17 Financial resolutions for 2017

Merry Christmas!

The New Year is just around the corner and it is time for new resolutions!

Here are 17 financial resolutions to get started with:

1) I will get health insurance policies for my self and for my dependents 

According to this article written way back in 2014, room rates for well known hospitals are more than the tariffs charged by luxury hotels. Quartz goes on to write that India's GDP between per capita based on purchasing power parity grew by 121% from 2004 to 2014 whereas average medical expenditure in urban areas grew by 176%. It is just too costly to fall sick!

2) I will get term life insurance policy for myself

Listened to the older members of your family and bought a money back plan? You are in big trouble! The returns offered by money back plans are next to nothing. And they hardly offer a decent cover for your dependents in case of your unfortunate demise. Not convinced? 

Let us take the case of LIC's new money back plan - 20 years. You can access their calculator here to create your own illustration.

Let us look at their sample illustration given below:

If you survive for 20 years and pay Rs 7752 every year as premium, then the following would happen:

a) You would have paid 15x7752 (as you need to pay premium only for 15 years) = Rs 116280

b) Throughout those twenty years, if you passed away your family would get anywhere between Rs 1,25,700 and Rs 1,83,500

c) If you survived, you would receive anywhere between Rs 114000 and Rs 1,58,500

WHICH MEANS (EXCUSE THE CAPS LOCK AS I NEED TO MAKE A STRONG POINT HERE): AT THE END OF 20 YEARS:

• BY PAYING RS 7752 YOU ARE GOING TO EARN ANYWHERE BETWEEN 114000 AND 158500 WHICH WOULD BE WORTH AROUND RS 28500 AS OF TODAY AND RS 39625 AS OF TODAY. CONGRATULATIONS FOR SUCCESSFULLY DESTROYING YOUR WEALTH!
• YOUR INSURANCE COVERAGE WOULD BE OVER AND IF YOU NEED TO BUY INSURANCE IT WOULD BE PROHIBITIVELY EXPENSIVE

Rather if you buy a term plan from Edelweiss Tokio according to the options given here, (assuming I earn Rs 8 lakhs per annum + dont chew tobacco or smoke):

a) I pay Rs 6683 annually for which I get a coverage of close to Rs 80 lakhs

b) The coverage is for 30 years

b) Now you may argue that I won't get my money back. But if I invest that difference of Rs 7752 - Rs 6683 = Rs 1069 for 20 years in a mutual fund that would offer me returns worth 12% per annum, I would earn Rs 10,68,089. WAIT! HOW MUCH DID YOU WRITE? 

YES THAT IS RIGHT - MORE THAN RS 10 LAKHS!! Check out for yourself.

So in the first scenario when you bought a money back policy from LIC, after 20 years, the best you would be left with:

a) Rs 158500

b) No life insurance coverage

In the second scenario when you bought a term insurance policy from Edelwiss Tokio, after 20 years, the worst you would be left with:

a) Rs 10,68,069

b) Policy coverage of Rs 80 lakhs for another ten years.

And in any case, LIC does invest your money in the markets.

3) I will begin investing in mutual funds. In case I have been investing, I will bump up my SIPs

This is an absolute no brainer. Read this beautiful case study about how long term investing through SIPs has made serious wealth.

4) I will only buy shares of good businesses and hold them for as long as possible

This article talks about veteran investors who have bought and held on to shares for several years. Mr Janak Mathuradas's family have been share holders in Tata Group's companies for more than 100 years. Although there are a few investors who hold shares of more than 100 companies in their portfolio, I would recommend that you take the advice of your finance investor or your CA who can guide you with a list of 10-15 good companies in which to invest for atleast a decade.

5) I won't rely on tips to invest. I would rather research and analyze before investing

These cartoons explain it -

6) I will save first and then spend

Don't decide how much you are planning to save by figuring out how much you need to spend.

Just reverse it!

Set up your bank account to automatically credit atleast 20% of your salary into recurring deposits and mutual funds. Offer your bank a mandate to do this during the first week of the month. It will ensure that you are able to follow fiscal discipline for the remaining days of the month.

