Building a portfolio after a career break

Plan early on; choose asset classes that match your goals and risk appetite

Taking a career break is no easy decision. Having done that, getting back to work after a long break is no cake walk, particularly when you have a family and kids to attend to. While initiatives by companies to help women restart their careers definitely go a long way in helping them come back and enjoy financial independence, what is even more important is planning your finances well early on. Saving and investing in the right asset classes that match your goals and risk appetite will help you take a break with ease.

Chennai-based Nithya Rajan who did her Masters in Business Administration had to take a break after working for about a year, due to personal reasons. After a 10-year hiatus, she is just getting back to work now. She is currently doing freelance work, and on an average earns ₹15,000 a month. While there is potential for her to earn more as a full-time employee, she needs to balance family with work, given that she has a seven-year old daughter.

“While I had some savings from my earlier job 10 years ago, I could have invested it in a much better way. Having learnt from my past mistakes, I now want to invest my surplus in instruments that will help create wealth in the long term,” says Rajan.

She spends about ₹3,000 every month, largely on commute and other personal expenses, and is able to save the balance ₹12,000. Her husband who is an IT professional takes care of the family’s financial needs. “There is more flexibility for me to save for my daughter’s wedding now,” adds Rajan.

Plan ahead

She wants to invest her current surplus in instruments so as to balance risks and returns. Given that her husband is taking care of the family’s finances and her parents and in-laws are financially independent, she is open to taking moderately high risks.

She and her family are covered by the group insurance scheme provided by her husband’s employee. According to Rajan, her investment horizon is about 20 years, as she wants to use the corpus largely for her daughter’s wedding which she anticipates will happen 20 years from now.

 

 

 

Since Nithya Rajan wants to save for her daughter’s wedding, a combination of debt, equity and gold will not only help her spread the risks, but also help her plan the wedding well.

Investments

Of the ₹12,000 that she saves as surplus every month, Rajan can consider investing ₹1,000 every month in gold ETF (exchange-traded fund) schemes. While there are gold funds that have offered higher returns in some cases, ETF is a better option given that the time horizon is 20 years. This is primarily to hedge against any steep increases in gold prices, since gold gifts are customary in Indian weddings.

For the fixed-return component of the investment, Rajan can consider Sukanya Samriddhi scheme. While the scheme tenure is 21 years, premature withdrawal is allowed upon wedding. Also, 50 per cent of the balance at the end of the year preceding the year of withdrawal can be withdrawn if the account holder has completed 18 years of age, for education expenses.

She can consider investing ₹2,000 every month in the scheme. The current interest rate is 8.1 per cent; the interest rate changes every quarter and will be notified by the government. At the current interest rate, Rajan should be able to save over ₹10.5 lakh over the next 21 years.

Rajan can consider parking the balance ₹9,000 in large-cap-oriented mutual fund schemes, given that she has the appetite for risk and the investment horizon is also long enough. Assuming 12 per cent annualised return and 5 per cent annual increase in the investment corpus, she should be able to save about ₹83 lakh, 20 years from now.

She can consider large-cap schemes with consistent track record such Aditya Birla Sun Life Frontline Equity and Invesco India Growth.

The writer is co-founder, RaNa Investment Advisors.

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