Roti, Kapda, Mediclaim, Life Insurance, Contingency Fund aur Makaan

 

Roti, Kapda, Mediclaim, Life Insurance, Contingency Fund aur Makaan

 

Please note the blog has not been proof-read or grammatically corrected by reading it multiples times. I had promised myself that I will write something to create awareness around Life Insurance and Mediclaim. There couldn’t have been a more opportune time. So I just let my thoughts flow….

 

June 2007, Life was great. I was living the dream – MBA Finance got into a reputed investment bank, I was breathing equities (something that I always loved) and had started earning as well. All that came crashing down one fine day. My Dad had travelled to our native for some-work and there had a small shoe bite. Shoe bite- OK so what’s the big deal. Over next couple of days due to gross negligence on his part and on ours that small shoe bite gradually became an infection leading to excess carbon dioxide in his body.

When he started feeling a bit restless we got him admitted to a local nursing centre because he never had any other health issues. All of 25 whilst I spend the night with him I could never guage his discomfort nor did I realize that next 60 days are probably going to be the toughest of my life (and my family). He became more restless over next 24 hours and in swift emergency we got him admitted to Hinduja Hospital, Mahim. As I stayed the night over, it never occurred to me that things would get so serious over next 20 days or so. His pulse started dropping, saturation levels kept dropping. Barrage of tests were done across organs heart, lungs, kidney etc to figure out what was amiss. Opinions ranged from a heart problem/attack to kidney dysfunction to lungs infection and likes. It took them almost 7-8 days to figure out that the problem was none of these. Gradually blue marks started appearing on his body – signs of infection and excess carbon-dioxide in the body. By the time they figured that out the body was fast giving up and apart from putting him on a ventilator there was no way to save him. My Mom as she had always been was a pillar of strength. Although she feared the worst how would she let her kids know that they might lose their father forever.

The beautiful dream just came crashing down. Even as we feared the worst, we prayed for a miracle.

Now comes the crux of this post. I was 25 at that time and as is the case in most Indian middle-class households the finances were all managed by my dad with miniscule oversight by my Mom. I had just started earning and wanted to explore the world before getting burdened by financial planning. So here we were – the only person who had a complete perspective about our financials was on a ventilator in a hospital and we had no idea of how we will manage life going forward. Whilst sleeping in the rest area for ICU patients I would be woken up from my horrid dreams by bed number buzzers night after night only to realize that the battle is still on. This ordeal went on for 60 days or so within which my Dad slipped onto/out of Ventilator twice. Bills were mounting and it was all about managing the next 50k-100k to be paid.

Luckily for us 3-4 things really helped us 1) My elder sister had been working for some-time so she had a pool, 2) Some joint accounts had some money which could have been mobilized, 3) God bless ICICI Bank for being aggressive on Credit Cards and issuing it to someone with only a year or work-ex, 4) Solid family eco-system of my Dad’s Elder Brother and other close relatives who helped us both monetarily and emotionally to glide through this. Also despite being just one year into work I got some phenomenal support from – Mr. Shriram Iyer (then our Head of Research), Priyanko Rockstar Panja (my lead analyst), Sid Sanghvi (my co-analyst + brother), Ajitesh Nair (brother) and so many other colleagues.

Suddenly at 25 – I had life asking me so many questions all at once. There were times I felt like just quitting this Life’s exam but eventually with the support system just hung in there. This episode changed my whole perspective to life and to financial planning and priorities in Life. My Dad eventually recovered after almost a 3-month ordeal. Since my Mom used to work with Mumbai Port Trust and both of them were covered under their scheme my Dad had never bothered to get a Mediclaim for himself. Gravity of the situation forced us to admit him in emergency and we could not follow the procedure as laid out by Mumbai Port Trust. It meant that the expenses had to be borne by us with no resource to any medical aid.

The reason why im penning down this blog in such haste is it’s the most opportune time to re-emphasize some basic tenets of financial planning. We are in the midst of the 2^nd wave of Covid which has not only broken the healthcare eco-system in India but has broken families, broken hearts and rendered so many kids without their parents. The number of instances of 20-30-40 year olds losing their lives is just insane. We are hearing so many such stories that we have almost become numb to such occurrences. Cries for help where in a sole-bread earner has succumbed or where both parents have succumbed leaving kids behind or where old parents have been left behind with nobody to take care of. While I sincerely hope and pray that something of this magnitude never happens in our lifetime there are some really important lessons for us.   

However good or bad life is it just goes on and we have to go along with it. As I gathered myself over the next few days in late 2007 I realized some very important lessons in life.

