Why Financial Planning for Defense Personnel is Important?

I was always fascinated by defense personnel’s life – their style, attitude & discipline always inspired me. The reason was not that the “Girls like the men in uniform”, but I was always surrounded by them. My father was an Army man, my grandfather had also retired as Major General & my uncle is still serving the nation. Last week I met my uncle – I told him that “It was always my dream to join the army & save people’s lives”. His reply was “What you are doing these days is equal to that”, I screamed “HOW??” He said “You are saving people’s financial life, which is equally important.” I really felt good & thought of writing something for Defense personnel, which can help them to plan their financial life better.

When I started my career in one of the largest Personal Finance Companies, my supervisor always persuaded me to get more army customers because of my background. In fact, if an agent has army clients, he was given more respect and was thought to be well established. Later on when I got the understanding of sales, then I came to know that the simple reason was Defense Personnel were very easy targets of mis-selling and since they had very little understanding, agents and distributor milked them for what they were worth. Like every individual, they also need Financial Planning and also needs to take care of his finances. The very aim of writing this piece is to convey that the outside world is ready to sell you all that you do not require with no proper understanding of your requirements. Beware!

But before going further, let’s understand financial planning in simplified language. “Financial Planning is the process of meeting your life goals through the proper management of your finance.” Finance doesn’t mean just investment it also includes your liabilities, your cash flow, your insurance, etc. Financial Planning will answer three important questions:

  • What are your financial goals?
  • Where you are today in relation to your goals?
  • How will you get from where you are today to your goals?

ReadImportance of Financial Planning

Now let’s try to understand basic components of financial planning, from a defense personnel’s financial life:

A. Retirement Planning – It is one of the most important goals for everyone but in current scenario it is even more so due to – society moving towards nuclear family system, higher inflation & medical cost, changes in lifestyle etc. Defense personal are bit lucky as they get family pension on retirement; but there is one negative thing attached with this – pension keeps people in illusion that pension will be sufficient for them to have a comfortable retirement. But they forget that pension will be close to half of their income and few of these expenses that are currently borne by the exchequer, are not available after retirement. To cover the expenses, they should check what will be there monthly requirement after retirement & how much of it will be covered by pension. After this they should calculate the corpus required at retirement, to understand the deficits that might be there. From the total required corpus they should reduce the lump-sums that they will receive. So now they have a target amount – for this they have to start investments.

B. Cash Flow Management – Cash flow includes your income, expense & investment. Managing finances can become difficult due to transferable job. If proper attention is not given to documentation & maintenance of proper bank accounts, it can result in skipping of EMI & premiums, which have negative consequences. Defense personnel should always keep 2 separate saving accounts – one for salary & basic expenses and another special account for investment, loan EMI & insurance premiums. They should open this special account where they can get payable at par cheque book, ECS facility & online banking. They should maintain this account throughout their life – every month they should transfer the required amount to this account. They can also create an emergency fund equal to 3 months expenses, in this account.

C. Investment Planning – What’s your formula? Income – Expense = Investment or Income – Investment = Expense.  Second formula will lead to financial success. Investment should be done in goals and not products. One of the basic long term goals is child education & marriage – they should find how much they require in future & find out the monthly contribution for that. Buying home can be a goal; but as they keep moving from one place to another, they should buy it at a place where they want to finally settle down. As they can’t keep an eye on their property on regular basis they should only buy properties which are approved by local authorities & papers are clean.

D. Insurance – There is nothing in this world that can fill up the social vacuum that gets created if one is not there, but there are other issues like financial loss which can be recovered through insurance. There is some provision of family pension & some insurance on death of defense person but that’s very small. Insurance is one of the greatest inventions in the field of personal financial products but it becomes fatal to financial life and costly once you end up purchasing a wrong insurance solution. You should not buy endowment or ULIP policies for insurance need. You should take help of some professional to calculate your insurance needs and take term plan & accidental policy to cover them. You don’t need health insurance during your job but once you retire, you should immediately buy a decent mediclaim policy for yourself and dependants.

E. Tax Planning – It is simple for defense personal as normally they have one source of income. They make some tax saving investment – taxes are deducted from their income & finally they get the form 16. For saving tax under section 80 C they should use EPF, PPF, Mutual Funds & ELSS funds rather than putting money in expensive insurance policies. They just have to deposit form 16 to the income tax department & it’s done. Even all their lumpsum retirement benefits like gratuity, commutation of pension & provident fund are tax free which is not a case for private sector employee.

F. Estate Planning – They sometime are placed at inaccessible places – to keep financial life simple they should have a power of attorney signed in favor of one of the family members. They also work on some risky assignments to avoid some confusion in case of any negative consequence they should properly write a WILL.

Few important points that the defense person should keep in mind:

1.   You have a very high chance of getting mis-sold expensive financial products due to your transferable job & fleeting touch with the financial world. Investigate before you put your hard-earned money.

2.   For you it’s really important to have a proper written financial plan, by a Financial Planner. It will serve two purposes – first it will eliminate risk of mis-selling & second in case if you are not reachable someone else from your family, can act on that.

