Invest wisely to enjoy financial freedom

Co-founder at Stack Identity, Sanjay Kale shares tips from his life with Smart Investing India on how to invest wisely

Monetary decisions are often driven by our cultural experiences, family backgrounds, lifestyle and goals in life. When Sanjay Kale started working in IT industry, jobs were easy to come by, but salaries were not so high. Today the picture has reversed with jobs difficult to bag, but salaries are higher than what they were two decades earlier.

Coming from middle class ethos, with a family home, Kale’s first purchase was a car. “Back then, not everybody owned a house. People used to build or buy their homes at a later stage of their lives and careers. I was staying with my parents, so my first big purchase was a car. When I started working, I was enjoying the freedom that came along with my salary. I had not given much thought on investing,” he observes.

Kale bought a flat when he decided to get married. He turned his attention to investing money in equities, mutual funds, pension plans when he was in his late 30s. “The standard practice for any middle class family was to invest in Fixed Deposits. Now the scope for investments has become wider. There is National Pension Plan, Public Provident Fund. I would say that freshly employed people think about investing in either one of the plan. In early 2000s, the Union government stopped pension for government employees. But it introduced the National Pension Plan for government employees and later for private sector employees as well,” says Kale.

Kale also reasons that young people should not invest in buying a home, if their family already has made that investment. His advice to his son, who started working last year, was similar…do not buy a new car or invest in real estate. “A car is a depreciating asset. Hence, there is no need of investing in a new vehicle at this stage. But if you can spare an X amount of money, buy a second hand car. Make sure that it is comfortable and has a good safety rating. However, it should not be an expensive one.”

Young people these days definitely have more expenses to manage then the generation that preceded them. There is a peer pressure as well. Hence, money management is crucial. Kale rates gaining experience through travel more importance than spending money on partying every weekend. “By cultural experiences I mean, who are your friends, what do they like doing and how much do you try to emulate them. Rural or urban background does not matter. Once a month or every quarter, dining out is fine…these expenses are manageable vis a vis where you go drinking every weekend.”

Investment is planning ahead taking into account everyday expenses,  emergencies, travel and then allotting an X amount for savings. “I invested in mutual fund and equity around 15 years earlier. That has helped me where I am today, financially speaking. I do not have to work for money, as such, at this stage of my life. In your 40s and 50s too, consult advisers and continue to invest in mutual funds.”

Kale mentions that a few mutual funds invest in pre-IPO stage companies. Here, you become private equity investor. He says, “Start these investments through a proper channel. The risk is more, but returns can be good. This depends on how much additional money you have. Once your quota is full for mutual fund and equity, then you can think of these additional assets.”

The Indian government is supporting start-up ecosystem and investing in start-ups in different sectors is another option. “The term is angel investment. It is very high risk. But if the company takes off, you have a lot to gain. Seek guidance or take efforts in understanding technology, market, market dynamic, before becoming an angel investor. You can also consider investing in mutual funds in foreign markets.”

This sort of investment comes from what is left over after covering your basic needs. “If you have Rs 10 crores and are willing to invest, then founders of companies reach out. Some have already established their companies, work has progressed.. in this case, they ask for more money for lesser equity. If you invested in early stages, then you invest less, but earn more equity. Decide your goals. For example, if you have Rs 100 and decide to invest in scrips, you will invest Rs 10 in every scrip. If you have a corpus of Rs 1 crore and want to invest in three companies, then you can invest Rs 30 lakhs in each of the company. But makes sure you understand the founders, understand the market, potential, credibility, capacity of people. Whether you invest in standard equity or start up companies, money management rules remain the same,” points out Kale.

Kale defines retirement as a stage where you won’t be earning what you used to get when you were working. “If you have invested in mutual funds, withdraw whatever you need through systematic withdrawal plan. Plan 40% of the entire corpus in National Pension Plan and 60% in annuity. Continue investing how you did in the past and maintain lifestyle that doesn’t burn too much hole in your pocket.”