Vijaibabu's Blog - Personal Finance Guide for Financial Freedom

  Risk means different things to different people in Investments. Why most people don't want to invest in market based products like Equity Mutual Funds or Stocks?One reason might be due to advertisement condition   “Mutual Fund investments are subject to market risks, read the offer document carefully before investing” But unknowingly they investment in unit linked insurance plan(ULIP) which is also a market based product..We will discuss about ULIP story in another series. Coming back to few types of investment risks we face  everyday 1.Market risk - it is applicable for products based on stock market. It means investment returns are impacted by market movements.It is visible day to day basis..Right? 2.Reinvestment Risk- This happens when you are trying to renew your existing FD after maturity and seeing the new rates are less comparing to existing one, which most of the senior citizen's today facing during reducing FD rates compared to 10,5,3,2 years before. 3.Inf...

 Where to start with? This is most of the people ask when asked about investments To invest you need to have surplus money available with you to do ..So you need to create monthly surplus money from your salary or business income. If you don't have any monthly surplus then you running "paycheck to paycheck" mode which is a strong warning signal for potential future financial disaster. you need to identify needs and wants and cut some thing to create  space for your monthly investments  “If you buy things you do not need, soon you will have to sell things you need.”―  Warren Buffett How much I can start with ? As much as you can..but minimum 15% of your monthly income for investments can be good start.As soon as soon close some liabilities you can keep increasing. Another interesting aspect is as every year our income ,expenses increase ..investments also has to be increased similar way..

 Inflation is in simple terms cost of living increase over previous year. For example inflation what government publishes periodically CPI is say 5% that means government is officially telling us overall prices are increased by 5% compared to last year. In reality common person know the actual inflation we is facing everyday at ground will be much more than official figures . Another point , the education and medical inflation will be mostly in double digits.Do a  quick fact check what you paid for your kids school fees last year vs this year and any medical expenses happened last year vs this year. you will agree to my point How can we use this data 1.When we plan some thing for future be it school fees, car ,home buying you need to factor this. More importantly you need to factor this in your retirement planning for you pension income after 15/20/25 years away. Think what is prices of common things like Milk,Rice,Bread,Egg,Petrol etc 15/20/25 years before. 2.Check your exist...

Know the difference between Investments & Insurance.  Insurance is meant for protection same like car,home insurance focus is not return generation/grow money as your investments.Are we taking car insurance to get back money of what we paid or protecting us in case of money required to fix the damages? Most of the products (endowment ,money back etc)from life insurance companies are hybrid ,they sell as investment and protection policies . The normal bench mark is if you pay for 15-20 years then you will approx 2 times of what you paid as maturity benefit (including revolutionary , additional, loyalty bonuses etc) and if you die in between sum insured(mostly planned premium payments) will be paid back to nominee. First,The return s from these policies range in 4-5% for 15-20 years policy. Does it make sense even today when FD rates are around 5-6%?I will leave it to you to all. Second,  Sum Assured on Death  is defined as higher of 125% of Basic Sum Assured or 10 time...

COVID has reminded us on financial protection in multiple ways from Job Loss or Salary cut, Financial shock due to sudden medical expenses or in extreme case of demise of sole bread winner of the family. We take protection in every part of our life from wearing helmets, seat belts, wearing face masks etc. Same way, we need to protect our near and dear ones financially. It is basic financial hygiene, we can't afford to ignore or miss it. First things first...take term life insurance(not your endowment ,ULIP ,Money back policies) till your 60-65 yrs of age and basic medical floater insurance apart from your employer provided .

Financial Well Being is that state of being wherein a person is making the most efficient use of his financial resources and in a position to absorb any financial shocks , is on track for meeting current & future financial goals and has a feeling of peace & satisfaction about his financial position. Simplified form Those who made efficient use of his assets (Equity, Debt, Real estate ,Gold etc) and can absorb any sudden financial shocks(Job loss, out of pocket medical expenses ,demise of earning bread winner of the family etc) and also on track for his current & future financial goals( Home buying, car buying, children higher education/marriage expenses, Retirement/Pension income etc) with sense of peace & satisfaction of his financial position. Hope it make sense for you..I will share more actions in a simplified manner (common person can understand) in next weeks how one can plan for better financial well being. That is what it matters to most of us in the end :-)

 Before buying your first house, assess the affordability and future serviceability of any loan you take. Sundar, a software engineer from Chennai got married five years back to Raji, a banker. Sundar and Raji are now 34 and 31 years old, respectively. Two years into their marriage, they decided to buy a house that cost them Rs 54 lakh, funded by a joint home loan of Rs 45 lakh. At the time their combined salary was Rs 1.1 lakh (Rs 65,000 and Rs 45,000, respectively). Fast forward to the present and the couple is expecting their first child in a few months. Raji has decided to be a stay-at-home parent to take care of the child, but it is not going to be an easy road ahead. As they transition from a double-income-no-kids household to a single-income household with a child, they are worried about servicing the EMI which is about Rs 42,500. "At the time of buying the house, we did not think about such a situation arising. We exhausted all our savings in the down payment while buying ...

