Why Freefincal's Pattabiraman doesn't believe in beating the market
For M. Pattabiraman, retirement planning was never about chasing a magic corpus number or beating the market. Instead, it's been about staying consistent, keeping things simple, and sticking to what works.
A professor at IIT Madras and the founder of personal finance platform Freefincal, Pattabiraman—affectionately known as 'Pattu Sir" in India's investing circles—achieved financial independence and early retirement (FIRE) at the age of 45.
Since 2008, he has invested steadily through multiple market cycles, building a portfolio that delivered a 13.9% XIRR (extended internal rate of return)—without juggling multiple asset classes or experimenting with complex strategies.
In this edition of Mint's 'Guru Portfolio' series, we speak to Mr Pattabiraman about how he built his retirement corpus, the mutual funds that stood the test of time, and why he believes that steadily increasing your investments matters more than hunting for outsized returns. Edited excerpts from the interview:
How is your portfolio structured?
My portfolio is structured with 65% in equities and 35% in fixed income—reflecting a long-term growth strategy I've followed since I began investing in June 2008. The goal has always been to create a balanced approach that can weather market volatility and steadily compound over time. This asset allocation has remained largely unchanged, with no major shifts in recent years.
How has your portfolio performed?
Since inception, my portfolio has delivered an XIRR of 13.90%—a return I'm quite content with, especially considering the long investment horizon and the market cycles I've navigated over the years.
Nearly 60% of my portfolio is invested in equity mutual funds. In addition, I hold a small allocation—about 5.72%—in individual stocks, which form an experimental dividend-focused portfolio. I've not added fresh capital to this segment since October 2022.
My National Pension System (NPS) contribution makes up just over 20% of the portfolio, with only 15% of it allocated to equities and the rest to government bonds. I don't intend to switch to the Unified Pension Scheme (UPS), as I don't expect to rely significantly on pension income after retirement.
Around 10% of my portfolio is invested in debt mutual funds, while my Public Provident Fund (PPF) holdings account for 3.72%. I also maintain approximately 1.2% in cash equivalents—primarily through arbitrage and liquid funds.
Which mutual funds do you invest in?
Parag Parikh FlexiCap has been the standout performer in my portfolio with 20.75% XIRR. I've been invested in it since the new fund offer (NFO), and it now makes up over 58% of my mutual fund holdings. In hindsight, I was fortunate to get in early, and it has paid off.
HDFC Hybrid Equity has been a core part of my portfolio since September 2011, followed by Quantum Long Term Equity, which I began investing in from February 2013. More recently, I added the UTI Low Volatility Fund during its NFO, and it has already started showing promising performance.
On the debt side, I hold ICICI Gilt Fund, which I added during a portfolio rebalance in February 2021. I also invested in Parag Parikh's Conservative Hybrid Fund (CHF), but later switched to their Dynamic Asset Allocation Fund (DAF) for greater tax efficiency.
Do you hold gold in your portfolio?
I've never been interested in holding gold in my retirement portfolio. Gold is as volatile as equities and adds complexity to portfolio management.
But, I do have some indirect exposure to gold through a multi-asset fund in my son's education portfolio—originally ICICI Dynamic, now rebranded as the Multi-Asset Fund.
For investors looking to add gold to their portfolios, a multi-asset fund is a smart and convenient option, as rebalancing is taken care of by the fund manager.
Do you have any global diversification in your portfolio?
Very limited. I have some exposure through the Parag Parikh Flexicap Fund, which once had about 30% allocated to international equities. However, due to RBI restrictions and a rise in the fund's assets under management (AUM), that has now dropped to around 10%. Given that equity makes up 58% of my portfolio, my global exposure is quite small.
Personally, I prefer simplicity. More diversification means more complexity in maintaining allocation and rebalancing. It's fine for investors who understand how to manage that—but I'd rather keep it straightforward.
Do you use credit cards?
Yes, mainly for international payments related to my website, like buying plugins, and also for emergencies. It gives me a few weeks of leeway before paying. But I don't use it for rewards or discounts.
