Which Investor category you belong to..

Investoshashtra!!!📜📜📜
ईन्वेस्टोशाष्त्र!!!📜📜📜

According to a Chinese proverb there are 4 categories of people :

1)He who *knows*, and *knows* he knows, he is *a wise man*

2)He who *knows*, and *knows not* he knows, he is *asleep*

3)He who *knows not*, and *knows* he doesn't know, he is *a child*

4)He who *knows not*, and *knows not* that he doesn't know, he is *a fool*

The problem is percentage of people doubles as you move up the hierarchy and  more than 80% fall in final 2 categories.

In financial world, most of the time initial investment success makes investor's overconfident and tends to believe that they belong to category 1😊😊. But by the time they realize that actually they belonged to category 4, it's too late.😪😪

Frankly most of so called _*"Experts"*_ also don't fall in category 1 as it requires regular upscaling of knowledge and skills to maintain that spot.

Investors in category 2 or 3 are at lesser risk, as good professional advisor can help and ensure that their financial goals are met.

Irony is majority of investors fall in category 4 and they are ignorant about it. I pray to God to watchover and protect them.

Have a wonderful weekend...

Thank god March is over

Whether it's government or entrepreneur, a shopkeeper or an employee, chartered accountant or insurance agent, everyone takes a breather as soon as March is over..

Someway or other everyone manages to take over with March financial blues.

But have you ever thought how will you take over month of ''March of your life...(Final stage of Retirement)'' the biggest problem with life is we do know when Jan or Feb (Retirement) will arrive but no clue of when will March arrive and specially the D-day i.e. 31st March.

It might not be a big problem if you don't meet 31st target professionally, but you can't afford to lose March target of your life.

One thing I can guarantee, if not planned properly in advance it could be a worst nightmare which will become reality.

So, if you have not given a serious thought to your retirement planning, take sometime this weekend and do plan and review it.

Remember sooner the better.

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.*

Concentrate on average not maximum

We always plan our road trip timings considering average speed.

There would be a stretch on which we may accelerate at 130-150 kmph and undoubtedly a roughy or crowded patch where we won't be able to exceed even 20-30 kmph, Unless driving on a formula 1 track.

So during our journey we will be moving somewhere in between the lower and upper band. Does that mean we should try and accelerate even on roughy patch at a speed of 100. Obviously NO

Then why we want to drive our investments either in top or first gear only. It is dangerous for our future to drive throughout financial journey only in extreme gears.

Why is it that if we are investing in Equities we try to chase best performing stock or mutual fund and keep playing with our money in shifting from  one to other. Remember data only shows past performance and *past performance is not guarantee of future.*

So this weekend decide average speed required to achieve your financial goals which will help you to avoid unnecessary diversions. It will minimise risk and make you reach destination safely in time.

Happy weekend!!

"Journey or Destination"

What is more important
"Journey or Destination"

Many a times in rush of reaching our destination we forget to enjoy journey....Joy in reaching destination is only when you relish journey as well.

Same way while Planning investments advisors and clients miss pleasure of journey.

*Don't forget In financial planning majority of time is spend in journey.*

In hurry of achieving goals or getting higher returns we miss to enjoy the moment. Make sure your journey is refreshing so that reaching destination delights you and doesn't strain you.

What is the sense of buying a Bullet at age of 55 with own funds which you wanted to buy at age of 25 with loan.

Having said that don't forget all of us *have to reach destination* but with pleasant memories of journey.

Happy journey!!!

Future of GOLD is glittering???

Just thought of sharing some interesting facts about gold today.

There is roughly 7000 years (beginning of civilization) of history of gold.

We all seek permanency and gold comes near to that.

Gold does not get corroded or rusted. It is not soluble in any acid. It is very difficult to demolish.

Most of the gold digged from time immemorial is still in circulation.

So we may even be using the some of the gold (recycled) that was used in the times of Rama, Krishna, Buddha and Jesus.

It is very soft that you can beat the gold down so thin that sunrays can shine through it.

The quantity of steel poured in an hour in our planet is more than what has been poured for gold since the civilization. That is how limited the availability of the gold is.

It is estimated that total gold available (in circulation and storage) in the world is 1,65,000 tonnes.

1 tonne is 1000 Kgs. At Rs.3000/- a gram, the cost of 1kg of gold is Rs.30 lakhs. So 1 tonne of gold is worth Rs.300 crore.

Indians privately own anywhere between 15,000 to 20,000 tonnes of gold. Even pegging it at 15,000 tonnes, the value comes above Rs.45 lakhs crore.

