Namo Kaul - On Savings and Investing Journey

Namo, you have done exceedingly well. Where do you invest your money?

Equities. I have seen that when people start investing in equities from their heart they realise this is the asset class which actually give the highest return. If you look at the trend, return from equities is higher than real estate. You can make 15% returns in equities. It's much less in Real Estate.

And people ignore other costs in Real Estate investments. Brokerage fee, property maintenance and other transaction costs. Nobody takes that into account.

I just bought a flat in B'lore - that is the biggest investment I have made. Only other active investments I have right now is equity.  Apart from that, I have never touched GOLD. Diamonds are a waste. I believe in only two asset classes -  Equity and Land. By land I meant free land. 

I personally don't think that apartment is a good asset. However, buying a home is an emotional need and I guess I am fine with that. My focus now is to continue my monthly contributions to equity investments and clear off the loan as fast as I can with the rest of the savings.

Congratulations for your new house. How did you manage to buy 1 crore+ house only after 4 years of your college?

I used my savings in FD's and Debt funds which I had accumulated over last 4 years of my job. My wife also chipped in with some of her savings. Rest is loan.

To pay for down-payment, me and my wife only used our Debt portfolio [Debt funds and FD's]. I didn't touch a single rupee of my equity investments. My equity investments are worth Rs 11 lac today and I don't think I am going to touch it anytime soon. I am just thinking about adding more and more money to my equity portfolio. 

You have so much clarity in what you should do with your money. Where did it come from?

My roots are in Kashmir, as in, my parents are Kashmiri pandit but I was born and brought up in Jaipur. My father expired in 2003 and my mother was a teacher. So investment mindset didn't come to me naturally. However, I have seen my family through situations where better financial planning could have helped us. As a family, we also made sacrifices. 

Family ke struggles, wahan se learning aati hai.

Such times make you realise, that shit happens and you should be ready for such times. A kid from a well-to-do family would probably never have had any financial problem and hence such kids will always tend to this instant gratification monkey. They will always be like, jo chahiye wo milna chahiye. They would never about the uncertainties of future because they never experienced any trouble. I saw it my college, VIT, as well. A lot of my friends who came through management quota had different mindset which I couldn't relate to at all.

I'll tell you a real story. In my previous job, there was girl who at the end of month will be like, mere account mein 10K hain, mujhe kharach karna hai usko. I mean these are real people. 

This concept is alien to me, paise hain account mein isliye kharch karne hain.

When did you first realise the importance of investing?

I'll tell you an incident from my childhood. I was in a train with my father and I asked him - papa mujhe bina mehnat kare paise kamane hain, aisa kya karoon ki mere bina kuchh karen paisa aata rahe. In Jaipur, we had a tenant in the downstairs portion of our house and that was on rent. As a kid, I fell in love with this concept of rent. It would hit your bank account every month without you needing to do anything. 

I fell in love with this idea of Recurring Income for which you don't have to do a thing.

Over time I also realised that this recurring income has to increase over years as prices also increase. 

Wow, that is something. You knew about inflation even as a kid?

Yeah, I mean, you would hear parents talking about mahengai and how it is increasing day by day. That made me realise that it's not enough to just have a recurring income. That income should also increase with time to beat inflation.

When did you start this mission of reaching Rs 1 lakh recurring income per month?

I started in 2012, during my final year internship. My stipend was Rs 20,000 and I would save about Rs 12,000 from that. At the end of internship, I was placed in the same company and I started earning Rs 40,000 a month. I had a target of recurring income in my mind so I used to save a lot, about Rs 25,000 a month.

It was 2012 and I didn't know much about financial instruments so I started RD. I thought this is good, put every month's savings in a RD and then keep doing it every month. In a year, the RDs matured and I didn't know what to do next. Someone then told me that on maturity, put that amount in a FD. I started doing FD. Until then I didn't know of anything else. Didn't know that there was something called Mutual Funds.

What happened next?

I was enjoying this. Earn interest in RD, then put that money in FD's and then put all that money again in FDs. I could see money compounding in front of my eyes. It was crazy whenever I would do math of how much will this become over next 5-10 years,

Then one day, our accountant in Jaipur told me about Debt Funds. He said that these offer better returns than FD's without any risk. He also said that, agar investment ka itna shauq hai toh enter in equity also.

He suggested a Mutual Fund and explained me the concept and return potential with a graph and everything. Then I did my own research, ekdam se trust nahi aata. I was saving more than half of my income and at such a young age it's hard to trust something new with all your savings. I also discussed with my uncle who is a very senior executive officer at Axis bank. He was inspired that I had started thinking about investing at such a young age. He regretted his late start to investing and said that I would outdo everyone else if I start investing now.  

So that's when you made this transition from a saver to investor?

Yeah. I would make a fixed contribution at the start of every month in an equity mutual fund. And if I have money left at the end of month then I would invest that. I didn't keep anything in my bank account. I had seen some Power of Compounding videos and I didn't want to miss out on any growth.