·         Always loop in your family/kids/close friends/anybody trust worthy into the crux of your financials – just in case the need be for a stormy day

·         Always have a contingency fund of at least 6-9 months of your expenses + if you can have some added on Medical contingency fund it would be ideal

·         After Roti n Kapda – The 2 most important things in life are Mediclaim and Life Insurance

I cannot emphasize this statement enough. Most people tend to undermine the whole aspect of Insurance for health/life saying “abhi toh im young itna jaldi thodi kuch hoga”. Please please don’t make this mistake. Even before Covid we have had umpteenth instances in our friend circle where 30-34-38 year olds have expired to heart attack and life doesn’t serve you a notice period. In case something untoward is to happen to us we at-least need to protect our families against that.

Even in this wave we have received so many requests for help to contribute towards families which have lost their sole bread earners. Unfortunately, a lot of these guys/girls were finance graduates and from some of the best institutes in this country IIT/IIM/ISB and dint have a Life Insurance Policy. Back in 2007 while my Dad was still in the hospital the first thing I did was get a Mediclaim Policy for us 3 siblings even if it meant I would have had to borrow from relatives for premium I would have done that.

Im not really getting into how to approach getting a Mediclaim policy or life insurance policy in this blog. Any of you feel the need don’t hesitate to get in touch with me. To the best of my ability ill definitely help you out.

However please don’t forget

1.     Both Life Insurance Policy and Mediclaim is a must

2.     Start as early as possible – premiums are always lower at early age + if you don’t claim the bonuses just keep adding up

3.     This is my personal advice – Life Insurance please stick to term plans. Don’t venture into endowment plans. Apni Gujarati/Marwadi Buddhi ki mera paisa chala jayega ko side main rakho aur yeh socho ki main chala gaya toh mere ghar walon ka kya hoga

Please do help create awareness about this amongst your Maids, Aaya, Watchmen etc. While I was pushing so vehemently in my close circles to create awareness, unfortunately we lost our office boy Mr. Vinay Walve to Covid-19 in May 2020. I couldn’t get him to buy in a proper Mediclaim or Life cover else who knows if he had got proper medical aid he might have still been with us. We are doing our best to take care of his son’s education and chipping in wherever possible.

I just hope that the Governments/Noda Agencies takes up Insurance/Mediclaim awareness much more seriously than Mutual Funds Sahi Hai especially since the Covid-19 experience is fresh.

Also given that a lot of people’s lives have been completely shattered due to Covid-19, we will need to chip in to pull them out. Do the best you can.

“Dil bada rakho, Zindagi toh aise hi Chotti hai”

Stay safe everyone!!! We are in this together and we will overcome!!!

Will India be the next China?

Please note my understanding on China is limited to my cursory reading about the country over the years. Also since we spent only 6 days and that too majorly on eastern side of China our understanding is restricted to what we saw/understood. The blog hasn’t been reviewed or edited and hence is more of first thoughts. I had promised myself that I will pen down my thoughts unlike our last visit to Indonesia. Im sure I have missed a lot of stuff so will keep adding and refining the blog as we go along.

I distinctly remember January 2006, passing out from college it was time to step into the real world. I was slated to join Infra team @ Edelweiss Institutional Research Desk. The team was working on a mammoth assignment “The Grey Revolution” – 1000 pager on the India Infra story. Since we are at it a big shout-out to Priyanko Panja for giving me an opportunity to be a part of his team and to Siddharth Sanghvi for helping me become a decent analyst (hope I have become a decent analyst). All through those crazy 8-9months, multiples times the conversations veered towards will India be the next China? To give you an example India was slated to add 75,000 MW (give or take…it’s a 10 year old data point) in 12^th five year plan (2012-2017) whilst our installed capacity would have been ~150,000 MW (number is not relevant, magnitude is).China on the other hand was adding 50,000 MW a year and it made me wonder what scale is this?. And then there were odd anecdotes of politicians promising to make Mumbai the next Shanghai.

It took me ~13years to see the scale for real. And 13 years passing by means the scale was even bigger and insane in some cases. Once every 2 years me and my colleagues at Anived PMS try and visit a country which is ahead of India on some parameters or is emerging as a manufacturing hub or technology giant etc. Around 2 years ago we had visited Indonesia; this time around it was China. While we had planned the Indonesia trip on our own, we were aware that China would be tough from a language and food perspective. Hence amongst all the options available we went ahead with a weeklong trip with Veena World. Traveling in a tour has its own nuances and I must admit it was a memorable first experience for me. We covered the cities of Beijing, Xian, and Shanghai mostly on eastern side of China.

