Things I wish I had known 15 years back!

( Warning :- This article is loaded with  "Hindsight bias")


I have been an avid saver and investor over the last decade. I have immensely benefited from my saving and investment habit. Looking back, I think I could have done better in these areas. ( Not an exhaustive list but the things that are on top of my mind at this point of time)

1. I should have "fully loaded" my  PPF  account from first year.

I opened a PPF account 15 years ago( good decision). But I didn't fully invest into it every year. During the initial years, I kept PPF account active by doing some minimum investment. NSC or ELSS was my preferred choice for parking the money. The reason being "15 years in PPF" looked "too long " for me.

I probably didn't understand the power of compounding and also that PPF is more tax efficient than NSC.

This mistake was corrected a few years back and now the PPF account is extended for the next 5 years :-).

2. Choosing growth option in Equity fund.

During initial investment years I thought , Dividends from equity funds was the most efficient way of "profit booking"  a.k.a risk mitigation and it was better than growth plan. But didn't realize that in effect , dividends also broke compounding and selling units of growth option was the best way to book profits , if at all needed.

Now, most of my Equity MF investments are under growth option ( Direct plan- learn more)

3. Should have avoided more money in tax inefficient FD.

Bank FDs were my favourite investment to start with.

FDs are the least efficient way of investing for people in higher tax bracket. It doesn't help to beat inflation and no indexation benefit is available for FD investments.Having all your debt investments in FD is tax inefficient.

Of late, I use debt vehicles that defer taxation till withdrawal.

4. Having too many accounts.

I  used to open one SB account whenever I switched jobs and wanted to hold all the five star funds ! Attractive bank FD rate hoardings led to many banks for opening FDs.

Having too many accounts eother it be SB, FD, demat or MF folio makes life difficult for you. Simple is always better!

Realising this, started closing  many accounts and consolidating folios. Still some more work left here!.

Benefit of #direct mutual fund #investing

From 1st of January, 2013 SEBI introduced the option of investing in the "Direct Plan" of  the existing schemes of mutual funds.( When you send your application to the fund house directly without a "broker code" or transact online without a broker code - it is called a direct investment)

Wanted to check how the "direct" schemes have fared over the "regular" schemes. Roughly for the two year period, the following difference is seen in NAV between direct and regular schemes of randomly chosen equity MF schemes.

Please note that although the percentage difference might look small,the benefit will be seen more" clearly" depending on the absolute sum of corpus invested in the schemes.Example, investor having more than 1 crore in a scheme would have saved more than 1.5 lakhs in two years.( savings till date- not looking into future savings) 

If you know to choose the right schemes ( it is not as complicated as knowing the right "stocks"), you should try and opt for direct investing in mutual fund schemes.

Fund- Growth Scheme	Regular	Direct	Diff* %
HDFC Top 200	352.025	356.157	1.17%
ICICI Pru Dynamic	188.7277	191.4078	1.42%
UTI Opportunities	49.2846	50.0483	1.55%
Franklin India Bluechip	347.7465	353.3355	1.61%
Reliance Growth	786.723	797.0294	1.31%
Sundaram Select Midcap Fund	323.8099	327.5543	1.16%
Birla Sun Life Frontline Equity	161.57	164.3	1.69%
* Difference in returns for the period 1 Jan 2013 to 16 Jan 2015
Direct schemes were introduced on 1  Jan 2013

Wishing you a successful "direct" investing.

#GOSF and other #discount sale - Do all consumers benefit from these sale?

There has been a lot of fuzz around the discount sales , primarily the online ones . People are tempted to buy a lot of things online for a "discount" as they are available at seemingly " throw away" prices.

One of my friends bought a tablet for Rs 4000 as it was available at a cheap price. he already owns a smart phone,a  phablet and a laptop.

Another friend of mine from Chennai bought a thick winter jacket for Rs 400 for future usage .... he might travel sometime in 2020 :-)

These are some just a few examples.

Of course, how one spends his or her money is a "personal" thing.
But I feel that these online sales seem to drive some "crazy" consumer behavior.

Those who succumb to the "cheap or discounted" price tags end up buying things that they actually don't "need".

When you buy things that you don't "need"-you think that you got a deal in terms of discount,but  you actually loose all the money that you pay to get the product. So,discount doesn't matter when you buy something that you don't really need.

"Buy -what you need" -Distinguishing between what you WANT and what you NEED can make  intelligent consumers.

