Are returns the only thing one should look at?

For most of us every rupee earned is important. Therefore getting a good return on the amount invested is also important.

If you are young your risk taking capacity is good, but at that point of time we are not sure how to go about investing. So most of the investing happens with the advice of friends and family.

But the ones who are giving advice base it on their experience and age and not as per your age and risk taking capacity. So typically happens is either the investment is in very safe investments like bank fixed deposits or into shares without understanding the risks.

So the important thing is understanding what you are saving for and how much time you have for achieving it. This will give you a head start instead of just focusing on returns.

How will higher returns help you if you do not know what to do with the money? This obsession of returns will just take your focus away from life. Stay away from anyone who just talks about returns instead of your needs and wants. You would notice many advertisements as well as bank relation managers of wealth managers just talking to you about returns without understanding your requirements.

Your focus should be to invest in such a way that there is capital protection as well as returns, but they never go hand in hand. Hence some amount of risk is always necessary and the amount of risk depends on your current status of life and where you want to be. So the focus should be on optimizing returns with the right level of risk, taxation, liquidity and income needs. Please note I have said optimizing and maximizing.

Also ensure that the portfolio is easy to understand and manage.

Most young people I meet, mostly the successful ones assume that they know everything about investing, they feel that because they have been successful in one area, they can be successful in all areas, especially investing. The reason is there is so much matter available on the subject of investing in newspapers, TV channels and over the web, that it looks very simple. This leads them to invest based only on returns without understanding the risks.

So if you really want to achieve your goals, contact a financial advisor who will first understand your requirement, suggest a strategy and then and only then suggest the product.

What to do in a Volatile market

In the first week of March a retired gentleman called me asked what should I do with my investments in mutual funds as the market has crashed? I just asked one question, do you need the money? He said no. My advice was then just hold on. A few days later he again called, saying my debt funds have also fallen and again I asked him the same question and our replies were the same. This gentleman now was very frustrated as he was losing money and did not know what to do. The thing is, was he really losing money or that losing money was just in his mind. More often than not, it is usually in our mind. The market is an unknown beast and we are trying to tame unknown and milk it. This is our problem.

Why do we want to go into unchartered waters without even learning the basics? My advice to such persons is, just do regular asset allocation. If we have decided to keep 50% of our financial assets in equity and the balance in debt, then on a regular basis just ensure that you are maintaining that balance. This will help in lowering the risk of your portfolio. Asset Allocation is the most boring job. We want excitement, but this most boring job helps keep our portfolio safe. This is what most of us want. We are ready to keep our money in fixed deposits in the name of safety, which is also boring, then why not asset allocation with higher returns and a little higher risk compared to Fixed Deposits.

Over a log period studies have shown that regular rebalancing even once a year has given better returns than doing nothing. Rebalancing is necessary because different asset classes give varying returns over different periods of time. Because of these varying returns, the asset allocation changes over a period of time. Regular rebalancing helps in restoring the asset allocation and also reducing the risk. In the bargain, you tend to book profits from the asset class which has grown and purchase at a lower price the asset which has not grown to the same extend. Mind you, we are not timing the market, but we are still booking profits on a regular basis.

So do not let your emotions drive your decisions, just do regular rebalancing. If you find it difficult, just go for professional advice.

Arbitrage Funds

Arbitrage is a term used to describe the purchase of a product which is then immediately sold to make a profit. Arbitrage is popular in the stock market or as a means to make profit from goods being sold at differing prices in varying markets.

Let’s take an example of arbitrage. Suppose a tailor sells a shirt for Rs. 400/- the cost for him is Rs. 300/- He makes a profit of Rs. 100. One day when he at the cloth manufacturer, he meets another tailor who also makes shirts and sells. The cloth and accessories are the same, his fitting is also more or less similar, but he sells his shirts for Rs.250/- So our tailor to increase his profits, buys from the other tailor at Rs. 250/- and sells for Rs. 400, increasing his profit to Rs. 150/- per shirt. This is arbitrage, basically taking advantage of the price difference in the other market for the same product.

The above type of arbitrage is available in the financial markets as well. In the financial markets there are 2 types of markets, one is cash and the other is derivative. There is always a price difference in both these markets. So if one buys in the cash market and sells in the derivatives market it will be called an arbitrage trade.