3.   All your investments and bank accounts should be in either or survivor basis – so even if you take some decision in far flung place it can be executed by other members.

4.   Some time you earn extra allowances due to your location or some foreign assignment – invest that amount for long term goals rather than spending it.

5.   Some cases are seen where larger sum assured for defense persons are denied – so keep adding small sum assured policies from different insurance companies.

6.   Your job is secured & has zero risk, as far as your income is concerned. So try to make your portfolio a bit aggressive, try to understand risk. I am not suggesting that you go for direct equity but start with systematic investment plan in diversified equity mutual funds.

7.   If you are still not ready to participate in mutual funds or you want to start with very small amount – you should increase your EPF contribution rather than going for insurance policies for investment purposes.

8.   There is a special provision through which, part of your salary can go directly into some investment after taking permission from you. But make sure that such amount is not going in some expensive product like ULIP or low return product like endowment plan.

As a person from the armed forces, you have some qualities like discipline, managing skills, decision making power & investigation; that can do wonders if properly used in managing your money. With these qualities in your personal financial life – along with protecting freedom of our country, you will also be achieving financial freedom.


  1. I am an Army officer, while in peace area one LIC agent came to me showed me this rosy picture of this policy .

    1. I get 25% of sum inssured after every 4 years.

    2. After 15 years premium for next 5 years will be paid by LIC.

    3. Premium amount is RS 63000, i have already paid one Premium.

    4. At the end of 20 years i get Maturity benefits.

    5. Sum assured is rs 700000.

    After i read articles on your website, i would admit that i dint study the policy before taking it , also i got it for investment purpose & not for insurance (We have a Employee insurance of Rs 1500000). My Age 29, Policy premium getting cut through DSOP(Defence services officers provident fund), to which i pay a monthly of Rs 6000.

    Please guide me what can be done! Should i surrender the policy? or continue it?

    • Defense Personnel have very high chance of getting mis-sold expensive financial products due to your transferable job & fleeting touch with the financial world. Investigate before you put your hard earned money. Regarding your policy you are actually stuck – you can’t surrender or make this policy paid up before 3 years. After First Year premium, we suggest that you should stop paying further premium. You would lose all you have paid, but it is better to stop traveling on wrong road once you know it. Yes you have read it right I am saying loose Rs 63000, this is the best option. You can only surrender your policy after 3 years – you will approximately get 1/3rd of 3 years premium. Doesn’t make any sense. Second best option remains making policy paid up after 3rd year. It is less painful. You should write 2 application for stopping of your premium & take receiving; give first to LIC office & second DSOP office.

  2. Hemant I am a defense personal. I want to do two things first that is (1) To open a demat account, how can I ? please advice in details to open . (2) I want to do SIP of Rs 4,000/- per month. please advice 2-3 mutual fund which is good for long term that is 6-7 years or so.

    • If you are serious about following what I am going to right in this mail – then my first advice is don’t open demat account. Demat account makes you active & this is not good for financial health. The kind of effort & time which is required in direct equity are not worth. Starting SIP is a good decision – go for HDFC Top 200, Reliance Regular Savings Fund and DSP BR Small and Mid Cap Fund.

  3. I m new to all this and hav investment plans wht do u sugesst me to do . as i m wokin in defence and dny hv much time to seeinto this ,suggest me somthing which i can relie upon for long term may be for 10 to 12 yrs.plz specify reasons my income is 42000pm.my age is 22yrs

    • Hi Vivek,

      Start with some small SIP – it’s not that tough to learn Mutual Funds.

  4. Hi,
    Hemant can a service man sell a mutual fund to anyone and get commission on it. If he does what will his future?

    • Hi Anil,

      No, I don’t think any employer will allow his people to sell a different product – same applies to mutual funds. For selling mutual fund one need to clear amfi exam, apply for license & empanel himself with mutual fund companies that they want to work with. I have seen few government employees doing it in name of their spouse but it’s completely unethical way of doing business. They are cheating their employer as well as their clients. My suggestion is if you are really interested think of doing it after retirement – till then keep learning.


    • Hi,
      4 year is a very short term period – my suggestion is you should not put more that 25% of your contribution in equities.

  6. Hi Hemant,
    It was a nice article. I have a doubt.
    I am 37 and earn 12L p.a, my DSOP monthly outgo is 30,000 and 20,000goes as EMI towards housing loan. I have no current MF investments. My question is whether i should be investing in equities(direct or SIP MF) , considering the volatility and uncertainity in the markets all over the world including india. Or should i invest in more property and gold(ETF).

  7. Hello Sir,
    I am a defense personnel at a lower rank. My salary is just as hand to mouth. I have availed variuos loans due to my domestic problems. As I am the only earning member of my family, I can not take any risk for investments. I am much intrested in Business before I joined the defense service. Can u please suggest me, how should i go forward now to improve my financial life. Your suggestions will help a lot.


  8. hi , im from army, & the article is so good & correct.
    Im 31 and knowingly or unknowingly started my sip since 4 yrs for @ 10 k pm,in a well adviced portfolio. I have kept a separate acct for invst. Follow my monthly budget and try to invest remanant in FD/debt fund.
    I have my emi for home loan to start.
    Now i feel as my age grows should I invest in PPF ? Should i invest in a term plan?
    How much amt for both I shud plan. For term plan i do not want a premium of Rs 500 pm, which gives me a cover of 40 lac plus, will this suffice?

