Author: Sanjeev Govila

19 Nov 2022

Bucket Strategies to ensure your Retirement Corpus makes your life fulfilling

Read our CEO’s article in the highly-respected ‘Moneycontrol’ this Thursday about how to plan the investment and ‘bucketing’ of your retirement corpus so that it not only meets your life-time requirements but also ensures that you have a worry-free retirement all your life.

This article is applicable for civilians as also armed forces personnel who haven’t got or are not likely to get pension. For those who will get pension, Bucket-2 need not cater for household expenses since the pension is generally sufficient for monthly expenses for most officers.

When one retires with a big corpus in hand, it is very easy to get complacent. However, the ‘everything will be fine the way it has always been’ attitude may not work for two reasons:
  • There is no monthly income anymore coming from anywhere, except from what one has already accumulated, unless you get a substantial pension from the Govt.
  • Emergencies will always come unannounced; inflation will always eat into the purchasing power of your money and the longer the horizon, the more pronounced will be the effect of such money depreciation; highest safety in investment will always get the lowest rates of return, and vice versa.

So, what is the way out so that one:

a) doesn’t take unnecessary risks with one’s life-time savings,
b) has the required amount of money every month to lead a comfortable life,
c) can cater to unforeseen emergencies, and
d) has the required insurance covers for the unforeseen.

That is where the 4-bucket strategy comes in. The buckets would be as follows:

Bucket-1 ― Emergency Bucket

Prudent financial planning always demands this bucket be created first. This caters to the emergencies that may come up and needs a careful assessment of the amount required. General emergencies will not demand more than Rs 5 lakh for most people if health insurance is taken care of.

However, circumstances like older dependents, loved ones abroad (hence, sudden costly travel) and medical conditions not covered by health insurance could demand a bigger bucket. The best place to invest is a few small FDs of Rs 1-2 lakh each, sweep accounts linked to savings bank accounts or liquid funds. For most people, an emergency fund of Rs 5-10 lakh would suffice.

Bucket-2 ― Monthly Income (Short-term) Bucket

This is the bucket that caters to monthly household expenses for the next five years of living. In addition, lifestyle travel plans (domestic and international), payment of premia for insurances (health, car, life, house, disability and critical insurance, etc), maintenance costs (house, car, appliances, etc), social obligations (festivals, events like family marriages) and miscellaneous regular requirements like replacement of white goods and house repairs would also be there.

While household expenses can easily be calculated on a monthly basis, other expenses will normally be on yearly basis and divided by 12 to arrive at the monthly requirement. The sum of the two expenses would be the total monthly requirement. Do not forget to add 5-10 percent as contingency to total monthly requirements so that some extra expenses in certain months do not add to worry lines.

Typically, this bucket would be about 20 percent of the total corpus and the best place to invest this would be a sweep bank account or liquid fund for the requirements of the next two years and Ultra Short-Term (UST) / Short Term Fund for three years beyond that. If one so wishes, part of the monthly funds requirement can also come from Senior Citizen Savings Scheme and PM Vyaya Vandana Yojana investments.

Bucket-3 ― Medium-term Bucket

This bucket is an intermediate bucket for growing the money. It would hold the money required for the period 6-10 years from now. It receives money from Bucket-4 and transfers the money to Bucket-2 on a yearly basis. It takes slightly higher risks than Bucket-2.

This bucket would also hold about 20 percent of the total corpus and the best place to invest this would be longer term fixed deposits (FDs) and/or hybrid mutual funds and conservative balanced advantage funds. A review would be required every year in this bucket wherein the next one year’s funds requirement would be transferred to Bucket-2 and the same amount would be transferred into it from Bucket-4.

Bucket-4 ― Long-term Bucket

This is the long-term investment bucket which caters for the requirements beyond 10 years from the date of retirement. It would hold the rest of the money (left after filling Buckets 1 to 3). A very careful risk assessment and preferably a discussion with a financial planner would be required to set up this bucket. This is the bucket which shields one’s life-time savings from the drastic effects of inflation and feeds the previous two buckets. It could take as much as 40-60 percent equity exposure, depending on the retiree’s comfort level (aka Risk Profile). On every yearly review, one year’s requirement of funds goes from this bucket to Bucket-3, and the risk profile of the retiree may need to be reviewed every two years or so.

