Dec 06

Golden Rules to Reach your Goals

I am 40, employed in the Gulf. My wife lives in India. My daughter is five and son, three. I have constructed two houses in Chennai using all my savings.
My parents and parents-in-law live in these houses. I am planning to work in the Gulf till 53 and then retire. I am okay about investing in equity. Do let me know when I can reach my goals. Read the rest of this entry »

Nov 30

Best Way to Investment your surplus income.

My son, 39, works for a software company. His wife is 37.They have a four-year old daughter. Although they earn well, my son shows no interest in deploying the surplus. His SB account balance is around ?50 lakh. Since he is keen to send his daughter to the US for graduation studies, he may need Read the rest of this entry »

Nov 22

How to Manage Retirement Funds When interest rate crash.

The most common question that investors ask me is how to manage their retirement funds at a time when interest rates are coming down.

This is a tough question. Those who have not planned their retirement will be hit hard.Many people lose their jobs when they are in their 50s and have major expenses such Read the rest of this entry »

Nov 20

How do I Manage Money for Setting up Financial Goals

I am 47 and self-employed. My wife, 43, is a home-maker. My son is in his first year of engineering, daughter in class 8. After returning to India, I tried my hand at a few business ventures with my savings but they all failed. Now I am doing catering, which gives me some decent income. To clear my liability, I have sold the property. How do I meet my financial goals?
Muthukumar

 

Work pressure spurs many to try their hand at entrepreneurship but they fail to have a business plan. Catering being a low-capital business do concentrate and build from here. With a limited budget, you can save only for your daughter’s marriage.
So here we are suggesting you some basic steps to create your financial spreadsheet to complete your household budget.
For your son’s post-graduation fees, allocate ?15 lakh from the savings account and for the balance ask him to avail education loan. To meet your present monthly expenses at retirement you need a corpus of ?1.91 crore and it should earn 1 percent over and above inflation to support you till you turn 85. Allocate ?20 lakh from your savings account for this goal.
If you earn 12 percent return at retirement, it will be worth ?87.3 lakh. To meet the shortfall you need to invest ?27,900. Once your surplus increases, plan to achieve your remaining financial goals. During retirement, if you still face the issue in your financial account, sell the commercial property; it will help you bridge the shortfall and you can save your money.
Reduce health policy to ?5 lakh and buy either auto restoration or top-up policy to lower premium outgo. Buy term insurance with the difference in the premium.

 

The writer is a SEBI-registered investment advisor and Founder, myassetsconsolidation.com
Send your queries to blinefp@gmail.com

This article was published in The Hindu Business Line (20.11.17)

Nov 14

The magic tool to reach financial goals is SIP.

The markets are going through highs and lows. It has happened before, and it will continue to happen in the future. There is no point waiting for market nor most auspicious time to invest. Both will not determine your success….

If you have financial goals and potential to invest, you need to build wealth. The magical way to do is Systematic investment plan SIP. Now SIP is more uttered word in the financial market then the mutual fund.

Without worrying start investing.Why SIP will even out the market volatility due to its ability to cost average. Assume you buy at 10 NAV (net asset value)this month and next month its 12 and subsequent month at 11,the average works out to 11.This will help you to buy more units when market is down and lesser units when market is peak.

Example: Say you had started investing Rs. 10000 every month in a large cap fund in 2007. At the end of 10 years, your accumulated value is Rs. 29.04lakh.But your actual investment is Rs 12.10 lakh and it translate to 16.5 per cent.

However, if you had increased your SIP amount by just Rs. 1,000 every year from the second year onward, you would have earned Rs. 38.8lakh in the same time period!Your investment value was Rs 17.4 lakh ,So, the incremental investment is Rs5 .3 lakh. A Rs. 1,000 increment makes all the difference between Rs. 29.04 and Rs. 38.8 lakh a growth of about 33.75%.

To further give you more interesting numbers to make you crorepathi, if you would have invested just Rs 2000 from Nov 1995 to till date for 22 years in a popular fund ,your actual investment is Rs 5.28 lakh but today the accumulated value is Rs 1.24 crore.With small investment and disciplined investment to become crorepathi is just as simple as that.

Make the smart decision now start a SIP. If you have dream/aspiration to meet the children education,marriage,vacation plan and to have peaceful retired life today is the most good day to start.So start early and invest regularly.

 

Few examples of actual performance.