Happy Shopping!

3 simple ideas to spend less!

If you have been finding your expenses go off the roof and been wanting to bring down your spending then you may follow these simple tips.

1) Budget and track expenses-

Please budget your expenses on various heads and then start tracking every spend of yours against the budget. You may classify your spend under heads like house rent, food,clothes, medical, education, etc and track it. You can choose to use some web based tool or smart phone apps ( which are free!) to do this!.

2) Lock your credit and debit card-

Try to do all your spend through cash.The pain of withdrawing money every time and counting cash "physically" while paying can have a positive impact on your expenses.

When you swipe with a card, you actually don't feel the same "pinch" which you may feel when you spend by cash. This method will also help you avoid some impulsive spends.

3) Avoid sale or discount offers-

Always buy ' what you need' and done buy ' what you want!' if you are trying to bring down your expenses. Don't buy something just because the 'offer' is good. When you buy using an 'offer' , you actually save some money. But you may have avoided the overall spend if you didn't fall for the 'offer.'. So, evaluate the offer- Need or Want?

Happy saving!. 

Punishing non-performers.

When you deposit your money with a bank, you presume it would be safely returned to you. How many times do you check whether your money is put to good use by the bank?.

You may ask " why is it important to do that?'. It is really important because, the bank may go bankrupt if it is doing some irresponsible lending. This can lead to loss of your deposit ( I am not in for arguments like government will back it up, deposit insurance,etc,etc as it is not good for the economy in the long run)

So, it is very important to punish the non-performing banks by withdrawing your deposits from them or at least making a conscious decision of making no further deposit with a non-performer.

Look at the NPAs ( Non Performing Assets- bad loans) of the banks, if they are continuously on the raise ( when compared to industry standards and other banks), you should start treating your bank as a non-performer.

If you do not do this, it helps the people of the following kind

"Those who take loan with political pressure and don't pay back, helps the real estate guys who can keep the prices high funded by bank loans and never bother to pay them soon, helps the industrialist who run a show business and do not care to pay even their employees."

So, you are helping these guys when you don't punish non-performers. Next time, when you see an article about you bank's NPA - " ACT ON IT". Punish the non-performers.

Bumper money - How long does it last?

   ET carried an articled on "Contrasting fortunes of farmers selling land in cities" a few days back. This article captured the current state of people who had sold their land a few years ago and made a  few crores.

While a few had invested the money prudently in some money making assets, many of them had blown of the entire cash. Extravagant living, alcohol addiction and over confidence due to sudden inflow of cash , have led many into complete bankruptcy.Many who lost their money are now jobless and see no future at all.

"Getting the money you want" is just the first step. Preserving it prudently for the rest of life is another ball game all together. Money, either earned through hard work or through a lottery need to be treated with respect. It doesn't mean complete abstinence from luxury but use of some wisdom  in the way money is dealt with.

" Sustaining what you get" is the next big step after the first big step of " Getting what you want". ( a.k.a "Yogam" and "Kshemam" as quoted on our ancient language)

So, money management skills come handy even after you earn what you want.

crores, crorepathi, how to earn a crore, crorepathi to bikari, crores, karodpathi

Cutting cost on DTH TV subscription

Either it be browsing websites or watching television, all of us follow a unique individual pattern. We most frequently visit a very few sites or watch only a select set of channels. 

Talking more on television, we tend to watch a select few regularly, others sparingly and most of the channels very very rarely or not at all.

When this is the case, if you had opted for some standard subscription packs on your DTH , you might be actually paying for many things that you don't actually use ( i.e paying for channels that you don't actually watch!!). 

Most or rather all of the DTH operators allow you to choose your channels and pay money for those you choose to use, instead of subscribing to bigger combos. If you can do a quick study, you would notice that you mostly watch some 4-5 channels and the entire family would actually  be watching up to 10 channels regularly.

If you need some specific channels for a specific period only, say for a sporting event then subscribe for that channel only during the event.

So, choose your channels and pay only for those channels . This would help you save 30-50% of your DTH cost very easily. Also, Lesser options makes life easier, simpler and less costlier.

" Little drops make a big ocean". So, you can give this a try or else ,any day you have the option to go back to your bulky combo packs.

DTH = Direct To Home Television

PS:- Any day, I would prefer having no TV or DTH @ home which would free up a lot of time and 'let you live your life'.