7) I will track my expenses

Download Walnut in your phone. And thank me later.

8) I will avoid borrowing as much as possible

Yeah I get it about YOLO (You live only once)

But if you start supporting YOLO by LOCO (Live on credit Oh!), you would find yourself under a MODI (Mountain of debt infinitely). Now isn't this going to anger some bhakts!

9) I will pay my entire credit card outstanding bill amount and won't get into the trap of paying only the minimum bill amount

Read this to understand in detail. You will find yourself falling into a debt trap which would be harder than getting out of quicksand.

10) I won't take personal loans to buy gadgets or go on holidays

Refer to point 8!

11) I will not underestimate the power of small savings. 

I will consciously aim towards saving atleast Rs 10 per day from my daily expenses. One way to go about this would be to walk some distance before catching a taxi or auto. You can read how by even saving Rs 500 per month one can make close to Rs 2.6 lakhs in ten years!

12) I will reduce the number of times I eat out

Size of your tummy reduces and the size of your wallet increases.

13) I will plan my retirement

Presently we are proud of our demographic dividend. We are among the youngest nation in the world. But doesn't that also mean at some point of time we will be having several senior citizens to take care off. Wouldn't it be great if most of them have taken care of their finances so that they aren't a burden on society. If you are 30, set aside 10 percent of your income to be invested in mutual funds and keep increasing that percentage every year. If you are 40, set aside 30%. If you are 50, set aside 40% and invest most of it in debt funds. If you are 60, don't give up. Save and Invest. You will thank me when you are 80. Here are some inspirational seniors.

14) I will pay off my short term debts as soon as possible

Personal loans and credit card loans have back breaking rates of interest. Not paying them off will not only keep you in a vicious debt cycle but also impact your CIBIL score. And this might hurt you whenever you are off to avail of that home or vehicle loan.

15) I shall buy a piggy bank

You may laugh this off. But when demonetization occured I knew I had close to Rs 3000 in coins which could help me when one can't go cashless :P 

It also helps to discipline a child in the house as a piggy bank is usually the first exposure to the concept of saving for her.

16) I shall read the following blogs:

• Subramoney
• Jaagoinvestor
• Safalniveshak
• Valueresearch
• Stable Investor

These blogs have helped me in my journey of understand about personal finance and long term wealth creation. The authors of these blogs maintain integrity and sanity even when other participants in the market are getting carried away with bullish or bearish trends.

17) I will teach my children basics of financial planning

This would be one of the best lessons to bequeath to your little one. Educate yourself if you don't feel confident and instill financial discipline and knowledge about investing in your child. This article has covered some very relevant points.

Here is hoping that you have a financially successful new year!

Edelweiss GPS – Giving direction to your investment strategy

Wolfgang Amadeus Mozart is supposed to have remarked – ‘True genius lies in simplicity’.

Since I started investing a little more than half a decade ago, I have used different websites to invest, track and manage my portfolio. Navigating through these portals used to be a difficult experience. Especially since I didn’t know how to begin or what should be my purpose to invest. Should I be starting off with stocks or settle down with mutual funds?  As a wet behind the ears investor it used to be difficult for me to understand several terms.

However Edelweiss has to adhered to Mozart’s philosophy and have introduced Guided Portfolios (GPS) whose user interface makes investing unbelievably easy.

So what is Edelweiss GPS?

Edelweiss GPS is an algorithm based intelligent system which designs mutual fund portfolios for investors and guides them towards their financial goals through systematic investments. Confused? Don’t be! Keep reading.

What was the need for such a product?

Simply, to make things simple! Investing has historically been a high involvement process. Either you need to make sense of several research reports with numbers thrown about generously or be dependent on tips with doubtful fundamentals. What if something could address both these problems? That is what this platform does. It offers an informed recommendation after posing straightforward questions about your background and goals.

How does it work?

It works by making the process of investing easy. Click on Edelweiss.in. You will encounter pointed questions such as: I have some money and want to invest it OR I have a financial target and want to achieve it

If you fill up the blanks and choose the risk profile which suits you amongst low, medium and high.

