Why Mukherjea is factoring in high inflation for retirement goals
Investors must look at their own consumption basket when considering inflation rates, says Saurabh Mukherjea
Inflation is a key concern for retirement planning since it eats into your savings and thereby reduces your buying power. It is thus necessary for investors to factor in inflation in their financial planning. especially where it concerns retirement goals. In this context that Saurabh Mukherjea, 48, founder and chief investment officer of Marcellus Investment Managers Pvt. Ltd—a portfolio management services firm, has a word of advice for investors. He says they should not plan their retirement goals with headline inflation rates released by the government. Instead they should re-calibrate it to reflect their own consumption basket.
“The consumer price index-inflation (CPI) has high weightage of food prices, whereas for the mass affluent class, the cost of living is rising at a good 7-8%. So, for example, cost of phones, car, overseas travel, overseas education, healthcare, etc., all of this is rising at a pretty rapid rate,” he points out. He adds that part of the reason for this higher cost of living is because a majority of what the mass affluent Indians consume is imported. Hence, the impact of currency depreciation also needs to be factored in.
Mukherjea himself adheres to this financial plan. Instead of the 6% CPI inflation, he has considered 8% inflation for his retirement goal.
In an interaction with Mint for the Guru Portfolio series, Mukherjea shared how he is investing across different investment products and how his investments have performed over the past year.
Asset allocation mix
About 90% of Mukherjea’s portfolio is invested in equity and the remaining in debt. The debt pie comprises of bank fixed deposits (FDs), which Mukherjea says serve as a corpus for a rainy day, providing a safe harbour in case of major financial emergencies. With this allocation, he can manage living expenses for up to two years in case of any contingency.
As for the schemes that he is invested in, the largest allocation in his portfolio is to Marcellus Consistent Compounders. It accounts for 30% of his overall portfolio. This is followed by Marcellus Global Compounders (20% of his portfolio), which invests in overseas companies. About 15% is in Marcellus Little Champs fund.
Marcellus Consistent Compounders and Marcellus Global Compounders delivered 24% and 30% post-fee returns, respectively, in the past year for Mukherjea’s portfolio. Meanwhile, the returns from Marcellus Little Champs, which invests in smallfor
Lender
Bank of India
Union Bank of India
Bank of Maharashtra
South Indian Bank
Punjab National Bank
Indian Bank
Bank of Baroda
Indian Overseas Bank
Nainital Bank
Canara Bank
IDBI Bank
UCO Bank
Central Bank of India
Punjab & Sind Bank
Karnataka Bank
PRANAY BHARDWAJ/MINT
Interest rate (%)
8.30-10.75 8.35-10.75 8.35-10.90 8.35-11.44 8.40-10.10 8.40-10.35 8.40-10.60 8.40-10.60 8.40-11.00 8.40-11.25 8.40-12.25 8.45-12.60 8.50-9.50 8.55-10.00 8.60-0.62
YOUR FIRM'S AUM STANDS AT ŕ8.600 CR, YET YOU'RE STILL SHORT OF RETIREMENT GOAL
Marcellus' profits are not proxy for my earnings. The firm has many shareholders; most are employees. My earnings are akin to those of a senior fund manager in large AMC. We also need to fund our children's education in couple of years. Budgeting ₹4 cr for it. cap companies, were flat.
Other investments
Apart from Marcellus funds, Mukherjea prefers the National Pension Scheme (NPS), which accounts for 15% of his portfolio. He likes NPS for multiple reasons. “One is I get tax relief for employer’s (Marcellus’) contribution. Besides, the fee is quite low and it ensures that I can’t touch the corpus till my retirement age because of the lock-in period,” he says.
Mukherjea also has an investment in a UK pension fund, which accounts for another 10% of his portfolio. He
ADebt
Investments/weight Returns 25%
NPS
WHAT'S YOUR ASSET MIX?
HOW HAVE THE INVESTMENT PRODUCTS IN YOUR PORTFOLIO PERFORMED?
MCC^
MGC^
UK Pension*
MLC^
Bank FDs
24% 30% 20% 0% 7%
Wtd. average returns 20%
HOW MUCH OF YOUR PORTFOLIO HAS INTERNATIONAL EXPOSURE?
30%
10 in% 90
Equities
WHAT IS YOUR RETIREMENT CORPUS TARGET?
In today's money terms, we would need ₹20 cr corpus. But if we assume 8% inflation for mass affluent, we would need ₹50 cr on retirement. portfolio has delivered weighted average returns of about 20%. He says that he reviews his portfolio annually and has over the years realized that one-third of the portfolio does quite well and one-third does not go anywhere. “The trick is to look at the portfolio in its totality,” he says. Retirement and other goals Mukherjea is budgeting ₹4 crore to fund for his children’s university education, which he says will start in the next couple of years.