Safest bet!

Recently, got to see an ad in the regional channel. The advertisement goes on like this.

A small time vendor stands before an old temple tower and talks about the virtues of holding an LIC policy. Similarly another old man holding a cycle talks about the security that he gets by investing in LIC.

People appearing in this ad or those who invest blindly in LIC don't know for sure , where is their money invested.  Lets  take  an example of a  endowment policy with bonus.  how many of the investors in these policies know , where does their money go. What does  LIC do with the money and how safe is their investment?. ( I am not saying that government would let go the LIC bankrupt, that is reserved for another post)

Whenever you make an investment, you need to try and understand a few things

1) What will be my rate of return ? ( in % per annum)

2) Tax impact on the returns.

3) Where does my money go, how does this scheme  make money and how are they able to provide the returns? ( For example, If you invest in bank FD for 8%, you know that bank lends it to someone for an higher % and hence is able to provide you decent returns)

4) What is risk involved in the investment vis -a vis the investment period and the return percentage?

I am not saying that LIC is good or bad. But you should have at-least a better view of where your money is invested.

I would end this post with another story.

XX:  Do you invest in equity?

YY: ( Who's a Manager with a top notch consulting firm): No way, it's just gambling

XX: What sort of investment do you trust.

YY: We trust only in LIC for the last three generations.

XX: What is the policy that you have and what money you have made on it??

YY: hhmmmmm, Not Sure,,any how- You can have a look at the policies ( brings them in a couple of minutes)

One was an ULIP with almost 40K pa invested  for 4 years in a row and standing at a value of 80K( 50% of invested value) and others were some endowment plans with inadequate insurance coverage.

YY was surprised to know that most of his money had gone into equity and his portfolio value was actually down.!! This might have happened, even if he had invested in equity direct or through mutual funds. But, making an conscious effort to understand an investment tool and managing it would really make a difference in the long run.

Please don't  take any advertisement by face value or invest in something because someone close to you is marketing it. Go through at least the basic set of questions listed above , before you invest.

Why a contingency fund is very important.

Praveer was a lucky go guy till very recently. His financial situation seemed to be in control till the time there was a medical contingency in his family . 

There was an approximate need of almost Rs 4 Lakhs towards the situation and only Rs 1 Lakh was covered under the medical policy that he had.  He had no liquid source of cash with him except Rs 10 k in his bank account. 

When he fell short of this amount , he started looking at all sources :- 1. Tapping employer for salary advance didn't work out  2. His equity portfolio and gold/jewellery had vanished a year ago ,for initial down payment for the house 3.  His savings out of a salary and on site assignment had been converted into a posh car, 6 months back.

This is a classical case of under insurance in one sense and in another way not having any money at all ( easily accessible and liquid) for contingencies. At least 6 months expenses needs to be kept aside in FDs or other liquid instruments. 

This  fund should be "sacro sanct" and shouldn't be touched for anything else other than contingencies like medical  needs, creeping through a job loss situation, unforeseen and critical expense in family, etc. 

This goal of having a contingency fund is very critical for all (Even  for those who struggle to keep their day to day living). Praveer could have easily sailed through the situation with a contingency fund or a better insurance planning. But finally, He  had to settle in for a 19% personal loan to make the ends meet.

So, Please set up a contingency fund NOW or if you have some substantial savings already, earmark a portion for contingency.

Same situation, Different reaction !

When there is a discount SALE on clothes, FMCG, gadgets, car....We grab the opportunity and buy

But when stcoks are beaten down and are available at cheap prices , we PANIC instead of buying.

Stock market downturn, most of the times are great opportunities to invest for the long term.

From next time when there is a SALE in stock market, dont PANIC. Look for OPPORTUNITIES

Confusion of Mr. i , Q3 2011, Where to invest my money?

Note: - Click on the image to see enlarged picture.

Just for fun and  not to be taken as  a serious advice :-)

Impact of raising interest rates.

RBI has been increasing the base for interest rates quite often in 2011. This measure is primarily aimed at containing inflation.

Inflation has already had a severe impact on the middle class. If one is paying a home loan under floating rates, their EMIs are bound to go up.

If the impact is severe  on you and you are wondering what to do, here are some possible suggestions.

1) Have a look at your budgets and actual expenses , determine the areas where you can cut down your expenses ( nice to have expenses). If you have not been budgeting or recording your expenses , this is the right time to start doing now.

