In this edition of the reader story, a young earner shares his investment journey.
Opinions published in reader stories need not represent the views of freefincal or its editors. We must appreciate multiple solutions to the money management puzzle and empathise with diverse views. Articles are typically not checked for grammar unless necessary to convey the right meaning and preserve the tone and emotions of the writers.
If you would like to contribute to the DIY community in this manner, send your audits to freefincal AT Gmail dot com. They can be published anonymously if you so desire.
Please note: We welcome such articles from young earners who have just started investing. See, for example, this piece by a 29-year-old: How I track financial goals without worrying about returns. We have also started a new “mutual fund success stories” series. This is the first edition: How mutual funds helped me reach financial independence. Now, over to the reader.
The first part of my story might sound rather familiar to you all since it’s a somewhat recurring theme in these user stories. I graduated in 2019 from an Engineering college, got a decent paying job in IT, knew only about FDs and LIC due to my parents being conservative investors, and invested in ELSS for tax saving purposes in early 2020 (before Covid). Until now, it’s all the same as other stories, but I believe my path diverged a bit after this.
I saw the markets fall and then rise, but given my risk averse nature at the time, I simply let it go without investing any further, and put all my money in FDs. It was only around 2021 that I decided that I should invest more, seeing the enormous growth that my ELSS funds had gotten over the past year.
However, instead of learning about the market and investing carefully, I just bought whatever had good returns, regardless of what sort of fund it was. This led to a very messy portfolio, containing a total of 15-16 funds, all equity funds with no debt, including Sectoral funds, random Hybrid funds that I didn’t really understand, multiple Flexi-caps, and a lot of Small cap.
I just invested in them via random lump-sums, without any sort of disciplined approach. Additionally, I also tried my hand at direct equity, where I managed to make some good profits with the small amounts that I messed around with. I was quite happy with this, since the market was continuously going up at the time, so it was all profits no matter what I invested in – and then the post lockdown bull market came to an end near the end of 2021, and things started going downhill.
It was around this time that I discovered Freefincal from my Google feed, and the articles from here are what helped me understand how little I truly knew. It was after reading through many articles on the page that I understood that my portfolio was a mess, and that it desperately needed consolidation – so that’s exactly what I did next. I created an Excel sheet with all my funds, compared the overlap, grouped them by this overlap, and selected one fund from each group. I also made sure to exit all Sectoral funds (like ICICI Tech fund, which had done extremely well in 2021, but then crashed and burned in 2022), and actually bring an asset allocation into place.
It was around here that I changed my investments to an SIP approach, with a fixed part of my salary being invested each month. I also stopped putting money into direct equity (where my portfolio was pretty deep in red after I had pulled out all the greens). Of course, I did make some sub-optimal choices even after that, such as chase returns on the debt portion and use conservative hybrid funds for that, but at least I was improving there. I did eventually decide to go for Arbitrage funds for my fixed income category, given the favourable tax treatment and stable returns.
Finally, at 27 years old, my present portfolio looks like this:
- Parag Parikh Flexi Cap – 22%
- Quant Flexi Cap – 22%
- Quant Multi Asset – 18%
- Kotak Emerging Equity (Mid-cap) – 11%
- Quant Small Cap – 11%
- Invesco India Arbitrage – 8%
- Edelweiss Arbitrage – 8%
This puts my equity exposure to 65%, fixed income to 32% and gold to 3% (The gold is mostly pointless in such small quantities, I understand). Additionally, the equity portion is 60% large cap, 26% mid cap and 14% small cap. However, this is by no means the final form of my portfolio, since there are still some points to address.
For example, I mean to remove Quant Multi Asset, since the only real reason I had it was because it gives (an admittedly small) gold exposure – I’ll replace it with a gold MF (for consistency with the rest of my portfolio), and bring the asset allocation to 60% equity, 30% fixed income and 10% gold.
However, I’ll retain two separate flexi cap funds, since they are the core of my portfolio, and I’m not comfortable with putting 43-44% in a single fund. This entire effort was DIY, and while I did consider consulting a fee-only advisor, I figured that my goal and portfolio are quite simple, and decided against it.
Of course, the above portfolio is for my retirement goal, which I intend to do rather early. I don’t have any other goals at present, since I’m unmarried, not keen on real estate, and have no real need of a car. I also switched over to freelancing for a pretty significant rise in income, which is the main thing that is sustaining the early retirement goal. Alongside all this, I have adequate insurance cover for Term, Health, Critical Illness and Accident (all separate policies), and a pretty sizeable emergency fund in FDs.
All this considered, I believe I am now on the right track in moving towards my goal, and if everything goes well, I should be able to achieve it too. This is all thanks to financial literacy, without which I would probably be putting all my money into FDs even now.
Reader stories published earlier:
As regular readers may know, we publish a personal financial audit each December – this is the 2022 edition: Portfolio Audit 2022: The Annual Review of My Goal-based Investments. 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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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.
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