Once you click on show me my portfolio, you would encounter the recommendations made by the product as well as how this portfolio has perfomed in the past:

The platform also offers the rationale for recommending this portfolio, performs a scenario analysis by comparing it with performance offered by regular fixed deposit and also predicts how the portfolio might shape up into after certain number of years.

The Indian markets are poised to achieve a multi year bull run and you might be worried about missing out. If that is the case, then sign up quickly with Edelweiss GPS and you would be fascinated by how it makes the entire experience of investing a breeze. 

Demonization of Demonetisation

I usually only write about personal finance.

However I couldn't resist framing my thoughts about the demonization ..ooops...demonetization exercise.

Look at these statistics:

Top 10 corporates in India owe PSUs around 5 lakh crores. 

Out of this amount, Rs 70,000 is owed by the Adani Group itself.

According to this article Rs 3 lakh crore has been deposited and Rs 50,000 crore has been withdrawn since demonetization came into effect.

This means a net figure of Rs 2,50,000 crore has been deposited in the banking system.

Compare these numbers side by side:

Debt owed by RICH FAT CATS: Rs 5 lakh Crore.

Amount deposited by crores of common Indians: Rs 2.5 lakh Crore.

It forces me to twist Winston Churchill's words and say: Never was so much owed by so few to so many. 

Thankfully Churchill doesn't give a Fuck. Or rather he does:

Consider the elephant in the room - Political funding.

It is estimated that the BJP themselves won the elections by spending anywhere between 700 crores (a laughably small amount) to 5000 crores (only in media spend as cited by a veteran media planner) to Rs 10,000 crores (as claimed by erstwhile Union Minister for commerce - Anand Sharma). Both BJP and Congress have refused to share sources for close to 70% of funds collected by them. What if a substantial part of these cash donations are being derived from blood money? They say that charity begins at home. Why can't they begin by taxing the amount of money which is not being declared? 

The perceived losses being incurred due to so called black money can be taken care by a considerable extent by acting on these issues.

Rather our government's actions have resulted the following incidents:

However our country's population is so gargantuan that 55 deaths don't really pinch our conscience. A Congress leader based out of Jharkand wants the ones who died in his state to be termed as martyrs. It makes me wonder whether he doesn't feel empathy for rest of the Indians who, I dare say, were killed.

To those who are passionately advocating the government's decision, I have the following questions:

a) We all are aware that rich businessmen and politicians deal with most of the black money. How many of them have been arrested or discovered?

b) Counterfeiting has been occurring for several years. Don't you think it is just a matter of time before new notes are also counterfeited? If yes, did the government have to embark on this exercise in such a haphazard manner?

One also wonders whether Raghuram Rajan real reason behind leaving the governorship was this upcoming financial emergency. 

And oh yes, we all know who will benefit the most in the UP(coming) elections:

Meet the Rahul Dravid of Mutual Funds

Ever wondered why Rahul Dravid was adored by millions of fans and also spoken highly about by the sharpest critics of the game?

How did he manage to play defensively when the ball was new in Test cricket? And later shaped up into a formidable finisher for India’s ODI team during the mid 2000s.

How did he do wicket keeping in ODIs inspite of not being a regular wicket keeper? Yet managed to retire as one of the world’s best batsmen?

How did he manage to perform consistently across all countries and in all situations for Team India?

Well, that is because he knew the importance of maintaining a balance.

If Rahul Dravid was a portfolio, he would resemble this:

Look at this interesting statistic:


Number of SIP Accounts opened from 1986 - 2015: 75 lakhs

Number of SIP Accounts opened in 2015-16: 27.1 lakhs

Which means close to 30% of SIP accounts as of today were opened in just last one year.

This would also mean that the penetration of mutual funds in India is increasing.

Earlier only the financially savy would be investing in mutual funds. But now several first time investors are also getting in through SIPs.

But what about individuals who have a lumpsum to invest? It may be an amount received as bonus for a working individual or a retirement corpus received by a government servant who just retired.

Apart from Bank FDs do they have any other choice which can help them beat the threat of inflation and the spectre of tax?

