Real estate investments

 In India, our old people have only two options for investment. These are Real State (house or Plot) and Gold. We will talk about gold some other day. Lets talk about the investment in REAL ESTATE.

We as an Indian have great love with Real Estate. We can do anything for this. Real Estate has often been confused as an investment because it demands financial commitment. This first problem with real state is the minimum amount to invest in. Suppose if you have that amount, still you must pay stamp duty and registration at the time of purchase. It can be 5% to 6% depending about the location. So, we have the pay more than the market value. If you have taken help form any broker, then you have to pay his brokerage on top it. And If you have taken a home loan then it will cost you more, double in some cases. Somebody may argue the additional tax benefit comes with interest payment on Home Loan. The recurring costs are the maintenance and property tax which eats form profit month on month and year on year.

Now the final problem with real estate investment is liquidity. It can take months to find a buyer; and in a rush to sell the house as soon as possible, we often fail to sell the house at a fair price. Moreover, even if the money we need is smaller than the price of the house, we will have to sell the entire property to get the money. Suppose you have 80L worth of single 3BHK and you need 5L for an emergency. You can sell it in a part you have to sell whole asset. And condition will be worse if prospective buyer came to know about your emergency. He will quote well below the market rate.

Someone might think the rental income as a return. But If you calculate the rental income will be come around 2-3% per year before all then tax and maintenance. We can easily get more in any Bank’s FD with less tension and no cost and better liquidity. 

Real estate investments can be risky during economic slowdown like 2008 and COVID-19. The risk is so much so, the property price might depreciate instead of appreciating. One more thing I like to mention here that there was time when cities were expanding horizontally and all of us need our house at center location for better access to market and all. It you go extremely far then it will take time to come to that location. That is the time where it was appreciating. But now a days we have multi stories building. We can accommodate 10 times more family in same piece of land. So, supply form the builder side is also extremely high. Now with better infra people do not mind going 10 to 20 km inside. Due to this also supply is more than enough to restrict the appreciation. 

Here I would like to mention that I am not against the buying the house or plot. But it should not be the only investment in our life. We should have with the alignment of our financial goal.

How Pump and dump works in market

A friend just shared with me this stock market story

A lot of monkeys lives near a village.

One day a merchant came to the village to buy these monkeys!

He announced that he will buy the monkeys @ $100 each.

The villagers thought that this man is mad.

They thought how can somebody buy stray monkeys at $100 each?

Still, some people caught some monkeys and gave it to this merchant and he gave $100 for each monkey.

This news spread like wildfire and people caught monkeys and sold it to the merchant.

After a few days, the merchant announced that he will buy monkeys @ 200 each.

The lazy villagers also ran around to catch the remaining monkeys!

They sold the remaining monkeys @ 200 each.

Then the merchant announced that he will buy monkeys @ 500 each!

The villagers start to lose sleep! ... They caught six or seven monkeys, which was all that was left and got 500 each.

The villagers were waiting anxiously for the next announcement.

Then the merchant announced that he is going home for a week. And when he returns, he will buy monkeys @ 1000 each!

He asked his employee to take care of the monkeys he bought. He was alone taking care of all the monkeys in a cage.

The merchant went home.

The villagers were very sad as there were no more monkeys left for them to sell it at $1000 each.☹

Then the employee told them that he will sell some monkeys @ 700 each secretly.

This news spread like fire. Since the merchant buys monkey @ 1000 each, there is a 300 profit for each monkey.

The next day, villagers made a queue near the monkey cage.

The employee sold all the monkeys at 700 each. The rich bought monkeys in big lots. The poor borrowed money from money lenders and also bought monkeys!

The villagers took care of their monkeys & waited for the merchant to return.

But nobody came! ... Then they ran to the employee...

But he has already left too !

The villagers then realised that they have bought the useless stray monkeys @ 700 each and unable to sell them!

It made a lot of people bankrupt and a few people filthy rich in this monkey business.

That's how the pump and dump works. Be careful about what you are buying. This happen in many stocks in past.

Hope this will help...

Most Common Personal Finance Sins

Everybody has some weakness when it comes to personal finances. Personal finance did not found any space in our school education system. The most Common Personal Finance Sins are :-

1] Do not have term insurance and Buying insurance policies for investment:-

There is a general myth that buying a term plan is waste of money. We will not get anything if we survive. Having a term insurance protects your loved ones in absence of you. This is the first financial mistake which you should avoid and have a adequate term insurance. It is a cost not an investment. Never mix insurance and investment. If we mixed them then we will miss the better protection and better return on our investment too. Traditional plans, pension plans, unit link insurance plans (ULIPs) have very low return, even lower than FD

2] My Company is providing health cover:-

Now days, every company gives health cover to their employees. Many people told me that I have company’s heath cover, why should I buy separate health insurance policy? The simple answer is “if you lost your job or change your job in between something uncertain illness happens to you or your family members, you will need to pay from your savings and investments.It is better to have separate health insurance along with top-up plan and personal accident policies.