1) 80% of gains come in 20% of the time. So an investor needs enormous patience and conviction to hold stocks for 10 or 20 years. 2) Why not all investors get rich? They like to get rich without going through many years of discipline & patience. Process leads to the outcome. 3)Prices change frequently. Value change over a period of time. There lies the opportunity. 4) Compounding is backloaded. It works well only over a long period of time. There is no substitute for time in compounding. 5) 99% of the time, doing nothing is the best thing to do in the market. 6) You cannot predict or control markets. What you can control is how much you save, investment process and behavior. Focus only on that. 7)Markets usually run ahead or fall behind. Rarely in equilibrium. Over or under valuation can last for a long time. Don’t time the market. 8) Buying and selling are easy. It is holding on through ups and downs is difficult but ultimately most rewarding. 9) Invest regularly. Invest for the l...

 These pointers can help anyone who runs a business and looking to invest in mutual funds. 1) Use mutual funds for diversification. Most of your investment is in your business itself, as well as in real estate. 2) Invest a minimum of 70-75% of your savings back in your business, and focus on increasing your stock value. 3) Use a part of the remaining 25-30% for investing in equity mutual funds. Use SIPs and tag it to a goal like your child's education. 4) Invest 30-40% of your emergency fund in pure liquid funds. 5) Use the SIP route for monthly investment and systematic transfer plan or STP for lump sum investments. 6) Do not invest in equity mutual funds if you cannot park it for a minimum of seven years. 7) Invest in stocks only when you have the time and expertise to monitor them, and the money to spare, and when you are sure it will not disturb the focus on your business.

When you parents(any of them) cross  70 years of age, there are few simple but important things which needs to be done for better personal finance. 1.  Talk to your parents. See how their finances are managed 2.  some of them could not sign properly .  Be prepared for such things. Selling Real Estate in this country is impossible if the person cannot go to the city of the property, and sign in the presence of the Registrar. Getting a Power of Attorney is just as painful.   Get ready for that. 3.  some of them could not sign properly hence bank cheques clearing might be an issue. Get all bank accounts, mutual funds, etc. to Either or Survivor mode, and ensure digital access 4. Outsource AS MUCH AS POSSIBLE. Stop guessing. Prepare for a real long innings. Get an extra maid. Cook. Driver (Ola Uber may help). If you need a nurse start looking. Trained nurses are far more expensive. Take a call. 5. Either you will have to move to the location of your p...

What do you thing rich people are doing in real world? They are constantly flying to Bahamas, drinking champagne and party hopping . Well, let me share the life style of one real -seriously rich man I know. He is up at about 5 am and hits the home gym. His instructor comes in at 5.15 and leaves at about 6 am, then this man does his treadmill, and by the time it is 7 am he is ready for break fast. By 7.45 he is in office checking out his emails etc. – he has a rule that he does not do any business at home – not even checking his emails. Almost all his mails get marked to his secy and the secy checks them – and an occasional emergency call is attended to. He tells me he attends to one such call in a week – and he is trying to make it once a fortnight. He works pretty long hours but tries to be back home by 7 pm for his dinner. Not a party animal at all, he tries to get one/ two days holiday when he goes on his plant visits. Twoof his plants are near very beautiful spots, so he goe...

AM I investing enough to sustaining my family's life style in future? . This is the question will most of the person's mind considering the cost of living we are going through now. For this I have prepared the below sheet considering various age and monthly expenses . This will help you to understand what is the monthly income required in future considering inflation. Also what is corpus amount required after my active employment/business income ends(may be at age 55/60) and till my last day(80 years). How to read this sheet? For example if my age is 35 years and monthly expense is Rs 30,000 ,considering 6% inflation I need Rs 96,214 monthly after 20 years(2039) , Rs 172,305 monthly after 30 years(2049) to manage monthly expenses. What if after my retirement? Say if you retiring after 20 years (2039) at age of 55 years , you need to create a retirement corpus of Rs 23,274,641(2.32 Crores) .This is to withdraw monthly Rs 96,214 (equal to Rs 30,000 monthly expenses t...

Why my overall returns from Mutual Funds is less than my current FD rates(6%)? This is the question i get today from most of my mutual fund clients.To clarify this i take one investor who has invested in L&T Hybrid Equity fund ,which is an balanced fund(in old context to keep it simple) which invests 65-75% in direct equity(stocks) and 35-25% in Fixed income products like Bonds,NCD,Gilts etc from year 2015. you can see first 18 investments from oct'15 till Dec'16 he has got more than 8% annualized returns in all cases that is  invested above 800 days Let us see what happend after this you can see investments made 1 year(365 days) before till 799 days he has got less than +8% to -4% varies. Let us take the overall investment how it looks like His overall investment has given +3.5% returns which is less than the current FD interest rates (6%).  Sounds right?  No. It is not true.  Observation 1 Out of overall 57 installmen...

