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Disciplined route to redemption

Despite fundamental mistakes, Mumbai-based Preeti and Vishal Srivastava can achieve their goals easily. This is because of the one right move: regular investment.

Kamya Jaiswal | Print Edition: July 9, 2009

Preeti and Vishal Srivastava

If you want to learn how to invest in the stock market, consult 37-year-old Vishal Srivastava. Take notes as he describes his investment strategy— and then do exactly the opposite. Or, use it as a guide on what not to do.

Srivastava’s Book of Mistakes offers five valuable lessons. One, do not indulge in trading; in 1999, Srivastava lost about Rs 3 lakh in this manner. Next, never borrow to invest in the markets. Right before the infamous market tumble that began in January 2008, Srivastava took a personal loan of Rs 2 lakh to buy stocks. The rest is painful history.

Thirdly, do not build a stock portfolio skewed towards a single sector. Infrastructure companies constitute 78.4% of Srivastava’s collection of 14 scrips. Strangely, the fourth lesson contradicts the third—do not over-diversify your portfolio. Srivastava has a basket of 16 mutual funds, which is unwieldy and abounds in duplication of equity exposure.

The final takeaway: look at the big picture. According to Iris, 35% of Srivastava’s portfolio should be in equity. In reality, it is merely 19%. At 37, Srivastava is fast losing his risk appetite, so there should be no compromise on his equity diet.

This enumeration of Srivastava’s errors seems ominous. Does it mean his financial goals are out of reach? Surprisingly, no. This is because the banker hasn’t goofed up in other areas of his financial plan.

Despite his mistakes, he has invested regularly—and across various asset classes. Srivastava has built a debt cushion of Rs 1.6 lakh, comprising fixed deposits, National Savings Certificates and provident fund. The equity kitty is currently valued at Rs 5.87 lakh.

As for real estate, four years ago, he bought an apartment in Pune that cost about Rs 20 lakh. To finance it, he took a home loan, for which the EMI is Rs 10,000. He has also booked an apartment at Talegaon, for which the EMIs start in one-and-a-half years and are estimated to drain his surplus by another Rs 10,000. This property shopping can be considered as investment because Srivastava already has a house in Lucknow that he has inherited.

The message is clear: one should invest because even if one gets it wrong occasionally, it is better than letting the money idle in a bank. Not that Srivastava’s record is blemishless in this department. His monthly take-home salary is Rs 62,000. His wife Preeti, also a banker, adds Rs 22,000. The total income swells to Rs 1.02 lakh after including the rent from his apartment in Pune and his house in Lucknow (they live in an apartment provided by the bank).

The couple’s monthly expense is Rs 30,000 — a reasonable 30% of the income. Srivastava has committed Rs 15,100 to monthly SIPs in seven funds. An average of Rs 3,166 is skimmed off by the premiums of a term plan and five endowment policies. After subtracting these amounts and the personal loan EMI of Rs 5,000, the couple’s surplus turns out to be a chunky Rs 38,734. If this amount is added to the current SIPs, the total monthly investment of Rs 53,834 exceeds the target set by Iris—Rs 41,218.

The bad news is that Srivastava doesn’t know where this surplus disappears. “Maybe my credit card bills eat into it or perhaps it’s because I have prepaid nearly Rs 75,000 of the personal loan,” he says. Neither seems like an adequate explanation, so we suggest that he note his expenses for about a month to track down the money.

Assuming that he will be able to do so, the next step is to invest the entire surplus in equity mutual funds after creating an emergency fund of three months’ expenses.

Iris has consolidated his portfolio to six funds, which include the must-have staples, equity diversified funds. The four funds in this category are DSP BR Top 100, HDFC Top 200 Franklin Flexi Cap and HSBC Equity. For accelerating growth, Iris is betting on Reliance Growth, a mid-cap fund.

Gold is a wealth preserver, not a wealth creator. This is why Iris wants Srivastava to stop the SIP in the DSP BR Gold fund. However, if he wants, he can continue with it, but only for diversification. From his lump-sum investments, Iris has retained HDFC Prudence, a balanced fund with a good track record. Srivastava should increase investments in it through an SIP.

Despite the loss a decade ago, Srivastava has not lost faith in his stock-picking abilities. Unfortunately, we don’t think it’s good enough. His collection is skewed towards infrastructure. So, it is better that he focus only on funds as they are relatively safe and consumes less time.

Srivastava has got his insurance plan right. He has bought a term plan of Rs 45 lakh, which costs Rs 19,000 a year. He has padded it up with five endowment policies that offer a collective cover of Rs 12 lakh. These were bought in the early 1990s, so he can surrender or convert them to fully paid-up plans, unless they are close to maturity.









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