You only need a fund where returns remain consistent: Freefincal's Pattabiraman

M. Pattabiraman, founder of Freefincal.
M. Pattabiraman, founder of Freefincal.


  • I have always been a believer in asset allocation throughout my investment journey, says Pattabiraman.

Prices of gold touched a record high recently. But that does not impress M. Pattabiraman, founder of Freefincal—a media organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing and retirement, as per its website. “I have never considered gold in my portfolio because it’s an asset class based on fear; people run to gold in the fear that something bad would happen in the markets. I would rather prefer an asset class based on hopes, which is equity," says Pattu Sir, a name by which Pattabiraman is more popularly known in the investor fraternity.

Graphic: Pranay Bhardwaj
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Graphic: Pranay Bhardwaj

“You don’t need a star performer fund. You need a fund where returns remain consistent throughout the market conditions," Pattabiraman, an associate professor at IIT Madras, tells Mint in an interview for the Guru portfolio series. In this series, leaders in the financial services industry share how they manage their own money. Edited excerpts from the interview:

What is the asset mix in your investment portfolio?

My portfolio comprises 65% equity and 35% debt. Large-caps take up a major chunk of the equity investments. As for debt, 62% is in the National Pension Scheme, about 12% is in Public Provident Fund, 22% in debt mutual funds (MFs), and I keep around 4% cash. I have always been an investor who likes large-caps because of the stability. I have been investing in PPFAS flexi-cap fund since its launch and its allocation has not changed much since.

Graphic: Pranay Bhardwaj
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Graphic: Pranay Bhardwaj

What is your last 5-year return?

I only track the since-inception XIRR, which is 17.8% (June 2008 to March 2024). I do not track my portfolio performance because my core focus has always been goal-based investing to build a corpus and based on how long that corpus would last if I retire today. Thankfully, I was able to achieve financial independence a few years ago. Since then I have been looking at SWR (safe withdrawal rate), i.e my current annual expenses corresponding to my retirement corpus. I have been trying to further decrease this rate as much as possible. Ideally it should be 4%. This is why I don’t much look at the last 1-, 2- or 5-year return. Instead, I stick to goal- based investing to build a sizable corpus for retirement. I avoid switching and adding too many funds in the portfolio.

What changes have you made in your portfolio?

When I started investing in 2010, I did not have much experience of building a portfolio and so it used to keep changing. But since 2017 I haven’t changed much in my portfolio; my core funds have been the same. But recently, I have made changes because my equity was going up. To maintain my asset allocation, I had to balance it with debt. I have always been a believer in asset allocation throughout my investment journey. I have never considered gold in my portfolio because to me it’s an asset class based on fear; people run to gold in the fear that something bad would happen in the markets. I would rather prefer an asset class based on hopes, which is equity.

What motivated you to focus on personal finance?

I had completely no knowledge of managing finances until 2006 when I had started working. I got my first salary and a few days later my father was diagnosed with cancer and he was hospitalized. At that time, I had no money and no health insurance for him; nobody had health insurance in my family then. I had to borrow money from my brother-in-law, who was kind enough to give me an interest-free loan of 3 lakh. In 2006, this was a huge amount.

I felt ashamed and it scares me to even recall that moment because, despite having a PhD (doctorate) and a secure job at IIT Madras, I couldn’t manage that financial crisis, I had not prepared for this. So I told myself, this should never happen to me again. I should never again be in debt, I am going to now manage my money better. I started the first SIP (systematic investment plan) of 1,500 in June 2008; the markets were falling that time.

Some people say that I got lucky because I had the opportunity to capture the upside of the markets in 2009. But that isn’t true since the investment was very less in comparison to what my capital is today. Because of the financial crisis that I was going through. I made the decision that I am going to plan for my retirement regardless of where the markets go, and I cannot be financially dependent on anyone ever again. From 2008 to 2013, my equity returns were almost nil but I continued investing. In late 2013, the markets shot up. This is when my portfolio started doing well; this is the power of consistently investing and staying in the markets.

You might be disappointed to see your portfolio when markets are sideways or there is no upward moment. But you have to keep patience. I see people are emotional today about things like buying a house and planning other life events but they don’t think much when it comes to retirement planning.

Asking the right questions always helps in financial planning. Instead of thinking where should I invest, you should ask why should you invest and what is the reason. Check your risk appetite. As our rishis used to say, “look within", this applies to personal finance as well.

What is your investment approach?

You don’t need a star performer fund. You need a fund where returns remain consistent throughout the market conditions. A simple way to go about this is to just invest in aggressive hybrid or balanced funds. These ideas take care of your asset allocation, giving you an exposure in equity as well as fixed income and better risk-adjusted returns. These funds might not have great returns but will also notice lesser drawdowns and, over the years, it will give you reasonable returns. This is my approach when it comes to investing in active MFs. I highly suggest investing in passive funds

Where are you investing now?

I maintain a 65% equity, 35% debt asset allocation with a key focus of my child’s education and my retirement planning.

Do you have health insurance?

After my father’s incident, I made sure of getting health insurance for my entire family. Currently, the cover is about 1.25 crore for my wife, son and me. It is about 20 lakh for my mother.

Do you have life insurance?

Yes, a mix of employer insurance and private cover of 1.4 crore.

How do you manage your own finances?

I do not have any debt and thankfully I live in my own house and so I have never had to plan a home loan. This is an ancestral property, I do not have a car. I have a frugal lifestyle with minimum needs. And this has been a big driver to grow wealth. My mantra, especially for salaried people, is to keep investing. They should invest consistently as much as possible each month. Increase the investment 10% every year. Keep patience and give your money enough time to grow.

What are your biggest money learnings?

Discipline is key. We need to focus on long term goals in a well-balanced and diversified portfolio without looking at market levels. Avoid chasing the trends as they keep changing and it can be harmful.

Why do you prefer index investing?

If we observe the performance data between active versus passive funds, the latter have been consistently outperforming the applicable benchmarks in terms of rolling return with a much lesser expense ratio. And that is why choosing an index fund especially for your long-term investments with a higher time period makes more sense.

With index investing, you don’t have to worry about star rating and changing fund managers; your portfolio will capture the market growth.

How do you manage risk in your portfolio?

I would define risk as something that hits you what you never expect it. Not having insurance is a risk for you and your portfolio and we must safeguard ourselves from such risks. Having the right asset allocation can reduce the risk significantly. Rebalance your portfolio as and when it hits your targeted asset allocation. Having a goal also refines risk because that will define your time period and financial needs, and invest based on the plan which will help you in risk management. Lastly, having an emergency fund helps.

What are your financial goals?

Planning for retirement has been my primary goal and to fund my son’s education.

How do you stay informed?

The truth is, I don’t. I don’t follow news, finance or otherwise. I believe in an information diet. The rules of personal finance are centuries old, and new developments are not going to change that.

What would you advise new investors?

Optimise your time in upskilling yourself and your active source of income. Select a simple product, invest consistently. Don’t chase returns or trends, that is going to waste your time. Planning your retirement is crucial.

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