I never took a penny from my mom. But she would always be after my life to gift me something. On one such birthday, I asked her give me cash. She transferred Rs 50,000 to my account. Equity prices were a bit high at that time so I invested that money in debt fund for some time. Idea was that I will convert it to equity when markets fall a bit. Crash is the best time when one should move all his debt to equity. I still dream about 2008 crash. If I had invested money during that crash then it would have become 5x.

You used to save 60% of your income in first few years of your job?

Yes. Because I realised the power of compounding. I would always compound the money I was investing and that would motivate me to do more. I had read an article in Economic Times, that if you have Rs 20 Lakhs with you right now and if you invest in equities then your retirement planning is already done.

You are now married, has that changed your ability on how much you are able to save? ;)

No, not at all. In-fact, one of the reasons I think my wife chose me was because of my saving and investing habits.

She got influenced by my thinking and started saving too as soon she got out of her college. She joined me in the race of generating recurring income. She is one kind of girl who doesn't spend un-necessarily. She understands that we can spend freely when we have enough recurring income. Before buying the house, recurring income of me and Poornima was about Rs 25,000. 

It's been a phenomenal journey. Have your friends followed you?

One day I was checking my investments and my friend asked me what are you checking. I showed him my portfolio. He was shocked and astonished by the fact that I had saved so much. We were room-mates, had same job, same income and yet I had saved so much. He didn't believe but then I explained him how I saved bit by bit over time. And of course, a rally in equity market had helped increase the portfolio by quite a bit. That same instant, he started taking saving and investing seriously.

What are some of the principles you live by?

It is important to calculate ROI in every investment you make. I took-up GRE coaching but then left the idea when I did some basic maths and realised its a poor investment. Its important to look at value proposition. That is also why I started investing in equity mutual funds. Even the poorest performers have returned at least 9.5%.  That's why I didn't buy a car. Until my monthly transport costs cross Rs 15,000 it doesn't make any economic sense for me to own a car.

It's important to have a target in mind. I had set a very aggressive target for my recurring income. I said to myself that when my recurring incomes crosses my salary then I will live life on my terms. I went mad after that target.

It's important to stay debt free. I have to pause my target of recurring income because of the housing loan. I am re-paying it aggressively and in one year I have reduced my tenure from 25 years to 15.5 years.

I don't compromise on my equity SIPs. Even while I been repaying housing loan, I haven't stopped my equity SIPs. This is the best performing asset class and its poor judgement to stop these contributions at any cost.

Buy more equity in crash. I bought well during crashes. I would keep some money aside in debt funds and invest more whenever there was a reasonable drop. My wife (then girlfriend) got scared initially because every Rs 25,000 that I was putting was seeing a loss in value. However, she realised later the benefits when she saw the gains. I still dream about 2008 crash and wish that I had started investing then.

What inspires you in life?

I'm inspired by two things in life. Good investing and good health. I'm very passionate about playing sports, play almost daily and watch what I eat. We never compromise on quality in anything that we buy for our house. But, if you talk about cloths and all then that's bullshit for me. Honestly, in last 4/5 years I haven't bought a single piece of cloth myself. All have been gifts from family and wife and I'm pretty happy  with them.

My motto has always been retire wealthy and retire early.

Job, your skills, health everything has an expiry date. That is when your recurring income will support you. I know that with with age I will have to increase debt component and reduce equity. I knew everything that's why I started so early. 

Aur ye hai ki, puri picture dekhna zaruri hai. Log trailer dekhke khush ho jate hai and sochte hai karenge.

Part two begins here

Investing is often about securing future. But most of us don't think so far-out. Do you often think about future or worry about it?

Definitely yes. I see future and I get scared. I mean look at Naukri.com and postings there, nobody is looking for people with 25-year experience. That's the hard truth of life, deal with it. Kaun dhoondta hai? Look around at companies of future. What's the average age of today's companies, 25-27-30?

"15 saal aage ki sochna bahut zaruri hai. Aur log kya karte hai? 15 saal ki bhi nahi sochte hai"

I compare investing with strategy games like Age of Empires. Good players start by making a strong defence. Once you have made a strong base and automated your defence then you can attack. So even if I leave to attack, I know that guns are protecting my base. Investing helps you strengthen your base. Once you have saved and invested well then you can attack. You can leave job, travel world, have a good sleep. Financial defence is necessary because future is uncertain. And its not tough to do that. Just some discipline and right investment choices will help secure your castle.

Have you asked your friends to invest? Are they thinking about defence?

Sir, the need for investing or creating defence comes from experience. People who have seen bad times invest or people who come from investing families or background invest. Everyone needs to be shown potential downsides in life. Only then you will think about defence right? A disease can attack you, a financial strain can attack you, a loss of job can attack you when probably you have kids and everything.
But at the same time it is very important to show that it will take 15 years for money to grow to a BIG sum. Maybe not 15, but atleast 10. These two things are important for everyone to understand - a) need for defence and b) successful outcome in long-term.

