From Fixed Deposits to Goal-based investing in MFs: My Financial Journey

/ M. Pattabiraman / @pattufreefincal

Published: August 14, 2021 at 8:45 am

In this edition of the reader audit, we consider the financial journey of a 31-year-old software engineer (who prefers anonymity). This is how he moved from bank deposits to goal-based investing with mutual funds. 

We feel proud and blessed that readers come forward to generously share details about their financial life to help and inspire fellow DIY investors. This is the 14th reader audit. Previous editions are linked at the bottom of this article. If you would like to contribute to the DIY community in this manner, send your audits to freefincal AT Gmail. They could be published anonymously if you so desire.

I want to share my financial journey and how I got to learn so many things from freefincal. I started my career as a software engineer trainee in 2011. I did not have any commitments since I was the only child at home and my dad was still working.

From childhood, I had the habit of saving money. So, after my monthly expenses (Food/Shelter/Entertainment). I saved the remaining part of my salary in Recurring Deposits (RD). Once the RD reaches 25k, I will convert it to a Fixed deposit and continue the RD.

I was doing it for the first 2 years since I was unaware of any other financial products. I was clear about not investing in LIC endowment policies since my dad had invested in them earlier. I calculated his returns, and it was less compared to FD returns at that time.

Then in 2013, my income increased above the taxable income limit. So I wanted to save tax and searched for financial products to invest in 80C. I finalized the ELSS funds and Tax saver FD. I chose ELSS funds because the lock-in was 2 years lesser than Tax Saver F.D.
I was not aware of what a mutual fund is, how it works, and its risks. I blindly invested in 1 ELSS fund (which was rated 5 stars in Value research )
I continued the same for next year as well and invested in another ELSS fund.
In 2014, when the Union Government changed, there was a huge rally in the stock markets, and my investments in the ELSS fund almost doubled in value. I was shocked to see the returns in mutual funds. Till then, I was getting just 7% to 9% return in RDs & FDs. Then I started reading about mutual funds, how it works, the different types of mutual funds, etc. I planned to invest more in mutual funds.
By the end of 2014, my dad decided to buy an apartment in Chennai. He put in the down payment and asked me to take out a home loan for 20 years. Advised me that it will help me in saving taxes. That was my first mistake (in hindsight), 60% of my salary went to the home loan EMI, and I could not get enough money to invest in mutual funds.
For the next 2 years, I invested in mutual funds whenever I got some money and a bonus.  My second mistake – Each time, I chose a new fund to invest in – Bluechip fund, midcap fund, US opportunities fund, emerging equities fund, etc. I was investing without any goals. I compared different mutual funds in value research and invested in the fund with 5 stars and the highest return for the last 1 year.
In 2016, I came across this mutual fund, Parag Parikh Long term equity, investing in Indian and US stocks. I was searching for a review of this fund, but I couldn’t find anything. And finally, I got a freefincal video on youtube about this fund. Pattu sir explained it, and that was the first time I got to know about freefincal.
For the next month, I started watching all his previous videos and learned a lot.  The ‘Re-Assemble series’ was an eye-opener for me – I think it should be watched by everyone before starting their first job/business. And then I started following freefincal regularly.
In 2017 I got married and seriously thought about goal-based investing for my future goals.
I had 2 long term goals – Retirement and Children education. I used freefincal calculators for retirement planning, and the target corpus amount shocked me, and I just stopped thinking about retirement for now.
Until then, I had invested only in regular mutual funds, and I learned about direct funds from freefincal articles. Then I started switching to direct funds and reduced the number of funds in the portfolio.
For the next 3 years, I started to part-pay my home loan regularly and reduced its tenure.
Also invested some amount in mutual funds every month without any goals.
In 2020, we were blessed with a baby girl. The COVID lockdown started. After work, I had a lot of time and started seriously thinking about financial planning since we had our 1st child.  During that time, Pattu sir started a course on Goal-Based investing. I enrolled in it and learned a lot from that course.
Until then, I was investing only in equity funds. I switched some amount from equity fund to debt fund. I am maintaining a 60-40 Equity-Debt ratio for my retirement goal. I used the retirement calculator and children education calculators from freefincal videos to get the monthly investment required for each goal.
I started investing the required amount for child education every month with a 70-30 asset allocation. But I was short of the investment amount required for retirement. But I started investing whatever I had for my retirement goal with 60-40 asset allocation.
I had planned to rebalance my portfolio every year to reset the asset allocation to the desired level. In April 2021, my retirement portfolio’s asset allocation became 70-30. So I switched the amount from equity to debt and rebalanced it back to a 60-40 equity/debt ratio.
As of July 31 2021, I have accumulated 8X in my retirement portfolio – where X is my current annual expenses. I have planned to accumulate 40X to 45X before retiring. I am not sure how long I can sustain myself in this IT industry with the ever-changing technologies and skills required. I need to achieve my target corpus as soon as possible by investing more and more into it.
My next steps :
  • I have started an emergency fund. Currently, it has 1 month of expenses(including EMI). I need to increase it to 6 months.
  • Currently, I have only employer-provided health insurance and term life insurance. – I need to buy them on my own. Planned to buy them in the next financial year.
Disclaimer: Please don’t assume that I am a well-paid IT guy who went to Onsite and earned a lot of money to build the retirement corpus over these years. I am an average IT guy working in the same service-based company for the last 10 years with an average CTC. As pattu sir had previously mentioned, anyone can build a large corpus if they are disciplined in investing regularly.
I thank Pattu sir for being an eye-opener for numerous folks like me who had zero financial knowledge before.

Similar audits by other readers

As regular readers may know, we publish a personal financial audit each December – this is the 2020 edition: How my retirement portfolio performed in 2020. We asked regular readers to share how they review their investments and track financial goals.

These published audits have had a compounding effect on readers.  If you would like to contribute to the DIY community in this manner, send your audits to freefincal AT Gmail. They could be published anonymously if you so desire.

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About the Author Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored three print books, You can be rich too with goal-based investing (CNBC TV18), Gamechanger, Chinchu Gets a Superpower! and seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation to promote unbiased, commission-free investment advice. He conducts free money management sessions for corporates and associations based on money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association, IIST Alumni Association. For speaking engagements, write to pattu [at] freefincal [dot] com
About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on developments in mutual funds, stocks, investing, retirement and personal finance. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any paid articles, promotions, PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
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