Money should work for you (passive income) rather than only you working for money (active income), says Viraj Gandhi, Chief Executive Officer, Samco Mutual Fund. In an interview with MintGenie, Gandhi suggests that once passive income starts compounding retirement can be planned.
Edited Excerpts:
Q. Financial independence is connected to financial literacy. Why do so many people continue to be unaware of various investment options?
It’s a very interesting question and we believe that financial literacy should be one important subject to be taught at the school level to children. This will enable great awareness from the very beginning to the future citizens of the country and make them think rationally when they grow up and take financial decisions responsibly.
Q. Retiring early is a dream of many though very few achieve it. What restrains people from accumulating enough corpus and retiring early in life?
For this to make happen, money should work for you (passive income) rather than only you working for money (active income). Once passive income starts compounding retirement can be planned. This also requires investing at an early age, and staying invested for a more extended period of time to reap the benefits of compounding.
Q. Debt funds and foreign investments have lost their indexation benefits. Which investment options do you then advise investors to meet their short-term financial goals?
This segment has to settle with this new development and short terms funds have taken a hit with this clearly. We need to wait for at least one more quarter to see where this segment is going or is ready to pay higher taxes. It’s too early to say anything at this moment.
Q. Many people invest from the tax-saving point of view. What wealth creation strategy would you advise such people?
The most ancient and traditional way of wealth creation is to stay invested in great businesses for the long term (I am referring to the aforementioned five to seven years). Everything else is taken care of by itself. As I said earlier, to reap the benefits of compounding, there is no better option than to stay invested for a longer period of time. Staying with good businesses having long-term growth potential has a better probability to benefit investors than short-term churning.
Q. Amidst this chaos due to geopolitical tensions and the sudden fall of foreign banks, which sectors do you think would perform the best?
Structurally if you are going to be invested in Indian equities for the next three to five years, we believe the IT, NBFC, Consumer Durables and FMCG sectors should do well.
Q. The current market conditions seem ripe for long-term investors. However, short-term investors find themselves in a fix. What is your advice to them?
At SAMCO, we have developed a proprietary model of investing, which we describe as the Equity Margin of Safety Index (EMOSI). It is an indicator, which is based on the margin of safety investing principal. If one can understand what went behind building EMOSI and follow that indicator and take the emotion of the equation, it will be a great enabler to short-term investors.
Q. When do you expect the RBI to take a pause on rate hikes?
We are of the opinion that we are in the last leg of rate hikes domestically and internationally. By end of this calendar year, we would be talking about rate cuts and it has a relevant impact on the overall economy, corporates and markets.