Best Large Cap Fund:

Scheme Name 1 year Return 3 year Return 5 year Return Amount Invested  Invested Amount Worth (2013-17)
Scheme – 1 20% 18% 21% 2,50,000.00 3,30,506
Scheme – 2 10% 13% 21% 2,50,000.00 3,40,462
Scheme -3 23% 17% 21% 2,50,000.00 3,58,993
Scheme – 4 20% 19% 20% 2,50,000.00  3,59,446
Scheme -5 15% 15% 19% 2,50,000.00 3,64,829

 

Best Diversified Fund:

 

Scheme Name 1 year Return 3 year Return 5 year Return Amount Invested  Invested Amount Worth (2013-17)
Scheme – 1 10% 13% 19% 2,50,000.00  3,61,873
Scheme – 2 15% 15% 20% 2,50,000.00 3,61,921
Scheme -3 20% 18% 21% 2,50,000.00 3,95,487
Scheme -4 23% 17% 21% 2,50,000.00 4,03,342
Scheme -5 20% 19% 20% 2,50,000.00 4,05,411

 

 

 

 

 

 

 

 

 

Oct 17

We,Markets,12 months….

Tamaso ma Jyotirgamaya (from Darkness to Light)

In life, we cross several milestones. Sometimes, just being at the right place at the right time is all that is required. For equity mutual fund investors, at sometimes could be just the choice of funds that helped them get a return of 18-34%.

 

In the past 12 months, the markets have seen two different events that slowed down the economic activities. Demonetisation and Goods & Service Tax (GST) affected the financial calculations of businesses, from large corporate to small traders.

When the government tried to rein-in cash dealings, personal lives and the unorganised sector were badly affected; to some extent big businesses too.  Market participants became cautious and they predicted volatility and a big correction.

But one big factor of liquidity proved them wrong and although the markets are a slave of earnings, this time life was different in equity market. The proverb “When the head is present, the tail should not wag” proved wrong.

Large cap stocks struggled to deliver big return, but small and micro-cap stocks took the market by surprise and delivered superior returns.

Here are the numbers:

                                                 In %
Capitalisation Average Return Best Least
Large Cap 18.8 25 12
Multicap 20 27.5 11.5
Midcap 20.3 34.5 10
Small cap 27.4 34 9

During this period, I too suggested asset allocation and lower exposure to small- and micro-cap fund. Many of my clients ended up with a fewer percentage points less than expected, but at least they didn’t spend sleepless nights during the volatile phases this year.

 

But it must be noted that the one-year average return of large-, multicap-, and midcap funds were not far apart. The choice of funds made the difference.

Going forward, the market may exhibit similar trends till the earnings are back and the economy improves from here. One factor keeping the market intact for the past few months, despite FIIs selling heavily, is the retail investor inflows into mutual fund through the SIP route. This has never been seen this much in the Indian market.

So, don’t speculate too much on the market. Instead, follow the basics and practise the right allocation, based on your risk appetite and tenure of the goal to earn the return you want.

Don’t invest for next year based on the previous year’s return. Be rational in investing this festive occasion.

As in the past, those who invest in the equity market are very special and they beat those investing in fixed deposit by a big margin.

And remember to share some of your money with those in need. That will compound your joy.

As Winston Churchil said, “We make a living by what we get. We make a life by what we give.”

Happy Deepavali to you and your family.

 

Truly yours,

Suresh Parthasarathy.

Sep 22

Why is it better to underperform than lose money

Many investors believe—wrongly—that irrespective of how the economy performs, the market will move only in one direction: upwards!

 

I continue to be apprehensive about the state of our equity market.

Just as in life, there are ups and downs in the market too. If you are rational, an underperformance will not disturb you. Just look at an IPO of Rs.400 crore that gets oversubscribed 180 times and collects Rs.52,000 crore shows how market become mad.Anchor investors may make money, but retail investors end up being stuck with stock..

Some stocks today are flying high even though they lack good fundamentals, as money chases the mid- and small cap stocks. Investors pump considerable sums of money through Systematic Investment Plans into mid-and small-cap funds. Some fund managers are a worried lot, but still accept fresh money.

But when investors such as you come to us, we are clear about one thing: we stick to asset allocation instead of getting swayed by the way the market moves and blindly rush into small- and mid-caps.

