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Kalpen Parekh is a name synonymous with success in the finance world. As the Managing Director & CEO of DSP Mutual Fund, he stands tall, managing a portfolio that boasts over ₹10,00,00,00,00,000 at DSP.
With over 34 lakh Indians putting their trust in him, there's no denying the weight of responsibility and expertise he holds.
In a recent episode of Jar Xchange, a podcast series that sheds light on extraordinary personalities shaping India's dynamic business landscape, Parekh shared invaluable insights.
From decoding millennial money slang to exploring the intricacies of investing, his expertise was evident. The podcast also touched upon the rise of finfluencers, a phenomenon taking the finance world by storm, and highlighted behaviours that can hinder successful investing.
From Humble Beginnings to the Financial World
Parekh's journey, much like many others, began in a middle-class family setting. Raised in a double income household with three children, he grew up witnessing the relentless efforts of his parents.
"The only focus and obsession was to have a better future so that kids can study and grow."
This environment cultivated in him an early understanding of the value of money and frugality.
Observing his parents' dedication, particularly his mother's challenging commute in Mumbai trains, Parekh learned that true value was not just in what one could buy, but in the sacrifices made to achieve those purchases.
Early Encounters with Money and Value
During his engineering studies in Pune, Parekh resided in a hostel, surrounded by peers from various economic backgrounds.
This diverse setting made him witness various spending habits, savings methods, and financial priorities, shaping his early perspectives about money.
Within this group, he discovered a shared passion for financial knowledge.
He recounts pooling money with friends to buy magazines like Economic Times, further highlighting the importance of collective financial awareness.
Stumbling Into Finance
Despite studying chemical engineering, Parekh didn't feel aligned with the profession.
To escape it, he pursued an MBA.
"No career step of mine has been deeply thought through; it has just happened."
This candid admission emphasises the role of randomness in shaping his career.
He reminisces about his early days at L&T Finance and his swift learning about bond markets.
The period marked the budding stage of private-sector mutual funds in India, allowing Parekh a front-row seat to the financial evolution.
The Importance of Financial Lessons from Mistakes
An interesting anecdote from his journey highlights the allure of narratives in investments.
During the 2000 tech bubble, he narrated the story of Indian tech companies' global potential.
While the narrative sold, the eventual market corrections left many investors, including Parekh, with losses.
These setbacks, however, weren't in vain. They taught him invaluable lessons
"It is easy to sell if your story is good"
Reimagining Asset Allocation in the 21st Century
The conversation then steered towards asset allocation, a cornerstone of financial planning.
Parekh believes the rules have changed. In a world with negative interest rates, geo-political tensions, and unpredictable market events (like a global pandemic), the traditional 60/40 rule (60% stocks and 40% bonds) might not hold the same allure.
Parekh is a proponent of diversification, not just across asset classes but also geographies.
With emerging markets showcasing significant growth potential, investors should not shy away from looking beyond their home turf.
Kalpen Parekh believes in diversification, both across asset classes and geographies. He specifically emphasised the potential of emerging markets.
Participation of Women in Digital Fintech Products
Discussing the limited participation of women in digital fintech products, particularly in India, Kalpen Parekh shared his perspective:
- Cultural Dynamics: In many Indian families, men traditionally take charge of financial decisions. This dominance in money-related decisions means women often don't get the exposure or confidence to navigate fintech platforms.
- Education and Awareness: DSP has a program called 'Investors' which specifically tailors content in a manner more relatable to female investors. Data suggests that women might be inherently better investors than men. However, they might not always have the confidence or knowledge to make those decisions.
- Encouraging Participation: Instead of just educating women, men should also be taught to encourage the women in their families to participate in financial decisions. For instance, if a father is teaching his son about investing, he should spend equal time educating his daughter.
- Regulatory Incentives: Regulators have proposed incentivizing distributors who bring in more female investors, which could be one way to increase female participation.
- Empowering Decision Making: The ultimate goal should be to empower women to make their own financial decisions. Even if they invest, it's essential that the investment choices are genuinely theirs.
Where does Kalpen Parekh Invest?
Q) Kalpen, can you give us an insight into where you invest your money?
Kalpen - Certainly. I invest everything in mutual funds for several reasons:
- Simplicity: They offer a hassle-free investment platform.
- Tax Efficiency: Mutual funds can be a highly tax-efficient way to invest.
- Liquidity: I can liquidate and have my money in 24 hours.
- Authenticity & Alignment: Being the CEO of a mutual fund and advocating for mutual funds, it’s important for me to invest in them as well. At DSP, we invest our money only in DSP mutual funds. This alignment ensures we have skin in the game and our interests align with our investors.
“I diversify across various DSP mutual funds. While I've worked with three other organisations in the past and about 10-12% of my investments are in those funds, the majority lies in DSP funds. My portfolio spans equity, hybrid, and global funds. I lean towards hybrid funds when markets seem expensive and global funds to tap into international opportunities.
One of my favourite funds is one where the largest holding is Berkshire Hathaway. Most people might know Warren Buffett but might not have read his books or invested in his company. Despite being one of the most expensive stocks in the world, through mutual funds, you can have a stake in it affordably.
Lastly, I have around 7-8% of my portfolio in Gold bonds and a fund investing in gold mining companies. It’s more on the risky side, and while I wouldn't advise everyone to go down that route, I personally like taking a bit of risk with my investments.”
Q) How should beginners start investing
Kalpen - Alright. Let's picture a 25-year-old in Bangalore earning around 50-60,000 rupees:
- Health Insurance: Your first investment should always be in your health. If health issues arise without insurance, it can derail your financial journey.
- Life Insurance: Get this while you're young. It's cheaper and ensures financial security for your loved ones.
- Start an SIP (Systematic Investment Plan): This is the best place for beginners to start. SIPs let you invest over time, smoothing out market volatility. Over months and years, you'll experience all market conditions, which averages out risks.
As for where to invest, a Flexi Cap Equity Fund is a good starting point. These funds invest in good companies at good prices. Over 10-20 years, this is an effective strategy for accumulating wealth.
The core principle remains the same even if you start at 35 or 45. It's about creating a base for your financial future. Mutual funds, in essence, allow you to tap into the success of various businesses without having to run them. You can enjoy the fruits of the top businesses globally without the associated risks of running them yourself.
Financial Literacy: A Lifelong Pursuit
Traditional financial wisdom often champions the virtue of saving money. But Parekh offers a refreshing perspective, suggesting it's more pivotal to "be an investor instead of a saver." This advice, although simple, shifts the narrative from mere accumulation to growth-focused financial planning.
Parekh stresses the importance of financial literacy, especially in today's complex financial landscape. He commends platforms like Jar Xchange for promoting financial education, calling it a "need of the hour."
“Imagine giving someone the keys to a powerful sports car without teaching them how to drive. That's what it's like handing someone money without imparting financial wisdom.”
Parekh believes in starting young and sees schools as the perfect place to lay the foundation for sound financial habits.
Kalpen Parekh's journey and insights serve as a beacon for those traversing the intricate maze of finance. Whether you're a budding investor or a seasoned pro, his advice is gold.
As he often stresses, leveraging technology and adapting to new financial tools are key. After all, in the evolving world of finance, being informed is being empowered.