As soon as we stepped into Immigration at Beijing you could sense the scale of the country. There were 20 terminals or so where International travellers could scan their passport, enter their finger prints. We were out of immigrations in less than 10mins.

Beijing – Beijing is to China what Delhi is to India. It’s the political capital of China. Weather was extremely chilly with day temperatures hovering around 11-14degrees. While Beijing did have scale with tall towers it did have an old world charm to it. Real Estate is extremely cost across China and especially in city areas where it costs approx. 5-7crs for a 500-600 sq. feet house. Unfortunately we were not able to see any houses to be able to comment on quality of construction, spacing etc. It has a population of ~22-23mn and ageing population. People prefer their children to study in private schools which are extremely expensive although government schooling is subsidized/free.

Places we visited - Temple of Heaven, Jade Garden, Great Wall of China, Tian’anmen Square, Local Shopping.    

·         We could see large number of senior citizens playing cards, local Chinese games, Chess etc at temple of heaven. Could have been 200-300 of them.

·         Great Wall of China is ~20,000 kms in its length.  There is a popular myth that it’s the  only structure on earth which is visible from moon

·         Tian’anmen Square/Forbidden City - they let 50,000-60,000 people daily. There was a long weekend due to which there was insane crowd. Forbidden City is so massive it takes 2 hours to reach the absolute end of the structure. Ancient architechture is brilliant with zero use of screws/bolt

·         Local Shopping – Bargaining in China like the country is of a MASSIVE scale. Things which are originally quoted at 100Yuan end up selling at less than 10Yuan in most cases. And while we  may feel that only Indians bargain, you can see Europeans, Americans etc bargain big-time as  well

Beijing to Xian Bullet Train ride – It was highlight of our trip having heard of the Ahmedabad-Mumbai Bullet Train. The distance of ~1200kms takes only4.5 hours and costs ~INR 5500 for second class ticket. It costs ~ USD 18mn-25mn/per km (this is based on Google) to develop the bullet line. Im not sure how many high speed trains n line China has but the network will be insanely huge. One of the stations which came on the way had 36 platforms and there were ~7-8 trains standing on various platforms.

The journey was supremely comfortable, train was extremely clean. Seats can be moved 360degrees and the direction is changed based on which side the train is heading. The team ensures that the train is phenomenally well maintained. Drop a plastic wrapper and the cleaner will be there next 2^nd to clean it.

Xian – We reached Xian in the evening around6.30ish. The weather was let’s just say awesome. It seemed like a winter evening in Dharamshala or Chandigarh. As we started driving towards our hotel one thing that struck us was that the entire city was beautifully lit-up almost Diwali like. Every corner of the city be it the bell tower, wall dividing the new town with the old was lit up in an extremely grand manner. Street light across the city had beautiful red lanterns for company. Yahan electricity free hai kya?? was the thought that came to our mind. There was a beautiful water show near the bell tower in the night. (We were lucky catch-it)

Xian used to be the capital of East Asia in the past (not sure about the timelines).Xian is also the home province of current Chinese Premier Xi Jinping. Your premier Prime Minister Modi had visited Xian was repeated multiple times in interaction with various people.

Places to see – Largely famous for Terracotta Warriors which has life-size figures of various soldiers etc. Around 8500 of them

Evening in the city was so pretty that we skipped a few sightseeing events and instead grabbed a glass of black label at an Indian Restaurant to soak in the stunning night scenes (Black label 60ml was ~650 INR which we thought was fairly cheap). We even managed a km walk post reaching the hotel it was so stunning

We took a flight and headed for our last stop Shanghai.

Shanghai – It’s the financial capital of China and houses the Shanghai stock exchange. The city is divided into new and old by Huangpu river which is ~100kms long. The entire city if lit up during the night time almost 500x of Times Square type. Buildings, most of which are in excess of 70-80floors are completely lit-up with Red, Green, Blue, Rainbow lights. The night cruise is a phenomenal experience – chilly weather, beautiful lights all around – it’s breath-taking to say the least.  

Places we visited – Jin Mao Tower Observation Deck (88 floor building and the elevator took 40 secs to reach the top), Bund Water Front (again beautiful during the evening/night time),

We also took a 15mins to and from journey of Mag Lev train which covers ~ 65kms and has a top speed of 430kms/hour.   