Now if it was so easy everyone would have been doing it. But here is the catch. In the cash market you can buy today and sell tomorrow. But in the derivatives market it is a contract which is valid for a fixed period. One just pays a premium initially and at the end of the contract period, s/he has to settle it by paying the difference between the then prevailing price and the contract price. So if your bet goes wrong, you could lose big. But since you have done the opposite in the cash market, the loss will be minimal.

Arbitrage funds returns are very similar to debt fund or fixed deposits, but this product is treated as an equity product. The reason is tax.

Therefore it is very important that you know about the tax treatment and investment options before making any investment decisions.

For income tax purpose, as mentioned above arbitrage mutual funds are classified as Equity oriented funds.

·         Long Term Capital Gains on Arbitrage Fund

      o   If you make a gain / profit on your investment in an Arbitrage Mutual Fund scheme that you have held for over 1 year, it will be classified as Long Term Capital Gain.

      o   The long term capital gains on Equity oriented funds will be taxed at 10% if the total Long Term Capital gains is more than Rs. 1 Lakh in a year. It is tax free till March 31, 2018.

·         Short Term Capital Gains

   o   If your holdings of an Arbitrage Equity mutual fund scheme are less than 1 year old i.e. if you withdraw your mutual fund units before 1 year, after making a profit, then the profit will be considered as Short Term Capital Gain.

      o   The capital gain tax rate of 15% is applicable on Short Term Capital Gains of Arbitrage Fund.

   o   Kindly note that interest income on Fixed Deposits will be charged at as per your income tax slab rate.

   o   The Short term Capital gains on Debt mutual funds too are taxed at as per your income tax slab rate if the holding period is less than 3 years.

So, as per the current tax laws, the Arbitrage Funds have clear tax advantage over Fixed Deposits or Debt Mutual Funds.

 

 

How to make your money grow

We start investing in a small way and slowly and steadily we build a good corpus, but all this was not easy. We might have burnt our fingers on the way. If you had taken the help of a financial advisor the journey would have been less painful. Never the less, we have to learn and that is the only way to grow.

First thing to remember is always invest in an asset class based on your goal and time horizon. Many people I have met, just invest based on the past returns of a particular asset class. All asset classes have their own ups and downs and nobody can say for sure, when is the right time to invest in a particular class of asset. Some like gold, others like fixed deposits and others like equity. But investment in a particular class of asset should always be based on goal and time horizon. It should not happen that when you actually need the money, the market for that particular class of asset in which you invested is down.

Next to remember is when it comes to investment you need to have discipline. Do not go by rumors or market movements. If you have invested with a particular time horizon and nothing has fundamentally changed, stick to your course.

For those who are risk averse and prefer FD’s, please check the credit rating before investing. Many companies give interest which is higher than the market rate of interest. They are ready to give those rates as nobody else is ready to give them money. Go for AAA rated fixed deposits only.

Always have a plan for your investments. If you do not have a plan you will find it difficult. Before you start your investment plan, make a contingency plan, basically your investments plan should not be derailed just because of some untoward incident. So get your insurances in place, be it health or life or even house. Any plan made should take into account taxes. What is the point of making money and giving most of it away in taxes.

Last but not the least, monitor your investments on a regular basis.

Asset Allocation

If you look at any smart investor, s/he follows these 3 strategies

1)     Asset Allocation – Smart investors do not put all their eggs in one basket. The allocation of funds to different asset classes is based on his/her risk profile and time horizon.

       2)     Differentiation between risk and reward – Wherever the risks are more than the rewards they avoid those     investments.

3)     Discipline – Once a strategy is devised they follow it, till the goal is achieved. This does not mean that they will not review the strategy. Strategy is reviewed periodically and not daily, even this review is done in a disciplined manner.

Let us look at asset allocation. Asset Allocation is a strategy where investments are done in different asset classes so as to balance the risks and rewards. Depending on the risk profile an investment portfolio is designed to diversify the risks and increase the rewards. As you are aware, each asset class has a different market cycle and the time frame for each cycle also varies, but we will never be able to time the market, so the next best thing to do is follow an asset allocation strategy and follow it. This discipline will help you get better returns.

Historically the major investment asset classes are real estate, Gold, Equity and debt. But Investment in real estate requires high investments, for doing asset allocation with real estate would be difficult, unless you have a lot of money. In that case we usually do an asset allocation between, gold, Equity and Debt. As you know each of these assets moves up or down at its own market cycle and we know of the market cycle only as an historical fact but not on a day to day basis. As market conditions change the risks and returns of the asset class changes, so by asset allocation you tend to reduce this risk. But how do you make money by just reducing risk. This is the second part of asset allocation i.e. rebalancing.

