Varun Bhanot - On his Investing Journey

Varun, thank you so much for speaking to us on your Birthday. Must have been getting a lot of calls?

Yes, and infact that's where I would like to start from. I was speaking to my friend who works in Bangalore. This friend is my childhood friend and he is an engineer from VIT.

So discussion ho raha thha and he is scared that currently in IT there is a wave of automation. He was asking for financial advice that I might not have a job in 5 years as it's going to get very competitive. He was asking me that what should I do. He is currently depositing his savings religiously in recurring deposit.

I said, tu toh Pagal hai, recurring deposit kar raha hai aaj ke zamane mein bhhi. It's like driving a FIAT car. Aaj ke zamane mein jab Jaguar available hai toh tu Fiat kyun chala raha hai. Doing recurring deposits is just like that.

He is from an engineering background and a lot of my friends are like that. Since they have studied engineering, they don't have much knowledge about financial instruments. So I told him that first of all start a SIP. Follow a formula that 100 subtracted by your age should be your investment in equity. 

Now his situation is for real. I was reading one article in ET that in coming 5 years, 6.2 Lakhs job will get lost because of automation. And in India, we have so many people working in the IT sector. These people, working in IT sector, need financial planning the most.

Tell us a bit about your family, your education and where have you lived?

My father was in a Central Government job and I have lived in many states. I have spent 9 years in Rajasthan and 10 years in MP and 1-2 years in Chhattisgarh. Now, we have settled down in Ludhiana, for last 4-5 years. 

I did my engineering from Punjab. I was a very bad engineer. Banna thha isliye ban gaya. I never really understood engineering. I learnt in college that saara kuchh package ka mamla hai. Majority of students just wanted a good package. There were very few people who were passionate about engineering. And I though, package ki hi baat karni hai and paise hi kamane hain toh kuchh aur bhhi toh kar sakte hain. There could be multiple ways to earn money and one of them was financial planning and knowledge about financial instruments.

How did the seed of Financial Planning come in your mind?

I was in Indore in 2007-08 and I was in class 11th during that time. There were a lot of Gujaratis and Marwaris in Indore and I also had a Marwari friend. And anyway Gujarati, Marwari and Baniyas are always interested in investing and such things. They know much more than other normal people in investing matters. 

As a young kid, I was also influenced by their prosperity. There was a Marwari friend of mine and I asked him one day, yaar tum log yeh sab kaise manage karte ho. Itni bad badi gaadiyan rakhte ho, kya black ka paise hai kya. As a kid, I couldn't really understand. He said, we just invest our profit from our factory in a sensible way. That was the first time, I got to know that there is something called stock market and equity.

What happened after that?

I discussed this with my father and started looking at stock market on TV. The first few days were confusing. All I could make out was, laal dot neeche jaa raha hota thha ya ek green dot uppar jaa raha hota thha. I couldn't really figure out what was happening. 

And then in 2008 that Lehman Brother crash happened in the stock market. Both me and my dad were really happy that achha hua nahin lagaya, warna saare paise doob jaatey.

We were such idiots at that point and I mean it was foolishness to think like that. I was in class 11th at that point in time so ofcourse I didn't understand much. Only thing I got to know during that episode that there was something called a Demat account. And we would use that demat account just to show-off amongst friends.

So the Lehman crash was your introduction to equities?

Post that crash we moved to Ludhiana and by then both my father and I had understood that there is something called equities. 

And then one day in my father's office a mutual fund broker came for some personal work. During the usual chit chat, he asked my father if he was doing any investing. And when my father said no, woh hairaan ho gaya aur bolta hai ki aap kyun nahin karte sahab. He then asked details about our family and suggested to my father that we should start planning investing and suggested some funds to invest.

But na hum Indians mein ek mentality hai ki hum kisi ki baat nahin maanenge. My father and I did our own research and came to conclusion that we will invest in HDFC Top 200. That same broker advised us that this fund has saturated and you should not invest in this. However, we went ahead with HDFC top 200. Today that fund has given the lowest returns, around 14% (still more than FD or any such instrument) amongst other good equity funds.