Since I cannot not talk about equity, the entire fund management industry in the country only manages Rs.6 lakh crore worth of equity assets.

Indian government owns only around 550 tonnes of gold.

No one knows how much gold the Indian temples have.

Tirupathi is estimated to have gold worth Rs.90,000 crores. Around 4000 kgs of gold is offered annually by his devotees to Lord Balaji. Interestingly as per legend, Balaji borrowed from Kubera 1.14 crore coins of gold for his marriage. Marriages have always been expensive in this country. By any standard, Balaji’s wedding with Padmavathi is the most expensive marriage that has ever happened so far in our world.

Till few years ago, we never knew Lord Padmanabha is so rich. Is that why he is very relaxed (ananda sayanam)? The very conservative estimate suggests that the value of gold in his abode is around Rs.4 lakh crore.

Reading various estimates and guesstimates looks like we (including deities) may have even 30,000+ tonnes of gold in our country. So we own around 20% of the entire gold in the world.

This means at today’s price, we have Rs.90 lakh crore worth of gold. India can be amazingly rich and poor at the same time.

Since gold is so malleable, just one gram of gold can be beaten into a sheet of one square metre.

The entire gold available in the world today can easily fit within a cube measuring 67 feet. Just one good shipping container would do. Golden Voyage!

75% of the gold available today has been extracted only after 1910.

The U.S.government (Fed Reserve + FortKnox) has close to 10,000 tonnes of gold.

During great depression, in 1933, U.S. government banned private holding of gold. People were ordered to handover the gold they have and were provided instead with dollars of equivalent value. Once the process was over, the government devalued the currency by over 40% eroding people’s wealth overnight. This coupled with high inflation was an extremely tough time for its citizens.

This ban was subsequently lifted only in 1975 and Americans were again allowed to own gold.

Since China has lot of dollar or dollar denominated assets; they understand the above risk better than anybody else. Chinese people were not allowed to own gold for more than 40 years and possessing gold was a severely punishable offence. Sometime during last decade this ban was removed and China has been encouraging its citizens to buy gold and silver.

Talking about silver, Buffett who rarely touches commodity, purchased 37% of the entire silver available in the world (yes, you read it right) in late nineties and sold it some time in the middle of the last decade. I think that considering the growing industrial demand and limited supply then, he saw value in purchasing the same and selling it at a very good profit. Silver was selling at abysmally low prices during the time of his purchase.

Every year, the new gold produced / recycled is consumed 50% as jewellery, 40% for investments (including ETFs) and 10% for industry. I was under the impression gold has no industrial use whatsoever till one of our client told me that electronics industry uses gold.

Though South Africa has been one of the world’s largest producers of gold, its citizens were not allowed to own gold till 2009.

For sports fan, do you know that Olympic gold medal is not made of gold! A ‘gold’ medal contains only 6 grams of gold. Only till 1912 Olympics, the gold medals were actually made of gold.

In 1991, our country’s situation was so bad that 65 tonnes of gold was taken out of the country  and mortgaged to tide over external payment crisis.

If you are worried that gold’s supply would get exhausted soon, fear not!

About 10 billion tonnes – 10,000 million tonnes (yes, you read it right) of gold is estimated to be held in the oceans of the world. An economically viable model of extraction is being explored.

Necessity is the mother of invention. If gold prices continue to rise and if the demand would only increase, who knows, a technological innovation can happen in extracting gold from ocean.

May be we can all then plan for building with our own golden bathrooms and specially bath tub so that we can have a golden bath....

What about our bappida???

A must list, before I die...

We wish all our reader's a healthy and peaceful long life. But we all know we have to die one day.

Have you ever thought why it is only me, who knows about all the investments, deposits, assets and liabilities. May be for convenience we would be accessing bank accounts and password of entire family. But is it not necessary to update atleast one of the family member about it.

Recently a report was published in the news paper that almost 64000 Crore is lying unclaimed in bank, post office, insurance company and EPFO for more then 10 years.

It suggests that there were people who invested this amount and have not passed on details to their heirs, who can claim it.

It take lot of efforts and hard work to earn, save and create wealth. Being Indian parents we always wish that we should pass on our legacy to next generation. But only wish doesn't work.It needs to be planned.

In today's fast moving technological world everything is either stored on our laptop,computer or mobile and have been saved with the password which only we know.

There was a recent case in which a client had updated his spouse about all the investments and name of the files stored in the computer. But when he died and her wife tried to access the details she was surprised to note that computer was locked with an password, which he didn't shared.