In rebalancing what we do is at every periodic interval we rebalance our portfolio. What does this mean? As time passes, one asset class would have given better returns than another. So if initially we had decided to invest Gold, Equity and debt in the ratio of 5:50:45 and at the end of the period the ration becomes 6:55:39 then we will sell some equity and gold and invest the same in debt to bring the ratio back to 5:50:45. This way you sell when the market is high and buy when the market is low for that particular class of asset. If all this sounds difficult, just go for a balanced fund which will keep doing this for you.

Rebalance your portfolio

One of my clients had a very large portfolio with major investments in Real Estate, Fixed Deposits and Insurance. He even had some money lying idle in his saving bank account waiting to pay his son’s fees which were to be paid a year from now. As per the government and RBI, inflation has been low and would remain low for some time, so they think the interest rates should be low and hence they have kept reducing the interest rates so that industry would take advantage of the low interest rates and start investing, whereas we would stop saving and start spending. This would bring about demand and so the economy would rise. But how does this impact my client? Now when he wants to invest his money lying in the saving bank account, in fixed deposits he would get a lower interest rate and when his existing fixed deposits come for renewal they would also be at a lower interest rate.

The era of high interest rates is gone. One option would be to go for debt mutual funds, depending on the time frame for which he intends to keep his money, he can decide on long term debt funds, medium term debt funds or even short term debt funds. The returns would be definitely higher than the bank FD’s he has and they will be tax efficient if the investment period is greater than 3 years. Net, the return after tax would always be better. This is the time to have a relook at your portfolio and decide if you still need to keep those FD’s. As regards insurance, don’t use it as an investment option at all. Returns from real estate depends on when and where you have invested, if the return has not been good, have a relook at it both from the investment and tax point of view. So rebalance your portfolio now.

Invest in the stock market

I spoke to a young girl the other day, who had just started working her first job and she very proudly mentioned that she has opened a demat account. I said well, now what. She was looking for tips to invest. This is what most of us do, we want to excel in something which we are not good at. Investing directly into the stock market requires time, effort and money. Now if you are working or in business, you do not have the time to do this. So then just pay an expert and let him do the job for you. Whenever there is a leaking pipe in the house, you too can repair the leak, but you still call a plumber and pay him. But when it come to your own finances, you start being penny wise pound foolish. Instead of opening a demat account and trying to become a financial expect, let a financial expert guide you. This way you can spend more time on doing your best at what you are good at, be it your job or business.

One of the best things a financial advisor would suggest is Mutual Funds depending on your goal and time frame. Why Mutual funds? The main reason is diversification, no other fund will help you diversify your risk other than a mutual fund. The Fund manager’s job is to identify sectors and company’s which are doing well and will keep doing well. Whenever there is a downturn he knows when to get out. This helps you maximize your returns. If you look at most of the good funds, the fund manager would have beaten the benchmark. But to identify a good mutual fund is the job of the financial advisor. You can go by so many rating sites but all of them do the rating based on past performance. A good advisor would be meeting the fund managers and then making up his list of funds which he advises to his clients.

The advantage of mutual funds is that it is not just shares, but also bonds or debt funds. So you do not become a good investor by just opening a demat account and buys shares based on tips, It is a lot more, you need to beat the benchmark and be able to reach your goals in the defined timeframe. As I told the girl, your time starts now, you need to decide if you want to make or lose money or want to work towards achieving your goals, and the choice is yours.

Employee Stock Option Plan (ESOP)

These days in campus interviews, majority of the firms which come for placements are startups. Most of the students I have spoken say we would like to join a startup as the learning opportunity is greater and the chances of making a windfall is even higher. Which is true, if the startup you have chosen to join makes it big. There are many such examples available in the market. The biggest dream a startup sell’s is ESOP’s and that is the reason the joining CTC looks big, compared to other companies. Remember that these stock options would make you a rich person only on paper, as converting them to cash would take a lot of time and conditions. First you have to remain with the organization till the vesting period, secondly, unless the entity is listed, you do not have any exit option and have to rely on what the organization says is the worth of the option. Thirdly the ESOP conditions are not easy.

