension. There is a significant gap between the income and expenses and this gap can create a serious problem in future. It is advisable to invest adequate a disciplined amount regularly in some high growth investment avenues while you are serving, which generates high return that will not only support your expenses after you stop earning but will help you pursue your dreams post-retirement.

Follow this four-step retirement strategy to build up a healthy nest-egg:-

  • Know how much you need

The income that you would need to live off on after retirement is approximately 65-70% of the income that you live off on while working, considering no big purchases or expenditures. However, this rule of thumb may not be accurate for everybody since people are living longer than ever and retiring in good enough health to incur additional expenses (travel, entertainment, and so on). This estimate applies if your situation fits the following criteria:

  • Your house will be paid off (no rent/loan).
  • No work-related expenses (commuting, changing of clothes frequently, shifting, etc).
  • Your children will be financially independent.
  • Fewer taxes because of lower income and No debt of any sort.
  • Decide your asset allocation

Don’t pull all your nest eggs in one basket. That’s too risky a strategy for something as important as retirement. The nest egg should be a mix of different asset classes and investment instruments. Equities offer a distinct advantage because they can deliver significantly higher returns than other investment over the long term. Investors whose retirement is 20-25 years away should ideally park their investment in equity mutual funds. For older investors in their 40s and 50s, a larger allocation to debt is advisable. However, this is a generalized statement and finally, everything depends on your risk attitude and aptitude (calculate your Risk Aptitude from the calculator on our website www.humfauji.com).

  • Choose appropriate products

Once you have decided your asset allocation, choose the investment vehicles that will take you to your destination. Instead of investing in a single scheme, do so in a bunch of instruments, which not only assure regular income but also allow your corpus to grow in tandem with your withdrawals and rising inflation. This strategy should alter with the age or stage of the life after retirement. So, for the first 6-8 years after you retire, allow your funds to grow at faster rate than the withdrawal. Even as you use the interest earned through debt options to meet your expenses, invest in equity through mutual funds or monthly income plans. However, the crux of all investment remains a very aggressive monitoring after you have parked your funds in them.

  • Formulate a withdrawal plan

The final step in your retirement planning is to formulate a withdrawal strategy. Your retirement portfolio must have two essential components: liquidity and growth. It should provide you regular income and also grow fast enough to take care of future expenses. Systematic  Withdrawal Plans (SWP) options of the Mutual Funds and rentals from a good residential / commercial property are ideal in this regard.


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