Two of India’s oldest equity schemes - Franklin India Bluechip Fund and Franklin India Prima Fund have completed 25 years of wealth creation. Both these schemes were launched in December 1993.Both the schemes were launched by India’s first private sector fund house Kothari Pioneer Mutual Fund, which was later acquired by Franklin Templeton India. If Rs 10000 invested in 1993 has growth as below. Franklin India Prima Fund - RS  907,208(Nine Lakhs seven thousand two hundred and eight rupees) at 19.75% annualized return Franklin India Bluechip Fund - RS  1,062,399 (Ten Lakhs sixty two thousand three hundred and ninety nine rupees) at 20.51% annualized return We can learn below three lessons that come out clearly through this wealth creation journey: Successful Investing is not a short-term process.  It involves years of following a proven philosophy, rigorous process and continuous refinement. Markets keep throwing opportunities; Catch the ones that you are m...

A consolidated mutual fund (MF) account statement means that you can see all your MF holdings across fund houses in one statement. You may have an old MF investment through a distributor, whose details you may have forgotten. With a consolidated statement, you can get details or a summary of all your MF investments across fund houses in one place. This statement gets updated once a month for transactions in funds serviced by the four R&T agents in India—CAMS, Karvy Computershare Pvt. Ltd, FT Asset Management (I) Ltd, and Sundaram BNP Paribas Fund Services. To get a consolidated report, go to the website of either an R&T agent or fund house, enter your email address and Permanent Account Number (PAN) (this is optional) and select a password. An email will be sent to you and a statement can be retrieved from it. You can choose to get a summary statement with just your account balance, number of units and value, or a detailed statement, which will have individual transactions...

When you reach your early 40s, you are approaching the mid-point of your career. You already worked for about twenty years, assuming you began your career in your early 20s and you have about 20 years to reach your retirement age. This stage of your life is very important both from a career and financial planning perspective for the following reasons:- By the time you are in your early 40s, you are likely to be in middle management or senior management role. Your income, therefore, likely to be much higher than the earlier stages of your career. With higher disposable incomes you should be able to save more. This is the stage of your life, when you are more settled both from a career and family lifestyle standpoints. The lifestyle, you have in your forties, is most likely what you want to have for the rest of your life. We aspire for more improvement in our life, but a cutback in lifestyle is usually very difficult for us . While people today have much more mobility in their car...

We have all made mistakes in past and most likely would also make mistakes in future. Making mistakes is not crime but is something human in nature.However, we must learn from past mistakes and failure to do so is most undesirable. When it comes to personal finance decisions, the best way of learning is by analyzing the opportunity cost for our bad decisions. Opportunity Cost: But before we start, let us first understand what is 'opportunity cost'. The opportunity cost can be understood as the cost of doing any action measured in value terms of the best alternative that is not chosen or is foregone. a sacrifice value of the second best choice available to someone who has picked among multiple choices Opportunity cost is a key concept in economics, and is used in decision making where there are scare resources to be optimally utilized. The concept can be applied beyond financial costs: you may apply it for lost time, pleasure or any other resource that provides ...

Don't check the value of your long-term investments on a daily basis Don't stop your SIPs in equity funds Don't try to wait for a market correction to begin investing Don't ignore fixed income if you think there's opportunity in equities, every asset class has its own value Don't begin putting money in equities till you have adequate insurance and reasonable emergency funds Don't overlook tax-saving investments, money saved is money earned Don't ignore equities if you're retired, it's the best way to beat inflation Don't put your money in unit linked insurance plans and such, it's not your duty to make the insurance sellers rich Don't think of gold as an investment, buy it only for consumption Don't invest in sectoral or thematic funds, diversification earns more rewards Don't dabble in stocks directly if you don't have the time, knowledge or understanding of the markets Don't blindly follow everything list...

For what is supposed to be a simple (and simplifying) idea, there are way too many misconceptions about the SIP (Systematic Investment Plan) way of investing.  In general, those who have a punter's approach to investing carry over that approach to SIPs, trying to stop and start SIPs by timing the markets. Back in 2010, I remember investors claiming that SIPs were no good, and that they had barely broken over the preceding years. Generally, these were people who had stopped their SIPs after the crash of 2008, and then restarted after the recovery in 2009. The basic idea behind SIP is that while the general direction of an equity investment is upwards, it is not possible to reliably predict the actual fluctuations that it may undergo as part of its general trend. Instead of trying to time one's investments, one should regularly invest a constant amount. As time goes by and the investment's Net Asset  Value  (NAV) or market price fluctuates, this will automatically ensure th...

It not only allows you to invest at regular intervals but also enhances returns as the cash is invested in liquid funds, which generally offers better returns than savings bank account. As a mutual fund investor, what do you do when you have large sum in bank account and equity markets become attractive day by day, a scenario that we are going through for almost last three months? Some of you may want to write a cheque immediately. The wiser lot will opt for a systematic investment plan (SIP) to benefit from ongoing volatility but the bit smarter lot opt for systematic transfer plan (STP).  STP allows an investor to invest lump sum amount in a scheme and periodically transfer a fixed or variable sum into another scheme . It is quite similar to SIP which is more widely known and popular of the two among the mutual fund investors. While in a SIP you invest a specified amount in a scheme at pre-specified intervals and the investment amount for every SIP tranche comes directly from...