Patience brings rich rewards

Even if you put in a modest amount in equities, your investment will grow to a sizeable retirement corpus over the years.

R. Sree Ram        Print Edition: September 2010

It comes wrapped in drab expression and spouts hackneyed wisdom, yet refuses to be bested by time. Despite the banality, the cliche thrives. So when we dole out virtues of longterm equity investing issue after issue, we are relying on the cliche's ability to survive. And this is one cliche that has proved consistently beneficial, especially when it comes to building a sizeable nest egg.

Take 68-year-old M.S.R. Chandrudu, whose stock portfolio is worth Rs 60 lakh today. When Chandrudu started working in 1967, he saved a portion of his salary to buy shares. "There was very little information available on companies. So I would focus on firms that were raising money through public issues, study about their past performances and gather information from friends," he says.

Chandrudu bought shares of ITC, Tata Steel, Tata Power, Tata Tea and Sesa Goa through public issues. "In the Seventies, companies used to sell shares at face value, which was reasonable and favourable for small investors," he explains. Once the shares were allotted, Chandrudu would only track the annual performances. "As long as the company was doing well financially, I would not worry about market crises," he adds.

Chandrudu made the bulk of his investments between 1967 and 1976. The demands of his job didn't leave him with much time, so he only managed to track his investments, subscribe to rights issues and collect dividends. When he retired two decades later, his portfolio had grown substantially. The 100 ITC shares he had bought in the 1974-75 IPO had grown to 8,820 shares by 2009. Other than the dividends and bonus shares that he has received over the years, Chandrudu got Rs 88,200 in 2010, when ITC declared a dividend of Rs 10 per share during its centenary celebrations.

In August, the company declared a 1:1 bonus, increasing Chandrudu's holding to 17,640 shares. At a stock price of Rs 155, his ITC holding is worth Rs 27.3 lakh. Dividends can be the icing for your retirement corpus. Consider 58-year-old T. Radha Mahalakshmi, who has only one stock in her portfolio. In 2001, she bought 900 shares of Andhra Bank through its IPO at Rs 10 a share.

On an investment of Rs 9,000, she has received dividends worth Rs 26,100 over the past eight years. Of course, the capital appreciation of stocks can also be a contingency fund. At Rs 147 a share, Mahalakshmi's portfolio is worth Rs 1.3 lakh now. You don't need to invest a huge sum. Like Mahalakshmi, you can start small, yet see your money grow over the years. "I bought good stocks with whatever I could afford to.

There were some misses too, but on the whole, the growth of good stocks outweighed the poor performance of the bad picks," says Chandrudu. G. Ramakrishna Prasad is another investor who is using shares as a contingency asset. He bought 200 shares of Syndicate Bank through its 1999 IPO. The stock price has grown from Rs 10 to Rs 106 now. "I intend to hold the shares and use them in my later years," says Prasad.

In June last year, the bank announced a dividend of Rs 3 per share. Though it's not a big investment, Prasad says that the money comes in handy. After retirement, such doles may not buy you all the happiness, but can certainly keep a few worries away. A cliche, but hopefully one that shall stay with you.

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