What prompted me to write this newsletter is because a retired person who is short of meeting his monthly income wanted us to invest more than 70 per cent of his hard-earned retirement money into mid-and small caps. He wanted to withdraw money from that every month to meet his shortfall. His argument—without evidence—was that such funds will outperform large caps funds over a long period. But he failed to understand that any market movement will not be a one sided and volatility is part of the equity market.

If you let your emotions rule and invest irrationally, you may react differently when the market turns in a short period of time.

Liquidity and valuations always travel in two different in direction and, at times, there is even no justification for a rally in market. Yet, people often find ways to justify the market movement.

Yet, with all the analysis and research that my colleagues and I do, if we capture 80 per cent of the upside market movement, we are happy.  We are rational always and are ready to underperform during the last leg of the rally so that we can preserve your hard-earned money during a correction when other lay investors might be fearful.

So, take our advice: You may under perform sometimes, but you will not lose money. Investing is all about making money and not losing it.

Feb 01

What’s in the Budget for you as an Investor?

Finance Minister Arun Jaitley has stayed away from populist measures even though five states are going for election this month. Instead, he has presented a number of growth-oriented measures.

Viewers watching Jaitley’s speech live in Parliament would have been disappointed that there were no fancy announcements. However, many of his pronouncements appear to be reasonable, even achievable.  Some of the significant areas are low borrowings and a push for infrastructure projects.

There was considerable disappointment on the personal taxation and corporate tax fronts. Those expecting higher tax benefit on personal tax were a little disappointed. Although Jaitley has brought down the tax rate for the first slab to 5 per cent, the effective savings will only be Rs 5,000. Why? That’s because most investors would have saved Rs 1.5 lakh under section 80C. So, up to Rs 4 lakhs, there is no tax and from Rs 4 lakh to 5 lakh, at 5%, it will be Rs 5,000. After that it is a flat Rs 12,500 across slabs.

On the real estate front, much was expected, especially as the government wanted to reduce the influence of black money. A big push in the real estate sector was expected, but not delivered. Investors fond of real estate were equally should have disappointed.

In the past, many people would have bought a second house and let out the property to avail themselves of tax benefits for the entire interest paid. For instance, if you took a loan of Rs 50 lakh in the first year, you would have paid interest close to Rs 3.7 lakh if you borrowed at 9%. Under the new rules, you will be eligible to claim only Rs 2 lakh, which is a big setback but only to those who buy real estate on a speculative basis or for investment purposes.

Moreover, to bring individuals to financial assets and reduce speculation in real estate, long-term capital gains have been reduced to two years. Now, people will sell property to move to financial assets. So, there will be a pressure on real estate prices.

Equity Market Appears Attractive

With inflation under control and the fiscal deficit at 3.2% of the GDP, the rupee will be stable against the US dollar. This will be a dampener for gold and as an asset class; gold is not attractive from an investment point of view. With lower government borrowing and lower fiscal deficit, the banking system will have good surplus for credit. Since credit offtake is not brisk, banks may cut interest rates.

Most of the time, when borrowing cost is low, the credit cycle picks up. With the government thrust on infrastructure, cyclical industries are likely to revive. Such a situation will push up the top line (sales) as well as the bottom line (profits) of the companies and it will induce investors to look at stocks.

So, you as an investor keen on creating wealth should naturally look out to equity. This sector currently looks attractive and is capable of giving decent returns.

What should you do? Do not stagger investment at this point. Instead, go in for lump sum to earn better returns.

The headwinds can come from US action on several front as Donald Trump takes one controversial decision after another and also if the BJP does not gain from the upcoming elections. But after some time, the market may discount such news.

For details on where to invest, contact me.

Dec 01

Fixed deposit rates are falling,where to invest?

With demonetization, banks are flush with liquidity, and a few leading banks have cut interest rate on fixed deposits. One builder in Chennai is offering interest at 7.5 % for buying flats.

With the Reserve Bank of India monetary policy around the corner, interest rates could fall further. This will balance the market to a great extent if the U.S. Federal Reserve Board raises interest rates in America.

All these factors will not be of help to investors relying on fixed deposits to earn more. Based on the tax slab, the actual returns may be lower. One-year fixed deposits give 6.75 per cent interest. If you are in the 30% (without surcharge) tax bracket, your net return will be 4.75%. So, it will be lower than inflation. That means you are effectively losing money by keeping money in fixed deposits at that level.

What options do you have?

Mutual fund debt is the only option available to earn better returns. Although in India debt mutual funds are three times larger than equity funds, the number of people investing in them is low, due to lack of awareness.