Check this out:

Most first time investors invest during the Euphoria phase, lose money at the denial phase and decide never to invest again at the panic phase.

Even during the 2008 recession, it was observed that fund inflows from domestic retail investors had increased at the peak of the stock market.

Indian mutual fund industry has several options for the financially savy investor.

However would it make sense to expect a retired college principal from Pondicherry who is investing for the first time to sit tight through the ups and downs of the stock market?

Today quite a few of us are aware about SIPs. But what do we do when it comes to investing a lumpsum amount? Mostly invest it in a Fixed Deposit.

Why not try out the 'Rahul Dravid' of mutual funds - The ICICI Prudential Balanced Advantage Fund

How does it work:

It is an all-weather fund and does well in all sorts of market conditions – The fund invests in both equity and debt. It allocates fund according to market conditions.  Interestingly it follows the Price/Book value model. It essentially means that when the Nifty’s price becomes expensive as compared to its book value the funds are allocated to debt and when the Nifty’s P/BV ratio decreases the funds are allocated to equity. This combines growth and relative freedom from risk.

Whom is it for:

Anyone who wishes to invest a lumpsum and doesn’t want to invest the amount in either stocks or Fixed Deposits.

The advantages of this fund are:

• Offers a mix of growth higher than benchmarked index and protection from risk
• Volatility is low over a longer period of time
• It offers better returns than a Fixed Deposit – Interest rates offered on Fixed deposits across banks doesn’t exceed 9%. If you take TDS into account, the number drops. In comparison, the returns offered by ICICI Balanced Advantage Fund has been 16.4% over 5 years.
• There are tax benefits – This fund is treated as an equity fund when it comes to taxation. Hence there is no tax on long term capital gains (gains accrued if you stay invested beyond an year)
• Automatic Withdrawal Plan feature – For the first time in the mutual fund industry, the Automatic Withdrawal Plan was introduced by this fund. Under this feature, one can receive regular monthly cash flows to meet monthly expenses.

So did you earn your bonus? Or received your PF amount? Or secured gratuity? Or just inherited a windfall?

Invest kar!

(Mutual Fund investments are subject to market risks, read all scheme related documents carefully)

Marine Drive

We all know about the Marine Drive in Mumbai.
Almost everyone who lives in Mumbai must have visited it at some point of time in their lives.
Dreams have been inspired and ambitions have been forged at this timeless place.

However, what if you want to buy a flat here?
6 Cr for a 1 BHK!

Now have you checked out the other Marine Drive in India?
It is in God's own country.
Ernakulam in Kerala.

Price of a flat here?

1.5 Cr for a 3 BHK!

What if I screw up?

Life is unpredictable

And one often screws up.

Getting screwed up is bad. But losing money in the ordeal is worse.

So what could those scenarios be:

a) Divorce: Most men in bad marriages stay married to their wives as they don't wish to lose money. As simple as that.

b) Stock market: As the bull market will come to close and the dreaded bear will raise its spectre, there will be stories abound about people losing huge sums by having invested in dodgy penny stocks.

c) Pledging house for a loan: You are a businessman. Last few years have been good. You wish to scale up with the help of a bank loan. You pledge your residence as collateral. A black swan event causes your biggest orders to get cancelled. You turn homeless

d) Health hazard: Your treatment was taken care by health insurance. But what about subsistence? You are the only working member of your family.

An emergency fund is a good idea.
But what about wealth creation?
Will it get stalled because of this?

How about an SIP which will keep going irrespective of any eventuality that can befall you.
According to the calculator, a SIP of Rs 2000 achieving 15% CAGR can be worth Rs 1.4 crores after 30 years.
This is worth Rs 18 lakhs as of today.

It may just give you a second chance in life.

Do you check the price of your house every day?

Markets are volatile

So you won't invest in equities or mutual funds.

Great!

But you are willing to invest in property.

Because property prices are not volatile.

Ok.

Ever wondered what would you do if your property's price was showed up on a ticker every day. Just like how share prices are shown.

Today the price of your property might be up.

Tomorrow it would be down.

Would you still hold on to it patiently?

What if you had the same attitude towards stocks?

Think about it.