3] Not planning on monthly expenses:-

Expenses reduction should be a goal and everyone should try to achieve it in their own way.It is old saying "money saved is money earned" . Saving the money means reserving the earned money for the future use. Debt is to use money now that have to be earned somewhere in the future. Debt and alcohol have in common that if one enjoy to much of it or get addicted, one gets in big trouble one way or an other.

4] Lack of emergency funds:-

One of the very first and important step of financial planning is to create an Emergency Fund. It is required to take care any unforeseen risks or unexpected and unplanned scenarios. It should not be used for meeting our routine or planned expenses. Without this long-term planning may fail. There could be a temporary job loss or medical emergency which can disturb your routine expenses. In these days we have our others commitment too.

5] Investing without goals:-

Goal gives us clarity for our vision and mission. We just invest without having any time horizon or goals. We should have our goals and their time fame. without these pointer we can choose right investment vehicle.   Without this pointers it cause over exposing to the risk and sometime pre-matured withdrawals. Investing to just save your taxes should not be only goal.

6] Free advise form Friend and relative:-

when it comes to health we prefer to go to professional with MBBS or MD and not taking medicine recommended on google but for wealth we like free advise either for friend/relative or Google/YouTube. Most of the time it cause the huge loss. we have to under stand the each of us have different risk profile. we have to choose the product according to this only. for this we need professional. So, hire professional unbiased registered investment advisor and financial planner, and more important he or she must has some personal experience in this.

7]  Not reviewing investment periodically:-

Ideally our risk profile changes day by day so we need to keep eye on our investment. the financial world changes very frequently so factors to choose one investment may change after some time so we also need to change our plan. This is the main reason to stay on proper path to reach our goal.

8] Not talking to our child on this:-

Personal finance did not found any space in our school education system. most of the our families don't want to discuss the money matters in-front of out children. Most of us also don't bother to know how our kids expend their pocket money. 

Hope this will help.....

Money saved is money earned

Q. How should I manage my expenses?

Expenses reduction should be a goal and everyone should try to achieve it in their own way.It is old saying "money saved is money earned" . Saving the money means reserving the earned money for the future use. Debt is to use money now that have to be earned somewhere in the future. Debt and alcohol have in common that if one enjoy to much of it or get addicted, one gets in big trouble one way or an other

“How do I start ?”

• Take care of your physical and psychical health in the first place !! Keep your personal medical insurance ready to meet any un-fortunate event. i week hospitalization can wipe out your savings of many months. 

• When your money arrives in your account, you FIRST save money (10%), SECOND reduce debt (10%) and THIRD spend money. Otherwise you will find out that there will be almost no money left to save.

• Avoid advertising. What ever they told you, the only purpose of advertising is to seduce you to spend your money on their stuff that you do not really need. Buffett says "If you buy things you don't need, you will soon sell things you need.”"

• Write down each and every expenses daily for 3 months and look at the unnecessary items. 80% of all problems are caused by 20% of reasons. So if you can find out those 20% reasons that make you spend 80% of all your money, it makes easier for you to reduce your expenses.

• Go Offline if you can.When making payments become too easy and painless, we normally end up spending more. Make it difficult. Make it offline. Go to physical stores and buy. This may lead to lesser purchases or not buying things, that we do not need.At physical stores also, we can swipe our cards and buy things easily. This again may lead to buying things that were not in our shopping list. Try buying things using cash. This will help you to remain strictly within your budget.

• Talk to your family i.e. spouse or grown-up children that why you want to save more and reduce your unnecessary expenses. Ask for their suggestions and active participation. It's a family goal after all. Without their support, you are unlikely to achieve it on your own.

Hope this will help.......

RULE OF MONEY

1.Pay yourself first

2.Learn how to invest

3.Do not be a hater of it

4.Give every dollar a job

5.Spend less than you earn

6.Have a plan and set goal

7.Do not become a slave to money

8.If we have it do not flaunt it

9. Keep our finances organized

10. It is a game learn how it work

11.Always have an emergency fund

12. Learns how to make money passively

13. Know how to risks it and leverage it

14. Do not use credit if you do not have cash

15. It is not what we make it is what we keep


Don't buy that $300 bag to have nothing in it, buy that $20 bag and have $280 in it. Don't go broke trying to look rich.

