Early in my career, it was a meeting of minds when I met my mentor Prashant Jain, one of the sharpest minds in the fund management business and a big follower and advocate of disciplined investing. He was heading the investments team of the boutique MF company that I joined in 2000, and went on to become the chief investment officer of one of the largest MF companies, creating a successful track record of managing funds for three decades. During one of my early interactions with him, he gave me some golden rules that have stuck with me forever:
“Spend after you invest from your monthly paycheck.”
“At the end of the month, if you have even a thousand rupees left in your bank account, invest it in the equity fund.”
These were lessons on starting to save early, spend within my means and follow a disciplined approach to investing that helped me.
Before we move any further, I want to emphasise a very important distinction. In this book, we are not saving for the future; we are investing in it. And there’s a big difference between these two approaches.
Savings should be considered as just storing your money safely. It is what you put in fixed deposits, current and savings accounts. You store this money, but it stagnates. Your principal usually remains constant, but you earn some interest. Investments are where you take some calculated risks and target higher returns with the objective of growing your money. It is what you make in stocks, property or units of EMFs.
Savings are for your short-term and emergency needs while investments are made to meet your long-term financial goals like retirement. This book is about investing, and specifically, equity investing. And so, when we talk of building a discipline, it is about adding money to your equity investments regularly and systematically. Why is discipline so important in equity investing? This is a way to overcome all those challenges that individual investors face while trying to invest in the stock market. Discipline helps you build healthy investing habits, and once ingrained, those habits save you from making the wrong decisions in times of market volatility. This actually reminds me of an interesting story from my school days.
La Martiniere College, Lucknow, my alma mater, is known for its traditions and its long history of inculcating discipline and integrity in its students since 1845. Many of our alumni have joined the armed forces and have done the country proud. A few years ago, a tablet was unveiled in our college hall in honour of all our decorated war heroes, recipients of Param Vir Chakra, Maha Vir Chakra and the Vir Chakra. It was a testament to the fact that we lived and breathed discipline, and our habits were hard to break.
On the first day of the session, when I was in Class 8, our English teacher Mr Carville, who was also the class teacher of our section, called for introductions. Now, it had been ingrained in us to address our teachers as “sir” whenever we spoke to them. If we were answering a question, we would begin as, ‘Sir, the answer is …’. So, the introductions started like this:
Mr Carville points to Student A: “Tell me your name.”
Student A: “Sir, Deepak Mullick.”
Maybe Mr Carville wanted to test our manners or just wanted to lighten the mood of the class…
Mr Carville: “Sir Deepak Mullick, we have a knight among us!”
He then pointed to Student B: “What’s your name?”
Student B: “Sir, Anuranjan Bist”
Mr Carville: “Sir Anuranjan Bist, another knight!”
The thing was, while we all laughed when student after student kept on uttering ‘sir’ before saying his own name, as a matter of discipline, nobody introduced himself without first addressing the teacher, and all 42 of us attained knighthood that day!
But humour aside, in my career, I have seen the power of investing discipline and the impact it can have on your financial well-being. And one of the best ways to inculcate this discipline is through SIPs.
Each and every individual attempts to create predictability in every walk of life – predictability in their career path, personal relationships, health, security and predictability of finances to cover all their needs, present and future! But as they say, the only certainty about life is uncertainty. My approach is to help you tame this uncertainty.
Peter Lynch rightly said, “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.” My 25 years of experience in the investments industry has made me realise that a lot more people can take advantage of India’s growth story in a simple way. Along with entrepreneurs, common people, too, can accumulate a decent amount of wealth and become financially independent by applying a simple technique of participation in the India growth story.
What if a person who started his career in 1994 began saving Rs 1,800 monthly in a particular savings technique? What if this meagre investment of Rs 1,800 a month continued for 25 years and resulted in the creation of a wealth of Rs 1 crore?
On the contrary, what if someone who retired in 1994 with a retirement corpus of Rs 1 crore applied the very same technique – not only fetching him a pension of Rs 1 lakh per month but also growing his corpus from Rs 1 crore to more than Rs 14 crore in 25 years? That sounds too good to be true, right? What if I told you that these are not any random hypothetical figures, but actual data of a commonly available investment vehicle?
I’m talking about a systematic investment in MFs. We talked about how it is difficult for individual investors to invest in the equity markets because they don’t have the time or the resources needed to understand the dynamics at play. A great way to overcome this difficulty is to invest in equity-based MFs. Mutual funds are managed by experienced fund managers backed by years of experience and resources to track the performance of companies the fund invests in. Mutual funds offer a much more transparent investment environment with a much better track record of building wealth because of their excellent stock-picking abilities.
Excerpted with permission from Gain Your Financial Freedom with the 1% Formula, Deepak Mullick, Rupa Publications.