I know of a young smart lady, who joined a startup for internship, there was a big bonus they had promised, but as the days came closer, she realized that she was not even halfway close to receiving the bonus. The chances of a startup closing are much higher, therefore the value of your ESOP will be worth zero unless the company really makes it big. In case it’s time to buy the shares based on your ESOP, be careful if the company has not been listed, as if it does not list, you would end up holding dud papers. ESOP’s are given by these organizations for 2 reasons, one they cannot afford to give high salaries, because they are short of cash and secondly it works as an employee retention tool. Now the tax aspect.

Tax is to be paid on the date when the ESOP is converted to Shares, i.e. you decide to put in money, this really hits you hard, as you need to put in cash and you are also taxed for the difference between vesting price and market value (book Value). Again when you actually sell the shares, it is taxable as capital gains. You would be lucky if you the shares are listed on the exchange, as if they are listed and you sold within a year of the shares being vested, it is short term capital gains taxable at 15% and if after a year, then tax free. The situation is different, if it is not sold on the exchange. The short term capital gains is taxable as per your tax slab and long term would be taxable.

Financially secure marriage

Marriage season is round the corner and most of those whose marriage date has been fixed and eagerly making arrangements. All these arrangements do not come free, there is a cost involved for every action you take. When I speak to newlyweds, most of the time they are happy because they have gone into a new life or relationship from being single to being responsible for each other. On speaking on finances, most of them are starting their lives with zero or negative balance. Would you like to be one of those? I’m sure you would not, so it is better to make a positive beginning in your married life. First is be open on where each of you stand financially and how your expenses would be after marriage. This will give you an idea on what money you would have to spend for your marriage. This will set expectations right and you can keep any extravagant expenses at bay. Elders are important, but do not let them dictate your expenditure plans. Any major expenditure decision should be taken jointly, there will be a lot of emotions involved, in such cases, involve a sound elder who can give an impartial judgement.

Once married, keep your accounts separate, but add the other ones name, this is beneficial from tax point of view. For household expenses, keep a joint account where each would put in their contribution for joint household expenses. For all other personal expenses, savings and investments use your separate accounts. Even on account of credit card, try to keep them separate and one have one from household expenses, this will help in making payment to credit card companies as well. After marriage in most of the cases, there will be a change of address, ensure that this change of address is informed to all financial entities. In case of female, there is a possibility of name change, so keep your paperwork in order.

Get insurance into place, one is health, take a family floater and other is house. If you have taken a home loan then a term policy to cover the home loan. Marriage is a long term relationship so start thinking long term and start planning long term immediately. Though your responsibilities have increased, they will start increasing more and years pass, but on home front as well as job, so start your financial planning immediately. This will ease your financial burden in the years to come. Have a happy married life.

The Entrepreneurship bug

Had enough of working or have a great idea and want to start out on your own? Man, the entrepreneurship bug has bitten you. Now that the virus is there, start treating it and allow it to grow for your benefit. If you do not work on it you will regret it throughout your life. I keep hearing many persons saying, I too had the same idea, but…. But what? Why did you not work on it, some felt people would laugh, some felt, they did not have the money, while others, just kept giving excuses or reasons to cover their failure to nurture their idea or dream. You do not know when an idea would come to your mind, but if you definitely have a dream to start off on your own, start preparing for it now. As it is always, finance plays a very big role in such decisions.  

Start by planning your contingency funds i.e.health insurance, term plan and expenses for around 2 years. Ensure that you do not have any outstanding loans or have provided for them. Once this is ready, next would be funding for your idea or business. You would need some money ready to rent a place, phone and other expenses. Once money is there, half your battle is won. An entrepreneur needs to work with a clear mind and money should not the first and only tension. Entrepreneurship is a very rewarding, as you are your own boss and you can keep the benefits of all you hard work. Also remember that 90% of all businesses started fail in the first 2 to 3 years of starting, so you would really need to have researched your business idea and worked out a through business plan. From those which have failed, 50% have failed because of lack of financial resources. So as you can see, finance plays a very important role. Don’t assume that funding is easy, that is the most difficult part.

Give yourself atleast 2 years planning both from business as well as finance point of view, before you start on your entrepreneurship journey. It would be best if you could start your business on a part time basis along with your job, this way, finances would not come in your way. The reason is simple, income will take time to come when you are on your own. So why not start planning your finances now and start planning for your entrepreneur journey now, don’t wait till the bug bites you.

