Here’s how Flipkart employees’ ESOPs will be taxed Big Change: The end of Five-Year Plans: All you need to know Personal finance lessons for Flipkart millionaires Walmart’s acquisition of Flipkart has generated one of the largest pools of wealth for employees in India’s corporate history. Employee stock option plans (Esops) held by about 100 current and former employees of Flipkart are now estimated to be worth more than $1 million. A recent Times of India article stated that the deal would make a few current and former employees of Flipkart dollar Now, ending up with such a huge windfall can trip up even the best of us. Most would not know what to do with such a large sum of money. We might end up making money mistakes which we will regret later-instead of growing this money or spending it wisely, we waste it all away. Here are few personal finance lessons that the Flipkart millionaires can imbibe to make sure that their millions are well spent.
Evaluate your life goals: Now is a good time to evaluate your life goals and your current asset allocation. Some might think that now that they have got this large pile of money, it would be a good time to quit and maybe start their own venture. Some might want to alter their investments they have made so far. “Before you invest, it is important to understand your life goals. This would help in evaluation of return expectations, risk appetite, liquidity requirement and time horizon,” says Prateek Pant, co-founder and head of products and solutions, Sanctum Wealth Management. Depending on this, you can decide how much to invest and where and how much to spend. Pant says that someone who gets such a large windfall should divide the money into three buckets: one for the retirement corpus, one where you invest in financial products that will give you regular income and protects your capital (this is especially advisable for those who plan on pursuing entrepreneurial ventures), and one for contingencies. Replace your salary by investing right
Take risks, invest in equity Don’t get too conservative, i.e., don’t keep it all in a savings bank account. Since many of these employees are young (in their 20s or 30s), they still have significant working life ahead of them. They should look at growth options and consider investing in equities through portfolio management services (PMS) or mutual funds, say wealth managers. “By the time they retire, due to the power of compounding they will be sitting on a comfortable corpus. If they were to invest Rs 1 crore and expect to get returns of 15 percent on a compounded annual growth rate basis, and have 25 years to retirement, they will have about Rs 33 crore at retirement,” says Pant. Now, that is a lot of money, by many people’s standards. As a thumb rule, Tarun Birani, founder and CEO, TBNG Capital Advisors, investment advisory firm, says that one should look at minimum 30 percent savings of income and ensure that it is deployed in long-term compounding assets which can help in long-term wealth creation.
Create an emergency fund Allocate at least 10 percent of the money to a contingency fund which is available at short notice, says Pant. Remember that since it is an emergency fund, returns are not important. Look at investment options that are liquid. Stay away from these Wealth advisors are unanimous when it comes to taking too much risk: don’t take the road less travelled. That means no cryptocurrencies, alternative assets like wine and art, and real estate. “Simplicity is a better way to achieve
Due to herd mentality, lot of investors get into trap of exotic products which they don’t understand. Stick to something simple like equities where one can compound over a long period of time and is based on fundamentals,” says Birani.
Vikas Gupta, CEO and chief investment strategist, OmniScience Capital, an investment management firm says that you should keep about 70-80 percent of the amount in traditional assets. “Don’t get ideas like angel investing, hedge funds because these come with extremely high risks. Yes, since many of them will be young people they should invest in high risk products, but invest in conventional products like equity. Keep it simple,” he says. He adds that one should stay away from real estate as an investment unless you are buying it for your own consumption and is your first house. “Real estate investment is tricky. Not only does it require a lot of expertise, it is expensive and exit is difficult,” explains Gupta.
We are not saying that all the money should be tucked away into savings and investments. It is not often that the everyday salaried person comes across a windfall gain like this. Set aside the required amount money you have invest and save, and spend the rest. Were you planning on buying a car or going on a nice holiday? Use some of the money to fund these discretionary money goals and dreams.
What about using it to pay off some of your loans? Gupta .. Gupta says that it depends on the cost of the loan that you are servicing. “If the interest rate is high like that of a personal loan, then pay it off. If you have a secure job then you should not think about paying of large liabilities like a home loan. You are young and should put the money to better use,” says Gupta.
BY Tania Jaleel-ETonline.May15,2018.