Corporate Tax Cut : More fireworks Expected

On Friday (20Sep2019) our finance minister cut the Corporate taxes from 35%  to 25.2%(Effective). It was a long pending demand form industry. After that we witnessed a huge up move in stock prices and indices. Because this cut in tax will impact positively on earning of a company. The approximate change in EPS would be 15%. If the PE of remains same then the valuation is also expected to apricate by 15%.

Suppose if a share with PE multiple 20 has Earnings Per Share (Before Tax): 100Rs.

Case 1: Before Tax cut

Corporate tax : 35%

Earnings Per Share (After Tax): 65 Rs.

Expect valuation in this case: 65*20=1300 Rs.

Case 2: After Tax cut

Corporate tax: 25.2%

Earnings Per Share (After Tax): 74.8 Rs.

Expect valuation in this case: 74.8*20=1496 Rs.

Above calculation explains the reason behind the movement in prices across the board. Historically we can say that is EPS increases then PE also gets improved. So more upside expected. Indices calculation is not so simple but it will have positive impact on EPS and Valuation. Hold tight your equity portfolio. Let them re-rate …..

Hope this will help....

SEBI Circular dated 20th September'19 on Liquid Funds

SEBI Circular dated 20th September'19 on Liquid Funds

1. Liquid  funds  shall  hold  at  least  20%  of  its  net  assets  in  liquid  assets.  For  this purpose,  ‘liquid  assets’  shall  include  Cash,  Government  Securities,  T-bills  and Repo  on  Government  Securities.   - Effective date 1st April 2020

2. Liquid and Overnight  Funds  shall  not  park  funds  pending  deployment  in short term  deposits  of  scheduled  commercial  banks, shall  not  invest  in  debt  securities  having structured  obligations and/  or  credit  enhancements  - Immediate effect for fresh Invts

3. Exit load period of 7 days for liquid funds - applicable for investments made 30 days from date of circular and not for investments already done before that date. Awaiting clarity on graded exit load.

4. The  cut-off  timings  for  applicability  of  Net  Asset  Value  (NAV)  in  respect  of purchase  of  units  in  liquid  and  overnight  funds  shall  be  1:30  p.m.  instead  of 2:00  p.m. - effective 30 days from now.

How to Open NPS Account Online

National Pension Scheme India is a voluntary and long-term investment plan for retirement under the purview of the Pension Fund Regulatory and Development Authority (PFRDA) and Central Government. This pension program is open to employees from the public, private and even the unorganized sectors with the exception of those from the armed forces. You can claim any additional up to Rs 50,000 under section 80CCD(1B) as NPS tax benefit. The scheme, therefore, allows a tax deduction of up to Rs 2 lakh in total. You cannot withdraw the entire corpus of the NPS scheme after your retirement. You are required to keep aside at least 40% of the corpus to receive a regular pension from a PFRDA-registered insurance firm.  The remaining 60% is tax-free.

How to Open NPS Account Online

1. Go to the eNPS website . Click on “Click Here” to begin registration.

2. In the window below select New Registration. Choose individual subscriber, Tier 1

only. Enter PAN number and select a Point of Presence that you want to open an

NPS Account with (preferably your banking partner). If your bank is not showing as

an option in the drop down menu you may have to choose another bank or go

through offline mode. Press continue.

3. Enter all the details as mentioned in the different tabs and click on save and

continue. Under nomination details you will be asked to choose a pension fund

manager and select from a mix of different asset classes and specify the proportion

of investment you want in a certain asset class.

4. Under document upload you have to upload a scanned copy of cancelled cheque of

the bank that you chose as POP. Also upload a scanned copy of PAN card.

5. Under photo & Signature you have to upload a scanned photo and also upload your

scanned signature.

6. Under payment details you have to make the payment (minimum payment of Rs.

500/-) to activate your NPS account. Payment has to be via net-banking of the POP

you selected.

7. Once the payment is done you have the option to “Esign” the form. The

authentication is done via Aadhar based OTP. If this process is successful the

subscriber need not send a hard copy of their forms to NSDL.

8. If “Esign” feature is not working for any reason, you may have to take a print and

sign the form and sent it to the address mentioned on the website.

9. PRAN is allotted immediately after payment is done. PRAN card is sent after

verification of documents.

Hope this will help....

My Funds are not performing, should I Exit?