Shanghai has 25 metro-lines operational right now and they will have 35 lines by 2025

Shanghai to Beijing – We had no idea why we dint directly flew to Mumbai from Shanghai. We again took the bullet train but were much less excited as we had already done the journey once and post Maglev 300kms/hour seemed a tad little slow JJ

Some tid-bids about China which we learnt on the trip

·         80% of Chinese people don’t really follow a religion. 20% follow Buddhism and some other religions. They do however follow a few  customs similar to India like praying for well-being of departed souls, lighting of diya’s in temples etc

·         Chairman Xi Jinping as he is addressed to by Chinese is only the 2^nd leader to have become a permanent head of the government after chairman Mau. There will be no elections in China till Xi Jinping is at the helm. Chairman Mau was instrumental in integration of various provinces into People’s republic of China (much like SVP in India)

·       Economy is clearly slowing both in reported data terms as well as what people observe on the ground. This is after 4 decades of growing at break-neck speed.

o   It was very evident that the economy cannot slow else the excesses will ensure that it will collapse. There were more cranes at work atop 40-50 storey buildings in one city and its outskirt than what I have seen in whole of India (im not kidding). In a ride of 40-50kms because you are cruising at 300km/hour we would have seen may be 500-1000 cranes per 5-7kms. The whole country is under construction. And here we are worried about an odd Pune or Gurgaon being under the grey dust.

·         Language is a huge barrier. Barring the guides and may be couple of staff at hotels, it was impossible to communicate even in broken English. Words like water, towel etc would get blank responses. Recommend to carry an app which converts English into Chinese

·         Beijing/Shanghai had huge pollution related issues even as late as 2007-08. We have seen tonnes and tonnes of videos of people walking in these cities with masks on. The government in an overnight decision decided to move all factories outside the cities. In next 5-6 years this was done at break-neck speed. It would be near impossible to do something like this in India given the lack of unity in our polity

·         Elderly people/senior citizens have been moved outside of the main cities. Obviously there are monetary benefits to relocate. Again would be impossible in India. These are things that semi dictatorial/non-democratic/state is always right countries can do.

·         While we marvel at the infra that has been created there are a lot of unanswered questions 1) Are these projects actually viable 2)What is the quality of assets owned by State Owned Banks (huge directed lending/owned by the state itself). Maglev while it’s a great tourist attraction and science marvel don’t think the project will ever be viable from a RoI perspective.

·         On the ground we dint find too much of affinity to brands either in case of clothes, fashion accessories, shoes etc. This is contrary to what we had heard. Cant thump the table on this one.

Some read through for India

·         One of the biggest joys of being a part of this trip was that middle-class India is traveling; leisure is becoming an important aspect of life. People are traveling, they are learning, they are questioning, they are demanding and (the part I hate) they are writing India off. India agle 100 saal main bhi aisa nahi ho sakta. I really have 2-3 thoughts here 1) do we really want to go the China way in excesses. We havent seen the end yet 2) What are the challenges of a being democratic country (We all marvel at the bullet train in China but we don’t want  one as there are people who still don’t have food to eat) 3) We will be somewhere between where we are today vs where China is over next 15-20 years and as my tweet said “Ladies and Gentlemen tighten up your seat-belts, even if we get to a % of where China is in next 15-20 years its going to be a hell of ride”

·         My personal belief is India is young, India is restless, India aspires, India dreams. Sure we will have our challenges but we have 130crore people who are working on finding solutions to these problems. Also India has reached here in spite of the Politician. A good CEO and good government will execute better. Poor one will take 5-10 years more to achieve the same.

·         Through last winter across various larger than life weddings got a chance to interact with a lot of NRI’s. These are people who travel to India once in 3-4 years and they see massive changes for the good. Sometimes being too close to the action is not a great thing.

·         We will have the metros, we will have world class airports, we will have bullet trains, and we will add a few more statues. It’s a matter of time.

Its only apt that im writing the closing paragraphs of this blog, sitting in an Aaram chair at my native in Ranveri, Gujarat. We used to travel in bullock carts as kids, then cycle and now due to the proximity (~250kms from Mumbai) we usually drive down. Barring medical/hospitalization which still has a long long way to go, every-thing else that you need for a good life is now available here.

While all of you are aware of my political leanings I have made a conscious effort to stay clear of it. I don’t know how history will read Narendra Modi’s 1^st term (2014-2019), but as far as global image of India goes he has improved it manifold. This feedback was time and again shared by our Indian travel guide, by our fellow travellers. The world knows India and its premier Narendra Modi and has a lot of respect for India.

#proudindian #eternaloptimist #jaihind #vandemataram

Ranveri – The Road, the Ring and the Ringmaster!!!!

