Your father died four years ago. What came in from the provident fund, the gratuity and a maturing policy was around ₹40 lakh, and your mother, who is sixty-two and had never operated a bank account alone, asked you to “put it somewhere sensible”. You did. You were reading widely by then and you did a reasonable job. It has done well. In four years she has never asked what it is in, and you have never told her what it can fall by, and neither of those omissions has cost anything yet — which is a completely different statement from saying that neither is a problem.
An earlier lesson in this track dealt with the request arriving: the relative who asks you to manage their money, and how to answer. This lesson is about what happens when you said yes some years ago and nothing was ever written down. It is much the more common situation, because almost nobody in an Indian family refuses, and almost nobody formalises.
You borrow your neighbour’s car for a week. You drive it more carefully than your own — not because you are a better driver that week, but because a scratch on your own car is a scratch, and a scratch on his is a conversation. So you take the longer route, park further away, and never test what the car can do.
The agency problem in a family runs the opposite way from the textbook version. In the textbook, an agent who does not bear the loss takes too much risk. In a household, the agent bears the blame without the loss, which produces the reverse: too little risk, held for too long, with nobody ever recording that as the mistake it is.
The four gaps, and what each one causes
| What was never agreed | The failure it produces | How it shows up, years later |
|---|---|---|
| What the money is for, and by when | There is no standard against which any outcome counts as success, so the judgement is made retrospectively and by mood | A good five years is “you did well”; one bad year is “I told you I did not want risk” — and neither statement is checkable against anything |
| What it is allowed to fall by | The owner has never seen the range, so the first real drawdown arrives as a surprise, which is when people sell | A 22% fall becomes a phone call, becomes a fixed deposit, and a temporary fall has been converted into a permanent loss |
| Whose name it is in | Convenience routes it through your account, your PAN, your demat | The gains are your income to declare, the asset is yours on paper, and when an estate is divided among siblings it is your word against a bank statement |
| How and when they are told | Reporting becomes voluntary, and voluntary reporting is not random — it happens when the number is good | The owner’s picture of their own wealth is built entirely from your best updates, which is a fiction you did not intend to create |
Their capacity, not your tolerance
The mistake almost everyone makes at the start is to build the parent’s portfolio the way they build their own, adjusted downwards a little for age. That is the wrong axis. Risk capacity is not a feeling and it is not a function of birth year — it is the arithmetic question of whether a fall can be lived through without selling into it. Your ₹40 lakh sits beside a salary that arrives every month for the next twenty-five years, so a bad two years is survived by simply not selling. Her ₹40 lakh is the salary. A bad two years, with monthly expenses coming out of the same pot, is survived only by selling units at the worst possible price, which is how a fall in a market becomes a permanent reduction in a life.
- Monthly income continues through any market
- A fall is survived by not selling, which requires no plan at all
- Horizon measured in decades, with fresh money arriving to buy the fall
- The worst outcome of a bad decade is a smaller number and more working years
- Monthly expenses are drawn from this pot and cannot be postponed
- A fall combined with withdrawals sells units at the bottom — the loss becomes permanent
- Horizon is long, possibly thirty years, which is why zero equity is also wrong
- The worst outcome is running out, which is not a smaller number but a different life
Whose name, and what happens when you stop
The operational half of this is less interesting than the psychological half and causes more damage. Money that belongs to your mother should sit in accounts in her name, on her PAN, funded from her bank account, with the income declared by her. The version where it is “kept in my account for convenience” creates three problems at once: the gains are yours for tax, the asset is yours on paper for succession, and if there are siblings, the arrangement will one day have to be explained to people who were not in the room in 2021. A written record protects the person managing the money far more than it protects anybody else.
- 1Put it in their name, on their PAN, from their bank account
Everything else in this list is easier if the ownership question has no ambiguity in it. If some of it is already in your name for historical reasons, write down what belongs to whom and how much, and have both of you keep a copy. That single sheet is worth more than any allocation decision you will make for them.
- 2Write the purpose in one sentence, out loud, in their words
“This has to produce about ₹12,000 a month for as long as I live, and I would like something left for the grandchildren.” That sentence decides the allocation and decides how much has to sit in something that cannot fall. Then do the one piece of arithmetic that tells you whether the sentence is even possible, before you go anywhere near an allocation: write the yearly draw as a fraction of the pot. ₹12,000 a month is ₹1.44 lakh a year, which is 3.6% of ₹40 lakh — the sort of fraction a long retirement has some chance of sustaining, and an earlier lesson on withdrawal rates explains why the commonly quoted figures deserve treating conservatively in India. The same pot asked for ₹40,000 a month would be handing over ₹4.8 lakh a year, or 12% of itself annually, and no allocation rescues that. A draw that size against a thirty-year horizon is an arithmetic problem rather than an investing one, and the honest answer is a smaller draw or a second source of income, not a cleverer portfolio. Without the sentence and the fraction you are guessing at somebody else’s life.
