A timely review of the portfolio enables investors to take corrective action at an early stage

Shweta Tomer, 46, works in a private company and her financial aspirations and goals have been revolving broadly around her 14-year-old son, Shubh Singh. Her journey of investing in mutual funds started around 15 years ago, when the concept of mutual funds was not so popular.

Renowned Amercian writer Robert Fulghum, once said, “good neighbours make a huge difference in the quality of life” Shweta truly experienced this. Her neighbour RC Rawal is a chartered accountant cum financial advisor, who not only helped her understand the fundamentals of personal finance but also introduced her to the world of mutual funds. While Tomer’s colleagues’ experiences in terms of mutual funds investing had not been delightful, for her it turned out be a blessing– thanks to her neighbour

She started with a lumpsum amount of ₹50,000 each in some mutual fund schemes duríng the financial year 2005-2006. While Tomer had initial apprehensions about investing in mutual funds, her advisor explained the various benefits including the tax benefits and she ended up with overall investments of around R10 lakhs during that year With a healthy uptrend in the equity markets during that period,

When we understand associated risks, we can be responsible

Tomer was able to reap some generous benefits. With calculated risks, her investment portfolio generated around 38 per cent absolute returns within a year. The value of her investment portfolio had grown to around 13.5 lakh. Encouraged with the pleasant experience, Tomer’s investing confidence also increased, and she made additional investments in mutual funds during 2007-08 to reap better benefits and achieve all her financíal goals. Over time, her total investment amount increased to ₹228 lakh, valued at around 23.88 lakh, yielding a Compounded Annual Growth Rate (CAGR) of 5.5 per cent.

However, during the 2008-09 global markets meltdown, Indian markets also bore the brunt and investors’ portfolio was into deep red. Tomer’s portfolio was no exception and her investment amount of ₹22.8 lakh came down to ₹14.12 lakh. While the initial gains had all wiped out, the portfolio was reflecting a loss of ₹8.68 lakh or a negative CAGR of 22.83 per cent. With high negative returns over the period, her advisor played a notable role as a mentor for her financial life. He advised Tomer to stay put with her investments, even while she opted not to make any fresh investment. With her earlier pleasant experiences in the backdrop, Tomer finally decided to continue with her investments and wait for the rebound in the markets. The recovery in the markets was equally sharp in the succeeding year and the market recovered all the earlier losses as well, with the portfolio valued at ₹24.50 lakh at the end of 2009-2010.

In the hindsight, it certainty feels that Tomer should have made fresh investments during the market fall and averaged the cost of investments, instead of staying away from the markets during market correction. However, with a young son to look after, the safety of the principal invested was also equally crucial for her. But let us focus on the silver lining to Tomer’s story. Had she not been advised to stay invested during the times of deep correction in 2008-2009, she would have not only booked an actual loss of around 8 lakh, but would have also lost an opportunity to recover the earlier losses and in fact, see the investment portfolio back in green.

As time passed by, Tomer has been getting more comfortable with mutual fund investments. She has now been investing regularly through Systematic investment SIP for her new house and funding her son’s higher education. Further, not only has she continued investing towards her financial goals, but she has also availed regular top-ups in her existing SIPs, which allowed her to accumulate a higher corpus. She has also been investing in windfall receipts like annual bonuses. Tomer’s mutual fund investments towards house have been generating a CAGR of 12.5 per cent, while the education goal-linked mutual fund investments have yielded 11.3 per cent CAGR.

One must not forget the lessons of life. It goes the same with the investing lessons as well. Happy Investing

With each day of life bringing a new set of learnings, Tomer sums up her investing lessons in three money mantras

1. Investors need to behave responsibly during market corrections- While one seeks better returns from investments, one needs to be clear about the risks of equity investments. When markets are correcting investing emotions are at prime levels, as the fear of losing the capital invested makes one conservative about one’s approach. As such, one may choose to reduce equity exposure during such times by selling the investments at a loss. However, when one understands the associated risks, one can be more rational in one’s investing approach and stay responsible about financial investment.
2. Financial goals need to be clearly outlined- It is very important for an investor to set financial goals and move steadily towards achieving such goals in a time-bound manner. Having such goals enables oneself to track the progress on a real-time basis. As such, one should clearly outline financial goals, and invest on a regular bass. Further, such goals must be periodically reviewed for changing financial needs and aspirations
3. Investing plans should be regularly reviewed- just like the financial goals, the investing plans must also be regularly reviewed. This assumes importance since the investing plans are prepared, based on certain assumptions and expectations. Such assumptions can fructiy differently in reality, which can lead to different performance of the portfolio, than what has been anticipated by the investor. As such, a regular review of the portfolio enables the investor to take corrective action at an early stage.