Note: Ranveri (Khurd),  my native place is around 250kms from Mumbai and around 30kms from Billimora in the southern part of Gujarat. (http://village.org.in/Ranverikhurd )

Like most kids who were born in the pre-digital era, summer vacations usually meant spending April and May at your native place. Whilst it’s difficult to remember when I started to like the place and the rural lifestyle suffice to say it was from a very early age. So through the late 90’s and early 2000’s travel to Ranveri meant 1) Train travel from Mumbai to Billimora  2)Bus Travel from Billimora to Dholikuwa or Kharoli (3kms or 2kms from our house) and 3) Bullock Cart ride home or in later years bicycle ride. Train travel from Mumbai to Billimora was usually peaceful and people were far more considerate then they are today. Bus travel from Billimora to Dholikuwa could end up being erratic at times but was by and peaceful. However at most times for my Dad/Mom/Kaki it would be a task to manage 3 kids who were 3 years apart in term of age.

Once you got to the place there was nothing much to do. Most of the time was spent playing at home, games ranged from carom, cards, cycling and others. Once in a fortnight you got a chance to go to the nearby market (Dholikuwa) where bare essentials (pulses/grains/basic farsan items like Khaman etc) were available which were mostly unbranded/regional brands. As kids there was nothing pulling us to the market apart from may be salted peanuts or sugarcane juice. Electricity used to be extremely erratic in those times and if there was some issue, people would have to walk up 3-4kms to catch hold of an electrician or cycle towards in later years. Electrician would come and check the fault if there was a major issue, parts were available only 20kms in Chikhali which was a slightly bigger market/central place, just off NH8 (Mumbai-Delhi Highway). This meant a downtime of 3-4 days in some cases. This onetime I remember we had to get our bullock cart repaired; the place was around 15kms from our native. It was like a day picnic where-in we left at 7.00am only to return back at 06.30pm. I remember in the good old days around 2000-2001 when i went to my native place with my friends we had to work with clock perfection, Train has to reach at X hours, catch the bus at Y hours and ensure you reach of time. This onetime we reached Dholikuwa at 8.00pm after catching a late evening train from Mumbai; and true Mumbaikars were taken aback when the whole market had shut down and it dawned upon us that we would most likely have to sleep empty stomach that night. Luckily we had a Panipuri guy who was about to call it a day; he managed to give us some puris filled with whatever was left behind. Essentially life was slow, small issues would take days to get resolved; there was barely any form of entertainment.

Cut to 2003/2004 two major events started taking shape which would change India and its rural landscape forever. 1)NDA Government under Prime Minister Atal Bihar Vajpayeeji started focusing very aggressively on infrastructure development (1998 to 2003) especially roads 2)Mobiles made their way into India with insanely high tariffs of Rs.32/minute or so. At the same-time there was an RSS Pracharak who mysteriously had survived vacating his Chief Ministers chair in the aftermath of Gujarat riots in 2002. Determined to change the face and catapult Gujarat to the next level, CM Narendra Modi got down to serious business. He worked tirelessly to fix the power situation, agri situation, roads and other infrastructure over the next 13 years or so that he remained Gujarat Chief Minister. However this blog is not about Narendra Modi but how his policies and work affected and changed the economic outcomes of the entire state. Ranveri could be any other rural place in Gujarat or for that matter any other place in a decently doing state in India. However I write about Ranveri because I have experienced it first hand over last 30 years or so.

By the middle of 2000-2010 decade things had started to move. Roads had started improving big-time in Gujarat and had started reaching the interiors (places which were 30-40kms away from National Highways). This meant 2 things 1) People were happy to travel longer distances in search of work and 2) it saved a lot of time. This just propelled the entire economic engine in my view – people could travel more, meant people could do more work in a day, could travel longer distances for more remunerative work, small standalone operators like Electricians, Carpenters, Construction workers all had more work. As mobiles became more affordable and calling more reliable it gave a massive fillip to this economic engine which has already started rolling. The economic engine could now propel at meter gauge pace v/s narrow gauge earlier (There is a narrow gauge line which still runs from Billimora to Waghai - http://indianexpress.com/article/india/bilimora-waghai-narrow-gauge-train-completes-104-years-all-you-need-to-know-about-it-4750130).

