John Inbaraj had been using liquid funds for parking in short-term surplus to manage his business. However, when it came to investments for personal goals, he chose the traditional path — bank deposits.
About a decade ago he met G Rajendiran from Akil Financial Services, who drew John’s attention to the fog that formed around his financial planning.
In the course of their discussions, it emerged that there was a void in John’s financial strategy, which required to be filled suitably. John’s plans lacked a clear roadmap for financial goals. While he had a habit of saving, wealth creation was nowhere in sight due to low returns from his traditional investments. Rajendiran also saw a conservative risk appetite from his business funds’ treasury management, wherein the funds were only finding their way into liquid funds.
After initial discussions, Rajendiran explained and gave a clear picture of Systematic Investment Plan’s (SIP) features and benefits in the long term. John’s interest in money management made him eager to explore and understand various financial concepts. Once introduced to rupee cost averaging, he decided to turn the wheel and start his journey in wealth creation.
John’s children were three and five years old, when he began strategising his wealth plan. Keeping their educational requirement in mind, where he would require the corpus at least 15 years later, John decided to save Rs 75 lakh. He still has five years in hand to do this.
Looking at the long-term investment horizon, Rajendiran suggested him to start an SIP in a pure equity scheme for both children. Convinced with the long-term wealth creation potential, John ventured into equity funds and committed Rs 30,000 in monthly SIP for higher education expenses of his children.
Since it was John’s maiden experience in equity investing, it was important for Rajendiran to set his expectations right. He allowed John to have a pleasant investment experience. As such, the expectations on returns were considered at 10 per cent despite long-term investment in equity funds. Till January 2020, his 10-year SIP generated 12 per cent XIRR. John was delighted with his investment decisions as the SIP was yielding more than expected returns.
However, things changed when volatility hit the equity markets with the unprecedented impact of COVID-19 pandemic. In March 2020, his SIP returns, over an investment period, came down to 5 per cent. The future looked gloomy and investors were rushing to discontinue their SIPs or redeeming their existing investments. John was no exception. He too raised similar concerns. Given the drastic fall in the overall returns due to sharp market corrections, he started complaining how his money could have been better invested in fixed deposits or even in his business, instead of mutual funds. Trying times always test the real conviction of investors. Rajendiran and his team understood John’s concerns and handed him an investment strategy.
Rajendiran kept reminding John about his goals of starting an SIP. Since his financial goal was five years away, John needed to ignore the market noise and continue investing. Today his portfolio has bounced back with an aggregate 12 per cent annualised returns. Had John redeemed all the investments in March 2020, the corrections in his investment portfolio would have permanently reduced his overall returns. Staying invested gave him a chance to reverse the earlier drop in the portfolio valuations, and his conviction proved right.
His trust in mutual fund investment was reinforced by Rajendran. Encouraged with the recent performance, his conviction in equity markets has gone up. In fact, he has topped up the SIP amount for both his children.
John has witnessed the complete economic cycle of severe market corrections and rebound. However, all investors may not be so lucky. It is crucial to have a prudent investment strategy to achieve one’s financial goals.
Sharing The Learning:
Financial Planning of John Inbaraj is based on the “personal opinion and experience” of G Rajendiran a Mutual Fund Distributor. 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.