Prudent investing for financial security

Kashya was impatiently wandering the corridor next to the labour room as his wife was giving birth. A nurse handed him a baby and said, “Congratulations! Here is your bundle of joy.” Kashya’s father handed over his son a cheque of Rs 1 lakh as a gift. Their kith and kin graced the occasion of the naming ceremony with their presence. The total monetary gifts received from their close relatives on the eve of the naming ceremony amounted to Rs 3 lakh.

“Do I need to pay gift tax?” with a tinge of trepidation, he asked his friend Nivesh, an investment advisor by profession. Nivesh confirmed that the amount is tax-free since the family received from their lineal ascendants and descendants. However, Nivesh suggested that Kashya invest the money wisely to fulfil the educational needs of Kashya’s three daughters.

“What will it be, why not we stick to Fixed Deposits?” Shantanu scowled down at Nivesh. Nivesh explained the ‘risk and return tradeoff’ and the ascendancy of equity over deposits. Kashya was eager to go down to the nitty-gritty of the stock market so that he could get a handsome corpus.

Nivesh was quick to make some calculations based on Kashya’s financial status, risk appetite and the required corpus for the higher education of his three daughters - Amba, Ambika, and Ambalika.

It was July 2004, TCS came out with its public issue. The history, performance and prospectus were so circumstantial that Kashya subscribed with Rs 1 lakh, the max application for retail investors.

TCS fixed at Rs 850 per share and got listed at Rs 1,076. It was an encouraging signal for a debutant investor. His first financial victory was successful enough to inspire a sequel. Despite risk and volatility, he invested one lakh each in Infosys and Wipro shares on 25 August 2004, to reap inflation-beating lucrative returns in the years. His Demat account was credited with 1031 Infosys shares @ ₹97 apiece and 1,538 Wipro shares @ ₹65 per share.

Nivesh motivated him to stay invested in the Tech Trio without bothering about bearish phases and market crashes. He also helped Kashya in the opening of the PPF account so that Kashya can park the dividend income.

During August 2004 to November 2020, Infosys issued bonus shares four times in the ratio of one bonus share for every share held. His 1,031 shares grew to 2,062 in the April 2006 bonus announcement and swelled to 8,248 in October 2014 and April 2015 bonus offers.

Kashya’s Infy share tally stood at 16,494 after the July 2018 bonus issue. Wipro also issued bonus shares four times in the ratio of 1:1 in 2005 and 2017; 2:3 in April 2010 and 1:3 in January 2019.

Consequently, Kashya’s Wipro shares swelled to 13675. TCS also bestowed bonus shares on investors three times since its IPO. One bonus share for every share held in April 2006, April 2009 and April 2018 increased Kashya’s TCS share count to 941.

His investment of three lakh in August 2004 swelled to 2.86 crore (CAGR 32%) in November 2020.

The current market price of TCS, Infosys, and Wipro as of 5 November 2020 is Rs 2,688, Rs 1,105, and Rs 346. Kashya’s initial investment of Rs 1 lakh in Infosys bulged to Rs 1.82 crore (CAGR 39%) in 16.2 years. Rs 1 lakh invested in TCS in 2004 is worth Rs 25.20 lakh now (23% CAGR).

While his shares in Wipro are worth Rs 47.30 lakh, grew at 27% CAGR. Besides the appreciation in the share value and quantity of shares, Kashya also pocketed a handsome dividend of Rs 31.60 lakh.

The total dividend income during the 16.2 years from TCS and Wipro was Rs 3 lakh andRs 3.81 lakh. Rs 24.8 lakh was what he earned as dividend from Infosys, not to speak of returns on the PPF account in which the dividends were parked.

Kashya is today a happy, relaxed, and proud father of three daughters -- Amba, Ambika, and Ambalika. His oldest daughters were enrolled in STEM-certified programs at Ivy League schools, and Ambalika has a penchant for medicine. Kashya had already planned his finances.

The BSE Sensex and NIFTY delivered 14% and 13% CAGR during the same period. Noticeably, Shantanu, the proud father of two boys, who favoured and invested in Fixed Deposits, had reaped just 9% CAGR on his deposits.

“I do not make promises or guaranteed predictions about the growth of your investments, but here is what I know - Investing in equity for long-term is the one of the smart ways to multiply money and reap the maximum benefits,” Nivesh concluded.

(The author is a SEBI licensed Research Analyst)