We finally started investing in HDFC Top 200 in 2011.

It took quite some time from 2008 to 2011 for you to start investing

Sometime in 2009 or so, we were watching a show on TV and in that show a person said that all of us have family doctors but we don't have a financial doctor or a financial planner. Infact, if you compare with the US, then most of my relatives have a family planner. Either it's an individual or an online service. But here in India, we don't have that awareness as yet. We might have also started earlier if we had a financial doctor to help us out.

How has been your journey from 2011 till now? How much have you invested so-far and what are the returns like?

In 2011, my father and I both started investing. I was in college that time so I borrowed Rs 60,000 from him to start a Rs 5,000 SIP in an equity scheme of HDFC. 

First few days of investing were difficult, hum thoda darr gaye. When we had started investing the Sensex was 17,000 and then it went to 15,000. We were sitting on a loss thinking, yaar log sach bolte hain share market loss ka hi kaam hai.

However, when I look back now and if you see the returns have been outstanding. My father and I have invested a total of Rs 13-14L in equity funds since 2011 and today our portfolio is worth about Rs 25-26L. If you calculate returns then it works out to be 25-26%.

Such returns cannot be compared with anything else. To make such returns either one has to become a successful entrepreneur or get lucky. There is no other investment option which can give 25-26% returns in a manner where there is practically such low-risk.

It's an interesting thing that you talk about your father like he is your partner. Tell us a bit more about it.

From day-one since we started investing, me and father have been partners. We did our research together and took decisions also together on what's the right place to invest. Ofcourse, when we first started investing, I was still in my 3rd year of college so for the first 18 months or so, I used the money I borrowed from him and the pocket money for my monthly SIP contribution.

I learnt from my father and his experience with FDs, RDs and PPF that these instruments are not of much use. The returns that he had made from these saving instruments were not adequate. 

He has always trusted me and my ability to make decisions. We try and take decisions together but it's not a rule. The most recent investment plan that I started was my own decision and that kind of freedom I have.

And like true partners, both of us started with Rs 5,000 monthly contribution each. His 5, my 5 the ball started rolling and then gradually we increased our monthly contribution.

From day one you were clear that you wanted to choose monthly (SIP) route?

Yes, yes. I went to SIP because it nullifies the volatile nature of the market. If you put all your savings at a particular point than to make money you have to beat a certain benchmark. SIP allows you ignore market movements and your money is invested even when the markets are low and also when the markets are high.  

Majority of us are not investing our savings. What's stopping us?

Most of us are losing money day-by-day but we aren't even aware that we are losing money. What I usually says is that Inflation is like a slow poison. The Rs 100 that you make today is worth only Rs 50 in 10 years and only Rs 25 in 20 years. This slow poison erodes our wealth and we are just not aware. If all of us had a Financial Doctor then he would tell us that Equities is the only antidote available for this slow poison.

How did you manage to save from your pocket money in college?

I was able to save about 60-70% of my pocket money in college. I didn't spend money on stuff like expensive phone or buying new clothes every few days. Mere 2 hi shauq thhe, paise invest karna aur achha khaana khana. I am a Punjabi you know and we love food. In college also, only thing I used to spend money was on food.

I had put a SIP on my own account so every month my savings would automatically get invested even during college.

How did your college friends react to this when they came to know that you were investing?

I would encourage my college friends to save and invest. I would often say, tum college mein ho toh kya, thoda paisa bachao aur paise equities mein invest karna shuru karo.

Then sabse pahle toh na unke parents aa jaate hain. And waise bhhi hum Indians har cheez ko stereotype karne mein bade tez hain. They would say, haww tu share market mein paisa lagayega. Pata hai tujhe loss kitna ho jaata hai share market mein. Kitni knowledge chahhiye hoti hai share market ek liye. 

Their parents discouraged them from investing in equities and then eventually these friends stop talking to me.