Just a small example on what a massive transition we have seen over last 10 years or so. We drove to Ranveri from Mumbai around 3 months back (this I end up doing around 15-20 times a year). When we reached my native place there was some issue with the electricity. Steps were simple 1) Call the electrician (mobile made it possible) 2) He zoomed his 2W and reached the place in 10mins (roads made this possible) and in next 20 minutes electricity was fixed. Efficiency of the electrician had gone up multi-fold – He doesn’t have to wait for state transport bus to come, he can be reached at any-place/any-time during the day on his mobile. And this electricity example can be virtually applicable to anything else car repair, caterer, trader, construction worker.

As I have mentioned earlier in the blog, this would be true about any part of this country. Why is the ringmaster so important? Whilst this could have happened in a lot of parts of this country the impact on Gujarat has been of a different magnitude altogether both in terms of its speed and its coverage. Over last 15 years or so I have had the privilege to travel across India either for work or for holidays and I can safely say there isn’t any state/region which has seen this rapid transformation ( if there are I havent been made aware of it till now). Roads are made keeping in mind the traffic situation 20-25 years down the line (so called state highways which cover internal roads operate at 10-15% of their capacity in my view and yet they are made today).Government departments have embraced technology much before rest of the country. Gujarat is one of the few states where Agri power is available only 8 hours a day despite being a power surplus state and farmers pay market rates without any subvention/cross-subsidisation.

There has been an entire metamorphosis and how. Road from Chikali to Ranveri which would take an hour to drive now takes around 15-20 minutes. You can continue zooming at 70-80kms/hour easily. Dholikuwa today is a much bigger market v/s what it was 10 years back. While it’s difficult to hazard a guess on how many people the market services, my guess is it won’t be more than 5-10k. Yet everything from Cheese to dressing sauces to fruit juices are available. There are 8-10 traders stocking goods worth 15-25 lakhs each (some would be even stocking worth a crore). Roads are broader and could match Mumbai city highways easily with around 10% the traffic. Commercial complexes have come up, Restaurants, 4-5 Petrol pumps (in vicinity of less than 5 kms or so). My dad tells me it’s reminiscent of how some smaller places like Virar/Vasai were in late 1990’s.

Given that most of my friends are in early to mid-30’s whenever we travel we Ranveri with kids along its always important for parents to be sure that milk, medicines, kids products are easily available. They are now available a plenty. Shops are open till 10.00pm. Life is a lot more happening in Ranveri/Dholikuwa then it was 15 years back. However people still find time for friends, family functions. Money is not the single motivator as yet. Bania/Money Lender Credit still runs deep in villages even today.

In my view there are anywhere between 1000 to 5000 Ranveri’s waiting to happen in India over next 10 years or so. Irrespective of which Government is in power the reform process is now going to be unwavering. People will demand it. The youth today is restless and they will ask questions to the political establishments.

I would love to host you guys at Ranveri someday. Kya rakha hai eet ke makan main kuch din to gujariye Gujarat main……

#SIP9WoW – If compounding is the eighth wonder of the world then SIP is the ninth

#SIP9WoW – If compounding is the eighth wonder of the world then SIP is the ninth

Note: The blog is a little lengthy but a breezy read. Views expressed are personal.

SIP refers to Systematic Investment Plans which is specific amount being invested at a regular date. 

One of the benefits of being born in a Gujarati family is that you are exposed to finance very early on in life. When I was in the 5^th grade (10 years old) I started going to the bank with my dad to update the passbook of my minor account and create a recurring deposit. My Dad would then ask me to check if the eventual interest matched with the rate of interest promised. I don’t know if it’s got to do with the genes but I always had a passion/inquisitiveness for finance. Over a period of time I would take my Dad’s equity statement and read up on some of the companies he held. While I had little understanding of B/S, CF, P&L etc I would read up on what these businesses were, whether they were B2C/B2B, did people crave for the end product, was it a manufacturing or a service company etc etc.

Jump to Jan 2006 I joined Edelweiss on their Institutional Research Desk. It was dream come true. I felt similar to a small kid who was yearning for a small chocolate and discovered a whole chocolate mountain. I was awestruck by the way equity markets operated, how research was done, how many ideas were generated. While building up my knowledge on equities and on investing in companies I was exposed to the ideal of Mutual Fund SIP. While I had read up and heard about Mutual Funds I had little idea about SIP’s apart from the standard rupee averaging. It’s not that most of us at that stage were not aware of MF investing we just thought it was for lesser mortals. Here we were in one of the fastest growing domestic brokerage in the country with a very strong research team; I thought to myself that ill surely beat the returns of these mutual funds.

