Last Updated on February 19, 2021 at 8:10 pm
In this edition of reader story, Jyotinath Ganguly discusses his investment journey over the past thirty years from buying paper share certificates to authoring a book on money management basics for young earners.
About the author: Jyotinath Ganguly is an IT Consultant, mentor, author and visiting faculty teaching Strategy, Cloud, and ERP. He is interested in Startups and Capital markets. His book, The Legacy of Financial Literacy: Guiding My Child to Financial Success, is aimed at young earners who are about to start their career.
Disclaimer: No part of this article should be construed as investment advice. Access the archive of reader stories. If you wish to share your investment journey, write to us: freefincal [AT] Gmail.com.
“I’m Stronger Because I Had to Be, I’m Smarter Because of My Mistakes.” – by Simply Inspired Journals.
My financial journey began over 30 years ago in a common manner for many, which is to buy a Life insurance policy of the wrong kind.
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Part 1 – Life insurance: Being a young earner, the last thing on my mind was foggy thoughts about financial planning. My well-meaning Dad called his “LIC friend” who sold me what I now know is an endowment plan for Rs 1.5 lakhs, a princely sum 30 years ago, with the promise that LIC would generously pay me a bonus when the policy matures.
After paying the premium faithfully for years, I realized with a shock that had I popped off to the next world, my wife and son would have been left with insurance money barely enough to pay for a few years of school fees in the current context. Having lived to tell the tale, my take is that life insurance providers are in no way charitable organizations.
Their commitment is towards balance sheets and profit and loss statements, while sales reps are tuned into commissions and incentives. A variety of creative “insurance plus returns” plans continue to get mis-sold via emotional messaging. I now know that the only life insurance that one must consider is simple Term insurance, bought online, to avoid paying commission to agents. My life insurance self-assessment score: Fail.
Part 2 – Health insurance: My employers have provided health coverage for myself and my family. However, about 20 years ago, I purchased personal health insurance for myself and my family to cater to situations such as job loss, career break, and retirement.
As the years go by, we must consider top-up options because the original coverage value is likely to reduce over time due to increasing healthcare costs. We need to read the fine print very carefully, understand excluded diseases, and other catches. My health insurance self-assessment score: Pass.
Part 3 – Long term debt corpus: Being a salaried employee, Employee Provident Fund (EPF) was mandatory, to which I added a Voluntary Provident Fund (VPF). The benefits include transfer across employers, long term compounding, and tax-free withdrawal after retirement (from 1st April 2021, PF contributions above 2.5 lakh will be taxed).
Also, I separately invested in Public Provident Fund (PPF) and have extended it many times in 5-year blocks, much to the annoyance of so-called advisors. The benefits include long term compounding and tax-free withdrawal, with the additional benefit that PPF cannot be taken away from anyone even if they go broke.
Note that the National Pension Scheme (NPS) has been a relatively recent alternative. I did not opt for NPS because I had already chosen EPF, VPF, and PPF. Moreover, part of NPS accrual is mandatorily retained towards Annuity.
For those not aware, an annuity provides low yields, is taxable, calculations need to be included in IT returns, and also needs a periodic existence certificate to be produced, all of which are of nuisance value, in my opinion, which I avoided. My long term, safe, Govt. backed EPF, VPF, and PPF self-assessment score: Pass.
Part 4 – Equity (stocks and mutual funds): Life was very different three decades ago. The internet and digitization of financial assets had not happened. We had to invest in stocks through brokers and received paper share certificates several weeks or even months later. As a young boy, I observed my dad invest in stocks, so I naturally took to stocks until I realized that my busy work schedule was not conducive to stock analysis.
Therefore, I moved to mutual funds through ‘advisors’ who, I now realize, sold me random mutual funds probably dictated by commissions, incentives, and sales targets. Direct plans of mutual funds happened only about 8 years ago, so I wrote to AMCs requesting a change to direct plans.
All AMCs smoothly made the change except one AMC that asked me for a No Objection Certificate (NOC) from my distributor. Being extremely agitated, I immediately escalated to SEBI to resolve the matter very quickly. In my mind, I thanked SEBI for effectively safeguarding retail investor interests. The years went by, and I watched my actively managed mutual funds dance around the performance charts, playing a game of musical chairs.
Data-driven analysis from Freefincal and a few other sources have been the mainstays of my learning experience. The excitement of picking stocks and the possibility of earning higher returns were drivers that drew me back to direct equities some years ago. My long term, direct and indirect equity self-assessment score: Pass.
Portfolio: My simple, 3-bucket portfolio is as follows (percentages are indicative).
- Bucket A: 3-years expenses and emergency funds: 10% savings bank account, 90% Short Term Debt mutual fund. Bucket total = 100%.
- Bucket B: long term equity: 30% Nifty-50, 20% Nasdaq-100, 5% Commodities, 15% hybrid equity fund, 30% stocks. Bucket total = 100%.
- Bucket C: long term, Govt backed debt: 100% PPF (my EPF and VPF were withdrawn due to retirement).
Retirement planning: According to HSBC’s India report, The Future of Retirement, nearly 68% of the working-age population expect their children to support them in their retirement, perhaps due to their unpreparedness. Life spans are increasing, making it important for each of us to build a corpus to last several decades after retirement.
Financial literacy: It is well acknowledged that senior students and young earners are rarely aware of personal finance. Our education system and parents are ill-equipped. In India, 66% of household financial savings are kept as bank deposits and cash, while only about 7% of non-insurance household savings are financial (Reserve Bank of India, June 2020).
During the ongoing Covid-19 pandemic, I helped my son, a University student, understand personal finance. I have published my conversation with my son in a book on Amazon: “The Legacy of Financial Literacy: Guiding my Child to Financial Success“.
In conclusion, we need to learn from unbiased sources, not get misled, build own our roadmap, and enjoy the personal finance journey that can be rewarding and last a lifetime. With thanks to Prof Pattu, and best wishes to all. – Jyotinath Ganguly, Bangalore.
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Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
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