*Is there a Big billion sale in Indian Equity markets too??🤔🤔🤔*

Investoshashtra !!!📜📜📜
इनवेस्टोशास्त्र !!!📜📜📜

Word *Sale* made me puzzled of what it actually means.

As per dictionary Sale means "Period during which goods are sold at a discount to it's MRP (Maximum retail price)."

*The big question is who decides an MRP and does it remain same during the lifetime of the product. _Obviously no_. It keeps on increasing or decreasing depending on seller's wish.*

So only aspect which decides *sale* is real or not is the *value* we get against such *discounted products.*

That is the reason 90% (In many a cases 100%) of shopping my wife does online, goes for a return. (Thanks to free return policy😜😜). Reason is inspite of buying it in a sale she doesn't find value and that shows how word "Sale" is being manipulated by seller's.

Similarly, I have been getting lot of forwards from advisors as well as investor's regarding Big Billion sale going on in Indian Equity Market.

Big question strikes me again can this be termed as sale.May be "Yes" reference to historical prices, as it is available at big discount. *But what about value against the price we will be paying even now.*

Remember "The markets is most intelligent and dumbest at times". It's our job to find when it is behaving as a dumb (Opportunity) and when intelligent (Safety).

Looking at present macros like ; Crude price, Depreciation of Rupee, Increasing interest rate, Challenges with fiscal prudence, current account  deficit, political uncertainty, trade war etc etc, I don't think market is behaving like a dumb at all.

Actually, It was running much ahead of fundamentals due to heavy liquidity and Tina effect (there is no alternative).

*"Market can remain irrational for longer than you can remain solvent - John Keynes."*

*So do not try to leverage your equities looking at "Sale" even now and stick to asset allocation.*

Remember, it doesn't mean stopping SIP's these are the times it is best suited for.

Have a great weekend.

Regards,
Raj Talati
www.rajtalati-abminvestment.blogspot.com

*Time to reset expectations*

Investoshashtra !!!📜📜📜
इनवेस्टोशास्त्र !!!📜📜📜

We are again entering election season, whereby every political leader or party will try to divert attention from real issues and divide us on the basis of religion and casteism.

"Rome was not built in a day and India is an under construction country, thodi dhul to udegi". We are at an inflection point and need to overcome such pity issues. *It's time to reset expectations and concentrate on bigger issues viz employment and housing for all, better cleanliness and hygiene, medical facilities, education, infrastructure etc.*

Similarly, I think it's time for investors to reset their expectation from equity investing as well.

Historically, index has given an average return of 15% and we assume it as an standard for calculating future returns for financial planning.

But, we need to understand logic behind the number 15%. Historically we have seen average inflation of 8-9% and equity generated real return of 6% (15%-9%) (net of inflation).

Now as we know RBI/MPC stated objective to keep inflation in 4% +/-2% range.

If we add real return of 6% then figure of 11-12% will be genuine return expectation from equity over a long term.

Secondly, enough liquidity is flowing in equity market due to TINA effect (there is no alternative for investment) making it more and more costlier, so chances of making additional brownie point there is also limited.

*So, It's time to reset return expectations and alter your financial plan, otherwise chances are high that you might end up way short of required amount.*

Have a fantastic weekend.

Regards,
Raj Talati
www.rajtalati-abminvestment.blogspot.com

Brake or Accelerator

India might be the only country where people accelerate instead of applying brake when signal starts turning to red from green.

We all know importance of brake as well as accelerator for smooth commuting.

*Accelerator keeps us moving whereas brake ensures we reach our destination safely....*

A good driver knows very well when to push accelerator and when to apply brakes.

Many a times investors while investing forget this simple concept and enjoys acceleration so much that forget applying brakes, inspite of reaching destination (Goals)  which eventually results in accident (losses).

Financial planning helps you in deciding when is the time to accelerate and when to slow down or even stand still.

If you are still just investing it's high time *switch to financial planning.*

Is home loan prepayment really beneficial ????

I keep on receiving lot of queries as whether one should continue to pay home loan or invest the surplus available.

It would be wrong if I only discuss financial aspect. Apart from financials, lot of other factors, which also needs to be considered.

Trying to cover most of it, with a word of caution and request to consult your financial advisor before taking decision. The right and timely decision can help to reap big benefits out of housing loan.

Request readers to go through complete article to understand benefits, assumptions and other aspect related to it.

1) Financial benefits : 

Lot of people claims that it is always beneficial to prepay housing loan, some claims it is advisable in earlier years as interest cost is very high.  

From financial benefit point of view IT IS ALWAYS BENEFICIAL TO INVEST THE SURPLUS AS COMPARED TO PREPAYMENT. Let me illustrate you with an example :

Lets assume following:

Case I - Prepayment :

Loan Amt.                                 : Rs.20,00,000

Tenure                                       : 20 Years

Interest                                      : 9.4% (SBI Present rate)

EMI                                            : Rs.18512/Month

Interest payment in 20 yrs.  : Rs.2442931

Capital Repayment in 20 yrs: Rs.2000000

Total Payment                          : Rs.4442931

Let's say you have surplus of Rs.500000 and you prepay so the total amount comes like this:

Interest payment in balance reduced term : Rs. 889323

Capital payment in balance reduced term  : Rs.1500000+500000 (Prepayment)

Total Payment                                                   : Rs.2889323

So the total benefit comes out to be Rs.1553608

Case II- Investing surplus without prepayment :

Let's say surplus amount of Rs.500000.00 is invested in tax free bond of PFC on offer right now @ 7.60% (Assuming annual interest is reinvested at same rate)

The maturity amount of Rs.500000 @7.60% after 20 years would become Rs.2163791

So the net gain by investing the same amount would be (Rs.2163791 - Rs.1679372) = Rs.484419.00. 

