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Defense Personnel Need Financial Planning More Than Anyone Else Every investment must help them accomplish their life goals whether it is buying a property or funding children's higher education

By Abhinav Angirish

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A defense personnel's life is fascinating. They inspire people by their attitude and discipline. But they, too, are human. Besides saving the country they need to save their finances too, something that is overlooked by a majority of people. Defense personnel have very little time to develop an understanding of the complexities of the financial world. It is important to educate oneself about money matters to avoid financial pitfalls in life.

Often people venture down the bad road in search of high returns. A good financial advisor can help you to figure out what's right for you and help you choose the right investment products. Instead of falling in the trap for "glory credentials' one must educate oneself to make informed decisions.

The basic components of financial planning for the defense personnel are retirement planning, investment planning and insurance. Many think that it is not possible to get decent returns with adequate safety of capital. While this can hold true for stocks, it is not the case with mutual funds. Mutual funds can help to meet all the financial goals with tax efficiency.

If the person is planning for retirement, he can invest in equity funds. The benchmark has delivered an average return of 15 per cent in the past decade. Equity funds have delivered annual returns of 17-19 per cent. For long-term financial goals, they are the best bet. For example, if your retirement is 20 years away, you can accumulate the corpus of INR 50 lakh with the monthly SIP of just INR 5,034. The beauty of SIP is that you can make small investments every month and take the advantage of the power of compounding. Instead of focusing on hitting the magic formula, which is elusive, you must focus on the slow and steady growth of your capital.

Investment planning is necessary because every person has medium-long term goals such as marriage and education. For someone who is planning a child or has one, it is prudent to save for their future needs. A degree course costing INR 2 lakh today will cost INR 6.75 lakh 15 years later. A SIP of just INR 1,000 per month can help you fund education without any worries. The aim of investing is to get maximum returns with minimal risk. While there are options such as NPS, PPF and bank fixed deposits, etc., the returns offered are determined by the government. One also has to hold the investments for a fixed period. For example, the lock-in period for PPF is 15 years, for NSC between 5-20 years, for ULIPs five years, and so on. The ELSS funds have a lock-in period of only three years. This provides greater flexibility to an investor who may want to rebalance his investments depending on the developments in markets or changes in policy.

A defense personnel's life is always on edge. An unforeseen event can create a financial vacuum that can be the cause of misery for their loved ones. Though there is a provision of pension and insurance, often it proves to be inadequate. Instead of buying costly endowment policies a term plan should be preferred. The premium of a term plan is lesser than that of endowment policy. The money saved on the premium differential can be invested productively. A good term plan and an accident policy can provide adequate coverage and ensure peace of mind. Insurance should not be looked upon as a saving instrument, it should be bought to fulfil one's needs.

Tax planning is simple since a defense personnel has only one source of income. Since taxes are deducted from their income, they can invest to take advantage of Section 80C. Although defense personnel prefer to invest in traditional instruments like bank FD, NPS, PPF or NSC, ELSS funds can serve the purpose better. Not only this will help them save more tax, but also help them generate additional returns with the investments. It must be noted that even though traditional instruments are considered safe, the returns provided by them is not adequate to protect one's investment from inflation.

Financial planning for defense personnel is very important. It must be comprehensive to cover every aspect of their life. Every investment must help them accomplish their life goals whether it is buying a property or funding children's higher education. Always remember to seek the help of a good financial adviser to avoid financial pitfalls.

Abhinav Angirish


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