The Finance Story ‘Money & Me series’ features finance professionals who share their journey with Money. This is an initiative to learn from each other.
- Meet Kalpen Parekh, the President of DSP Mutual Fund, India – one of the oldest Mutual Fund companies in India which has been around for 25 years.
- Although Kalpen started his journey with Chemical Engineering, he soon realized that it wasn’t what he wanted to do for the rest of his life. So, after his MBA, he started his journey in Investment Management and gradually progressed through different roles of responsibility.
- Today, he will be talking about how he started his journey with money, how he manages his money, and makes investment decisions.
How did your upbringing shape your attitude toward money?
Like most of us, I was born in a middle-class family where my parents worked till the age of 65. So, salary and savings were very important so that we can live comfortably without compromising on things that matter.
Education was the most important thing and my parents believed that only with proper education could I have a chance at leading a proper life.
So, growing up, I remember that our family was pretty frugal and didn’t overspend.
How old were you when you properly started saving and investing?
My independent saving and investing started when I started earning after college (I was almost 22 years old).
Before that my father used to take care of all the investing. He has been investing in some good stocks and insurance policies from whatever monthly savings he could make.
When I reminisce over my childhood days, it makes me wonder how much effort and trouble my parents had to put into saving money.
When did you realize that you wanted to build your career at an AMC?
To be honest, my entire career is an outcome of randomness.
I did my chemical engineering in ’91 which was a career chosen by my parents (in those days it was pretty common for parents to decide their children’s career paths). After 4 years of studying Chemical Engineering, I realized that this is not for me!
So, to get away from that, I decided to do an MBA on a whim.
Again through a stroke of luck, during the placement season in the final year, I got hired at a company in their Finance Treasury Department. In those days, Funds like DSP, Alliance, Birla, and ICICI Prudential were there and we used to invest our Treasury money into those funds.
Again, by luck, I got to know that a CEO of one of these asset management companies was looking to hire people for a certain role and I went ahead with it. I took up the role because their office was more glamorous than my previous office and the salary was Rs. 2000 more than what I was earning. So, I joined ICICI Prudential Asset Management as a junior in the sales team.
From that day onwards, the journey began.
Do you consider yourself a successful personal investor?
In the first 10 years of my career, I was a very bad personal investor as I used to buy and sell stocks very frequently!
But since I have realized the power of compounding interest, my longest format of investment has been monthly systematic investment plans (SIPs). This has made me a good personal investor.
What is your view on trading?
Wealth is not made by making impulsive choices. I have realized that – when you trade frequently, the broker makes money, not you. Trading is, of course, not bad provided you have learned the rules of trading.
In the formula of compound interest which is Amount= Principal (1 + r/n)nt. Now, in this formula, the variable time (t) has the highest impact. This means that the longer you invest, the more impact your wealth will be bigger. The second variable is cost, so, if you keep churning too fast, you’re paying a lot of costs. That cost could have become your saving or your principal which over time would have again compounded. Hence, keep your costs low and keep your time horizon long.
By trading, you’re doing exactly the opposite of that. So, the point is, to eliminate all the stimuli that are not adding any value. Keep your actions low and stay invested for a long.
How do you save and invest/allocate your earnings?
Essentially we all are salaried people and our source of income is monthly. So, we have only one source of income but over 100 other sources of expenses. If we ever make a list of expenses, we would notice that there are so many outflow items that go from a single wallet while we only have one inflow item. Now, this realization makes us aware that investing has to be an act of responsibility.
My wise colleagues taught me that if your money remains idle in your bank account, the bank is making money from your capital. So, I have made this rule where the day my salary reaches my bank account, it has to be wiped out from there and invested in mutual funds.
I can buy units of a debt fund, equity fund, etc., so, my mindset has been that I have to acquire units every month.
SIPs are the best way to make investments since they are very disciplined and automated.
But someone taught me another concept which we converted into a very valuable feature called SIP Topup. So, they told me that since my salary would get a top-up every year, say a 10% increment, why shouldn’t my investment also get a top-up?
Currently, the way my 100 rupees is divided is:
- 41 rupees in mutual fund investments in Indian companies
- 11 rupees is in mutual fund investments in global companies,
- 38 rupees is in debt mutual funds (The reason why Rs. 38 is in debt is that equity markets have gone up a lot, so I want to keep some savings.)
- the remaining 10 rupees are in gold mutual funds.
Since I am planning to buy a house in Mumbai instead of breaking my equity, I have kept on accumulating it in debt which can be used towards buying a house.
Especially in times like this people are facing various money challenges. Should they touch their savings in SIPs etc?
In mutual funds, you have products that can solve your one-day saving needs as well as one-century saving needs. So, there are options like overnight funds, liquid funds, and money market funds, and you also have equity funds for long-period investments.
So, if one suddenly falls short of money, it’s not a good idea to break the long-term compounding. A good way to work with it would be to earmark your assets accordingly and then compartmentalize.
If in case, someone is really short on money and they need it urgently, there’s of course no choice but to break into long-term mutual funds. But ideally, one should only touch their investments as if it’s the last resort.
As a person who deals with different people of different wealth values, what are some money mistakes that you see people making?
We have 30 lakh investors who invest with us across the strata of society. What we have observed is many people first think of spending before saving.
1) Many people even live on massive credit card expenses and the mindset is not about savings. A lot of people don’t realize but the interest rate on credit cards is as high as 18%-20%. So, for every 100 rupees spent, you are actually giving up 120 rupees.
At a very early stage in life, one should be aware that spending on credit is actually negative compounding. Hence, not only are you spending more but you’re also paying extra.
2) Many good investors end up making poor investment choices. A lot of people end up investing in products that are in trend, for instance, cryptocurrency. In fact, a lot of people have invested in crypto not because they understand its future but because their friends have made such investments. So, it’s really important to invest in assets only when you understand where exactly you’re investing.
3) Third of all, some people believe that since they have excelled in their individual industry, they can become good investors as well. This while can become true, you’ll need to have the right temperament, effort, and patience. Investing is a long-term process and if you’re struggling to make the right choice, consult an advisor before jumping into investments.
How would you choose a good advisor?
Before finding a good advisor, one would need to spend some time researching.
When researching, understand the following points:
- Why a particular advisor is good and would this person be in a position to understand your requirements? So, before choosing, you have to put in the effort to find an advisor who would suit you
- Secondly ask this question: is he rich himself?
- Another question to ask is: is he rich because he is a good investor or because he is good at making money off his profession?
Most of the time, a good advisor will reach you through references. Also, ask questions to the advisor regarding his investment patterns, how he studies the market, the returns that he made, etc.
Lastly, with the rise in investment apps where anyone can buy stocks or mutual funds at the click of a button, what’s your point of view on that?
When it comes to these investment applications, I would say, it is their job to tempt you.
I would definitely take advantage of these apps for the information they provide, but I’ll not be influenced by the constant stimuli to frequently trade.
Now It’s Your Turn…
What does money mean to you? Comment below and let me know.