What according to you is the most important part about becoming wealthy?

My uncle, who is a very senior executive with Axis, says that, "Sabse intelligent banda duniya mein woh hai jo asset classes ko samajh ta hai."

People who understand asset classes and the differences in each one of them make real wealth. And that understanding comes when you start thinking about creating Wealth (and not money). Someone who is thinking about creating wealth is the one who is ready for the future.

"Paise ke bina kuch hilte hi nahi hai. Education bhhi nahi hoti hai. Koi charity nahi kar raha hai iss duniya mein".

I meant what's the point of buying a Ferrari apparel. Instead invest that money for future. I have friends how have invested Rs 1L or Rs 50,000 to buy a painting for their rented house. If they knew about different asset classes they would be instead investing that money for 10-15 years in the right asset classes. People would find it funny, but my wife and I have a vision of future for our children. We have decided that we will give good future to one kid. To give that kid a good future, one that we have envisioned, I need to create Wealth.

Your journey must have convinced a lot of friends to invest?

I haven't actively reached out to people to help. If someone asks me then I explain everything in detail. But it's funny that how investing education is ZERO in our country. In my previous company, we had a senior team-member and he was 40+ years old. He recently messaged me asking advice on starting Mutual Fund investments. He never got any investment education. We learn Mathematics, Taxes, etc. but nobody teaches us about the basics of investing and asset classes. It's important to understand asset classes and most of us are losing money because of inflation by our lack of knowledge.

"Hamare sath ek banda tha, He asked me about investment, maine bola abhi kya karte ho? Bola ki account mein hi rakhta hoon. Account mein interest milta hai na. Maine pucha account mein kitna hai? Toh just imagined kya bola. 9 lakhs. Savings acount mein pada tha woh paisa. 9 lakh pra that uska account pe kyunki kabhi account se nikala hi nahi woh paisa. Account mein accumulate ho raha thha. Woh kharcha bhi nahi karta tha. But bande ko toh main chiz pata hi nahi hai that actually woh paisa kam ho raha hai inflation ki wajah se. Toh maine jab usse bataya aur samjhaya investment options toh he was like kahaan jaana hai investment ke liye. Mein aadhe din ka leave leke jaata hoon."

How often do you look at your portfolio? Have you ever seen losses in your portfolio? What used to be your reaction?

Weekly. I don't need to look at it weekly but I have setup a weekly email so just do it as a routine activity. When I started investing in equities, my uncle had told me that don't look at your portfolio regularly. Because in equity your Rs 100 will go down also and even if it went to Rs 99 you will get discouraged. However, I didn't listen to him and would check my portfolio value on a daily basis.
Initial few days, my portfolio was in loss. One day it was losing Rs 2,000 and some other day Rs 3,000. It also went down by about Rs 9,000 once and I also got worried a bit during that time. But then I realized, that losses (or crashes) are best time to buy more. People quit markets at this time and I should be buying during this time.

There is a saying, you should buy when there is blood on the street, even if it is your own blood. This is such a beautiful saying man with such a deep meaning. I would buy more during crashes. That time is time when I made most purchases. My FD (the one I told you about which I converted from RD) was maturing at that time. I used that to invest in equities during that loss-period. I knew that I will bring my loss to zero by buying equities at that time. And then 1 year later, I could see the gains. Since Modi came it's been a good time and I see only gains in my portfolio. But, I am prepared that when next time it comes down, I will use whatever debt portfolio I have left to equity.

"Mai toh bolta hoon, agar bada crash ho raha hai, toh personal loan leke bhi equity me daal dena chahiye."

When you invest in equites during a BIG BAD CRASH then the bounce is amazing. That's why I would keep 50% of my money in Debt portfolio so that I would move that Debt to equity during the crash. Obviously, right now I have used majority of my debt portfolio for House downpayment but yes otherwise, I have maintained 50-50 allocation to be able to invest more in equities during the crash.

How does your portfolio look like right now? And what's the plan?

I have a house which is really a house and not an investment. Rest is all equity via mutual funds and some stocks too. 

In total, I have about Rs 11L in equity mutual funds and about Rs 2L of stocks with I bought on my own.

My house was a total of Rs 1.1 crore including registration. However, during the process of buying house, I understood a lot of flaws in real estate. As an asset class, I don't think House was the best investment, but it gives some confidence in life. And there was a lot of pressure from family also to buy a house. I guess I was ok with it. It's not the best decision for my money but I am happy with it. No regrets.

Somehow I believe that Mutual Funds are the best way to invest, For me also, Mutual Fund returns have been better. These guys are professionals and they know what they are doing. I would do a lot of analysis to buy stocks but then you get busy in your job and life and aren't able to stay updated. To invest in stocks on my own, it's a full-time job.

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