Smart ways to invest and attain early financial freedom

He was from a middle class business family from UP. He completed BBA in his home town and worked for some time in his family business before coming to Bangalore to get an MBA from Christ University Institute of Management.

Like most MBA’s in the institute, he landed a good job – and started working from May 2012.

He had a monthly take home salary of about 35 K. As he lived alone, his expenses were limited and he could easily save. He also did not have any liabilities like education loans. So he started his wealth journey in earnest by investing time to learn about mutual funds and real estate investments

For his expense tracking, he used an android application called Expense tracker – he found it easy to use and he could export the data to the financial planning sheet in his laptop.

It took him six months to be confident enough to take an investment decision. What I like about him is that he took a decision and then came to me to validate his decision (most students come to me asking for advice about where to invest – he asked me if his MF pick was correct –and it was correct).

His monthly savings now automatically go into three MF’s through the systematic investment plan - he invests in UTI Opportunities fund, SBI Magnum Emerging Businesses Fund and Birla Sun Life GenNext Fund.  Each of these funds has a great track record for the past three years, have beaten the sensex and have been ranked well by the industry. 

He also took a term insurance from Bharati Axa for Rs 1 crore cover – he took it online (that is cheaper) and that too for 45 years term – How much is the premium? Well you guess - there are premium calculators on the websites -go ahead and surprise yourself.

He did not stop there. He applied for a home loan from HDFC and got one in a few months. He started to look at properties in his hometown (as he was not sure if he will be in Bangalore for long) – identified a top builder and a new flat complex that was in the outskirts of his town – there was a new large hospital coming up in the neighbourhood as well. He took loan from his parents for the 20% advance and signed up for a 2 BHK flat for about Rs 35 lacs. The rates in the locality have since appreciated by 20% - the emi’s will start soon and he has the ability to pay the emi’s. The flat will be ready by mid 2014 and will hopefully start getting a rental income by end 2014.

What did he do right–Tracking the expenses, investing time and effort in educating himself about the opportunities available, starting  SIP’s in three good funds,  taking term insurance for a 45 year term,  getting a home loan approved, taking loan from his family for the down payment for the flat, identifying a good builder, identifying a good location and then signing up.

What he could have done better – well I can’t find one area where he could have done better. If you have any suggestions on what he could have done better - please tell me in the comments column below

Author Description

S. G. Raja Sekharan

S. G. Raja Sekharan is a visiting MBA faculty, a mentor to budding entreprenuers, a wealth management consultant, an author of a book on Investing in India and the author of this blog.

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13 thoughts on “How do we start the wealth journey – here is one good example:

  1. Should have a contingency corpus too right sir? Of about 2 months salary incase of emergencies before investing? Pulling out from these mf’s before term would incur a small exit penalty. Plus too much exposure to equities I think. Equities have done well recently but much of these gains are from FII’s (mostly big funds that invest into emerging markets) pumping in money. First sign of political uncertainty (elections, in-fighting etc) and they will probably exit to China or Brazil. I’d have a small component into an asset class that would help him balance out his portfolio.

    1. Ranvijay – good points highlighted by you – Yes you have to have some contingency corpus = 2 months expenses ( not salary) is OK. Also MF’s such as these do not have an exit load and SIP’s can be closed as and when you want with no charges.
      Equities are risky – at this age of 25 years, you should take the risk. I see this year too as an equity year – atleast till Sept 2013

    2. Hi sir,

      I don’t know about the other MF’s but SBI magnum emerging businesses has a 1% exit load. Exit load on SIP’s becomes applicable from date of start of SIP. So if your first SIP is in jan 2012, in jan 2013 you can pull out without exit penalty. However, if your last SIP was in Dec 2012, you will have to wait till dec 2013 to withdraw that part. I’m not sure about how individual SIP’s are withdrawn based on years etc, but I’m pretty sure about exit loads since I have made some of my clients invest in this fund too.

      Personally, I would also try to get the guy to invest into a gilt fund. Kotak gilt is one MF which is very highly recommended (0% exit penalty). Gilt is volatile, but still usually safer than equities (at cost of lesser returns ofc).


    3. Ranvijay -I stand corrected – most equity MF’s have an exit load of 1% if you exit before one year. However, there is no cost of stopping an SIP mid way -so if you take an SIP for 12 months and stop the SIP after 5 months – you are not penalised for stoppint the SIP midway. But if you exit the MF within one year, you will be chared the exit load (1%).
      The issue of GILT funds or equity is a decision based on the risk apetite – equity is more risky that GILT as you have pointed out – however, I believe that at a age of 25, one can take the risk.

    4. Yessir, you’re absolutely right in the fact that a 25 year old can take the risk of investing into equities. And you’re also right that you can terminate an SIP midway without consequences.

      I’ve balanced my portfolio by putting in a lumpsum investment into kotak gilt and an income fund and an SIP into a top rated bluechip fund and HDFC Midcap opp.

      What are your opinions on thematic funds? Banking is one area I think will do well in a 1 year horizon, what would your opinions infotech funds? They’ve reported 10% growth over the past one month alone, would it make sense to get in now with a 1 year horizon?

  2. Sir, on the point of booking a flat, how do you rate the property market in Pune??? is it worth investing in 2 bhk with a cost of Rs 2500-3000 / sq ft right now??? a project which will complete around in 2014…. Please advise…

    1. Hey Hi,
      it depends on the area (location) that you are investing into and the builder you choose. Areas like Kharadi, eon,and wagholi on the east and areas like warje on the south west are doing gr8 and have a gr8 potential ahead.

  3. Sir , As advised by me my brother has bought two ElSS scheme reliance tax saver fund and Axis long term Equity fund (G)(3 months back).I advised him based on the past data by looking for returns it had provided in 3 years.At the same time he is willing to invest in Real estate but has less funds ,I thought of advising him on investing in REIT but could not find much relevant data on it on internet.Please tell me where I can find information on the same.

  4. Ashutosh – RIET’s are close ended funds -they come and they go – unlike an open ended fuind that is for ever(almost) – you need to go to your banker and ask him to introduce to the wealth managers in the branch -they will tell you as and when a RIET comes in -there was one about 3 months back from Dewan Housing.

  5. Hearty congratulations to my junior from CUIM on a good start on his wealth journey. Just a word of caution for others. Since his example is pretty inspiring some of you might be thinking, ‘Oh I have been working from 2/3 years and still I have not booked a single property yet’ or ”Let me just buy it once, I will curtail my other expenses later”. There is no harm in just breaking even or living on the edge but you have consider lot of other things before taking this decision. See even sir mentioned in class that first property should ideally be booked in 2-3 years for 1).By then we have savings to pay 15-20% upfront 2). We get some stability in the job – both in terms of career and employer. So dont rush into buying one unless you have strong family backing which could support EMIs in any unfortunate event like temporary job loss/ health issues etc. I am so sorry If I am being a pessimist here, but thats how I look at life: Its all about balancing the extremes.

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