2) If you have had any decision to purchase some electronic gadget or a home appliance, pull of the purchase under the carpet for some time.

3) If you are using a credit card, put that in a locker for few months , so that your impulsive purchases can be avoided. Moreover, you tend to spend less when you pay through cash ( when compared to a card or cheque payment).

4) Pre-pay your loan as much as possible . Spare money ( except that kept aside for contingency) should be used to pre-pay your loans and don't even think of investing with an idea to make quick returns.

5) Finally, be prepared for another hike and make a provision for that too.

Use "Cash" to curtail your expenses.

If you are an avid card user ( credit card or debit card) and wondering how to curtail your expenses , there is one simple way. Start spending in cash.

Keep your credit /debit card at home and always start spending by withdrawing cash. Try to avoid online payments/shopping too and  pay out your bills in cash.

This will definitely be less convenient than using a card but may end up reducing your expenses.

You will feel the real impact of spend when you are using cash for a payment. When you swipe a card, whether it is Rs 150 or 15000. it's just a single swipe. So, you don't feel the pinch of the spend . When the spend happens through cash, you my actually end up spending less cash as you SEE and FEEL the quantum of cash outgo.

By not using a credit card, you may curtail most of your impulsive purchases and will start planning & budgeting .( to withdraw and carry appropriate cash for payments/purchases).

You will also stop using future income for current needs when you stop using credit cards.

Try this out and curtail your expenses.

One small step

"A journey of a thousand miles begins with a single step." -- Confucius

When I interact with a lot of people who are interested in personal finance, I do talk about the benefits of SIP investing in diversified equity funds.( Why this is a must for long term wealth creation...so on and so forth). People genuinely seem to understand and are raring to go.

But many do not take the " pain" of enrolling for an SIP.Some collect forms from fund houses then wait. Some have actually downloaded forms , filled them and really didn't have the time to kick start it by posting the completed form.

RBI has changed the method by which banks calculate the 3.5 % interest rate they charge on savings bank deposits

This shall be applicable with effect from April 1, 2010.
This note comments on a point in the credit policy that has not got the attention it deserves. The RBI has changed the method by which banks calculate the 3.5 % interest rate they charge on savings bank deposits. This seemingly innocuous change has far reaching ramifications for bank bottom lines. Bank bottom lines will fall by as much as Rs 18000 crores because of this.
>From paying the interest on the lowest balance recorded from the 10th to the 30th of the month, banks will have to pay daily interest on the daily balances at 3.5%. This will result in a 25 to 50 basis point increase in the cost of savings bank funds according to the chairman of the Canara Bank.
Consider the simple example that follows:
I open an SB account with Rs 100 on January 1. Then I deposit Rs 100,000 on January 2 as I need to make (say) a mutual fund investment. The amount stays in my account till January 25, then leaves to go to the mutual fund. That leaves Rs 100 in my account on January 26. Previously I earned interest on this Rs 100 as that was the lowest amount in my bank account in the period from Jan 10 to Jan 31. Now the bank will have to pay me interest on Rs 100,000 for the period from Jan 2 to Jan 25. !!!
As mentioned, this will result in a 25 to 50 basis point increase in the cost of funds in savings banks, according to the chairman of the Canara Bank. Now there are 36 LAKH CRORES in savings accounts in India according to the RBI.
That means banks net interest margins (and consequently profits) will reduce by Rs 9000 crores EVEN if we take the impact at the lower 25 basis points. At 50 bps, the impact is 18000 crores.
Savers benefit by this amount and banks lose by this amount.

Good Lessons to learn from Millionaires

Found this article on yahoo interesting.
Living below means and Avoiding debt in life are the two best suggestions.

http://finance.yahoo.com/news/10-Secrets-of-Millionaires-usnews-14921158.html;_ylt=Arg3qX__o1jqHtQxFcRdSs4Jo9IF

Back to Savings habit in US!!

Lof of articles on savings and investment ( sample ) have started popping up in yahoo finance, msn finance,etc. These articles are more in the US context .

Consumerism has just started in India and we still maintain a great savings culture. But a part of working class esp . young urbans who started of with great salary in the last couple of years , need to realise the value of living within the means. Value for money is not something that we should look for in a tough time. But it should be practiced all the time so that it becomes a shared nature. Buying any liabilities in the name of assets paying huge EMIs should also be avoided.