In debt mutual funds, several options are available. For a period of less than six months, similar to savings bank accounts, investment can be done in liquid funds.

For over six months, you have ultra short-term funds and for 1-3 years you can invest in short-term funds. If it’s a longer period, you can invest in government securities. Depending on the market condition, you can mix and match the debt investments. If you wish to have a dynamic mix of short-term funds and government securities, you can go in for dynamic bond funds.

Mutual funds offer much variety compared to the plain vanilla fixed deposits that banks offer. Yet, due to lack of awareness, retail investors have not gone in for debt mutual funds.

Tax advantage:-

Mutual funds held beyond three years offer not only good returns, but also tax benefits. Fixed deposits, on the other hand, are taxed based on your tax slab, no matter what period the investment is held for. But if you stay invested for more than three years in a mutual fund, you can claim indexation benefits.

Let’s say you invested Rs 5 lakhs in 2013 in a short-term fund, and it earned a 9 % return. Your investment value today will be Rs 6.47 lakhs. For this, you can adjust Rs 1.47 lakh through indexation for inflation. Assume indexed cost is Rs 1 lakh, you need to pay tax for the Rs 47,000 at the rate of 20%, or Rs 9,400.

If, on the other hand, you had invested in fixed deposits for the same return, your tax liability would have been Rs 44,100 for individuals in the 30 % tax bracket (see table for actual returns of different debt products over a 3-0 year period).

Risk factor:-

Most mutual funds invest in government securities, company deposits with AAA to  A- rating, depending on their mandate. Based on the return that you want and the risk you are willing to take, you can select the appropriate mutual fund to earn better returns than parking your money in plain fixed deposits.

Suresh Parthasarathy is the founder of myassetsconsolidation.com. He is a SEBI-registered investment advisor.

 

Nov 12

world markets are in Jitter,what should you do.

Last week was black swan moment.

“A black swan,” said thinker Nassim Nicholas Taleb, “is a highly improbable event with three principal characteristics: It is unpredictable; it carries a massive impact; and, after the fact, we concoct an explanation that makes it appear less random, and more predictable, than it was.”

 

First was the demonitisation of Rs 500 and 1000. On the next day, Donald Trump of the Republican Party garnered more electoral college votes to become the next US president in a hotly contested and bitter election against democrat Hillary Clinton, who won more popular votes.

The Republicans also seized control of both the House of Representatives and the Senate, ensuring smooth sailing for Trump to push through his controversial agenda on immigration, protectionism and health care.

Both these events are being commented upon in social media as the latest 9/11 moments.

These two events will impact economy.

Let’s look at the Indian situation first.

Demonitisation has occurred before too, in 1947 and 1978. In 1978, the Indian government demonetized Rs.1000 notes—25 per cent of the money in circulation—that was never deposited in the bank.  If some people do not deposit their unaccounted money in banks—guesswork right now is about Rs 3-4 lakh crore—the government’s current account deficit will come down as economists will mark it negative in the accounts. Also, some people might be willing bring unaccounted money generated this year through different family accounts  to pay tax and surcharge this will flush the liquidity. Economists say this will augur well for the economy. Cash that was lying idle with people is finding its way into the banking system and that could lead to liquidity in the system as banks will lend more money to the public.

That, in turn, will help the Reserve Bank of India to cut interest rates. Lower rates will boost economic activity.

 

The windfall from demonitisation may even prompt the government to lower income tax rates or pump in money into infrastructure or it could do something to benefit farmers. This will again put money back into the system and the economy could grow faster.

So, what should you do?

Ignore the recent volatility and keep investing for next 15-20 days in both equity and debt investments. As simple as that.

This will give you a decent return. If interest rate heads lower, mutual fund income funds and long-term duration instruments are likely to give good returns over next one year. So, use volatility to your benefit and earn good returns.

I wrote last week about market volatility and how to benefit from it (link attached).

http://www.myassetsconsolidation.com/investment-advisory/every-country-is-investing-in-india-to-make-money-shouldnt-you

Now, let’s shift focus to the US. Trump will assume office only in Jan 2017 and the policy rollout will happen after that. Till such a time, the market will not have a clear direction and so will be volatile. Moreover, there’s a belief that despite the widespread criticism of Trump’s lack of experience in the government, he might still be able to deliver.

In uncertain times, patience pays.

Suresh Parthasarathy,

Registered Investment advisor

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