As we witnessed that market was not doing well in recent past and our mutual funds too. But now nifty rallied supported by some of its constituents. But the broader market (Mid & small cap) still lagging behind. There are some factors for this like 

1. Trade war between US & China
2. Brexit
3. Crude oil Prices
4. And in Indian prospective this is a year of elections.

We have many instances in the past where markets have not performed but then it gave very good returns within few months.  For example, 2008 and 2009 was the time when most of investor lost their investment. Some of them booked the loss and the rest who have not exited at the low and waited for some more time, got the reward. Let me give you an example. For this I have taken Reliance Large Cap Fund. 

Suppose two person A & B started investment through SIP route in march 2007. The SIP amount for both the investors is 10000 per month. Everything was good for 2007 but in 2008 recession hits the market. Market tested the patience and commitment of the investor too. Our both investors were still investing with SIP. But in march 2009, A stopped the sip and exited form the fund with heavy loss around 64000. B was still doing the SIP and as market cycle turned in 2009 and in jan-2010 fund value for B was up by more than 76000. We can see here that 10 more months can do the task. It can change the yield of -41% to  of 19% for entire time period.

Please refer the below table for your reference.

Please note this is just an example of one bear phase and a fund. We can do the same exercise with any other good and consistent fund for any dull market period like feb-2010 to june-2012 and feb-2010 to jan-2013. Here the difference in time is even lesser. This shows the volatility of the equity market.

Currently we also passing through a bearish phase. All the factors mentioned above will get resolve in their own time. Second half of 2019 will be a good time for market. It may take one or two quarter more. General elections have the effect on equity market for very short period of time. Market want a stable government neither left not right. When ever people voted for majority, market rewarded.

Equity investment is not for short term. It is always better to give your fund to grow. Timing the market is possible for anyone. But we can beat this with our presence “time in the market”. Choose the right funds aligned with your risk profile and goals and stick to the plan.

Hope this will help…

SWP (Systematic Withdrawal Plan): Monthly Income From Mutual Funds

As we know that every investment must have goal associated. An investor can have a goal to get regular income from own investment like pension or salary. We have MIS in post office to server this. Mutual fund investors can also get this type income. Mostly individuals go for dividend options. But dividends  attracts the dividend distribution tax (10%). So there is cost involved in this. Mutual funds have other way to give regular income called SWP(systemic withdrawal process). In SWP investor invest a large amount in one go and redeem some fix amount every months. Your rate of withdrawal should be in line with the expected rate of return of the fund.

For example if your funds gives average 9% per year then it is safe to withdraw .7% per month. If we withdraw say 1% per month then after one year we would have only 97% of our initial investment. That means if you want to sustain your SWP over long periods of time and also grow your wealth, your withdrawal rate should be lower than long term (covering different market cycles) average asset returns. In our view your withdrawal rate from your SWP should not exceed 8% per annum to start with.

Now take a hypothetical example purely for the purpose of demonstrating . Let us assume that you  have Rs 10 Lakhs. You have invested the fund in a fund with average return of 8% per year and decided to withdraw Rs. 6500. Then at the end of 5 years you would left with Rs.1012246. But if you withdraw 7000 per month then you would have only 975507 at the end of 5 years. So withdrawal rate should be lower than long term return.

But if you thinking for long term then we should also take inflation into our calculation. That means we need to increase our withdrawal amount to meet our requirement. Now in same example  if we take 7% inflation then we can start our withdrawal as Rs. 5500 which will increased by 6% annually. At the end of 5 years our withdrawals reach to Rs. 6943 per month and we would left with 1038439.

Taxation with SWP is same as normal mutual fund investment. Like SWP withdrawals from an equity fund, after one year from the date of investment, is subject to long term capital gains taxation. Long term capital gain of up to Rs 1 Lakh in a financial year is tax exempt. Long term capital gains in excess of Rs 1 Lakh are taxed at 10%.

Now what types of fund we should choose? In my opinion we should choose fund with stable return. If you can take slight risk on your capital then you can go with conservative hybrid fund with 10 to 20% of equity exposure. These types of fund can give 9-9.5% annual return. If one can not take the risk on capital then you should go with liquid fund or ultra-short term fund. It also better to go with 3 to 4 fund to mitigate the risk.

Hope this help.

You can download the sample file form here.

Assets Vs Liabilities

Today I received a what app forward. I want to share it with my readers. It reads as.

Asset vs Liability

Son:  Dad, may I speak with you?
Dad: Go ahead.
Son: Among all my classmates, I am the only one without a car. It is embarrassing.
Dad: What do you want me to do?
Son: I need a car. I don't want to feel odd.
Dad: Do you have a particular car in mind?
Son: Yes dad (smiling)
Dad: How much?
Son:Rs 500000
Dad: I will give you the money on one condition.
Son: What is the condition?
Dad: You will not use the money to buy a car but invest it. If you make enough profit from the investment, you can go ahead and buy the car.
Son: Deal.

