Choose the smart way to invest money

Nirbhay and Nimit, who grew up together, got to experience so many life lessons at the same time. Both have learned how to dissect concepts like saving and spending while studying at PU College. They went their separate ways to study engineering in different cities and then reunited in 2011 to make their professional debut in an IT bellwether, in the same pay band.

Once they started earning, their investment strategies began to diverge, with Nirbhay opting for MIPs (monthly income plans) and Nimit sticking with the traditional post office monthly income schemes (POMIS).

Nirbhay noticed that the MIPs, being a hybrid category of mutual fund schemes, gave a stellar performance with more than 15% returns in the previous years. Nimit, who is disinclined to take risks, had developed a penchant for POMIS as they offer capital protection and guaranteed returns of 8.5%. Nirbhay watched in dismay, as his investment in MIPs delivered only 6% in that year due to a bearish phase. MIPs did not live up to the expectations in the falling markets and rising interest rates scenario.

In January 2012, Nirbhay decided to change his investing style and adopted smart investing. He invested Rs 100,000 each in Bajaj Finance and Symphony Ltd. His research revealed that Bajaj Finance rose from Rs 5 in 2002 to Rs 30 in 2010 and Rs 64 in 2012. Likewise, Symphony surged from Rs 0.60 in 2001 to Rs 18 in 2010 and Rs 127 in 2012.

Symphony’s fundamentals were so strong that the share price doubled every year for a decade. However, it has seen a decline after hitting an all-time high of Rs 2,213 in January 2018. In January 2018, his 100,000 investment in Symphony grew to Rs 17 lakh and he exited the stock after reaping 1600% returns. One lakh invested in the Sensex in 2012 became 2.3 lakh which is 130% returns during the same period. He parked the proceeds of 17 lakh in Gold ETFs.

On 25 February 2020, Nirbhay had sold his holdings in Bajaj Finance because he was worried about the global spread of Covid-19, where unsteady business conditions meant Bajaj Finance was a no-no stock. The one lakh investment in Bajaj Finance swelled to 78 lakh delivering 7700% in eight years whereas BSE Sensex returned 146% during the same period. Nirbhay turned his focus to Reliance Industries now, whose share reduced by half from 1500 levels in January 2020 to 875 by the end of March 2020.

He was in a dilemma whether to exit equities to invest in Gold which has always been the safest investment option, especially during uncertain times or not. However, Nirbhay sold his position in Gold ETFs and profited 30% returns. He used the opportunity and invested Rs 1 Crore in RIL as he was confident that Reliance has never disappointed its shareholders.

By mid-September, RIL hit the all-time high of Rs 2370 as RIL became debt-free, attracting investments and emerged as a behemoth. Nirbhay’s investment in RIL grew by three times in less than six months and turned his investment of 2 lakh to 3 crore, equal to 14900% growth.

On the other hand, Nimit’s investment of Rs two lakh in POMIS @ 8.5 annual interest has given him a monthly income of 1400 for five years. He immediately opened a post office Recurring Deposit account in 2011 to park the monthly income. At the end of the fifth year, he earned Rs 85,000 from POMIS and Rs. 12,000 from RD account as interest. To his disappointment, his initial investment of Rs 2 lakh became Rs 3 lakh in five years. After juggling his investment strategy and with the ‘Rule of 72’, he was determined to get his money doubled in three years @24% returns.

One fine morning, Nimit received a trading tip through SMS which recommended buying Symphony shares. In 2017, Nimit emulated Nirbhay and entered the equity route by putting his entire Rs 3 lakh in Symphony. By the end of March 2020, the value of Nimit’s investment in Symphony had been reduced to half, as stock markets plummeted amid coronavirus scare. Especially, Symphony’s share price started to fall after 2018 and has declined approximately 60% from its all-time high.

Nirbhay’s informed decisions helped him exercise the entry/exit options at the right time. He diversified into different shares, Gold ETFs to eliminate idiosyncratic risks, but he was still exposed to a systematic risk — the odds the whole stock market will crash.

The implementation of well-thought-out strategy depended on his risk-taking ability, vision, patience and informed decisions made Nirbhay reap significant gains. Nirbhay may not win all the time, but we cannot easily ignore his investment strategy and track record.

Contrary to this, Nimit fell prey to unauthorised trading tips. He has been looking for a propitious time to dump his shares to return to traditional investment options.

(The writer is a SEBI licensed Research Analyst)