‘Follow the one-third rule for savings’ :: Business Line

Young investors should look at the bigger picture regarding achievement of life goals, and plan their investments accordingly. RANJEET MUDHOLKAR, VICE-CHAIRMAN AND CEO, FPSB.
Want to learn how to plan your savings and investment? Ranjeet Mudholkar, Vice-Chairman and Chief Executive Officer, Financial Planning Standards Board of India, gives a few pointers on how to go about it.

A graduate in statistics and computer programming, with a post-graduate degree in management, Mudholkar has helmed the FPSB for the past nine years.

What are your financial goals?

First, to repay my home loan and other loans. Second, to create a sufficient corpus for my retirement, education of my children and their marriage.

This corpus also includes short-term and long-term needs during my working life such as vehicles or holidays.

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What has been your most important learning experience?

The most important learning experience for me has been the theory of compounding.

Let me explain with an example. A 21-year-old investor who invests Rs 1,145 a month will be able to accumulate Rs 1 crore at age of 60 if the return is assumed at 12 per cent a year. Of course, that Rs 1 crore may not have the same purchasing power then.

What has been the one investment mistake you regret?

It has to do with financial planning. I delayed the same by three years – I appreciate the importance of effectiveness of financial planning earlier in life.

Which investment made you the most money?

That would be house property purchased in 1999. It has appreciated by almost 500 per cent over the past 13 years, and I’ve also gained from seeking income tax benefits for the same.

Tell us about books or personalities that inspired you or helped you think out of the box.

Books by George S. Clason, Robert Kyoski and Burton Malkiel have helped me a lot.

How do you suggest young investors start their investments and make a financial plan?

For young investors, it is important to look at the bigger picture regarding achievement of their various life goals, and plan their savings, investments and spending accordingly.

As a first step, they could start with budgeting, which calls for assessment of present scenario through accounting for all income and expenditure. Then, they may link their investments according to their risk tolerance and in align them with their life goals. It is important for them to make a comprehensive financial plan for meeting not only their short term goals, but also the long term goals such as retirement. An early start towards the realisation of the goals, and a planned approach would certainly help.

What is your message on savings and investments for investors starting their career?

First, they should start early with respect to financial planning. Second, they should try as far as possible to follow the one-third rule.

That is, ensure that savings are at least one-third of net income. No more than one-third of net income should be used to service debts, and expenses should be well within one-third of net income as well.