Then, the father gave him a cheque of  Rs500000. The son cashed the cheque and invested it in obedience to the verbal agreement that he had with his father.

Some months later, the father asked the son how he was faring. The son responded that his business was improving. The father left him.

After some months again, the father asked him about his business
again and the son told him that he is making a lot of profit from the business.

When it was exactly a year after he gave him the money, the father asked him to show him how far the business has gone. The son readily agreed and the following discussion took place:

Dad: From this I can see that you have made a lot of money.
Son: _Yes dad. _
Dad: Do you still remember our agreement?
Son: Yes
Dad: What is it?
Son: We agreed that I should invest the money and buy the car from the profit.
Dad: Why have you not bought the car?
Son: I don't need the car again. I want to invest more.
Dad: Good. You have learnt the lessons that I wanted to teach you.
- You didn't really need the car, you just wanted to feel among. That would have placed extra financial obligations on you. It wasn't an asset then; but a liability.
- Two, it is very important for you to invest in your future before living like a king.
Son: Thanks dad.

Then the father gave him the keys of the latest model of that car.

MORALS:

1. Always invest first before you start living the way you want.

2. What you see as a need now may become a want if you can take a little time to get over your feelings.

3. Try to be able to distinguish between an asset and a liability so that what you see as an asset today will not become a liability to you tomorrow.

Identify yourself
Build yourself
Be yourself...

Home Loan Prepayment or Invest in MF

Interest rate moving northwards form last two three quarter in India. this situation create a discussion among the home buyers that whether they should prepay their loans to save on interest or invest the surplus in some other asset class which could yield better return than interest paid. Almost every salary earner who takes a housing loan faces it at some point. We take a loan at an EMI we can afford. Eventually, our income increases with time and now we find that we can pay back more of the loan than we had originally planned. In India, our psychology says debt is not good thing to have. We are more happy to repay the loan first. Keep this psychology aside and let try to answer this question with mathematics 

If ROI on your investment > home loan interest rate : Invest

If ROI on your investment < home loan interest rate : Prepay your loan.

Home loans are available at 8.5 to 9.5 percent rates. Whereas on the other hand, Mutual Funds generally grow at 12 to 14 percent annually.  Suppose there are two friend A and B. Both have surplus  rs35000 after their expenses. They have taken a home loan of 30,00,000 with ROI 9% for 20 years. A pays on pays only EMI and invest the remaining amount in MF (13% return). and B think other way. He decided to repay the loan quickly so he pays (EMI+10% of EMI) and invest the remaining amount in MF (13% return). And after completing Loan he would invest whole 35000 in MF. Here we have not taken the salary hike to keep the calculation simple. 

As we can see A will have Rs.9076138 and B will have only Rs.6195262. That means investment is better than repayment. While paying EMI, we get tax benefits under section 80C. So if you are in 20% slab of income tax than effective rate would be around 6.8% to 7.6%. and if we repay our loan then we have to pay additional income tax on EMI amount. This will reduce the corpus as well in the case of "B".

While answering this question we should not go by mathematics of ROI and tax. One should also see his risk profile. If some is not comfortable with equity investment then he can go with "B". B is also give less liquidity though out the tenure as well. One most of the important factor is the Time left on your earning life. Everyone have others financial goals like retirement planning, child education etc, which need to achieve with same salary. We can not postpone some of them. So if you divert your saving toward prepayment it may possible that you missed the other goals. 

Click here to download the sample file.

Hope this will help.

Some Tweets and Whats app forward

What are NCDs?

Non-convertible debentures (NCDs) are long-term financial instruments, issued by corporates to raise funds through public issue or private placement. In other words, NCDs are debt instruments issued by companies as part of their fund raising. They acknowledge a debt obligation towards the issuer and come with a fixed tenure. As the name suggests, they cannot be converted into equity of the issuing company. Interest on NCDs can be earned monthly, quarterly, annually or cumulatively. For NCD, it is mandatory for the company to get it rated, since it is a listed instrument. Various ratings agencies such as ICRA, CARE and Crisis rate NCDs. The higher the rating, the lower the risk.

There are two types of NCDs -

• Secured
• Unsecured

Secured NCDs come with slightly lower risk as it is secured with some assets of the company and for unsecured NCD there is no asset attached. That means if the issuing company defaults than secured NCD holder would get paid by assets sell.  And in case of bankruptcy, secured debt holders will be paid first by selling off the company’s assets. Whereas unsecured NCDs are not unsecured loans, in case of default unsecured bond holders used to pay off with the leftover money after making all payment to secured bond holders. 