Apne yahan actually Bollywood ka bhhi bada impact hai. Lage Raho Munnabhai, mein bhhi ek scene hai, Baba ab mein shares ka chakkar chhodh doonga aur mehnat karke taxi chalaoonga. 

To this I say that, Baba, tu shares ka chakkar chhod de wahan tak toh theek hai but agar Taxi chalakar tu woh paise ka SIP karega toh tu zyada sukhi rahega.

How did stock market get such bad reputation?

Derivatives, futures and options leads to loss for average investors. There is no loss if you invest for long-term. And that's why I also chose monthly SIP route.

The combined worth of your father and your portfolio is 26L now. How much is your personal portfolio worth? Have you thought about withdrawing it? 

About half of it, approximately 13 Lacs. And I have worked for only 2 years 8 months. My in-hand monthly salary was not much, it was about 32-33k. I would save about 50% of it and invest it. At present, I am contributing about Rs 20,000 per month to my SIPs. So yes, I have invested a total of 6L from my salary in last 3 odd years and my  portfolio is worth 13L today.

In future, I aspire to open thematic cafes. I want to earn that much money so that I can fulfil my dream. I will keep investing for another 10 years. You can calculate that how much will it become. When I opened my 2nd last SIP, my broker told me ki boss aap toh retire hone wale ho 45 par.

[we calculated and if the average returns are 26% after 10 years and he continues to increase his commitment every year by 20% then Varun would have 3.1 crores by the time he is 35. His total investment would have been 70L.]

-------Part 2-------

Why did you quit your job? And why MBA?

I am currently preparing for CAT so that I can get admission in a good MBA course. MBA is expensive but it gives  a solid foundation. If I do MBA from a good college then I can recover it in 1-2 years. And I have my own corpus available to fund the course if required. Since I am not going to take any loan it won't create any liability on me.

Honestly, I am not much inclined to touch my equity corpus as I would lose on compounding. I might take money from my father to fund the MBA and then later return it.

Quitting the job wasn't difficult. I had saved a corpus so I wasn't afraid of quitting job and said to myself that its better to focus just on preparation of CAT.

What does being rich mean to you?

People don't appreciate what being rich means. I contribute Rs 20,000 every month and that's doable for most of us. But its just that people are careless.

Aadmi rich kaun hai. In punjab they say, jiske paas iPhone and lambi gaadi hai woh rich hai. In MP they say jiske paas government naukri ya achha package hai woh rich hai.

According to me, the person who beats two things in our country - 1) inflation and 2) tax, by a large margin year on year will become rich. If am able to convert every Rs 100 I save into 120-130 and do that consistently for 10-20 years then I will become rich.

You said your father is an influence in you deciding not to do FDs etc. Any other investment philosophy or strategy that you'd like to share?

Thing is that, I have started investing directly in stocks as well. Ofcourse, I am heavily inspired by people like Zuckerberg, Jack Ma. But for investing inspiration, I read Nilesh Shah [MD, Kotak AMC]. What he says that munafa toh long-term mein hi hoga. When you buy a few investment instruments, its just like buying a few monkeys. Some monkeys become Gorilla and some of them become king kong. You have to buy Monkey's that can become King Kong. Yeh philosophy individual stocks ke liye hai.

For SIPs, you don't need a philosophy. You still need right selection and review but aap mujhe koi aisa investment option bata do jo itne high returns de de and safe bhhi ho. Sorry I am using harsh words, but FD is foolishness. People say yaar family background strong nahin hai, safe jagah invest karna hai. Bhai background sahi nahin hai toh kya, 15% jahan mil sakta hai toh tu 7.5% (6% post tax) ke peeche kyun bhaag raha hai.

One thing is that you need to be patient. For the first 2-3 years the returns were not enough. XIRR (a method to calculate annualized return) was 1-2% and infact we were in loss also for a long-time. Equity is a game of time and patience.

