Tag: stock-market

Securing Your Child’s Future: Well Begun is Half done

This is a real case study of one of my clients when we first met in 2013. I received his call last week and he was quite happy of achieving his gaols. So, thought of penning down my ideas. The names here have been changed to protect ones identity.

Ravi: Mohan, I’m really worried about how I’ll manage to fund my 2-year-old son’s education. With so many financial products in the market, I feel lost. Can you guide me?

Mohan: Of course, Ravi. It’s natural to feel overwhelmed with so many options out there. Let’s simplify this. First, let’s estimate the future cost of your child’s education based on some basic calculations. What kind of career do you envision for him?

Ravi: Well, I’d like to keep options open, but let’s assume he wants to pursue MBBS.

Mohan: Good choice. The current cost for an MBBS program, including the internship, is around ₹30 lakhs for 4.5 years. If he plans to do an MD afterward, that might cost around ₹45 lakhs in today’s terms. These numbers are ballpark figures, of course, but we can use them to plan better.

Ravi: ₹30 lakhs for MBBS and ₹45 lakhs for MD? That’s ₹75 lakhs already. How much will it cost by the time he’s ready?

Mohan: Considering an 8% annual inflation rate, the costs will be much higher in the future. By 2034, when he might pursue his MD, we estimate the total cost of MBBS to rise to about ₹1.027 crores and MD to around ₹2.26 crores.

Ravi: Wow! That’s ₹3.28 crores! How will I save that kind of money?

Mohan: Don’t worry; with the right plan, it’s achievable. To meet these goals, you’ll need to invest systematically. To fund the MBBS cost of ₹1.027 crores by 2029, you’ll need to invest around ₹19,767 per month. For MD, you’d need to invest ₹23,151 per month to accumulate ₹2.26 crores by 2034. Together, this would require a monthly SIP of ₹42,918.

Ravi: That’s quite a big commitment. What if I start and lose motivation along the way?

Mohan: That’s where discipline and the power of compounding come in. Let me share an example of another client I worked with in 2013. He had similar concerns, and I suggested a mix of four funds for his goals.

Ravi: What happened with him?

Mohan: He started investing the following amounts:

  • ₹6,500 in a Small Cap Fund
  • ₹11,000 in a Tax Saver Fund
  • ₹13,000 in a Large & Mid Cap Fund
  • ₹12,500 in a Flexicap Fund

Together, his monthly investment was ₹42,918, just like yours would be.

Ravi: And how did it go?

Mohan: Amazingly well. Today, those investments have grown significantly:

  • Small Cap Fund: ₹39.95 lakhs
  • Tax Saver Fund: ₹44.79 lakhs
  • Large & Mid Cap Fund: ₹65.98 lakhs
  • Flexicap Fund: ₹55.88 lakhs

In total, he has already accumulated ₹2.06 crores, and he still has 5 years left to meet the MBBS goal and 10 years for MD. He’s comfortably on track to achieve both.

Ravi: That’s incredible. So the key is to stay invested long-term and stick to the plan?

Mohan: Exactly, Ravi. The simpler and more consistent your investments, the better your chances of success. Make your investments as “boring” as possible—no constant tinkering or chasing trends. Let time and discipline do their magic.

Ravi: This sounds reassuring. Let’s create a plan for my son’s education.

Mohan: Great decision! Let’s get started and ensure your son’s dreams are well-supported financially.

Market-Timing v/s Value Investing: A Smarter Approach to Market Investing

Rohan:“Hey, Sudhir! I’ve been reading your blog for a while now, and there’s something that’s been on my mind. You always say not to time the market, right? But then I see you talking about avoiding the overvalued market conditions and even the stocks that I want to buy! Isn’t that also a form of timing the market?”

Sudhir:“Good question, Rohan! It sounds like there’s a contradiction, doesn’t it? But there’s a big difference between the two approaches. Let’s break it down a bit.”

Rohan:“Sure, go ahead.”

Sudhir:“When I talk about not timing the market, I mean we shouldn’t try to predict short-term market movements/corrections – you know, the ups and downs from one day to the next day (Some time back only the Gulf War broke out!). Somehow we get into this false belief that we know whether prices will go up or down tomorrow, the next week, or even the next month. But in reality, all that one is doing is mere speculation. You know.”

Rohan:“So, you’re saying it’s impossible to guess where the market is headed in the short term?”

Sudhir:“Exactly! I have seen people trying to play ‘catch game’ the market’s highs and lows, only to miss out on long-term gains or take unnecessary losses. It’s tempting, but more often than not, people lose money or lose valuable time waiting for the perfect price entry or exit point.”

Rohan:“But isn’t it the same when you say we should wait for stocks to be ‘fairly valued’? Doesn’t that involve timing too?”

Sudhir:“Good Point though. I know where you’re coming from, but let’s look at it from a perspective. When I say you should be mindful of valuations it doesn’t mean I’m trying to guess when a stock will hit a peak or bottom. Instead, I’m assessing whether the current price makes sense based on the company’s fundamentals –its balance sheet, its growth story, and its industry position. I’m not saying ‘this stock will drop next month,’ but rather ‘this price doesn’t reflect what this company is worth today.’ It’s less about timing and more about fair pricing.”

Rohan:“Hmmm, so it’s more like being a smart shopper, not a fortune-teller.”

Sudhir:“Exactly! Think of it like this: when you’re timing the market, emotions – fear of missing out or panic when prices drop – often drive your decisions. That’s more like you are reacting to a specific event. But when you’re focusing on valuations, you’re taking a calm, business-owner mindset. You’re asking, ‘What is this? Is this stock genuinely worth it?’ It’s like shopping for value rather than gambling on sheer luck.”

Rohan:“I get it now. Instead of stressing over when to jump in, you’re simply checking if a company’s price aligns with its value.”

Sudhir:“Yes! This approach will keep you grounded at all times. To put it further, consider the current market from the Highs of BSE Sensex trading at 85,978 in Sept’24 to 80,000 in Oct’24 as an example. Some investors are frantically watching every 5% decline, wondering if this is ‘the big one’ they’ve been waiting for. They’re glued to charts and social media, following every prediction. That’s classic market timing. But on the other hand, a valuation-conscious investor is looking at individual companies, assessing if some great businesses are now selling at fair or even discounted prices.”

Rohan:“So, while the usual investor is more fixated on the market’s next move, the valuation-conscious investor is trying to find out the specific opportunities?”

Sudhir:“Exactly, Rohan! While the market timer might be paralyzed, waiting for the perfect moment, the valuation-focused investor is spotting strong companies at good prices – regardless of what the Sensex might do next week. It’s about taking a measured, analytical approach, and ultimately, that helps you make sound, long-term investment decisions. This is the long term principle that I have been following through”

Rohan:“Thanks, Sudhir! This makes so much more sense now. I’m beginning to see how I can keep my emotions in check and focus more on value than on timing. Really appreciate the perspective!”

Sudhir:“Anytime, Rohan! Keep those questions coming – it’s these kinds of conversations that make us all better investors.”