  9. LIC 93 -25 – 25 with a premium of 61760/- from DSOP fund is worth an investment on Insurance or not ?

    Will the agent pay the first premium or not ? Is it possible that the agent pays the first premium of 61760/ ?

    The SIPs you suggested are ok but what is the monthly amount for an Officer with 21 years of service needs to invest in MF (SIPs)?

    You render free of cost service or you need to be paid please tell me & also the mode for the payment so that i get the correct advise & u don’t hold back for want of money !


  10. Which companies are offering term insurance plans to army officers? I checked up brochures of SBI e life , Aegon Religare , kotak etc, they are not offering term plans to army officers . others have not mentioned it clearly.
    Exclusions mentioned – “Due to injuries from war (whether war is declared or not), invasion,hunting, mountaineering, motor racing of any kind, other
    dangerous hobbies or activities, or having been on duty in military,
    Para-military, security or police organization.”

    • ICICI Prudential LIFE INSURANCE or HDFC LIFE INSURANCE has provided the term insurance to Army insurance but not cover the war or operation risk.

  11. hello.
    i enrolled in indian coastguard just 2 yrs before,,,now am 23 yrs and like to start some investments,,,,my goals are 1)build a house within 2 1/2 yrs for that i need 10 lakhs….2) i will get married after 3-4 yrs for that i required 1.5 lakhs…..and now my income is just 17000/month in view of next pay commission…..how i should plan and go ahead?
    how and wer should i invest and take loan?

  12. Hi Hemant thanks for such a good article. It would be great if you do a series of articles for defence personal at different stages of their career. I am leaving defence next year my age is 40 plz suggest. May be it can be idea for next article. Thanks a lot

  13. Please advice if lic endownment policies cover risk for army officers in case of death. I have this question because I read the clause overleaf the policy document. For risk cover and maturity benefits please advice which type of policies are best suited for me. I am 23 years old and have already taken 2 lic policies for 1lac and 2lacs respectively before joining the armed forces. I have been playing premium since 2012. Now I also have AGIF from the army for risk cover which is normally done for all army officers. Kindly advice on the best action. Should I continue paying the premium for my old lic policies? What policies may I take for Max financial security and risk cover?

  14. Hi Hemant,
    Iam an army officer and ive completed two and a half years of service. Previously i was in a field area and i had earnt lots from the allowances. But because of my impulsive attitude i spent all the money that i had. I really am very bad in managing my funds. I req you to plz suggest me what to do. Kindly advice me on how to go about my financial planning .

    *****. Santosh

  15. I m in defence .I have lic policy( jeevan saral) since 2010 ,of yearly premium Rs 30300 for 21 yrs period .Should I continue with this or should I paid up the policy to discontinue. I have doubt is there any term insurance which covers the risk exposure of a defence person’s life, bcoz term insurance policies have some exclusions mentioned – “Due to injuries from war (whether war is declared or not), invasion,hunting, mountaineering, motor racing of any kind, otherdangerous hobbies or activities, or having been on duty in military,Para-military, security or police organization.”

  16. Dear Mr Hemant,
    Thanks for the informative article. I’m an Air Force Officer aged 39 and would like to take a term plan. Can you please suggest which term plan is available for us. My job profile does not include flying. Thanks in anticipation.

  17. Dear Mr Hemant,
    I’m an Amy Officer aged 36 and would like to take a term insurance plan, I am looking at the sum assured of 1 cr & a term of 39 years. Please advise if the amount of 1 cr is sufficient for cover. also should i look at the term of insurance to end near my retirement or to take it till 75 years.
    LIC premiums are too high, what is the reason for that?
    Some plans i liked were the PNB metlife mera term plan, HDFC Click to protect and icici prudential all having options of one time payment and monthly payment thereafter. Can u suggest the best one of these. Also i checked hdfclife Shaurya in their brouchure says that the risk in army duty is also covered, is it true?

  18. Is DSOP the same as PPF account? deductible to a max of 1.5 lac? what is the right amount for DSOP deductions from pay?

    Also home loan has the principal component that can be deducted in 80c. so investing more money under 80c is actually a loss?

    how do we plan this ? will SIP n MF give more returns than PPF eventually ?

  19. Sir I am a soilder .I have little knowledge about mutual fund but i want to invest in mutual fund plz advise me which mutual fund is best for me to invest.
    If any other policy that fit for me , plz suggest

  20. i am a defence personal. i hav a LIC policy for which i am paying Rs 50000 from my saving account annually. I want to deduct the premium from my DSOPF. Pl guide me how to convert my policy to DSOP

  21. Hi Sir,
    Which is better for investment for a long term say 20years….. DSOP or SIP or mutual funds for a serving officer (considering the amount of time he doesn’t get to run around the mutual funds)??

    Thank you in advance

  22. Dear sir can you please provide me your mail address….. I have a few questions regarding life insurance and investments

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