However from a very young age my dad had taught me that’s it’s very important to save a portion of your income to create future cashflows and for a rainy day. The traditional way would have been a recurring deposit with the bank; however through 2003 to 2008 we were in the midst of a massive bull market in India. MF returns in the popular schemes were running at 15-30% annualized return. So I thought to myself that it will take me at least couple of years to build my understanding on businesses in the meanwhile why not start a MF SIP just to experience how it goes. Since we were starting out our careers its sufficient to say that our pay scales were fairly modest. Competing with MF SIP were our desires to spend on better clothes, better travel, better restaurants and better lifestyle (don’t think you can hold these things against any kid who is starting out his work-life and has dreamt about these things all through his childhood). Within this tussle of better lifestyle and some savings, the Gujarati in me won a semi-battle and in May 2006 I started my first SIP in Fidelity Special Situations Fund. There was absolutely no research backing this.

And the party lasted for a while as we hit 21k or there about in Dec 2007/Jan 2008. Along the way propelled by a raging bull market Reliance Diversified Power, Reliance Vision etc made debuts in my MF portfolio. Amounts were largely miniscule with SIP’s of Rs.1000/month but I still felt good as I was saving and returns were largely beating the 6-9% recurring deposit threshold. However in the period of Jan 2008 and Dec 2008 Global Financial Crisis hit stock markets across the world with most markets losing anywhere between 30-70%. India was no different from a peak to 21k we fell to 7-8k (numbers are not that important). And all the advantages of rupee averaging were thrown out of the window as educated finance professional stopped their SIP’s. I was in a fix. I had read that rupee averaging was the biggest benefit of SIP and ideally we should be happy that stocks were correcting which meant NAV’s (MF price for simplicity sake) were correcting. With just 2 years into your career, with hoards of people panicking and some of the stalwarts saying that they had never seen something like this ever in their career meant that your conviction gets seriously tested.

I prevailed. I dint stop my SIP for 2 reasons 1)at that stage I dint contribute anything to my household expenses which meant that I wasn’t stretched for finances and hence could go through the turmoil a little longer 2) I have always been an extreme bull on India and Indian stock markets. When the world panics that’s your biggest opportunity. Also the amounts involved were not very large on a monthly basis for me to panic. I remember having a conversation with couple of my colleagues around that period who said why waste capital in MF why not take long futures contract on Nifty at 20% cost and ride the upside. Both of them dint put a single penny in any form in stocks or mutual fund before we started roaring again in May 2009 when Congress came back to power in thumping fashion. I was happy that my persistence with SIP will eventually pay-off.

GFC taught me the most important lesson in investing while it’s important to be with fundamentals the biggest deciding factor of how successful you are is the ability to control your human side. We all are greedy when the going is good and we all are fearful when the going is tough. People who are able to operate otherwise even at the margin are really successful investors. And then there is another way to overcome this which is through MUTUAL FUND SIP which is why I call it SIP – The ninth wonder of the world. Before we get more into specifics of MF SIP I would like to spend some time on basics of finance/investing/wealth creation.

My dad hates mutual funds for 2 reasons 1) he feels a well-informed individual can easily outperform them and 2) his view is also clouded by mis-management that we saw in erstwhile UTI.

The core of wealth creation is asset allocation. Most people get their asset allocation horribly wrong. 2-3 key things which I have learnt about wealth creation and asset allocations are

1)     Start early – Start saving early so that the effect of compounding money over a long period of time can play out

2)     Small Amounts – Most of us struggle to make ends meet in initial years of our work life. So start with however small amount as may be Rs.100/Rs.200/Rs.500

3)     Spend time on asset allocation – Most of us don’t spend even 10% time on asset allocation which it ideally deserves. In my view, if you make the right investment decision that can impact 75% of your eventual wealth creation vs only 25% your income. Rs.100 invested at 8% compounding in fixed deposit will give you Rs.216 at the end of 10 years (I have taken the liberty of compounding on FD which might not necessarily be true) while the same money if it can be invested in a share or MF at 15% would lead to Rs.405. So we are at 2.16x in FD v/s 4.05x in Equity/MF without even considering any tax impact.

