The year was 1994. Gunendra Kumar Das chose to invest Rs 3,000 in a cement stock rather than a fledgling IT company. His logic was almost infallible: at the peak of his responsibilities, it would have been foolhardy to court high risk by investing in a new sector. Yet, 15 years on, Das regrets the decision.
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| Name | Gunendra Kumar Das |
| Age | 60 years |
| Monthly income | RS 44,000 (post tax) |
| Financial dependants | One (wife) |
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The reason: the IT company that he had dumped was Infosys. Due to this star-crossed move, Das lost the chance of making an eye-popping profit. To add insult to injury, the cement stock proved to be a dud.
Das doesn’t remember the name of the ill-fated cement company. Call it a deliberate attempt to erase an unpleasant memory or perhaps the only indication of his age—Das is 60 and retired in 2008 as the head of department of the electrical department in an oil company.
But you wouldn’t realise it from his approach to finances, which breaks all stereotypes. He didn’t approach us to check whether he had enough reserves to meet routine expenses. Das is ambitious; he wants to beat inflation and increase his current corpus of about Rs 28 lakh.
Neither is he risk-averse. In fact, Das is geared up to invest more money in equities as most of his responsibilities are over, which boosts his risk appetite. An unconventional strategy indeed, but one that would get a thumbs-up from Joseph Stiglitz, the Nobel laureate who proposed that people should invest most in stocks in old age (see Human Capital vs Financial Capital on www.moneytoday.in).
Das is, of course, blissfully ignorant that he is set to follow the advice of a famous economist. His bet on equities is based on simple financial wisdom and to savour “the high of stock-picking”.
This is why Das holds more stocks than mutual funds. His portfolio consists of 17 stocks, where mid-caps like Moschip Semiconductors share space with bigger names such as Reliance Industries. The current value of this collection is about Rs 2 lakh. Eight mutual funds worth about Rs 53,000 wrap up his equities exposure.
This love affair with stocks, however, is a recent one. The chunk of Das’s investment is in fixed deposits totalling Rs 24 lakh. “During my career, I wanted stable returns. In 1994, I lost about Rs 60,000 in stocks. The incident worked as an equity repellent,” explains Das.
In retrospect, we can say that his corpus would have been significantly larger if he had had the courage to stick to equities, especially mutual funds, for the long term. But thanks to a good savings rate, Das managed to achieve most of his goals even by investing in debt instruments. It’s an important lesson for all impatient investors.
The choice of fixed deposits has also augmented his income after retirement. Das gets a pension of Rs 24,000 a month and earns another Rs 20,000 as interest income. With expenses hovering around Rs 20,000 a month—45.5% of his income—Das is in a comfort zone that most of our younger patients can only dream of.
The good part is that Das is aware that his current financial ease is beguiling. “As my income is almost stagnant, I am more vulnerable to the inflation menace,” he frets. According to our calculations, in 14 years, Das’s expenses will exceed his income. So what is the rescue plan?
| Check your Will For people with assets to pass on, making a will is essential, especially if you are in the older age group. Here are the answers to frequently asked questions on wills: |
| Q. Do I need a will if I want my natural heirs to inherit my property? A. It is not necessary, but experts recommend making a will as it reduces the possibility of disputes. Q. Is a will important if I do not have too much wealth? A. Wills are not for the uber rich only. Anyone who wants to pass on property can make a will. Q. What is the procedure for making a will? A. First, make an inventory of all your assets. This includes real estate, equity and debt instruments, gold, heirlooms, etc. After you have decided how to distribute it among the benefactors, write it down in a simple and unambiguous language. It is not mandatory for a will to be written on a stamp paper. Q. How do I ensure that a will is valid? A. It must have the signature of two witnesses, stating that the will has been executed in their presence, and with the signature or thumb impression of the testator. Date the will as only the last will is upheld legally. It is best to ask a doctor to certify that you are in sound health while drafting the document. Q. Should I register the will? A. Again, it is not mandatory but experts recommend registering a will to reduce the possibility of disputes. |
| Revisiting past patients We do a quick check-up to monitor the health of our past patients’ portfolios | |
Age: 39 years | What we prescribed - Increase equity exposure by investing in mutual funds via SIPS. - Invest in HDFC Equity, DSP BR Opportunities or Franklin India Prima Plus. - Prepay the home loan partially. - Convert money-back plan into paid-up policy. Buy a term plan of about Rs 20 lakh. What he followed - Prepaid the home loan partially. - Invested in DSP BR Opportunities fund. What he did not - Buy a term plan. - Increase his equity exposure adequately. |
| Pre-paying the home loan partially has reduced the burden on Singh’s finances. Now he should concentrate on building an equities portfolio immediately as this is indispensable to his goal of a retirement corpus. "I would have preferred a more detailed explanation for the mutual fund recommendations." | |
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