I believe you can't build wealth by spending. Reward points are incentives for spending, and that's not how wealth is created.
What kind of life and health insurance do you have?
I have a total life insurance cover of ₹1.2 crore, split between an employer-provided policy and a personal term plan. Since my investments are meant to handle future liabilities, I haven't seen the need to increase it.
For health insurance, my family—my spouse, son, and I—are covered under United India's Family Medicare Plan. Each of us holds an individual base policy of ₹25 lakh, with a ₹95 lakh super top-up, taking the total health cover to ₹1.2 crore.
What is your target retirement corpus?
I don't have a specific corpus goal. I monitor my withdrawal rate, which is now comfortably below the commonly recommended safe rate.
If I were to retire today, my withdrawal rate would be below 3%, which is very sustainable. And the corpus is sufficient for my lifetime needs.
Do you have any other financial goals?
Yes, I have a separate portfolio for my son's education—covering both undergraduate (UG) and postgraduate (PG) studies. It's reasonably funded and managed in a manner similar to my retirement portfolio, though with slightly lower exposure to equities.
Your message to the people who are planning their retirement?
It's not just about achieving returns—though my portfolio has delivered around 13.6%—but about consistently increasing investments year after year. I've maintained an 18–19% step-up rate in investments annually since 2008. This rate of increasing my SIPs has had a more significant impact on wealth creation than the returns themselves. Even if most people can't manage that, aiming for at least a 5–10% increase each year can go a long way, especially if they resist lifestyle inflation.
Simply relying on returns won't build wealth. A high return on a small investment won't get you far. For salaried individuals, increasing the amount you invest is more critical than chasing returns.
Your message to the people who want to achieve FIRE?
I prefer calling it 'financial independence' rather than retirement—because I still work, and I enjoy it. Many people either set extreme goals like retiring at 35 or assume they'll work forever. Both approaches carry risks. Without a clear plan or purpose after quitting a job, people often face mental and even physical health challenges. Financial independence shouldn't be an escape from a toxic job; it should be a move toward something purposeful and fulfilling.
One of the biggest pitfalls I see is under-investment for retirement. People underestimate how much they'll need. My recommendation is to invest consistently—and to keep increasing your investments steadily over time.
More importantly, retirement planning today is very different from what it was for our parents. Earlier generations could rely heavily on fixed income instruments and government schemes. But today's retirees must navigate market-linked instruments like mutual funds and equity, which require a certain level of expertise. Unfortunately, many investors—and even advisors—haven't fully adapted to this shift.
A common mistake is taking on too much equity risk post-retirement. Allocating more than 30% of your corpus to equity after retirement can be dangerous unless you have a very large corpus. The key is maintaining the right asset allocation and following a conservative withdrawal strategy to ensure long-term financial stability.
Are systematic withdrawal plans (SWPs) a good idea for retirees?
They can be risky if not handled carefully. Many people use SWPs from equity funds without realising that market downturns will force them to sell more units, draining the portfolio faster.
SWP backtests are misleading—they assume perfect past conditions. A better approach is to do SWPs from low-volatility funds and grow your equity portion gradually. Only if you have a very low withdrawal rate (like 1%), can you afford higher equity risk.
What's your recommended bucket allocation for those planning retirement?
I suggest using a bucket strategy to manage retirement savings more efficiently:
If managed well, this structure allows for smart rebalancing—shifting gains from equities into the income bucket during bull markets—helping you maintain both growth and stability over time.
That said, many investors today are overly optimistic and tend to ignore market risks. Take the sharp drop on election result day, for example—events like political instability or a fractured mandate can quickly derail market assumptions. It's crucial to remain realistic about long-term returns and focus on diversification, especially when managing your retirement nest egg.
More from the Guru Portfolio series:
Why PrimeInvestor's Srikanth Meenakshi prefers mutual funds to stocks
Why Sumit Shukla has funds tied up in NPS tier-II, not MFs
Large-caps & Reits: India's largest investment adviser's shifts
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