Finally, a few important points that need to be kept in perspective, while creating and managing the buckets:

1) The buckets have been created with the premise that adequate corpus has been built for the entire retirement period of 25-35 years. In case the amount is lesser, expenses will have to be carefully calculated and taken out from Bucket-2. Some modifications to allocations will be required to various buckets.
2) Risk profile of the retiree is an important ingredient in creating the buckets. An experienced financial planner would be able to align the buckets’ holdings carefully. Nevertheless, the tendency to put everything in the ‘safety’ mode should be avoided since returns would then go down, taxation would be heavy, and the purchasing power of the corpus would deplete significantly.

Check out the originally published article on by the author

If you need any further details or wish to connect with a Financial Planner, please write to team Hum Fauji Initiatives at
11 Nov 2022

Mutual Fund Investment: Are you a Do-it-Yourself investor by choice or by FOMO?

It is well known that most retail investors rarely ever make long-term wealth in stock markets due to their emotional, jerky responses to adverse situations which an experienced investor sees as an opportunity.

Investing in mutual funds to realize one’s long-term goals has already emerged as a popular investment option with retail investors. No wonder, SIP accounts stand at an all time high level of 5.39 crore in April 2022. While there are a variety of mutual fund schemes across asset classes, there is another variation in them.

All MF schemes, including equity and debt, offer two plans – Direct and Regular. In a Direct Plan, there is no intermediary to help you in completing the purchase and hence the expense ratio is low in them while in a Regular Plan, the investor invests through an intermediary such as a distributor, broker or a banker who is paid a distribution fee by the fund house, thus reflecting in a higher expense ratio compared to a Direct Plan.

Col Sanjeev Govila (retd), Certified Financial Planner, CEO, Hum Fauji Initiativesshares his perspective on these two investing modes with FE Online readers. Read on to get a grasp on some interesting data highlighting the importance of making the right choice while deciding between a Direct Plan and Regular Plan.

‘What? Are you still doing your mutual funds through a financial advisor? Do you know how much extra will you pay over the next 15-20 years by paying that extra 1% to him?’

How many of us have heard similar arguments in person, in whatsapp groups, in various articles written on websites or articles in magazines and newspapers.

To put it in money perspective, let us see what you would save if you were to do it all by yourself or by following the tips that keep floating around.

Say, you invest Rs 10 Lakh initially and a SIP of Rs 10,000 per month in an equity MF. Assuming an average annualised growth of 12% in your portfolio, you would save approximately Rs 3.04 Lakhs of commission/fees in 10 years, Rs 7.17 Lakhs in 15 years and Rs 14.86 Lakhs in 20 years in commission/fee if we assume 1% as the commission or advisor fees that you would pay per year.

During this period, you would’ve made a profit of Rs 32.6 Lakhs, 76.8 Lakh and 1.59 Crores respectively in this simplistic model. Thus, the fees paid out to the advisor amounts to about 9.33% of your profits.

Also, going by the past trends, in those 10-20 years, for more than 90% of the trading days, Sensex would’ve traded below 10% of its peak more than half the time, below 20% of the peak 30% of the time and below30% of the peak 17% of the time. Also, the markets would’ve temporarily declined 30% – 60% once every 7-10 years and there would’ve been 1 or 2 sharp declines of more than 30% every 10 years.

What would a common retail investor do during such ‘scary’ times if she’s on her own? When a profit of Rs 76.8 Lakhs dwindles to say, Rs 30-40 Lakhs, or if the principal investment itself has gone down from Rs 10 Lakhs to 5-6 Lakhs, it is difficult to remain sane and invested for most investors.

What happens if you get out with the aim of getting in again ‘when the time is right’ but market volatilities – markets shooting up for a few days and trending down for a few days – make it difficult for you to decide when to enter?

The past data has shown that, over a period of past 17 years of investing, if you miss just 5 best days in those 17 years, your CAGR (Compounded Annual Growth Rate) reduces by 3% to 11.5% from 14.4%. Missing 10 best days brought it down by another 2% to 9.6%, missing just 30 best days in 17 years brought it down to just 3.3% and, hold your breath, missing only 50 best days in 17 years meant your returns would be down to a Negative 1.1%. (Source: Funds India)

And remember, many of these best days could happen in the middle of a market crash too!

It is well known that most retail investors rarely ever make long-term wealth in stock markets due to their emotional, jerky responses to adverse situations which an experienced investor sees as an opportunity. But if you are steel-willed and understand this, you could be a successful Do-it-Yourself (DIY) investor.

What, therefore, are the attributes of a good DIY investor?

