Off late, we had an interesting conversation with a lady client about her financial allocation.
She had a large banking portfolio comprising fixed deposits and savings accounts. Her concern was that these investments were generating low returns and were also tax-inefficient because she was in a higher tax bracket.
To add to the confusion, she had been mis-sold a ULIP by her banker, with the promise that it would generate good returns.
Then came another layer of complexity.
She was a UK citizen working in India. The implications of UK taxation on her Indian investments were unclear to her. She was also unsure whether she would eventually return to the UK, move to another country or continue staying in India.
She wanted to buy a house in the UK, but wasn't sure when.
She had an elderly mother in India to whom she was deeply attached. And she wasn't very confident about equity markets. To her, equity investing felt more like gambling.
So, where should she start?She was looking for low/no taxation, higher returns and complete safety.
The Search for the Perfect Product
That reminded me of a joke.
A boy of marriageable age wanted to get married. When he asked his father for help, his father asked what qualities he was looking for in his prospective bride.
The son said:
- Beautiful.
- Intelligent.
- Adjusting with his parents.
- Working in an office.
- And helping at home.
“Five qualities?” asked the father.
“Yes,” said the son.
“Then you should have five wives,” replied the father— “one with each quality!”
The same principle applies to financial products.
Every Financial Decision Involves a Trade-Off
Every financial portfolio involves a trade-off between:
Safety | Liquidity | Returns | Taxation | Simplicity
If you want maximum safety, you may have to compromise on returns or taxation.
If you want higher returns, you may have to accept lower safety, higher volatility or reduced liquidity.
If you want maximum tax efficiency, the product may be less liquid or more complex.
If you want complete simplicity, you may have to give up some optimisation.
There Is No Perfect Financial Product.
Every strategy has an opportunity cost.
No strategy is necessarily bad.
The real question is:
What price are you willing to pay for the characteristics you value most?
In this particular case, we didn't ask the client to make a dramatic change overnight.
We suggested she do things gradually.
- Start investing small amounts in simple, passive Indian equity products.
- Let the balance remain in the bank for the time being.
- Understand her personal circumstances better—not try to predict external events.
- Review the strategy periodically and make changes as her situation becomes clearer.
A gradual transition is easier to digest.
It reduces anxiety, creates familiarity and, importantly, becomes a learning experience.
At the same time, we suggested that she speak to a UK-proficient CPA/tax professional who could provide clarity on the UK taxation implications of her Indian investments.
We don't know whether she will eventually act on our advice.
But we made one thing very clear to her.
Not acting on our advice is also a decision. And Not Taking a Decision Is Also a Decision
And every decision—and every non-decision—has a price.
You may pay that price today, or you may pay it sometime in the future.
At Naveen Rego Capital, a fee-only wealth management firm and a non-individual SEBI-registered Investment Adviser, our responsibility is to give advice that is appropriate to the client's circumstances and risk profile.
We don't advise clients simply to please them. That is often the job of an agent, broker or banker whose compensation may depend on what the client buys.
Clients pay us a fee precisely so that we can tell them where they may be wrong.
And we say it—because our clients pay us to say it.
Happy Financial Planning!
Naveen Julian Rego – CFP®
MD & Principal Officer
Naveen Rego Capital
SEBI Registered Investment Adviser
Reg No: INA000019211
BSE Membership ID: 2178
Disclaimers:
- Investment in the securities market is subject to market risks. Read all related documents before investing.
- Registration granted by SEBI, enlistment as IA with Exchange, and certification from National Institute of Securities Market (NISM) in no way guarantee the performance of the intermediary or provide any assurance of returns to investors.
- Financial products recommended by us that are under the jurisdiction of other regulators are beyond the scope of SEBI’s grievance redressal mechanism.
