Save more to become wealthy

An alumnus of Kolkata’s St Xavier’s College, a certified financial planner (FPSB India) and an accounting technician (ICAI), Anup Jhunjhunwala has more than two decades of experience in equity markets, wealth management, investment advisory and mutual funds. He is director at three private limited companies; BJ Securities, Visual Securities and Om Surya Infranirman.

According to Jhunjhunwala, India is a young country with more than 50 per cent of its population below the age of 25 and more than 65 per cent below the age of 35. The young population is the prime consumers, so the country will experience a massive consumption-led growth in the next decade. India’s GDP will almost double in the next 7-10 years and that means that while it took India 70 years to reach $2.6 trillion GDP, an equal amount will be made in just a decade. So, an investor should ignore all noises about global tensions, politics, elections and the like and just focus on the bigger picture. The Sensex has given a return of 16 per cent in the last 38 years despite assassinations of two former prime ministers—Indira Gandhi and Rajiv Gandhi—Dotcom bubble, Iraq war, 9/11 attack and 2008 global financial meltdown, to mention a few.

Investment view

Jhunjhunwala’s investment philosophy has always been: ‘Invest to create wealth which can provide you freedom of time and choice before you turn 40. Wealth is a function of savings rate (total saving /total income) and rate of return on investments. Saving rate is in your control but return on investments is beyond your  control.’ Having said this, he says that the irony is every investor focuses on investment returns and ignores the importance of savings rate completely. In the greed for high returns, average investors always end up losing their capital. But they ignore the fact that saving more than 50 per cent of income and investing them in less risky strategies can make them rich in just 10-15 years. To get wealthy, one has to start early and take paid advice from competent advisors and not follow friends, relatives and salesmen.

Stock picking strategy

Invest in equities only for the long-term—more than 10 years—and use no leverage. The criteria for selecting the companies to invest are: owners should be ethical and competent; return on investment of more than 15 per cent; sales growth of more than 10 per cent; positive cash flow; debt/equity ratio less than 1; and dividend paying.

Mutual fund picks

HDFC Top 100, ICICI Prudential Banking and Financial Services, Aditya Birla Sunlife Tax Relief