Remember in case of sudden death. Family has to bear 2 kind of losses one is emotional and other is financial loss. No one can fill the emotional gap only time can heal it up. But together with it if they have to go through financial problem then it is unbearable, that too when enough resources were planned.

Just assume that YUM DOOT has come to your dream and given you notice of 1 day. I think first thing you would do is provide with all your financial details to your family member.

For your ease trying to put down list of things you must prepare, update and give it to your family members :

• Will : Prepare a will. It is a simple statement mentioning how you wish your wealth should be distributed to your heirs. It is perceived that it requires lot of legal and technical hassles. But let me tell you that you may create it on a simple piece of paper which needs to be signed by 2 witnesses.

• Bank account details with login and passwords.

• E-mail account login and password, only in case there is no confidential details which you have even hided from your family and don't want them to know even after death

• Laptop and smart phone login/password

• Debit and credit card pin

• Nominee : Ensure all you investments have a nominee. Legally nominee is not the owner of the asset but just an authority to receive proceeds. If your one son as nominee and you die without making a will your another son,daughter or even your cousin can challenge it in court.  

• Details of Saving Bank Account,Locker, Fixed Deposit, Demat, PF, EPF, Insurance (Life and non Life).

• Details of all your investment like Mutual Fund, Stocks,Physical Gold, Silver, Real Estate.

• List of outstanding loans.

• Money given or taken from friends and relatives.

Remember only providing the details will not solve the purpose it needs to be updated at regular interval. Your birth date or anniversay date can be a good reminder to update the list.

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.

Ensure chicken is not pecking up your investments...

There were Two grains lying side by side on the fertile soil. 

The first grain said: “I want to grow up! I want to put down roots deep into the ground and sprout from the ground. I dream to blossom in delicate buds and proclaim the coming of spring. I want to feel the warm rays of sun and the dew drops on my petals!”.

This grain grew up and became a beautiful flower.

The second grain said: “I’m afraid. If I put down my roots into the ground, I don’t know what they will face there. If I grow tender stems, they can be damaged by wind. If I grow flowers, they may be disrupted. So I’d rather wait for the safer time.

Thus the second grain was waiting, until the chicken that passed by did not peck it.

I found similar is the situation of Indian investor they are always fearful about their investments in equity. What would happen if market will go down, what if GDP growth would not be as expected, what if inflation rises, what if I would loose my hard earned money, why should I pay fees to advisor, why should invest in Mutual funds.

Now we are having almost 22 years of history of mutual fund investment, not a single fund has not given return lesser then market, inspite of seeing all the worst a economy can face in this 22 years. We have seen a government for 13 days, a communist supported 3rd front government, Asian Financial crisis,Kargil war, Sanctions imposed on us due to nuclear test, Tech Bubble,9/11 attack, Ketan Parekh scam, terrorist attacks of parliament and of Mumbai, Corruption/scams, Sub prime crisis and lot more.

Inspite, of that there are funds which has given annualised returns to the tune of 24%, which even god of investment Warren Buffet have not been able to generate consistently for such a long period. 

Which means if someone would have invested Rs.100000 in the fund 20 years back that would have been worth 80.00 Lakhs, i.e multiplied his money 80 times or have made an SIP of Rs.5000 (Total Investment Rs.11.80 Lakhs) per month would have transformed into Rs.2.51 Crores.

So let us try to reap the benefit of equity investments and not become like other seed waiting for inflation and taxes in the form of chicken to peck it.

Is it time to overboard Real Estate

Returns from real estate (residential)

Real returns from real estate (city-wise residential)

(Source: http://www.wealthforumezine.net/AMCSpeakTATAMF100415.html#.VTRo-1KlTIX. Thanks tohttps://twitter.com/alphaideas )

Prime Minsiter tries to secure your retirement by pushing NPS

One more admirable initiative of Modi governemt is providing a Philip to New Pension Scheme or National Pension System. Additional tax rebate is proposed in budget'15 under section 80CCD for investment upto Rs.50000.00. 

I don’t think it will transform into a big corpus which will take care of retirement,but will help to create awareness for retirement planning.

The generation of whats app, flipkart, and pizza hut needs to understand that we are not provided by any assured retired benefit and have to accumulate our retirement fund on our own. So if you have not yet seriously given a thought to Retirement planning start atleast with NPS now..

Let’s understand some of the aspects of the schemes : 

• What is the New Pension Scheme? 
• How it works? 
• What are Tier I and Tier II accounts in the NPS? 
• What are the three categories in the NPS? 
• Fees and Expenses related to the NPS? 
• What is the minimum amount needed to invest in the NPS? 
• What are the tax implications of NPS? 
• How can I open a NPS account? 
• Guarantee of returns under NPS?
• Who will pay the pension?