• NCDs have higher returns of around 8.5%. than Bank FDs offer returns between 5% - 7%. 
• No tax Deducted at Source (TDS) on listed debentures. With Bank FDs, TDS applies for interest.
• Unlike FDs, NCDs don’t have liquidity concerned as they are listed on the stock exchanges, so they can be traded on demand.
• Ratings by agencies like CARE, FITCH, CRISIL, ICRA enables you to assess the quality before investment 
• Option of holding NCD in 'Demat Form' makes your investments easy to handle & monitor

To summarise,  NCDs is a better investment solution, when compared to FDs. Higher returns, higher liquidity and no tax deductions at source make NCDs a very good option for your idle money.

Hope this will help..

Setting a Goal in Personal finance and its importance

Have you ever think if there is no goal post then what will happen to a football match? Similarly if we don’t have a financial goal than we will be in some unknown situation. So it very important to set financial goals and plan your cash flow to achieve them. Setting goals and sticking to them is the key to personal finance success. Getting to where you want to be requires Vision , workable plan and discipline to follow the plan. Goal should be realistic.  It should not be a dream. Goal should be actionable, we must have some tangible time line in order to reach there.

Let me give an example to explain how Goal and Planning work. Suppose you want to buy a house. For this you need to make the down payment. So first you need to decide the cost of home. After that how much do you want to make dawn payment the time line for the same. Let us assume you want to make a down-payment of Rs 25 lakhs in 5 years. So this is goal for you. Now you need a plan to reach there.

For 20 lakhs in five year you need to save some amount every month for sure. But the key question is how much money do you need to save, so that you can meet your down-payment goal?  If you expect to get 10% p.a. return on investment, then you have to save Rs.25614 every month. I have not taken effect of inflation. Now if you don’t have these figure then how can you reach the corpus? Make sure that your goals are achievable. It means if someone with salary 30000 per month then this goal is not a realistic goal. In this case he need to change the plan and  increase the time line or reduce the corpus required or both.

Now you have the goal and the plan. Now you need to start to execute the plan and stick to it. While execution you need track your goal on regular interval. At any point of time if you feels that the plan is not going according to the plan the we need to change the plan to achieve the goal. It may happen that your investment is not giving  the expected 10% return or the cost of the house is going to increase and you need some more corpus. In that case we need to rework our plan once again. But if the plan is working as expected then please don’t touch.  For better planning and tracing we should split our timeline to smaller milestone with target. In this case we can review our corpus in every 6 months if it in the line with our plan then go as per plan.

As we have discussed the plan for create corpus we must have plan for exit also. If you don’t have that then it may possible you missed the finish line with a margin. As you reach near to your goal you need to shift your corpus in safe asset class like liquid fund.

As we have discus a goal to make down payment we may have multiple goals. Some of the most discussed goals are

Create an Emergency Fund : An Emergency Fund planning should be our first goal. As an Emergency Fund we must have a corpus equivalent to 6 months expense. This must be kept in risk free and easily accessible asset class as FD or liquid fund.

Get Out of Debt – Completely Or Partially : it is a very important goal in everyone’s financial life. Most of us have one or two loan/EMI. If we reduce the out flow towards the Debt repayment then it will increase our allocation towards investment. This will help us to reach others goal quickly.

Early Retirement : Retirement is a truth for everyone who is  working. So it is better to plan it early. It the best if someone plan it on the day one of his working life. For this you need to calculate the cost of living after retirement with inflation. That corpus need more time to get ready. Most of us don’t like to think about this.

Hope this will help…

Do we need Insurance?

Insurance is a contract between two parties where one pays the premium to other to cover a specific potential financial loss. It is not an investment at all. It is just like the foundation of a portfolio. Any good portfolio is incomplete without a cover. As we can’t think a multi-storied building with a deep strong foundation we should not even start thinking of investing for future without insurance. There is an old say i.e. “safety first” so we should think about Insurance first then Investment.

Most of the time people get confused with Investment and Investment. Most people do not understand that the basic Logic of Life Insurance is to provide security to your Family from an unfortunate event. Insurance should be bought for protecting your financial future and for securing your financial future. It should not be mixed with Investment which should be done for creating wealth for the future. Insurance is an expense or cost to protect our financial future from an unfortunate event. It is always better to avoid mixing your Insurance with Investments.

In India if you look around then you can easily find that maximum number of people pays their premium between December and March just before the financial year end. What does it mean? It means. People buy Life Insurance for the purpose of saving tax which is again wrong thing to do. Just because buying Life Insurance lowers your tax burden it is understood by most people that it is the best form of Investment. These are the money back policies which can give 5 to 6% per year. They offer very small cover too, which will not be sufficient for dependents after her or him.

