Dr Adit, 43, a professor at Faculty of Dental Science of the Institute of Medical Sciences of Banaras Hindu University, lives in Varanasi with his wife, Dr Monica Saxena, also a dentist, and two children, 13-year-old daughter Archisa and 8-year-old son Advay.  

A decade ago, Adit met Ashutosh Poddar, who is a city-based mutual fund distributor. After coming to know that the doctor couple invests primarily in debt instruments, which barely beat inflation post taxation, Ashutosh introduced them to investment options such as mutual funds. “I explained to Adit what the broader types of mutual funds are—equity and debt schemes—and made him aware of the benefits of investing through systematic investment plans (SIPs),” says Ashutosh, director of Poddar Investors.

They discussed the couple’s financial goals like children’s higher education, their marriages and the couple’s retirement. “I explained in detail how Adit could achieve all these goals with ease if he invests through mutual funds,” says Ashutosh.  

Initially, the response from Adit was not positive. But Ashutosh did not refrain from continuously pursuing Adit as he knew he could bring tremendous change in the couple’s investment habits, which would yield the desired wealth creation.

After much persuasion, it was in January 2017 that Adit finally agreed to start investing through Ashutosh in the hope of getting higher returns than fixed deposits. Keeping in mind Adit’s risk appetite, financial goals and tenure for various needs, Ashutosh recommended a monthly SIP investment of Rs 30,000.

However, within a year, in 2018, the market turned volatile. The broader market fell, impacting Adit’s investments. The returns on his investment turned almost negative amid high market volatility. To his utter disappointment, in the first three years of investments, Adit’s portfolio generated a return of less than 2 per cent. He grew worried and started having doubts about his decision to invest in mutual funds.

Understanding Adit’s dilemma, Ashutosh stood by him and explained that one should not get worried looking at short-term returns. “Since the beginning, I kept educating him that SIPs should be for at least 10-15 years. Volatility is a feature of the market and actually an opportunity to capitalise upon. I suggested that he focus on goals as volatility was part and parcel of the market,” says Ashutosh.

Investment Behaviour Also Important

Meanwhile, following an asset allocation strategy, Ashutosh shifted a portion of Adit’s portfolio into debt funds in order to take care of any unforeseen emergencies. At this point, Ashutosh realised that his responsibility was not only to manage Adit’s investments but also his investment behaviour. “I supported Adit and boosted his confidence by telling him more about market cycles and that he needs to have patience. I pointed out that it is not important to time the market but what is essential is the amount of time spent in the market,” says Ashutosh.  

But the worst was yet to come. When the 2020 pandemic hit, not only did the value of Adit’s investments plummet, his principal also witnessed erosion. Seeing the fall during the March-April period of 2020, Adit was very worried. “It is quite natural for anybody to get worried when investment value slips below the investment cost,” says Ashutosh, who took all steps to assure Adit that this was not the end of the world. “I advised him not to panic, to have patience and also continue with his investments.”

While the sharp fall in the market and the volatility thereafter during the pandemic affected Adit’s investments, it also helped him get mutual fund units at lower prices. Therefore, when the markets improved, Adit could see handsome returns, and he understood the benefits of SIPs. As a result of this, he gained confidence in his mutual fund investments.  

Investment Strategy Bears Fruit

Today, as things stand, Adit’s overall portfolio has generated a compounded annual growth rate (CAGR) of nearly 18 per cent. This is far more than his fixed deposit investments. On top of that, there was efficiency in taxation as gains from mutual funds are taxed only on redemption, which does not erode the earning capital.

Ashutosh says, “Now Adit and his wife are quite comfortable with mutual funds. In fact, they have already shifted the amount that was in their existing fixed deposits to mutual funds. They now believe that they can achieve their financial goals while taking care of future needs of the family and also fulfil their dreams.”

Thanks to Ashutosh’s steadfast support during the tough times of 2020, Adit is now well on the path to wealth creation. He is now more informed about his investments. “Investors should not worry about market falls. Timing the market does not create wealth; time spent in the market is the key,” adds Ashutosh.

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Adit sums up the investment lessons he learnt during his wealth creation journey over the last five years.

1) Awareness about mutual funds: Adit agrees that lack of awareness about mutual funds was the reason for him staying away from SIPs. Had he delayed investing in mutual funds further, it would not have been easy to achieve his financial goals.

2) Goal-based investment is essential: Though Adit knew what his financial goals are, he lacked the knowledge about how to achieve them. Investments in mutual funds made him realise that attaining financial freedom is possible with systematic planning.

3) Returns should be inflation-beating with efficient taxation: Inflation is a major culprit in eroding returns from fixed deposits. One should look at avenues that offer inflation-adjusted returns with tax efficiency.

4) Long-term investments need patience: When investments are for the long term and the focus is on achieving goals, patience is the key to letting your money yield the desired results. Unnecessary panic may derail the entire financial planning.

5) Volatility is an opportunity: Weak market cycles with embedded high volatility are the phases when one needs to remain invested to reap benefits later. Stopping SIPs due to volatile movement in the markets could deteriorate your financial prospects.

Ashutosh Poddar, Director, Poddar Investors

Disclaimer

Financial Planning of Dr Adit is based on the “personal opinion and experience” of Ashutosh Poddar, Director, Poddar Investors. It should not be considered professional financial investment advice. No one should make any investment decision without first consulting their advisor and conducting research and due diligence.