What is the New Pension Scheme?

The NPS was introduced by the government to give people a way to get a pension during their old age. Employees of the government sector already get a pension, so this scheme was introduced as a social security measure that enables people from the unorganized sector to draw a pension as well.

The working mechanism is quite simple – you contribute a certain sum every month during your working years, which is then invested according to your preference. You can then withdraw the money when you retire i.e.60 years of age.

How it Works ?

You can enroll in the NPS at any time if you are a citizen of India and at least 18 years of age; no entry is, however, allowed after 60 years of age. You should take advantage of compounding of your wealth by starting right away.

The earlier you start, the greater will be the growth of your pension wealth.

Under NPS, how your money is invested will depend upon your own choice. NPS offers you a number of fund managers (six) and multiple investment options (three) to choose from. In case you do not want to exercise a choice as regards asset allocation, your money will be invested as per the “Auto Choice” option.

You can open an NPS account with authorized branches of service providers called ‘Points of Presence’ (POPs).

You have the option to shift from one branch to another branch of a POP at your convenience.

What are Tier I and Tier II accounts in the NPS?

Like any other pension NPS is meant to be a pension scheme, so the basic purpose of it is to give you a steady stream of income on your retirement.

Tier I and Tier II are two options under the scheme where you can invest your money, the primary difference between them is how they differ in allowing you to withdraw your money before retirement.

NPS Tier I

There is severe restriction on withdrawing your money before the age of 60, because it is necessary to invest 80% of your money in an annuity with Insurance Regulatory Development Authority (IRDA) if you withdraw before 60. You can keep the remaining 20% with you.

When you attain the age of 60, you have to invest at least 40% in an annuity with IRDA regd. Insurance co., the remaining can be withdrawn in lump-sum or in a phased manner.

Here are the details of how your money can be withdrawn in a NPS Tier I account.

When can a subscriber withdraw the amount

NPS Tier II Account

You need to have a Tier I account in order to open a Tier II account.

The Tier II account makes it easy for you to withdraw your money before retirement because there is no limit on the withdrawals you can make from the Tier II account.

You need to maintain a minimum balance of Rs. 2,000, and you can transfer money from the Tier II account to Tier I account, but not the other way around.

There is a Rs. 350 CRA (Credit Record Keeping Agency) charge which is not present in the Tier II account, but the rest of the fees remain the same.

Asset Allocation and Categories in the NPS

There is an Active Choice option, and an Auto Choice option. 

Active choice - In the Active Choice you can select how much of your money will be invested in the different classes with a cap of 50% in Class E (Equity).

Auto choice - Your money is invested in a certain percentage in the various classes based on your age. 

At the lowest age of entry (18years), 50% - E Class, 30% - C Class and 20% - G Class.These ratios of investment will remain fixed for all contributions until the participant reaches the age of 36. From age 36 onwards, the weight in “E” and“C” asset class will decrease annually and the weight in “G” class willincrease annually till it reaches 10% in “E”, 10% in “C” and 80% in “G”class at age 55.

Here are the three investment classes:

In either of these options you have to select the fund manager who will manage your fund. Choice of fund manages available is as follows:

ICICI Prudential Pension Funds Management Company Limited

IDFC Pension Fund Management Company Limited

Kotak Mahindra Pension Fund Limited

Reliance Capital Pension Fund Limited

SBI Pension Funds Private Limited

UTI Retirement Solutions Limited

Fees and Costs related to the NPS

There are some expenses associated with NPS list of which is as follows :

*Service tax and other levies, as applicable, will be levied as per the existing tax laws.

What is the minimum amount needed to invest in the NPS?

For a Tier I NPS account you need to contribute a minimum of Rs. 6,000 per year, and make at least 4 contributions in a year. The minimum amount per contribution can be Rs. 500.

Minimum amount for opening Tier II account is Rs. 1,000, minimum balance at the end of a year is Rs. 2,000, and you need to make at least 4 contributions in a year.

What are the tax implications of NPS?

Although you get tax rebate as per proposed tax laws, but withdrawals and pension would be taxed at marginal tax rate.

How can I open a NPS account?

You can open a NPS account by going to the bank branches of the banks that are authorized to sell this.

No Guarantee of returns under NPS?

It doesn’t guarantee you any assured returns , but as expenses are very low and due to professional management you can expect optimal returns.

Who will pay the pension?