So what should be done? When it is insurance then we should only have the pure term insurance policy. Here the premium is very less compare to money back policies form same amount of coverage. Rest all the saving should be invested in high yielding instrument like equity or equity related assets. In any time period this combination can give better return than any money back policies. Let me explain this with an example.

Suppose there are two friend Ravi and Shashi. Both are 25 year old. They have decided to save ₹30000 per year for 30 years. Ravi has decided to invest this surplus in a FD which can give max 8% return(on higher side). It will also give the coverage of ₹600000 to ₹700000. On the other hand Shashi buys a term plan with ₹6000 with a cover of ₹2500000. And remaining ₹24000 in Equity mutual fund. Equity has a historic CARG is 17%. But for my calculation I have taken on 13% CAGR return.

Now refer the above table. At any point of time Shashi will get better corpus. One thing I like to mention that equity return will not be so steady. It is going to be volatile but in long run it will beat any fixed return asset class.

If both friends increase the investment by 5% each year then the return will be like this.

You can download the excel file for you reference from here.

Hope this will help……

Should you buy an annuity?

Today I got a call from one of my relative. He needs some suggestions on one of his investment in pension plan. He paid the premium for 10 years. Now he has only two options as withdrawal or invest in Annuity plan offer by same company. Annuity is an product that pays income on regular basis.  and can be used as a part of retirement planning.most of annuities do not provide life insurance cover. Instead they offer you a guaranteed income either for life or for a defined duration.

Retirement is an inevitable stage for every working individual. An annuity provides the security that investor will continue to receive money on regular interval for the rest of your life. investor may choose to receive your fixed payouts at intervals that suit him best - monthly, quarterly, half-yearly or annual. The biggest advantage that annuities offer is that they eliminate the re-investment risk. The risk is that when you go to reinvest the principal, you may get a lower rate of interest.Other monthly income paln such as the Post Office Monthly Income Scheme (POMIS) come with reinvestment risk. But in Annuity plan we have guaranteed the same rate of payout for life or paymnet duration.


While annuities do provide a guaranteed sum of money, and hence security and stability to retirees, they have a few disadvantages too.

According to Irdai rules, pension plan investors have to use 67% of the corpus to buy an annuity from the same insurer they bought the pension plan from. Investors do not have the option of buying the annuity from another insurance company, which might be offering better rates. NPS investors too have to use 40% of their accumulated corpus to buy annuities. The only advantage is they have the option of going with the best annuity provider.

Investor has no access to the capital. Premature withdrawals not allowed in annuities plans. Annuities do not allow premature withdrawal. if there is any emergency then investor must use some other option.

Lower rate of return. The returns (annual) on annuities have not been that attractive(It is between 6 to 7%) as compared to other products. It even less than the bank FD. with this ROI it can not fight inflation. Prices will continue to rise even after retirement.

Diversification is very important aseact of every investment plan. we should not put all eggs in one basket. We should not put all of our retirement savings in an annuity plans. Retirement corpus should be used to have following goals

• Regular income which should Combat inflation.
• Create an emergency Fund to meet emergency or unexpected expenses. 

HOPE THIS WILL HELP

Is Mutual Fund really risky?

Let's understand difference between Risk and Volatility.

If someone would have invested Rs. 100,000/- in popular scheme of MF in January 2008, the value in March 2009 was Rs. 45479/-  (-54.5% down)
(Those who withdraw here will end up making loss)

But do you know the value in November 2010 ? it was Rs. 136,687/- (200% up from March 2009).

Not only that, the value in January 2015 was Rs. 212855/- (55.7% up from November 2010)

But again in February 2016, it was Rs. 156398/- (-26.5% down from January 2015)

And 18th May 2018 value was Rs. 252049/-

But despite the roller coaster ride, from Jan 2008 to May 2018, Rs. 100,000/- has grown to Rs. 252,049 (152.05%)

Mutual fund is not risky but it is volatile.

Please do understand one thing...Give time to your investment to grow. Don’t jump on to conclusion by looking at 1 or 2 years return. Stay Invested!

When should we redeem our mutual fund investment?

Mutual funds reclassification, rising crude oil prices , trade war worries and a falling rupee have taken toll on mid- and small-cap stocks. some of my friends and clients calling me and asking that should we withdraw our money out? Just falling market should not be the only reason for Exit. When we do start any investment or SIP, it is for a Goal. Market cant move northwards only. It has its own cycle. We all have seen the financial market crash in 2008 and we have also witnessed the recovery it had shown. Who have exited at that time, have exited with loss but who didn't have, earned tremendous return on their investment.