At least a part of the money earned should be made to work for future by investing appropriately.On the contrary consuming tomorrow's money for today need to be avoided.

The age old thoughts of being frugal, saving and investing would always help tide any economic or financial crisis.

At these turbulent times…..Focus on Cost *

* Kadirvan T - (Guest Author)

With the current economic scenario where layoffs are the front page news everyday, we should focus on cutting costs and ensuring we have sufficient cash backup for meeting contingencies.

Well, How do we do it?
There are many ways to do it. One good way is through Microsoft Money Plus (Deluxe). MS Money is an excellent software to manage your personal finances. One amazing feature it provides is the cash flow forecast for your bank account. The forecast would be based on your recurring deposits (for a salaried person, it would most probably be only the monthly salary) and all the recurring expenses.

Fig: A sample Cash flow Forecast

How it helps?
Once you start tracking your day-to-day financial transactions in MS Money and also setup your Recurring Deposits and Expenses, you will be easily able to answer ALL the below questions through the Cash flow Forecast feature.

1) Will I have sufficient Money for my sister’s Marriage in January, 2010?
2) What if I get a salary decrease of 10%, would I still be able to sustain my increasing house rent?
3) How much money would I have saved in June 2010 considering I pay Rs.1000 less on my home loan EMI starting this month?
4) How much of monthly expense should I reduce to afford an additional Car EMI?

and lot more…

Well, Isn’t that a lot of time and effort tracking? Is it all really worthwhile???
All its takes is just10 mins everyday to track your expenses. What you get? You get to understand your finances and have it under YOUR control.

Is that all that MS Money has to offer? No!

MS Money also allows you to
1) Understand how much money you have in all your accounts inclusive.
2) Understand where all your hard-earned money is going through user-friendly reports like Expenses by Category/Payee etc…

Fig: A Sample Spending by Category (Pie-Chart)

3) You can easily understand why you have spent Rs.12,500 on Dining Out this month. Just double-click on the category and get the break-up. If you need to change it, change it there itself.



4) Budget your expenses and get alerted whenever your expenses go over-budget.

Fig: A Sample Budget chart

5) Get alerted of the pending Bill Payments.

Fig: A Sample Bills and Deposits Chart (Also get reminders when you start your PC)

6) Get your monthly Income and Expense Statements and also a month-wise Comparative analysis. You can also calculate your Net Worth just through a button click

Other than these, there are loads of other easy to use features. Just go ahead, explore and have fun!!!

Download the 60 day trial version from the below link:

http://www.microsoft.com/money/ProductDetails.aspx?pid=003

Shopping mantras

If you are trying to cut down your shopping bill , here are some tips

1) Always make a periodic budget (as to what you want to shop and set budgets for each category.)

2) Take a list of items that you are going to buy when you go to a mall and try sticking to it. Most malls gain only by impulsive buying.

3) When you want to buy a few items, do access your local shop as you will avoid visiting a big store..pay for parking, do some extra purchase,etc.

4)Check your bill very thoroughly ( price &quantity )before you pay for it. I have noticed that a bill is wrong more than 10% of the times. ( at times it may be in your favour too!!)

5)When buying packed food, check for the expiry date. I have seen expired/ almost expired items on the shelves of even premium stores . By this you ensure that you pay for a usable commodity and avoid a possible health hazard.

6)This is a powerful thing--- Carry cash to make your purchase by dropping your cards at home.When you pay cash , you may feel the pinch which is not visible when you pay thorough a card and there is a high possibility that you will stick to your budget.

7) Never buy something for the reason that there is an offer or discount on the product. Buy only if you are in genuine need of it.

If you feel these advises are primitive, then go ahead and shop till you drop. But never crib about your thin bank balance or thick card dues.

How far are you from financial independence?

one close definition of Financial Independence is ability to sustain on one's passive income.i.e. you can afford your day to day life without having to earn money by any need ( by work or business?).

'Financial Independence' should be one of the key goal of each and every investor.( In simple terms..this can be called retirement planning too?).

Starting early, investing regularly and compounding your money is the key to success for financial independence.

To judge how far you are from it ..face a question.

There are a lot of people who thrive only on their regular income. i.e that they cannot manage their day to day business even if their salary/income flows are stopped for even a single month. At least small but steady steps should be taken by each and everyone in moving towards financial independence.

Gifting ideas- How about making a gift yourselves for your near or dear?

Earn a crore

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