Remember NPS will not pay you pension directly, but would offer you to choose and transfer your accumulated wealth to any of the insurance co. Registered with IRDA and offering immediate annuity products.

ABM View-

Keep in mind that NPS won’t pay you a pension directly, the rate of return is not fixed and a withdrawal as well as pension is taxable. But as expenses are very low it has capacity of generating good returns as per the class you are invested in. If you are a conservative investor falling in top tax bracket and have not planned for any other investments for retirement apart from EPF or PPF then should go for it.

My Times of India Article 23/9/14 on "Goals and Risk Tolerance"

"First Figure out your Goals, Risk Tolerance"

How to restraint from being a member of CLUB 99

​Once upon a time, there lived a King who, despite his luxurious lifestyle, was neither happy nor content.

One day, the King came upon a servant who was singing happily while he worked. This fascinated the King; why was he, the Supreme Ruler of the Land, unhappy and gloomy, while a lowly servant had so much joy.

The King asked the servant, 'Why are you so happy?'

The man replied, 'Your Majesty, I am nothing but a servant, but my family and I don't need too much - just a roof over our heads and warm food to fill our tummies.'

The king was not satisfied with that reply. Later in the day, he sought the advice of his most trusted advisor. After hearing the King's woes and the servant's story, the advisor said, 'Your Majesty, I believe that the servant Has not been made part of The 99 Club.'

'The 99 Club? And what exactly is that?' the King inquired.

The advisor replied, 'Your Majesty, to truly know what The 99 Club is, place 99 Gold coins in a bag and leave it at this servant's doorstep.'

When the servant saw the bag, he took it into his house. When he opened the bag, he let out a great shout of joy... So many gold coins!

He began to count them. After several counts, he was at last convinced that there were 99 coins. He wondered, 'What could've happened to that last gold coin? Surely, no one would leave 99 coins!'

He looked everywhere he could, but that final coin was elusive. Finally, exhausted he decided that he was going to have to work harder than ever to earn that gold coin and complete his collection.

From that day, the servant's life was changed. He was overworked, horribly grumpy, and castigated his family for not helping him make that 100th gold coin. He stopped singing while he worked.

Witnessing this drastic transformation, the King was puzzled. When he sought his advisor's help, the advisor said, 'Your Majesty, the servant has now officially joined The 99 Club.'

He continued, 'The 99 Club is a name given to those people who have enough to be happy but are never contented, because they're always yearning and Striving for that extra 1, saying to themselves: 'Let me get that one final thing and then I will be happy for life.' We can be happy, even with very little in our lives, but the minute we're given something bigger and better, we want even more! We lose our sleep, our happiness, we hurt the people around us; all these as a price for our growing needs and desires.

Same is the situation with most of the investors, they are also engaged in converting 99 to hundred, without knowing they might need much lesser then that.

Financial planning is a big eye opener and will help you to avoid being an member of CLUB 99 and help you to live your life happily.

Increase your Happiness index together with wealth

Had opportunity to watch a fantastic movie this weekend named "Lunch Box" there were lot of good things about the movie. But I would like to share just one of the term they referred to i.e Gross National Happiness.

Every country in the world is running towards improving their Gross National product. But what if we get together and concentrate on improving Gross National Happiness. Interesting to know there is a country seating in our neighbor having population half of my city i.e Vadodara has done that. I am talking of Bhutan. YES Bhutan.

Gross national happiness resides in the belief  that the key to happiness is to be found, once basic material needs have been met, in emotional and spiritual growth. The concept of Gross National Happiness accordingly rejects the nation that there is a direct and unambiguous relationship between wealth and happiness. If such a relationship existed, it would follow that those in the richest countries should be the happiest in the world. We know that this is not the case. This marginal increase has also been accompanied by the growth of many social problems as well as such phenomena as stress-related diseases as well as suicides, surely the very antithesis of happiness. 

Bhutan seeks to establish a happy society, where people are safe, where everyone is guaranteed a decent livelihood, and where people enjoy universal access to good education and health care. It is a society where there is no pollution or violation of the environment, where there is no aggression and war, where inequalities do not exist, and where cultural values get strengthened everyday. A happy society is not a fatalistic society, but is built on hope and aspirations. It is also a more equal and compassionate society, where sharing and contentment come out of a positive sense of community feeling. A happy society is one where people enjoy freedoms, where there is no oppression, where art, music, dance, drama, and culture flourish.

We all are running without knowing where we need to reach. Specially our leaders they have never set and looked at how much money they would require to lead a most luxurious life which includes inheriting big chunk for their next generation. If they would do that exercise corruption figure will get down to some hundred crores from lakhs of crores.