There are 2-3 key mistakes that people make in Asset Allocation and Financial Planning in general

1)     Spend and Save – Most people spend and then save what is remaining while it should be the other way round. When you have financial goals like Child Education, Kids Marriage, Buying a House 2 things are paramount

a.      start early (If you have to accumulate Rs.100,000/- you have to save ~Rs.6200 at 10% returns for 10 years while if the period is 5 years we have to save ~ Rs 16,400 – the amount is ~2.5x vs if you started our early and had 10 years to go

b.    Know the target – Plan in advance and know that you will need 30 lakhs for your child education in next 10 years. It forces you to think over expected returns, how much you need to save and in most cases it will force you to cut down on unwanted expenditure

2)     Core asset allocation is never thought through – I know so many people who put money in FD without even asking themselves whether they have a better investment opportunity both in terms of higher return at same risk or much higher returns at relatively higher risk. I have seen this happen even with Finance Professional which is cardinal in my view

3)     Never consult – Most people never consult experts in these subjects due to utter ignorance or self-ego (I know what is best suited for me)

So what are the investment options available to average individuals

·         Gold – the metal gives very low returns over a long period of time (low single digits). While what you need for weddings etc can be bought its criminal to invest in Gold

·         Real Estate – Buying a house to stay can be still thought through otherwise I don’t think current real estate prices in large cities in India warrant even considering it as an investment. Government in my view will continue to clamp down on the sector to correct the excesses

·         FD – 6-8% return with a tax liability

·         PPF – 8-8.5% with Tax benefit – some proportion of your income should go into this for future savings and a rainy day

·         Equity/MF SIP – could return 15-18% over a long period of 8-10 years. If you want to invest for less than 5 years please stop reading this blog because it’s going to be a waste of time

So how should one plan their asset allocation? In my view at least 35%-50% of your take home (net of taxes) should be saved. In some cases this might be difficult due to certain liabilities but we should aspire for this. Assuming this is Rs.100/- the younger you are the higher the allocation to equities/MF SIP. A good thumb rule which a lot of people advocate is 100 minus your age should be your allocation to equities. However I would suggest people should at least start with 10-15% equities experience the asset class and then increase the allocation as you get more comfortable with it.

Now back to why MF SIP v/s Equity Investing especially for people who don’t do equities full time or for people who don’t have a finance back-ground. Lot of people keep asking me as to stock ideas which they would want to invest in. In equities you need to give time for returns to accrue. We should ideally invest with 5-7 year horizon. Most people want instant karma and treat equity investing as a gambling den where they wish to make 35-40% returns in 3 months. It usually all good till Bull Markets last but it all falls apart when we are hit by a market correction. Another trait if people want to invest money at the top of the bull market because 1) it’s in fashion 2) they feel they can make a quick buck in 15-20 days. In my decade of working experience I have come across a handful of people who have made very good returns across market scenario’s it’s a rarity.

Hence to avoid falling in market traps and to invest money in small instalments MF SIP is a great vehicle especially for people who are not actively into equity markets or not from finance field in general. Over the decade, interacting with hundreds of my friends/colleague in the industry our biggest regret has been buying too much in euphoric markets and buying too little in tough markets which mean our outcomes by and large will be sub-optimal. I still remember when the index halved in Dec 2008 I was shocked when people I used to look upto as equity experts stopped SIP’s or dint invest money in the markets because the fear took over. So through Jan 2006 to Jan 2008 was greed while Jan 2008 to May 2009 was all fear. It’s very difficult to control Human emotions. If the price is Rs.100 and moved to Rs.110 im enticed to buy because it will become Rs.120. However it became Rs.90 I won’t buy because I will wait for Rs.80 /Rs.70 and so on and actually never end up buying and regret when it becomes Rs.150 in 2 years. MF SIP’s are a great way to tackle this Human Emotion as you can invest small sums of money and it will keep averaging itself and create huge wealth over a long period of time. In the above example if this was hypothetically an SIP I would have bought 1 share at Rs.110, one share at Rs.90, one share at Rs.80, one share at Rs.130. My average cost would still have been Rs.102.5 and I would be sitting on 21% annualized return for 2 years

In my view MF SIP will be able to generate 15-18% IRR over a 8-10 year period which means we can beat debt by almost 2x. So my suggestion would be to start with small sums, invest for the long term and have concrete financial goals. It would be unfortunate if I can’t impart my knowledge and help people make money in Equities. India is undergoing a huge transition and there is tonnes and tonnes of money to be made in Equities.

If compounding is the eighth wonder of the world then SIP is the ninth.

I would like to Thank Apeksha Desai, Ajitesh Nair and Abhishek Bhandari for proof reading the blog.

Cheers - HD

PS: I would avoid recommending MF’s on a public forum but anyone who wishes to discuss financial planning with me is most welcome on hiralbdesai@gmail.com or my mobile number

There are more sophisticated/customized ways of investing in equities through Private Equity Funds, AIF’s and PMS for more informed investors. The above article is for my friends who are either not from the field of finance or are not active equity market investors. Even for people like me who are active in equity markets and do this for a living a small allocation to SIP might not be a bad idea.