After Walmart deal, here are the smart tips for new Flipkart millionaires

Avoid making big decisions too quickly, said Shiv Gupta, CEO, Sanctum Wealth Management

In the wake of the deal with Walmart, a large number of Flipkart employees will make windfall gains from their stock options. Business Standard spoke to some of the country’s top wealth managers for suggestions on how these individuals should invest their new-found wealth and the mistakes they should avoid.

Avoid making big decisions too quickly
 

Shiv Gupta, CEO, Sanctum Wealth Management

Stories abound of sports stars and entrepreneurs who have squandered their wealth due to poor planning. Fortunately, there are some keystone principles people can follow to increase their chances of making this transition securely. Accept that finding the right configuration will take time. Consequently, avoid making big decisions too quickly, and while some short-term decisions are essential, be prepared to define (and refine) the approach over time.

Establish a comprehensive plan, reflecting a clear set of financial and life goals. This may involve recalibrating an existing plan or creating a new one. It would include elements ranging from lifestyle needs and new ventures (often the case with entrepreneurs) to the management of assets and philanthropic activities. Within this, setting financial goals for managing assets should involve the core elements of profiling, like return expectations, risk tolerance, time horizon, liquidity needs, tax considerations, etc.

Finally, identify a team of trusted advisors who can bring the right depth and breadth of expertise to meet your needs. The process can be daunting, but investing time in it can have an asymmetric payoff. Seek multiple opinions, including from those in similar situations.

It is about stage-of-life decisions
 

Somnath Mukherjee, Managing partner, ASK Wealth Advisors

For those cashing out, it is about stage-of-life decisions. Ideally, people should isolate their P&L (income) from the balance sheet (net worth). Employees with large stock options tend to have both together. Cashing out on stock options provides an opportunity to build a balance sheet that is distinct from their source of income. It is an option that should be diligently exercised to secure life objectives.

For deployment of newly-created wealth, conventional principles of investment apply – goal setting, asset allocation, choosing the right managers, a mix of conventional and alternative investments. Also important is to ensure a disciplined approach to investing, aided by professional advice.

Involve a family member
 

Sandeep Jethwani, Managing partner, IIFL Investment Managers

In our experience, we have seen two very diverse behaviour patterns. The first, which is more prevalent, is where the mandate to the wealth manager is to preserve wealth. Having taken significant risks, some do not want to lose capital – even at the cost of lower returns. The second, seen typically in younger first-generation entrepreneurs, is the ability to handle much higher risk, with the focus being long-term capital appreciation.

While every situation is unique, we anticipate that quite a few of these young millionaires will fall in the second group. They may start new entrepreneurial journeys or even fund multiple other businesses. To such clients, our advice has been two-fold. The first element is that they should ensure that at least a part of their new wealth is managed in a diversified manner which takes care of their and their family’s long-term needs. The other is that for their private investments in new businesses, they should think through how such investments are held and periodically reviewed. We have found that housekeeping of the private investments has often been neglected.

Setting up a framework and process for managing the financial portfolio is also very critical. Involve a family member in the investment process.

Pay your debts first
 

Ashish Shanker, Head-investment advisory, Motilal Oswal Private Wealth Management

Most of us dream of receiving a windfall in the hope that it will allow us greater financial freedom in our lives, whether to pay off debts or to indulge in a life of luxury. Little do we realise that an unexpected windfall is no guarantee of an easy life in the absence of proper planning and investing. With a flood of wealth, it is tempting to resort to irrational spending patterns and make illogical decisions. Having said that, it is important you enjoy your success by pampering yourself with that elusive family holiday or a discretionary purchase that you have been longing for. After you have done that, there is likely to be a realisation that giving in to too many temptations is not the best way to make your wealth last. Make a smart long-term plan, either by yourself or with the help of an adviser. 

The first thing one should do is pay off debt. This does not mean that you have to pay off all loans. Housing loans have a moderate interest rate, so keep them for the long run. Use a part of the windfall to supplement your emergency fund. If you do not have life insurance, purchase a term insurance cover. Also, buy adequate health insurance for your family.