Financial planner can contribute a lot to increase your level of happiness by making you aware about your future needs and goals. They lay down a plan to achieve your goals according to your risk profile, they secure your family's future. A clear vision, backed by definite plan, gives you a tremendous feeling of confidence and personal power. When you are confident about future financially, you become more happier and less greedy, which helps in giving quality time to family. I am of the belief that if we are happy and satisfied we make people around us more happier and a reason for happier society. We avoid doing unethical work.

Just think of the day when you got good bonus or an excellent salary hike. What is the first thing you do its share that happiness with your family you wont mind giving a raise to your housemaid or your sweeper after that. A chain of happiness starts. Why we need to have reasons like bonus and raise to be happy. They are temporary, start looking for permanent reasons.

Just a advise to raise your happiness index and together with that of countries Gross happiness index consult your financial planner and plan you future.

Very relevant speech forwarded to me by one of my client of  Mr.Ratan Tata at Symbiosis.

Quote

"Don't just have career or academic goals.Set goals to give you a balanced,successful life.Balanced means ensuring your health, relationship,mental peace are all in good order. 

There is no point of getting a promotion on the day of breakup,

There is no fun in driving a car if your back hurts,

Shopping is not enjoyable if your mind is full of tensions.

Don't take life seriously, Life is not meant to be taken seriously, as we are temporary here.

We are like prepaid card with limited validity. If we are lucky, we may last for another 50 years and 50 years is just 2500 weekends. Do we really need to get so worked up?...it's OK, Bunk few classes, score low couple of papers, take leave from work, fall in love. fight a little with your spouse....it's ok... 

We are people not programmed devices...! "Don't be serious enjoy life as it comes" Unquote.     

To remain happy is in our hand and don't allow external factors to affect it. Be happy and try to make people happier around you. Donate generously to less privileged, help others, take good care of environment.

ABM Investment Views published in "TIMES OF INDIA", Mumbai edition June 10,2014

To view click on link below :

https://docs.google.com/file/d/0B5Vaf3Lc5zYgbUdRTzQxYUdaVFZtYWlMTFd3el8xelBKRjg0/edit

True example of WEALTH Creation

We are optimistic about "ACCHE DIN AANE WAALE HAIN.".

If last 20 years were not good then going by above phrase next 10 years are going to be extraordinary.Last almost 20 years have been the best days an investor can wish for but the problem is we ourselves are not confident of our economy and power of Young India.

Investors confidently invest in Gold, Corporate Fixed Deposit, FD of Co-operative bank and above all real estate.But when it comes to equity they shy away from it.

Demonstrating herewith how equity mutual funds in real life can create wealth for the investors.

"Reliance Growth Fund is an Equity Diversified fund launched 19 years back wherein its NAV has moved from Rs.10 to Rs.615.59 that means investor has multiplied his money 62 times.

It is evident that there is no other asset class which can beat performance of Equity and specially investments made through Mutual fund route. Many a times investor do compare returns of equity with real estate. 

Let's see the comparison - 

If one had invested Rs.10 lacs in this fund 19 years back it would have grown to 6.2 crores that too TAX FREE and to add some other benefit is liquidity, daily valuation,transparency, diversification, part redeemable, no legal cost or hurdles, well regulated etc etc...

I leave it to the real estate investor to evaluate that how much of them can confidently claim similar returns for their real estate portfolio as a whole.

Disclaimer : Performance of fund taken only for demonstration purpose, should not be considered as our recommendation. Please consult you adviser before investing.

Undoubtedly investor should allocate funds to different assets  according to time horizon and goals.But, Investors are very comfortable with investment in FD, Gold and Real estate but when it comes to Equities every one thinks that it is a speculative asset class. History has proved that you can speculate anything for a short period, but in long term fundamental works.

Many a times the excuse given for not investing in equity is of lower risk profile, but we forget that risk profile is evaluated on 3 aspect i.e Willingness,Ability and Need. The most important aspect with most of the individuals is Need, may be they are not willing to take risk and might not have ability as well. But in today's high inflationary scenario everyone's NEED should make them a equity investor. For today's investor equity is not an option but a necessity.

So evaluate your future needs, make equity mutual funds your friend for wealth creation,but in consultation with your financial advisor.

