Gautam Singh wanted to hang up his boots by the age 50 and started planning for his early retirement 10 years ahead. The corporate sector employee set out on his journey towards financial independence with monthly SIP investments of Rs 65,000, as he aimed to accumulate Rs 1.5 crore over the next 10 years. He also wished to pursue some of his passions after retirement and adjusted the fund requirements accordingly.
The investment portfolio was constructed with mutual fund schemes in the large-cap, large-and-mid-cap, multi-cap, and mid-cap categories. Gautam was comfortable with intermittent volatility and aimed at wealth creation towards retirement goals. While he was prepared for the short-term volatility, he was not prepared for the sharp corrections in the equity markets between March and April 2020, after the Covid-19 outbreak.
Panic started gripping the equity markets during the last week of March 2020 in anticipation that the whole economy will come to a standstill. As a result, the investment portfolio was down by around 23 per cent in the first week of April, from around 9 per cent annualised returns for the portfolio till January 2020. The annualised returns for the investment portfolio had fallen sharply by 16 per cent with around three years of investment.
Gautam was not happy with the performance even during the pre-Covid times, with lower than expected returns till January 2020. Further, when the market fell like a deck of cards in the first week of April 2020, he started getting impatient and was on the verge of losing confidence and trust from the equity markets. With the financial goal approaching, he was getting nervous about his aspirational early retirement.
The Indian economy underwent a paradigm shift with an unprecedented lockdown situation in the country coupled with an invisible virus scaring the population. “Many times, we, as advisors, also got puzzled with the uncertainty that we never experienced in living history. But we kept our faith in our historic experience of over 26 years and stuck to the basics of investment,” shares Rajesh Bansal, Director of Midas FinServe Private Limited.
Rajesh and his team kept reminding Gautam about the various benefits of SIP investing and how the recent correction was good for his investment journey. He was able to procure more units per SIP instalment due to lower valuations. Since the deadline for the goal of early retirement was still seven years ahead, Rajesh kept advising Gautam to resist from discontinuing SIP, and the idea should be considered only if Gautam was facing some financial concerns on fresh investments.
In contrast, Gautam was being suggested to consider increasing the investment since there was a strong probability of reversal of the correction so that the targeted goal could be achieved ahead of projected time of 10 years.
Gautam fondly recalls, “Rajesh kept on emphasising on the economic cycles and that the cycles in equity markets are not linear. Good fundamentals always catch up with time. Had it not been for the Midas team, I would have easily gotten out of the equity markets, even with a loss.”
From a negative return portfolio in April 2020, the investment portfolio reflects around 16 per cent annualised returns across the overall investment term in May 2021. These returns are expected to help him achieve his financial goals ahead of the scheduled time.
Gautam’s investment journey is not just his story but the story of several other investors who were about to hit the panic button during the market correction in the pandemic outbreak, but somehow managed to sail through. It is important for the investors to remember that the investment journey can be bumpy sometimes and one should sit tight with the seat belts on.
There are several lessons that Gautam learned along the course of his financial journey
Financial Planning of Gautam Singh is based on the “personal opinion and experience” of Rajesh Bansal, Managing Director, Midas FinServe Pvt Ltd. It should not be considered professional financial investment advice. No one should make any investment decision without first consulting their advisor and conducting research and due diligence.
Rajesh Bansal, Managing Director at Midas FinServe Pvt Ltd