And ek aur baat once people realize what equities are they get into another dangerous game. Logon ko lagta hai ki ham toh sabse bade superman hain, market time kar lenge aur paise bana lenge. Bhai aap 10-15 saal ka plan kar rahe ho, Sensex ki 1-2 lakh tak ki journey dekh rahe ho, aapko woh journey mein paise kamane hain yaar chhotey-chhotey profit kamakar nikal jaana hai.

Fantasting thing about SIP is that you also buy low when the market is down. I don't panic if the markets lose value or gain a lot. My vision is clear that I want to do an investment that I forget for it about for 10 years.

What about your friends? What inspiration did they take from you?

My good friends became my competitors. When friends saw my returns they also started investing. But the difference was that all their investments were for short-term. Their SIPs, stocks everything was short-term. They would also do futures and options and advise me also. But I never went in that direction as I knew that short term investing is all speculation and has no solid foundation. 

Some other friends also started investing after they saw what I used to do. But they never credited me as their source of inspiration.

SIP should be done by everyone. The driver who used to drive our company car also started a SIP of Rs 1,000 on my behest. He also says that he is happy with his investment because he has now started to see returns on his investment. I was a field engineer and was often on road with our company driver. During these trips, I would get calls from broker on KYC or such matters and the driver would listen. He also asked me once that Sir aap kahin paise lagate ho kya but I didn't say much the first time. He then asked me 2-3 times and I finally explained him the concept of SIP. He asked me point blank that, fayda hoga? I told him that there is no guarantee but if you stay invested for long-term then it will definitely generate returns.

If it can inspire that 10th class educated driver than I don't know what educated white-collar professional are doing with their money. If you are not investing then either you are from a very rich family or you are just plain ignorant. Even 20 years back, our parents had the option of investing at 12-15% return because FDs used to give that kind of returns. Today, you have no option but equities to earn 15% returns on your money.

Mutual Fund is like Narendra Modi. Fixed Deposit is like Arvind Kejriwal who will promise a lot but not deliver much. And Savings Account is like Rahul Gandhi that usse toh aap kuchh ummeed hi mat karo.*

FD is not the cure for that slow poison called inflation.

Have you made any sacrfices or compromises in your lifestyle to reach where you have got so far?

I am being wise with my money and there is no sacrifice in that. There are two things that especially the younger people should ask themselves. Do you want to look rich or do you want to become rich. Most of us are focused on looking rich, that we want the latest iPhone or we want to wear Tommy Hilfiger.

To become rich, the only way is to compound money. Either you do that by running your own business or by investing your earnings in the right manner. And there are no compromises when you think about a Wealthy future.

Do you have a life Insurance ? What are your views on people choosing LIC?

Yes, I have a term plan of SBI Life and I pay around Rs 10,000 premium every year for a cover about Rs 90 Lakhs.

Sorry, I will again use heavy words here but LIC is bull-shit. All of us have over bought LIC and we are so in love with LIC and ULIP. It's disgraceful and should be banned. If I was Modi, I would have taken steps to ban these waste of money insurance plans. 

What happens is that we fall into this mera-relative-hai trap. Almost all of us have a family member or relative who is a LIC agent and that's why we fall into this trap of wasting money with LIC insurance plans. Eventually, relative toh paisa kama leta hai par aap bewakoof ban jaatey ho. Kuch log 30-30 thousand de rahe hain mahiney ka jo kuchh saal baad 7-8 lakh ho jaayega.

Any final comments?

You have no other option but equities if you really want to beat inflation. Investing in equities is just like a polio drop of financial world. If you won't take that drop now you will have a crippled future.

Land is definitely a good asset class but this has such higher ticket size that it only becomemes viable when you are older. Second problem is liquidity. Suppose your 60L investment becomes 1 crore but then aapko 6L chahhiye toh aap apna garden bechkar toh 6L nahin nikal paaoge na.

Secondly, this obsession with owning a house has to end. I mean, I am not King Ashoka or something that I want to give a palace to my kids. Moreover most of us have home that was built by our father or fore-fathers in our native towns. 

* These are Varun's personal political views

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