It's your Life - Make It LARGE

Every individual's what he is today is result of small things which he/she did in past, same is very well narrated by Superstar King Khan in one of the recent commercial : I Quote -

"Large kab banta hain, Woh pehla break large lagta tha,

Woh pehla role, Woh pehli Gaadi,

Pehli Girlfriend?,

Bachpan ki galiya large lagti thi, theatre ka stage,

uh a - us waqt to small screen bhi mere liye large thi,

20-50 log taaliya mar dete, large lagta tha,

Lekin aaj wohi sab, CHOTA lagta hain,

Jo haanth lag jaye woh kya large,

Lekin LARGE banta hain UNHI CHOTI cheezo se,

Small Milate Jao large banate Jao,

Its your Life MAKE IT LARGE.

Unquote-

If we go through our past we will find above lines are very relevant for each one of us, what ever we are today is the result of the small small right or wrong things we did in past.

Each one of us can narrate a similar experience of their past, it looks like a dream that how by TIME this small decisions becomes so big for us. Every one of us must be at higher level from where they started. The people who are at start of their career will be at much higher position then at which they are today, if they continue giving there efforts sincerely.

Similar is the case of SIP (Systematic Investment Plan) - It is small small amount which you contribute regularly on monthly basis for years and without our knowing by time it grows much bigger then our expectation.

As an advisor I always advise my clients that every individual who has an asset need to write a will or every individual who is earning and having dependents needs to have a life insurance.

Similarly, I feel each and every individual who is not blessed by legacy of wealth needs to have an SIP. It will help them to achieve there goals and dreams by just contributing small amount over years effortlessly. So whether you wish to invest for your child's marriage or education, for a house or retirement or for a foreign tour or charity what you need is an SIP and time by your side.

Many a times investor feels SIP means equity/shares but they can do it in a fixed income or Gold fund depending on their risk profile and needs.

So if you have not started one yet, start it today aur aap bhi "Small milate jao or LARGE banate jao - It's your life, make it LARGE".

Avoid investing only on the basis of past performance

It is a common practice that we invest in a best performing funds and the day we invest its under performance starts. It seems that bad luck was just waiting for us to invest. Fact is lot of other factors are also involved in selecting a good fund apart from the luck or past performance.

Let's see the other factors which plays important role in performance of your fund :

1) Fund House - First of all we need to assess the fund management team, to ensure that the money we are investing is in safe hands. Need to check that how stable is fund management team,Experience of Fund Management Team (Across Cycles),Does fund manager instill a high level of confidence in communication. How seriously fund house takes their fund management business..

2) Investment Philosophy - How clearly the fund philosophy is defined, e.g fund would be managed in growth style, value style, dynamic, thematic etc... Also understand advantages and disadvantages of particular philosophy.

3) Process - Most important aspect in life to achieve anything with minimum error is to adopt a process. Whenever you follow a process things move systematically and achieving goals become easy. 

Similarly for investment  we need to check that fund house is strictly following some process or not. Many a times in past it has happened that fund house leaves everything on a STAR fund manager instead of following a process.It does work in favour in a particular market condition but when situation changes the fund becomes the worst performer. So need to check on following points

Is there a well laid down , comprehensive process in place ?

How much flexibility does the fund manager has in decision making?

How are stocks researched?

How adequate and effective is the risk management process?

4) Portfolio - Whatever is described in above three points should reflect in the portfolio formed by a fund manager.

The stocks/Sectors selected and portfolio turnover is true to its mandate?

What is concentration risk in the portfolio?

Sufficient rationale for areas of concern?

5) Performance - The last but not the least important is Past performance. I believe that performance is the product of above 4 steps. If any fund house/fund has got them in place performance is going to follow. May be in short term other fund might take over but in long term it would emerge as a star. 

Next time whenever you select a fund do proper homework or hire a Financial planner who can do it on your behalf. 

Financial Mathematics:Magical Numbers 72,114 and 144

It is always a tedious job to calculate rate of return on various products to take investment decisions.

In financial mathematics there are certain magical numbers which would help you in calculating the rate of return for doubling,tripling or quadrupling or if rate of return is available it can help you to calculate time required to double, triple or quadruple your capital

Let us find out how :

Take an example of Mr.Doguna who has been advised by one of his agent that there is an investment opportunity whereby he can double his money in 8 years. Now Mr.Doguna wishes to calculate the rate of return of the same. 

What he need to do is just divide 72 by the no. of years. i.e. 72/8 = 9%. 

So the approximate rate of return would be 9%.Although it doesn't give an exact result but you can have a rough calculation by doing this.

Lets say Mr.Doguna got an rate of interest of 12% and now he wishes to calculate the time period required to double his amount then he need to divide 72 by rate of interest i.e.