The investor needs to realise that ultimately the markets will align to fundamentals, and short-term movements of particular stocks or markets do not alter this fundamental fact. Asset allocation is always the king and all investing should have that as the inviolable base. Financial investment conclusions should be based on logical analysis of data and emotions that need to remain in control while investing. While monitoring and rebalancing a portfolio periodically is a must, sometimes doing nothing could be a great strategy too!

Another important aspect to realise is that passive investments like Index Funds or ETFs are still 100% equity products and will face the very same market volatility as the markets themselves, while having no capability to beat their benchmark.

So, my final take?

If you can manage all the nuances associated with managing a portfolio as well as your emotions, you could be a person who should be a DIY investor but if you are going to depend on others’ help (aka tips) to do investments, have a rethink. Remember, it doesn’t matter how fast you are going if you’re on the wrong train!!

If you decide to be a DIY investor in Mutual Funds, be careful and check the platform you use as there are many online platforms giving Regular plans for MFs. So, while you’re being charged the same commission as with a financial advisor, the advantage of customized advice is missing.

Check out the originally published article on by the author

If you need any further details or wish to connect with a Financial Planner, please write to team Hum Fauji Initiatives at
08 Nov 2022

REITs: Consider Ticket Size, Transaction Costs, and Other Factors Before Investing

With the real estate market showing signs of stabilising, many investors desirous of investing in real estate are now considering real estate investment trusts (REITs) as their next investment destination, in order to diversify their portfolio.

Incidentally, the structure of REITs is similar to that of a mutual fund.

That said, while in mutual funds, the underlying asset is bonds, stocks and gold, REITs invest in physical real estate.

“The money collected is deployed in income-generating real estate and this income gets distributed among the unit holders. Besides, regular income from rents and leases, and gains from capital appreciation of real estate is also a form of income for the unitholders,” says Shobhit Agarwal, managing director and chief executive officer, Anarock Capital, a real estate services company.

How REITs Can Diversify Your Portfolio?

To begin with, REITs can help retail investors diversify into an alternative asset class.

Says Rishad Manekia, founder and managing director, Kairos Capital, a Mumbai-based financial planning firm registered with the Securities and Exchange Board of India (Sebi): “After the slump in the real estate market over the last decade, capital values in major markets seem to be stabilising. REITs could thus provide effective diversification to the aggressive investor who is already invested in equites and is looking for alternative options. Of course, this should all be done in line with one’s asset allocation and risk profile, and should be thought of as part of the satellite investments in an investor’s portfolio.”

That said, there are a few important things to keep in mind before one begins investing in REITs.

Things To Keep In Mind Before Investing In REITs

  1. As REITs are listed entities, they are a lot like equity shares. Hence, you would need a demat account to be able to invest in REITs in India.
  2.  At present, there are three listed REITs in the Indian market—Mindspace REIT, Brookfield REIT, and Embassy REIT.
  3. Consider the ticket size and other costs before investing. Says Colonel Sanjeev Govila (Retd.), a Sebi registered investment advisor and CEO of Hum Fauji Initiatives, a financial planning firm: “Things like transaction costs, returns, ease of investing, taxation, and other factors make these products different, although real estate still remains the underlying asset. So, one should decide investing in them depending upon his/her own objective of investment, assets allocation, availability of funds and other factors.”
  4. In India, 80 per cent of investments made by a REIT need to be in commercial properties that can be rented out to generate income. Thus, investors of REITs earn returns in the form of dividend (rental income from leased properties) and capital appreciation of unit value at the time of exit, as all REITs have to be compulsorily listed on the stock market.
  5. There is vacancy risk in case of REITs, and development risk in case of real estate funds. “When comparing the two—REIT and real estate funds— for investments, I would prefer REITs, if my main aim is to invest in real estate. That said, REITs should be looked more as an income generating avenue, while real estate mutual funds should be considered as growth avenues,” says Col. Govila (Retd.)
  6. REITs can provide regular income in the form of dividends, but it is not a certainty – there could be bad periods when the dividend could be low or nil. So, depending on the amount of regular income required, one would be better off with investing in fixed income products.
  7. Thus, one could consider investing a portion of his/her total corpus in REITs to diversify the portfolio, if their own financial circumstances permit doing so. Broadly speaking, one should not have more than 5-10 per cent in real estate or real estate-oriented investment avenues.

Check out the originally published article on by the author

If you need any further details or wish to connect with a Financial Planner, please write to team Hum Fauji Initiatives at

Also Read: Last Minute Tax Saving Tips For Senior Citizens, Pensioners and Others

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