Benefit for interest repayment on housing loan during the term (considering 30% tax bracket) : 

2568680-889308 = Rs.1679372 @ 30% = Rs.503811

(Even,if we ignore tax benefit of 80C as in most of the cases it is covered by PPF,EPF and LIC Policies)

So the total benefit works out to be whoopping  (503811+484419) = Rs.988230.00

2) Inflation : Although it look very beneficial at first go, but after taking inflation @6% works out to be equivalent to Rs.3.08 Lacs in present terms. So if you are higher tax bracket benefit is considerable.

3) Assumption : We have assumed investment in tax free bonds which are right now available, But It won't be possible everytime to get such an avenue of tax free investment for 20 year long period. Together with it we have also assumed that the reinvestment of interest amount would also be at the similar rate.

4) TAXATION : As we are aware that there are 2 component to EMI first is Interest and other Capital repayment. 

As per section 24 your income shall be reduced by the amount of interest paid on Home Loan where the loan is taken by for Purchase/Construction/Repair/Renewal/Reconstruction of Residential House. The maximum deduction available for self occupied property is subject to a maximum of Rs.2 Lacs. In case it is not self occupied there is no upper ceiling.

In addition the amount paid as repayment of principal amount of home loan by individual/HUF is allowed as deduction under section 80C. This section also includes amount invested in PPF,EPF,ELSS scheme of Mutual Fund, NSC etc subject to total upper limit of Rs.1.50 Lacs.

So if you prepay your home loan, may be you loose tax benefit against interest part as the interest component would reduce considerably.

5) Funds Requirement : Never deep into your contingency or emergency fund in a hurry to prepay your home loan. You must keep atleast 3 to 6 months of expenses for contingency.

6) Prepay Costlier Debt First : Home loan is the cheapest loan available. So if you have other outstanding consumer, credit card or personal loan. Prepay them first.

7) Defensive investors : If you are a defensive investor then I would advise you to prepay your home loan for any surplus amount because mental peace and health is more important then financial benefit.

8) Retirement Planning : If you have not planned for your retirement yet and you are right now in your 30s or 40s consider investing in Equity mutual funds to build retirement kitty.It may give you much more benefits then shown in illustration. If I consider historical Equity returns of 17% then Rs.5.00 lacs may become almost Rs.1.20 CRORE

9) Nearing your retirement : If you are planning to retire soon, then it is advisable to prepay your housing loan so that you don't have any liability after retirement.

10) Planning to spend surplus : If you are planning to buy some white good or a gadget or a depreciating asset out of surplus then it is advisable to prepay your home loan without any of above consideration.

Please take decision of prepaying or investing the surplus after considering above factor. Remember every penny saved is penny earned.

What is Systematic Invetment Plan - SIP

Systematic Investment Plan (SIP) is not an asset class in itself, it is an option that will help you to accumulate money. In simpler terms you may say it is an recurring deposit in mutual fund.

What is a Systematic Investment Plan?

A Systematic Investment Plan or SIP is a smart and hassle free mode for investing money in mutual funds. SIP allows you to invest a certain pre-determined amount at a regular interval (weekly, monthly, quarterly, etc.). A SIP is a planned approach towards investments and helps you inculcate the habit of saving and building wealth for the future.

How does it work?

A SIP is a flexible and easy investment plan. Your money is auto-debited from your bank account and invested into a specific mutual fund scheme.You are allocated certain number of units based on the ongoing market rate (called NAV or net asset value) for the day.

Every time you invest money, additional units of the scheme are purchased at the market rate and added to your account. Hence, units are bought at different rates and investors benefit from Rupee-Cost Averaging and the Power of Compounding.

Rupee-Cost Averaging

With volatile markets, most investors remain skeptical about the best time to invest and try to 'time' their entry into the market. Rupee-cost averaging allows you to opt out of the guessing game. Since you are a regular investor,your money fetches more units when the price is low and lesser when the price is high. During volatile period, it may allow you to achieve a lower average cost per unit.

Power of Compounding

Albert Einstein once said, "Compound interest is the eighth wonder of the world. He who understands it, earns it... he who doesn't... pays it." The rule for compounding is simple - the sooner you start investing, the more time your money has to grow.

Example

If you started investing Rs. 10000 a month on your 40th birthday, in 20 years time you would have put aside Rs. 24 lakhs. If that investment grew by an average of 7% a year, it would be worth Rs. 52.4 lakhs when you reach 60.

However, if you started investing 10 years earlier, your Rs. 10000 each month would add up to Rs. 36 lakh over 30 years. Assuming the same average annual growth of 7%, you would have Rs. 1.22 Cr on your 60th birthday - more than double the amount you would have received if you had started ten years later!

Other Benefits of Systematic Investment Plans

· Disciplined Saving - Discipline is the key to successful investments. When you invest through SIP, you commit yourself to save regularly. Every investment is a step towards attaining your financial objectives.

· Flexibility - While it is advisable to continue SIP investments with a long-term perspective, there is no compulsion. Investors can discontinue the plan at any time. One can also increase/ decrease the amount being invested.

· Long-Term Gains - Due to rupee-cost averaging and the power of compounding SIPs have the potential to deliver attractive returns over a long investment horizon.

· Convenience - SIP is a hassle-free mode of investment. You can issue a standing instruction to your bank to facilitate auto-debits from your bank account.

SIPs have proved to be an ideal mode of investment for retail investors who do not have the resources to pursue active investments. Specially in equity funds as investors tend to stop fresh investment during bearish phase but SIP helps you to overcome that emotion as it is getting deducted every month directly from your account irrespective of market conditions.

So keep SIPing it will create a big wealth for you in long term.