72/12 = 6 years (approx.)

Similarly you can calculate period/rate to triple your money by dividing 114 by the available variable and to quadruple replace magical no.114 by 144. 

for example if you wish to triple your money in 12 years required rate of interest would be 114/12= 9.50%.

To quadruple your money in 16 years required rate of return would be 144/16 = 9%.

In above example if rate of return is available and you wish to calculate time period divide magical nos. by rate of return.

Hope, above nos, will help you to make certain calculations on your fingertip without depending on software, excel sheet or financial calculators to take informed decisions.

Financial Mathematics - "Itni Shiddat se maine tujhe pane ki koshish ki hai, ki har zarre ne mujhe tumse milane ki saazish ki hai".

Very rightly said that "Journey of thousand miles starts with a single step".Same way to achieve big goals in life the first step is to start with basic i.e.decide your goals/dreams or aspirations in life.

Just list down whatever you think without thinking ki "Yeh kaha se hoga". (Had we ever thought that people would be booking tickets to travel mars).

Many a times investor tells me it doesn't make sense to plan, as I don't have any surplus funds. I ask them forget what you have atleast make a list of goals you want to achieve and as soon as you make that list and refer it on regular basis, your goals themselves finds way for required investment.

You will automatically cut down on discretionary or unnecessary expenses. It will act as an alarm "That if you buy the things which you don't need today, may be tomorrow you will not be able to buy the things you need". It will motivate you to work more efficiently to grow in your career or business.For sure, the passion and better planning will make you reach your goals Like SRK says "Itni Shiddat se maine tujhe pane ki koshish ki hai, ki har zarre ne mujhe tumse milane ki saazish ki hai".

After first step of deciding goals, it requires you to put time left and amount required for it.

Today we will learn how to inflate present goals cost to future value, so that we don't end up receiving the value which do not meet the requirement as briefed in my earlier blog:http://www.rajtalati-abminvestment.blogspot.in/2014/01/calculating-rate-of-returns-before.html#links. 

In addition to that we will also learn how to calculate annual investment required to reach that value :

Let's take an example of Mr.Sapnelal who wish to plan for marriage of her daughter Ms.Dreamgirl 18 year hence. Present exps. according to kind of wedding he wish to plan for is Rs.800000.00. He expects inflation during this period will be around 7%.

First of all open an excel sheet and go on "insert" select "Function" and in "window search for function" type "FV".Following window will open :

Inputs:

Rate - It is the rate of return/inflation considered in our case it would be 7%

NPER is no. of period - In our case it is 18 years.

PMT Payment - It asks for Periodic payments you wish to make for the goal. As we want to learn how to calculate Periodic payment in next step we will keep this as blank.

PV - This is the present value of goal in our case it is Rs.800000.00.As it shows investment (Money going from our pocket) a  -ve sign to put in front of it.

Let's insert the data in above field. The result will reflect at the bottom (above the Blue highlighted line Help on this function") under Formula result as follows :

The amount required after 18 years would be Rs.2703945.82.

Now,let's see how to calculate annual amount required to be invested or periodic investment required to achieve goal of Ms. Dreamgirl's marriage.

Mr.Sapnelal risk profile is aggressive and as the period of investment is also longer he wishes to make this entire annual contribution to equity and he expects equity to give him atleast 15% return on his investment.

So. let's calculate the per annum amount required to be invested.

First of all open an excel sheet and go on "insert" select "Function" and in "window search for function" type "PMT".Following window will open :

As detailed above put the data in fileds as follows :

Rate - As Sapnelal wishes to invest the amount in equity and expects to get a return of 15%. Enter 15% against Rate.

NPER - Enter 18 as maturity is required after 18 years for Dreamgirl's marriage

PV - Enter the lumpsum amount if you wish to invest initially together with the annual amount. In our case its nil so will keep it blank.

FV - From the first calculation we got this amount which we want to achieve i.e. 2703945.82.

Type - If you wish to make contribution at start of the year then put 1 and in case of end put 0.In our case it at the beginning of the year so enter 1.

After inserting all the above details result i.e. annual requirement will reflect as follows :

So the required amount is Rs.31004.35 it is showing as negative because it is going out of our pocket or we need to make this investment.

The best part is just by changing the figures in rate you can see the value of annual investment required. If you wish to achieve your goal by investing in a bank FD and expects to get a return of 9%. Your annual investment required will become Rs.60063..04.

So plan your investment in better way irrespective of what your name means- So being Mr.Sapnelal, enjoy marriage of daughter Dreamgirl the way it was planned.