When will the markets go up?

Brexit results are out and everyone has started to predict the conditions of the market. Nobody is concentrating on the company results. What is the point? If the companies are not improving on their profits or their sales are not improving, do you think the market will go up? Even if the market goes up, will all the stocks go up? You need to concentrate on specific stocks and not the sensex or the Nifty. With good monsoons Rural consumption will improve and that will help companies which are impacted by rural consumption. Though Oil prices fell, commodity prices fell, consumption did not improve, this led to a total slow down. Therefore companies were not able to capitalize on this and companies which benefited, their prices have already gone up.

RBI Governor is on his way out and we would have a new governor soon, do you think this will bring down the interest rates? Even if the interest rates come down, would Banks make good margins. If you noticed the last quarter, private banks were the most profitable, the reason is loan writeoffs. Private banks had the least loan writeoffs. Brexit or Rexit the macroeconomic conditions are improving and this will reflect in the earning of the coming quarters and then see the markets just zoom. The government would also be giving more stimulus once the rainy season is over with spending on power, rail and road. So bright days are there ahead. So enjoy.

Best time to buy shares

The market has been falling for the last few days, so do I buy shares now or wait for the market to fall? Serious money can be made if we buy when the markets are done. Take any example from history. But to make that type of money, you need to change your perspective from short term to long term, but the best thing to do would be to start with SIP and keep putting in small amounts on the day the market falls. This would be a rewarding strategy, if you have a goal which is minimum 3 to 5 years away. You can start becoming happy, when the markets go up. Remember investing in a rising market can make you happy in the short run, but investing in a falling market could make you wealthy in the long run.

If you have seen history, a falling market lasts for about a year and then there would be a listless market for around 5 years. But after that the markets just rise and that is the reason, I said, invest in a falling market and you could make money in the long run. So do not stop your SIP’s when the market is down, buy stocks instead of playing in derivatives, buy stocks after research only and buy from different sectors. Keep some money aside in liquid funds, so that if the market takes time to recover, you do not dip into the investment, instead, you could use the money from the liquid fund. Even if you do not need money for emergencies, it is better to keep it aside. After 5 years if you see the market still down, you could use this money to buy more shares.

Saying all the above investment horizon is the key, you need to look at a minimum period of 5 years from the time the markets start falling. But if you are looking at a period of less than that, do not go for shares.

Best Mutual Funds to Invest

The market has started to move up and now everyone is thinking of investments. IMD has predicted good monsoons and government has presented some good numbers. We want to invest but at the same time do not want to take too much risk, so most people tell invest in mutual funds. But which mutual fund scheme should I invest in? When the markets are up all the funds show good growth but the best way to check is how the fund did perform when the markets were down. Now many fund houses will give you this information directly. You will have to do your own research, last year was a good example. Check the fund’s performance for the last one year. This will help you narrow down on the schemes you would like to look at. Once you have done that, check the long term returns of these funds. If you find they have done well on both these parameters. You would have been able to narrow down to a funds in single digits. Now this strategy is good if you are a long term investor. So what are you waiting for, do your reading and research and start investing.

Is your portfolio real estate heavy?

A friend of mine came to me asking if there were good investment opportunities in real estate. I was wondering why real estate, as he already had 2 houses. One he was staying in and another on rent. He used to save money and he had enough to make down payment, he would invest in real estate under development project and then keep paying off the loan. Now he is 53 and he want to purchase another flat. On probing he said real estate gives good returns and the rentals would give him regular income. While it is true that there will be appreciation, but when he needs the money liquidity would be an issue. Selling a property is time consuming. Another issue is market prices of real estate are opaque. When you actually try to sell, you will get a much lower value than you actually believe your property is worth and if you really want the money urgently, you would have to give further discount and also with a lot of running about. .

The other issue would be even for a small value you would need to get rid of the whole property as property is indivisible. We always look at the rental income, but we usually tend to discount the expenses which we have to bear on the property on a regular basis viz. property taxes, repairs, painting, maintenance bills, etc.  There could also be times when the property will be vacant. Now what happens is people who talk of investing in property always talk in absolute value terms, if you acutally look at the returns it would be around 3% of the current value. So in such a situation any other investment would have given better returns. But then they will not understand as they are emotionally attached to real estate. So I told this friend that not more than 50% of his portfolio should be in real estate. He said I’ll get back to you and I am still waiting.