- 3State the bad year in rupees, and get an actual answer
Not “markets go up and down”. “In a bad year this ₹40 lakh could show ₹32 lakh, and it might stay there for two years.” Then wait for the reaction, because the reaction is the information. If they cannot hear that number calmly in a good year, they will not survive it in a bad one, and the allocation has to change today rather than in the middle of the fall.
- 4Fix the reporting date, and keep it when the number is bad
A fixed date, twice a year — the first Sunday of April and October will do — on which you show the statement whether it is up or down. The purpose of a fixed date is not diligence; it is to remove your discretion over when they hear from you, because voluntary reporting is always biased in the same direction and neither of you will notice it happening.
- 5Write down what happens if you stop
You may move abroad, fall ill, or fall out with them. One page: which institutions, which folios, who else knows, and the name of a person they can call. Fiduciary risk is not only the risk of doing it badly — it is the risk of being the only person who can do it at all, and that risk is borne entirely by them.
She rings after a 22% fall
A neighbour has told your mother that the market has crashed. Her ₹40 lakh is showing around ₹31 lakh. She has never seen a figure like that before because you have never shown her one, and she draws about ₹12,000 a month from this money.
Your mother is sixty-two with ₹40 lakh that has to supply her monthly expenses. You are thirty-four with ₹40 lakh alongside a salary. The same funds are available to both. What is the real difference?
Maa ke ₹40 lakh aapne "kahin theek jagah" laga diye — chaar saal ho gaye, na kabhi likha ki paisa kis liye hai, na kabhi bataya ki kitna gir sakta hai. Ghar mein ulta hota hai: nuksaan unka, ilzaam aapka — isliye log zyada risk nahi, bahut kam risk lete hain, aur dus saal savings account mein pade rehne ko koi galti nahi likhta. Do baatein alag hain — aapki salary aati rahegi, unki nahi; girawat mein unhe kharche ke liye bechna padega, aur wahi nuksaan pakka ho jaata hai. Char cheezein aaj tay karo: kis naam aur kis PAN pe hai, paisa kis liye hai, bure saal mein kitna dikhega (rupaye mein), aur kis tareekh ko statement dikhaoge — chahe number bura ho.
- Without an agreed mandate there is no definition of doing this well, and the person most exposed to that gap is you.
- In a family the agency problem inverts: the manager bears blame without loss, which produces too little risk rather than too much.
- Risk capacity is arithmetic — can a fall be lived through without selling — and it is theirs, not yours.
- Keep it in their name, on their PAN, from their bank account; convenience creates tax and succession problems you did not intend.
- Fix a reporting date and keep it when the number is bad, because voluntary reporting is biased in one direction only.
Mark it done to track your progress through the curriculum.
Common questions
Short, direct answers to what people ask about this topic.
- can I invest my mother’s money in my own demat account
- Money that belongs to a parent should sit in accounts in their name, on their PAN, funded from their bank account, with the income declared by them. Keeping it in your account for convenience creates three problems at once: the gains become yours to declare for tax, the asset is yours on paper when an estate is divided, and any question raised by a sibling later becomes your word against a bank statement. The written record here protects the person managing the money more than it protects anybody else.
- difference between risk capacity and risk tolerance for a retired parent
- Risk capacity is arithmetic — whether a fall can be lived through without selling into it — while risk tolerance is temperament, how much decline somebody can watch calmly. A salaried thirty-four-year-old survives a bad two years by simply not selling, because the salary keeps arriving. A sixty-two-year-old drawing monthly expenses from the same pot survives it only by selling units at the worst prices, which turns a temporary decline into a permanent reduction, so it is their capacity and not your tolerance that has to set the allocation.
- a written statement of what money is for, what it may hold and what it may lose is called
- An investment mandate. It need not be a legal document and should not be a long one — a few sentences covering the purpose, the period, what the money may be invested in, and what the worst expected year looks like in rupees is enough. Without one there is no definition of doing the job well, so outcomes get judged retrospectively and by mood, and the person most exposed to that gap is whoever is managing the money.
- what percentage of a 40 lakh corpus is a 12,000 a month withdrawal
- ₹12,000 a month is ₹1.44 lakh a year, which is 3.6% of a ₹40 lakh corpus. Working out that fraction is the first arithmetic to do before any allocation question, because it tells you whether the plan is even possible: the same pot asked for ₹40,000 a month is being drawn at 12% of itself annually, and no allocation rescues that. A draw of that size against a thirty-year horizon is an arithmetic problem rather than an investing one.
- does a power of attorney work if my father loses mental capacity
- Generally not, which is the opposite of what most families assume. Indian agency law treats an agent’s authority as coming to an end if the person who granted it becomes of unsound mind, so an ordinary power of attorney is usually understood not to survive the loss of mental capacity — precisely the event families obtain one for. Having somebody appointed to manage an incapacitated adult’s property then means a formal legal process through a court or a statutory authority, which is why joint holdings arranged early, recorded nominations and a deliberately simple arrangement do far more of the practical work.