Q:(Mridu Bhandari): So who should be putting money, how much should you put in the market, is a question that most people have. Would you like to elaborate on that?
Tarun Birani: Every person has a very different money personality. So it is very important for us to first identify what our money goals are. Some people want to retire at the age of 50 only. They want to take voluntary retirement and want to live somewhere in their hometown. Somebody wants to spend money on the future of their kids. So figure that out. This is a big question that I want to ask you first of all, (looks at the audience) is what is your big goal in your life. Once you have figured that out, trust me, all the other things, whether you want to put it in equity funds, real estate funds, or mutual funds, which is all a secondary discussion. So equity is a very different animal. In the last 15 years, I have seen that 1-year equity is negative, if it’s 3 years, then it’s positive, 2 years then it is negative. So I can’t draw a line as to how it is going to be 3 years down the line.
Q:(Mridu Bhandari): Tarun, what should an ideal portfolio look like? How diverse should a portfolio be? What are the essential asset classes that one must have?
Tarun Birani: The first thing which I was told was to define your purpose and important goals in your life. These goals could be driven in three ways. There could be a lot of short-term goals, a lot of medium-term goals, and a lot of long-term goals. For short term goals, for everyone, what is the most important thing? Something happens to me, let’s say for 6 months I’m at home, my home expenses need to be taken care of. That’s the contingency expenses. So that’s the most important goal. Where would you park that money for? I think fixed deposits, bank accounts, or liquid funds. This is the place you would like to park your money right? Medium-term goals could be anything like your child who wants to study after 3 years. You have a goal of wanting to send him somewhere and you are saving money for that. I think that could be a medium-term goal. You want to buy a house in 3 to 5 years. For that, you have a lot of choices available, lets say, you can look at a hybrid kind of asset class with a mix of debt and equity. Coming to the long term, I think that is where the asset classes like real estate and equity come into play because these are the assets which have really created a long term wealth for us.
Q: (Mridu Bhandari): Our core topic of discussion for today is traditional investment options new-age investment options. Conventional products usually consisted of fixed deposits or public provident fund schemes, post office schemes, etc. Today there are a host of new-age investment options, mostly with respect to mutual funds, you have ELSS and debt mutual funds. Firstly, please give a primer of sorts on how these 2 are different and how much money you should be putting on percentage terms in traditional versus new-age investment options.
Tarun Birani: You have different kinds of asset classes, fixed deposits, your EPF, and all these asset classes will give you a secured return. So you have a lot of surety that this money will come in. At the same time, equity as an asset class, in one, two, or three years, there is no guarantee on what kind of returns you’re going to get. A first-time investor will always start with a little bit of equity. Slowly you increase as your confidence in that asset class increases. So there are a lot of factors that go into identifying what should be the ideal asset allocation for all of you. The most important part is what age group you are in, demographic. So if you are a 25-year-old guy, versus somebody who is 55 who is going to retire in 5 years, I think the equity proportion needs to be different for them. I would definitely give somebody starting for the first time a low equity, as compared to someone who is investing for the last 5 to 10 years. To simplify things, ‘100 minus age’ should be your asset allocation, that one can look at.
Q: (DV Sudha): How does ETF differ from mutual funds?
Tarun Birani: Under researched ideas are very high in India as compared to globally inter developed markets. So that is where the ETF, which is very popular there because these are like structures created where passive investments are done. There is no fund manager that is required there. Due to that, the cost of ETFs is very low. It is hardly 10 basis and 5 basis point as compared to 2%. We are witnessing in India also at least in the large-cap category where the blue chips talk Versus the ETF, in the last 3-5 years, they continue to deliver better returns. So it is making a lot of strong cases that ETFs could be looked at compared to large-cap funds.
Q:(Abraham Zachariah): Can you please elaborate on ‘100 minus age’, What do you mean by securities?
Tarun Birani: For somebody who just wants to kickstart and start investing, to simplify things, so let’s say, you’re 40 years. So 100 minus 40. 60% is the proportion that can go into equity. Again, this is not a ballpark figure, but at least one can start looking at hybrid equity funds to start investing.
Q: (Nikhilesh Vashishta): One of the biggest mistakes that investors make is that they invest when the markets are at an all-time high. So since the entire objective of this program is to have the interest of the investor to invest in the market. So is it the right time for making the investment given the global scenario as well as the macro factors, concerning our Indian economy?
Tarun Birani: I think we should simplify things. How can we simplify? Figure out your important goals, figure out your asset allocation, and ensure your monthly, quarterly, yearly savings start channelizing for those goals. Keep reviewing your asset allocation over a 6 monthly period, as the goals come closer. I think that is the best way instead of getting into that market talk about what is going to happen in the market next year.
Q: (Surabhi Pai): Sir I would like to know something about the equity-linked saving scheme. I think that is a kind of a hybrid kind of investment.
Tarun Birani: Equity-linked saving scheme is not a hybrid oriented structure. It’s a 100% equity structure which has a 3 year lock-in period. It gives you the benefit of 80C, in taxation and you can use this ELSS scheme for your long-term wealth creation purpose.