Contingency Funds

In today’s world anything can happen and if you have cash in hand you do not have to worry, but if you keep too much in cash there could be a loss of earning. Therefore it is very important to have contingency funds to meet unexpected expenses. These days there is no guarantee of a job and people get laid-off overnight leading to months of unemployment or there could be an accident or major illness. In all these circumstances contingency funds come hand. How much money should be kept aside for such contingencies is a big question. Though you would have planned for your major goals, it is very important that you plan for your contingencies as well. You might have credit cards to meet some major expenses, but in case of loss of job or accident or major illness, how would you repay these expenses?

Hence a financial plan should include a plan for contingencies, this includes a health and accident insurance plan. Now health and accident could take care of a part of the contingency, what would happen if you lose your job. You still have to fend for yourself and your family till you get a new job. Some people might say keep 3 months expenses while others might say 6 months, all this depends on the type of job you hold and how long you would take to find another job. If you have Hugh EMI’s or Insurance premiums needed to be paid I would suggest that you keep aside 6 months expenses including EMI’s and premiums. Now that you have decided how much you need to keep aside as contingency funds the next question would be where should I keep it?

Remember that these are contingency funds and you should be able to access them when you need them. The nor mal suggestion would be to keep one month’s expenses in a saving bank account, another months expense in a liquid fund and the balance in short term debt fund. This way when you need the funds you will be able to access them fast and you would also earn some income out of it. The best part would be that this would automatically grow over a period of time. My suggestion is that you review you contingency requirements every quarter and if you find that the amount required is increased, check if the increased funds are available, if not keep additional money aside.

Children and Finance

It is not a good idea to make a child focus only on money, but the lack of knowledge could lead to their exploitation. Just as today’s child is tomorrow’s future, money saved today is tomorrow’s capital and it needs to be channelized properly. Awareness of finance is very important for everyone and making children aware of financial concepts will help the child when they start earning money. They will hopefully not make the same mistakes you may have committed. Start with some essentials like how budgeting can help the child to live within his /her means and then asking for more pocket money could be reduced. Teach them of the problems associated with taking loans. Instead of just filling their pockets, give them a loan and deduct it from next months pocket money. Open a bank account and show them how by saving they can earn money i.e. interest.

Once they understand this teach them about various insurance options and how they help in case of some event happening. Now that the basics have been taken care of, teach them about basic investment options like fixed deposits, recurring deposits and post office savings schemes. Now that they have understood all the different types of schemes in which you had always invested and did not make enough money, introduce them to the world of mutual funds and the benefits of diversification of portfolio. Once they learnt how to make money, now teach them how to save money while investing. Teach them about charges and costs incurred while investing. The various types of charges for different types of investments and finally introduce them to the world of stock markets and how all other investments are linked to the stock market. Once you have done that, they will thank you all their life.

Financial independence cannot be met only by teaching a child to earn high income but by good money management.

Keep your investments under lock and key

Are you one of the persons who has the habit of keeping your money invested in Safe Bank Fixed Deposits? Then this part of the story is for you. Once a man got married to a beautiful girl, he was so possessive of her that he did wanted her to remain beautiful forever. So he locked her up in one room of his house so that no bad air or sunlight would affect her and she would remain beautiful. Initially he would see her everyday, but as years passed, he would see her less frequently and as more years passed he would see her just once a year. He had reached his retirement age, he decided now was the time he would spend with his beautiful wife, but when he opened the door, he saw an old lady. This is what happens when we keep our investments in Safe Bank Deposits, when we need the money, it is not enough as inflation would have reduced its worth. Just like the man, if he had allowed the lady to move around, she would have attempted to look good all the time. Same way if we invest our money properly, our money would work for us. So why don’t you make your money work for you instead of locking it up and then regretting when you need it.

Plan for your holidays

A few friends met a few days back and one of them had just returned from an international holiday along with his family. As usual after mentioning how he enjoyed and where all they went, one of us asked him how big a hole was it on his pocket, he mentioned Rs. 3 Lakhs for 4 persons. Hearing this rest just said, we don’t think we could afford it or they would have to take a loan. That is when our friend told them he did not borrow nor was he a high earning individual, which all of us were aware of. So the next question was how, our friend just told them that he had been setting aside Rs. 8,000/- per month for the last 3 years and this amount grew to Rs. 3 Lakhs along with interest. This was a simple solution, which all of us can follow and still be debt free and both you and your family will be happy.