So when should we redeem our mutual fund investment? We must ask following question to ourselves before redemption:

Is my Goal Achieved? : Every investment must have some goal. it would be a very wise decision to exit from then equity investment when you reach near the goal. It will be better to start SWP (Systematic Withdrawal plan) to come out from your investment from equity and keep the proceeds in some fixed asset.

Is my fund is under performing its class or benchmark? : If you fund is under performing its peers and benchmark for one  or two or years consistently then you can switch to some other fund as per your requirement and goal. Many new investors are betting big on small cap schemes. They believe that they will make them rich quickly. and as soon as market turns south word they become impatient. Mostly people compare the fund return with Nifty or Sensex. it is same as comparing Apple with Orange. Investors must compare fund with correct benchmark.

Is the re-balancing required? : Risk profile of any investor can change with time. If someone, having balanced profile, have invested any mid cap fund which have outperformed the market then he can think to redeem some part of investment and move it to Fixed Asset. It can also happen that, fund have changed its investment strategy due to which it does not fit into someone portfolio, then he can exit from the fund.

What is the tax implication? : Investors must consider the exit load before redemption. After the long term capital gain, we need to plan the exit according to your tax bracket. From April 1, LTCG made on transfer of equity mutual funds that have an equity exposure of 65 per cent or more will have to pay a 10 per cent tax on long-term capital gains above Rs 1 lakh a year. This new tax will apply in any financial year whenever there is LTCG on redemption of equity MF, if you have held those units for at least 12 months.


Investors need to remind themselves that investing regularly in a good scheme which suites their risk profile, over a long period is the only way to create wealth.

Website for virtual trading (learning purpose only)

Stock market investment is becoming very fancy day by day. Some people come here for quick money with trading. Most of them leave the market with burnt hand within a year. The people left in the game try to learn from their trades. This learning process never stops in financial market. It keeps changing and become more challenging day by day.  For newcomer it is suggested to learn first about the trading and risk associated then come to trading. For better experience, start with paper trade or Virtual trading app.  As the name suggests, virtual trading allows to trade on real markets but only using virtual money. It’s a good way to boost your confidence before entering the market with real money. The best thing about these virtual trading platforms is the fact that they are free of cost, so you won’t lose a single penny even if your strategy fails. And surprisingly, some of these offer rewards too if you consistently perform in your trading.There are many platforms providing virtual stock trading, but some of the sites, which are highly recommended, are as follows:

• Moneybhai: It is a free virtual trading game for Indian stock market. You will have the option to invest in stocks, bonds, fixed deposits and mutual funds. On this platform, you can create a league game with friends and also interact with them as well as other users. 
  
  
  
• NSE Paathshala: It is also a nice dummy platform to learn trading in National Stock Exchange. It is an initiative of National Stock Exchange of India (NSE) to educate the investors through virtual trading. It has been discontinued for now but will be back soon.
  
• Dalal Street Stock Market Challenge: Bombay stock exchange (BSE) in collaboration with Dalal Street investment Journal provides this virtual platform to learn to trade in stock market. The Stock market focuses on three types of audience – serious traders, youngsters and those who have lost confidence in the stock market. It has several levels and in each level the difficulty level keeps on increasing. There will be a demo to teach you how to play and also a game master to answer your queries.
  
• Trakinvest: The member can create chance to get real jobs or internships by showing their trading skills through this platform. The platform provides tools such as news, Twitter feeds, stock related financial information to analyzing and making decision. You can also track the movements of the best performers and your friends.
  
• MarketWatch: Market Watch is a financial website by Dow & Jones Co. providing virtual trading platform in stocks with real time market data. You have the option to create your own game or you can join a game that others have created.
  
• Wall Street Survivor: WSS allows you to virtually trade, create and manage your dream portfolio while competing against your friends and other users. You can also learn fundamentals of the trading stocks, bonds, futures, currencies through comprehensive lesson and blogs. You may have an opportunity to earn up to $300 through leagues conducted by them.
  
• Investfly: It also a good online trading platform where you can learn and manage your virtual portfolio of stocks and can build your own automated trading strategies. It provides trading tools to the users and conducts monthly trading contests.
  

But please do remember that there is lot of difference between paper/vertula trading and real trading, as in paper trading you have nothing to lose.  You may not get emotionally attached with it because you are not losing anything in any case, which does not happen in real trade. In real trading, there are psychological emotions involved and plays a very important role which needs to be controlled for long term success.

Hope this helps!….