Mukherjea says if the children get admission in good colleges in India, then they will study here, otherwise they will study overseas. “But, obviously, my wife and I have to budget home loan is probably the biggest loan that one takes. Not only in terms of the loan amount, but also tenure, which can be 15 years or more. The total final amount that one pays can be double of what was borrowed. But a home loan is among the cheapest loans available, and usually it is the only way a person can buy a house. A home loan is called a ‘good’ loan because it helps you acquire a tangible asset that can appreciate over the long term. It makes sense to buy a house if you plan to live in it. Given the fact that the construction of several housing projects in India continues to be delayed or stalled by many years, financial advisers say that one should buy a ready-to-move-in house. Here’s a look at the lowest home loan interest rates of some leading banks.
EMI (₹) 25,656-30,457 26,283-30,457 26,283-30,762 26,283-31,869 25,845-29,150 25,845-29,650 25,845-30,153 25,845-30,153 25,845-30,966 25,845-31,478 25,845-33,557 25,940-34,296 26,035-27,964 26,130-28,951 26,225-30,194
Nil says this investment is from the days he started his career in the UK.
“In the initial days of my career, I was with tech and consulting firm Accenture in the UK. I didn’t know much about finance then. The company had a corporate pension plan managed by a British index fund provider. I joined it and am still a part of it.”
Mukherjea’s international exposure accounts for 30% of his overall portfolio, combining the UK pension fund and his 20% allocation to Marcellus Global Compounders.
On an overall basis, Mukherjea’s 0.50% (Max. ₹15,000 )+GST 0.25% (Max. ₹25,000) 0.50% (Min. ₹10,000 )+GST 0.35% (Min. ₹2,500 and Max. ₹15,000)
Up to 0.25%
Nil*
mUp to 0.50% (Max. ₹25,000 )+GST
Not updated
0.50% (Min. ₹1,500 and Max. ₹10,000) ₹5,000 to ₹15,000
0.5% (Min. ₹1,500 and Max. ₹15,000)
0.50% (Max. ₹20,000 )+GST
Full waiver of processing charges
Up to 0.25% (Max. ₹25,000)
IS EDUCATION GOAL MEANT FOR OVERSEAS STUDIES?
If they (children) get admission in good colleges in India, then they study here. Otherwise, overseas. We obviously have to do our budgeting with higher cost outcome in mind.
HOW MUCH HEALTH COVER DO YOU HAVE?
Group health cover of ₹10 lakh.
HOW MUCH LIFE COVER DO YOU HAVE?
Between me and my wife, we have ₹5-10 crore of term life cover.
DO YOU HAVE A CONTINGENCY FUND?
Around 10% of my portfolio, which is in bank FDs, is for contingency. It has provision for 2 years' worth of living expenses.
DO YOU HAVE ANY LOANS?
No. Repaid home loan long back.
WHEN DID YOU BUY A HOME?
We bought a home in 2009 as shifting houses with children every 2-3 years was not viable.
WILL YOU CONSIDER REAL ESTATE FOR INVESTING?
Cost of borrowing and low rental yield don't make a rational case for investing in real estate. Commercial real estate is better, but liquidity and large ticket-size are issues.
HOW DO YOU DE-STRESS?
I do yoga and meditate every morning under a teacher's guidance. I resist the temptation of working after going home and spend time with family. this, keeping in mind the highercost outcome,” he says.
Once the education goals are out of the way, both Mukherjea and his wife want to focus a bulk of their investments in achieving their retirement corpus goals. Mukherjea says they would need ₹20 crore in retirement corpus in today’s money terms.
“But if we inflate this by 8% over the next 12 years, i.e. when I turn 60, we would need ₹50 crore as retirement corpus. To maintain our lifestyle as an upper middle-class family for a retirement period of 25 years (assuming life expectancy of 85 minus the retirement age of 60), we would need ₹50 lakh annually, which we would be able to draw from this corpus,” he explains.
But as the founder of a PMS firm with AUM of ₹8,600 crore, hasn’t Mukherjea already accumulated this corpus?
“Marcellus is now a mid-sized asset manager in the Indian context and has profits commensurate to that. However, these profits are not a proxy for my earnings, as Marcellus has many other shareholders; most of whom are employees of the firm. My earnings are similar to those of a senior fund manager working in a large asset management house in India,” he says.
Real estate
Mukhejea owns and lives in a property in Powai, which is an upscale locality in Mumbai. He bought the house in 2009. He says he repaid the home loan as soon as he could.
“In the first five years after buying the home, the priority was to pay the loan as soon as I could. This was the time when the interest on home loans were 9-10%. If we had invested in the Nifty 50 Index instead, it may have generated about 13% annualized returns. Post-capital gains tax, there would not have been much difference compared to the cost of the loan. Once the loan was paid off, it freed up the cash flows for us,” he says.
However, Mukherjea doesn’t consider real estate for investment purposes. “Cost of borrowing and low rental yield don’t make a rational case for investing in real estate. Commercial real estate is better, but liquidity and large ticket-size are issues,” he says.
Insurance
Mukherjea says he and his wife have a combined term life cover of ₹5-10 crore. He also has a group health cover of ₹10 lakh.
How does he take care of his own well-being? Mukherjea says he starts his day every morning with yoga and meditation, under the guidance of a teacher. He adds that he tries to resist the temptation of working after returning home in the evening from office and looks forward to spending time with his family.
Bhupendra Meel is a portfolio manager in the private banking division of a multinational bank.
(The views expressed in this column are personal.)