A break every year is a necessity, but a vacation is a luxury. Saving for a necessity is important, so do not borrow for a luxury. Setting aside money for a dream holiday should be done only after you have set aside money for your necessities. Also do not use your credit card for and during such trips, the foreign currency conversion costs are the most expensive ever. Always stick to the budget you have set aside. Your budget should include so unforeseen expenses as well. All said and done the travel bhoot cannot be stopped, what with so many advertisements and societal pressure. So if you must, then start by keeping aside some money every month and start researching from day one. As you have started researching, you would know most of what you require and costs early, so you could start planning early as well.

 

Doing your visa early would help you with getting good deals on your hotel and air bookings. You could also work on your foreign exchange requirements. Banks are not the best providers of exchange rates, so you could check out and get good deals on foreign exchange rates as well. Early bookings would easily help save around 10 to 20% of your costs. Last but not the least, where you keep your monthly savings, earning the best returns without losing on the capital, connect with your financial advisor before investing. Many travel firms comes with good schemes of saving for your holidays in association with banks, only hiccup is that your dates have to be fixed a year in advance. So do not fret, plan from your holidays in advance.

Is the timing right for Investment?

In the global markets, Gold had fallen some time back and it has now started to pick up again. Why is this happening? The only reason is uncertainty. As you must have seen, whenever there is uncertainty in the market, gold rises, this is the time to make money by selling gold. Worldwide all commodity prices are falling, we all want to know reasons, can’t you see, sales are not picking up, hence the prices are falling. All assets follow a cycle of 30 years, 10 years rise and 20 years fall. So are we in a rising or falling cycle for gold? You take a guess, gold prices just kept going up from 2002 to 2012 and then started falling, and so do you think history will repeat itself? Only time will tell. As regards equity market the cycle is for 7 to 9 years, 4 to 5 years of rise and 3 to 4 years of fall, looking at history where are we?

Real Estate also goes through cycles which is around 20 years i.e.10 years of rise followed by 10 years of stagnancy. Real Estate kept going up from 2004 to 2013, so now what? If you look at all the markets they are all supposed to be in fall mode and hence the uncertainty. Add to this interest rates are going to soften. So in such situation only thing that will go up would be rents, as people will not buy waiting for real estate prices to correct and interest rates to fall. But then you do not want to invest in real estate, so those who have already invested are bound to benefit during this time. So what should one do in such a situation? Depending on your investment horizon you can plan your investments. For short term go for Debt funds again here your choice of Liquid, short term and long term debt will depend on the period you are ready to wait. For medium term go for balanced funds and long term would definitely and always be Equity and that too using the SIP mode. For detailed investment plan or advice please contact your financial advisor.

Direct Investment in Equity Shares

During the last two years many persons told me that they made good returns by investing directly in Equity shares, so this year I asked the same persons what happened last year and they said, there was no loss. Yesterday I asked the same persons and they just told me they were busy. Nobody was ready to talk about the stock market, the reason is the external factors have hit the stock market. Nothing is actually wrong with the stock market, but then we have so much information available that we tend to take very short term view for an asset class which should be looked at from the long term. This is the reason I suggest that even if we want to move into equity, we should go the mutual fund route. If you find it difficult to believe, try this. The amount of money you are ready to put aside for equities, put half of it in a good large cap mutual fund and you play with the other half and let us compare the amount of money you have made after three years.

The chances are that you would have made more money in the mutual funds route after removing all the costs involved with absolutely no headaches. You concentrate at what you are good at and leave market investment to professionals, you will end up making more money. But if you try to concentrate on making money in something which is not your core competency, you will end up losing time and money till you become good at it. That is the reason, businesses employ professionals for every department. So why don’t you behave like a businessman and employ a professional, i.e. a good financial advisor who will suggest how you go about with your investments.  A good financial advisor understands risks and returns and also understands when to exit.

When you try to do it yourself, you have to do all the analysis yourself, which will take time. This is the reason a good businessman concentrates on what he is good at and pays a professional to do a job for what he is good at. One o the basics on equity investing is diversification, you could do the diversification yourself, but then the amount of time you need to study all the sectors will take time, instead a mutual fund will do it for you at fraction of the cost. When you do your investments through a mutual fund you manage to beat the market returns and if you really want to get the best ask your financial advisor to choose the right fund for you.