Mother's Day Special: How to secure future with smart financial planning

As we honour mothers' strength, resilience, and sacrifices this Mother’s Day, there’s no better way to celebrate than by helping them secure their future with smart financial planning. Whether it’s a young mother planning for her child’s future or a retired mother seeking stability and income, smart financial planning plays a pivotal role.

ETMutualFunds contacted two experts to learn how to build the portfolio allocation and plan financial security for the mothers.

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Building a portfolio allocation
While planning the financial security for your mother, building a portfolio allocation plays a very important role. According to Bharti Sawant, Fund Manager at Mirae Asset Investment Managers (India), every mother should begin with setting up an emergency fund covering 3–6 months of expenses and this should form around 10–20% of the overall portfolio and for long-term growth, stocks and mutual funds are key, ideally constituting 40–70% depending on age and investment horizon.

“If the horizon is longer, for instance, 10+ years, they must prioritize pure equity funds. As age advances, gradually shift to hybrid funds, a blend of equity and bonds, gradually in order to mitigate risk. To inject stability, one can think of ‘debt funds,’ which provide steady income and lesser volatility, constituting 20-30% of the portfolio, particularly if the risk tolerance is low. Eventually, have a suitable Insurance cover for life and health. Insurance is not an investment but is crucial from the perspective of financial protection,” she added.

Another expert believes that with changing times, more mothers are becoming financially aware and understanding the importance of investing to grow their wealth and achieve long-term financial independence and every mother has diverse goals, ranging from funding their children’s education to pursuing personal aspirations like starting a business, depending on the phase of life they are in. However, what remains constant for all mothers is the need for financial planning and disciplined investing to achieve these goals, he adds.

A young mother might have a long term horizon in order to create a corpus for her child’s education. In another case, a mother with an older child might be saving to retire.

Arjun Guha Thakurta, Executive Director, Anand Rathi Wealth suggests that if one has short term goals then an allocation of 100% in debt would be the ideal allocation but someone with a medium term goal can have 60:40 ratio in equity and debt. However, a mother with a long-term goal can have an 80:20 ratio in equity and debt, he adds.

While sharing the key strategy to build a good portfolio, Thakurta advices every investor including mothers to have a well-diversified portfolio and having products that have low correlation with each other and the best option is to opt for equity and debt as the two asset classes.

“When investing in Equity, Equity Mutual Funds are a better option than Stocks as that provides the benefit of professional management and diversification. When investing in debt, if you are in the highest tax bracket, explore arbitrage funds that provide debt-like returns with equity-like taxation,” he advised.

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Mutual fund categories that work for mothers
For mothers looking to balance growth and risk, mutual funds offer tailored solutions. Bharti Sawant recommends that if looking for long-term wealth creation, active equity funds are excellent, if for cost-effective and diversified market exposure then index funds serve the purpose.

“If you are looking to achieve a balanced approach to growth and stability, Hybrid/Balanced Funds combine stocks and bonds, offering potential returns while managing risk and in addition, ‘debt funds’ are also suitable for those who desire conservative investments, offering stability and regular income. Combining these categories can allow mothers to build a strong and growth-oriented financial portfolio while balancing risk, Sawant recommends.

Thakurta while sharing that ultimately, it is important to maintain a diversified and goal-aligned mix of funds while regularly reviewing and rebalancing to stay on track with long-term financial objectives advices that one should invest across diversified categories, AMCs, and investment styles to avoid concentration risk.

He emphasizes constructing a balanced mix of large, mid, and small cap funds (55:23:22) along with different styles like growth and value strategies, ensures resilience across market cycles and for broader diversification, investors can look into flexi cap and multi cap funds.

Custom Planning: Retired vs. Young mothers
There are several mothers who are either retired or are approaching retirement and there are young mothers as well. By sharing the two investment baskets required in one’s portfolio, Thakurta mentions that one should structure her investments in for her emergency and immediate needs and another for long - term financial security.

Among these two investment baskets, the long-term basket should focus on capital preservation and generating sustainable income and it’s also important to define the purpose of this corpus like whether it will support her post-retirement lifestyle or be passed on to her children as a legacy, the experts added.

While recommending a strategy for 60-year old mothers, Thakurta said that an ideal SWP strategy for a 60-year-old with Rs 1 crore, can start with Rs 50,000 monthly withdrawals, increasing 5% each year to match inflation and with a 70:30 equity-debt mix and 11.4% annual growth, the investor could still end up with Rs 3 crore at age 85, ensuring steady income and long-term growth.

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On the other hand, Sawant shares that the investment priorities changes for those mothers who are retired or are approaching retirement are different for a young mother.

She advices that for those mothers who have retired or approaching retirement, the priorities must shift toward ensuring financial security and regular income and investment priorities should gravitate toward low-risk avenues like debt funds, income-generating tools like annuities or dividend-yielding funds and shares as these are less uncertain and capital-conserving in the returns that they provide.

Conversely, young mothers have a longer horizon of investment and can tolerate a higher risk expecting better returns in the future and they ought to have a larger weightage of their portfolio in equity schemes to benefit from long-term gains, she added.

Both the experts are of the view that it is also important that they review and rebalance their portfolio from time to time if their risk-taking capacity or situation in life is altered.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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