Tejas lakhani

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Brief: In times like today, when there is enormous opportunity available for investment, certain feeling like greed and fear stop people from making right investment decision. Following advice may help individuals in planning their investments and start as early as possible.

“I made my first investment at age eleven. I was wasting my life until then” – Warren Buffett

Above quote speaks for itself that early we start investing, the better. We may not have that much business acumen as Mr. Buffett or his peers, however, it is time and again tested that investing early always gives best results in the long run. In between, we have biggest expenses in terms of our Children’s education, their Marriage, Sudden Medical/Hospitalization Expense etc.  All these are huge expenses that drain our savings and make a big hole when we look at our retirement corpus.

Current Expense and Inflation

If we go by the government’s inflation numbers, which is around 6%, if our monthly expense now is Rs. 50,000, the same expense would cost us more than Rs. 100,000 in next 10 years. So, on planning retirement after 10 years, we must be able to generate Rs. 100,000 p.m. i.e. Rs. 12,00,000 a year to maintain our current lifestyle.

Current Investment and Returns

With interest rates of approximately 7-8% p.a., we would need Rs. 1.50 crore after 10 years as investable corpus. However, if we adjust for the income-tax (since our income would fall under 30% tax bracket), our effective interest rate would be 5-5.5% p.a. – that means investable corpus has to be atleast Rs. 2.20 crore.

Here, let me demonstrate how age at which we start investing, plays a significant role:

Amount required: Rs. 2.20 crore

If you start saving today and your age is 50, then for next 10 years, you need to invest Rs. 1,40,000 per month i.e. Rs. 16,80,000 per annum.

If you start saving today and your age is 40, then for next 20 years, you need to invest Rs. 90,000 per month i.e. Rs. 10,80,000 per annum.

Hence, time is the only KEY to growth.

If you haven’t started till now, one need not feel left out, and still can make up for retirement, however, one need to invest into SMART Wealth Creation.

Benefits of Mutual Funds

Mutual Funds in India have delivered return of more than 15% in last 10 years, which is substantiated through follow:

List of some diversified Equity Mutual Funds for past 10 years:

Scheme Name AUM (Crore) 3-Yrs Ret (%) 5-Yrs Ret (%) 10-Yrs Ret (%) Since Launch Ret (%)
ICICI Prudential Value Discovery Fund 13,204.62 33.26 19.68 19.45 23.38
Franklin India Prima Plus 8,407.58 24.97 16.46 17.36 19.39
HDFC Capital Builder Fund 1,303.19 22.86 14.19 16.44 14.96
L&T Equity Fund 3,001.30 20.26 12.58 16.22 18.17
SBI Magnum Multiplier Fund 1,600.89 25.08 15.43 16.15 19.15

This return would be tax free since we plan to hold it for more than 1 year.

Hence, against 5.5% return, one would get 15% return that means, by investing the same amount, one would get Rs. 3.90 crores which almost double the amount under Fixed Deposit.

So, if you still waiting for right time to invest, follow this:

1. Don’t put everything into one basket:No matter how much you like property, gold or stocks, never get over exposed to one sector. “Diversify your Returns, Diversify your Risk”

2. Expect reasonable return over long term: Even if market is euphoric and have delivered about 30-40% return, expectations should be anchored to reasonable level (i.e. historical mean).

3. Market makes unexpected moves:No matter how much your instinct or studies are strong, market may behave unexpectedly, so expect volatility, don’t lose Heart.

4. Focus on your Goals: Make a goal and earmark your investment to that goal. This will ensure you achieve it and overcome grid and fear.

5. Avoid being carried away: With increasing news channels, Headlines have step for TRPs. Avoid it, focus on fundamental.

It is prudent to follow the above guidelines while making investment decisions. Nobody know what lies ahead, but it is for sure – we all going to need what we have saved. When you are in dilemma, consult your financial advisor. It is better to have good financial advisor rather than making investment through half known information. For good financial advisor, consider someone who is qualified, have good exposure and prior experience.

Start early, start today.

Happy Investing!

From Wealth to Joy, We Bridge the Gap

With asset allocation, we help people to safe guard themselves against contingencies and create Wealth. Wealth Creation is a Boring but Serious Business.

For more information about bridging the gap or to validate your existing investment, author is available to guide you or help you. Author is a Chartered Accountant and has prior experience with MNCs such as PwC and ACC.

Author: Tejas lakhani, Research Head, Fincare Services, www.fincareservices.com

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  1. Satpal Chadha says:

    Rs.90000/-per month investment from savings is very very difficult advice given by you. How many not even 1% population of India earns this much then save this much and also maintain themselves? Pls be practical. What we need after 10 yrs will also be increased in our income/salary by passage of these yrs. MUFs may not earn as much on average as bank FDRs.

    1. CA Tejas Lakhani says:

      Mr. Satpal, there is an illustrative example of people who could save this much amount. A layman can proportionately derive for themselves or we derive for them tailor-made solutions. As regarda returns, numbers shown above are derived from actuals. MFs would give better returns over a period of time but people should have faith and keep invested. If you have any specific question regarding your investment, you can mail me on tejas@fincareservices.com

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