Parking your Money in NIFTY Index gets better than Fixed Deposits in India.

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Mutual Funds is a safe way to invest in the markets. If you are a non finance guy or one who does not have time to stalk the market on a daily basis, you may choose to participate in the market via Mutual Funds.

The products offerings by Mutual Funds looks like a buffet to me. What to take and what not to take. The fund managers are vying for your money by giving you various strategies to make money. I also agree to what they do. Every fund has the potential to make money for you provided you understand the philosophy.

But, if you are the one who is just glossing over the mutual funds schemes because you have become disenchanted with the lowest ebb that the Fixed Deposits Interest rates have reached in India, then, I have a simple idea for you. Look for Index Funds.

The beauty of Index Funds is that they do not follow any particular fund philosophy. They just follow the market indices. For example, if you take NIFTY 50 Index fund, then, you will see that the portfolio of the fund is a mere reflection of the NIFTY 50. You will find the stocks and their weightage mirroring the composition of the Index. Hence, they are called Index Funds.

The reasons why the Index Funds should be your favorite gateway to Mutual Funds are more than one.

1. Expense Ratio: The ration talks about the expenditure that you incur on giving your money to be managed by the fund managers. The most common expenses are the brokerage charges and the number of times that the portfolio is churned by the fund managers. When the fund managers buy and sell or trade in the stocks, there are charges attached to them. So, more often the portfolio is churned, higher will be the expense ratio. Index Funds do not have high expense ratio for the simple reason that the stocks are bought in the same ration and composition as they reflect in the Index. Say for example, if you are buying NIFTY 50 Index fund, then, it simply implies that you are buying the whole godammn index. So, minimum expense ratio.

2. The funds forming the index reflect the true picture of the market. The stocks so not remain the same all the time. They make entry and exit as per their role played in the overall games of the stock markets. Like Volume turnovers. So, if you are investing in the index fund, you are set to gain.

3. Quality Stocks: Those funds that make their entry into the Index are performers. That’s why they are there.

4. Volatility: They are the least volatile. This is the reason why I am asking you to look at them. They are as good as FDs. Only thing that you would need to remember is that they are stocks and not bonds. Stock is something that will move up and down. People will buy and sell them. So, they would follow the trends of demand and supply. If you give them enough time, they are bound to grow.

Investing in mutual funds is a safe and secure way to increase your prosperity.  Start with Index funds to gain confidence in investing.  Bonn investing!!

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Learn to live by earning and investing in Relationships

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The ideas of earning and investing are equally good for teaching the life lessons:

Earn:  You need to earn the respect of others.

How do you do this?

To understand the term earning, let’s get into the theory which is understood from the money angle.  You earn when you work.  Your work defines you.  It creates your identity.  You can be best or worse.  It depends on your attitude and hard work.  If you want to be the best, then you need to work really hard at times and smarter at other times.  You earn your daily bread when you put definite hours of work every day, every month and every year.

The same goes with learning to earn the respect of others.  You need to show your work to others.  Your work in terms of relationships could be taking out time to spend with the family, going on bike with your kids, resting on Sundays at a children’s park while they play around.  You will earn the respect of your kids and your spouse.  You will also earn the respect of your children’s friends.  Your kid’s teachers will also appreciate your work towards your children.  Yes, it is work at times.  You have to work your way to create truly defining relationships.

Invest:

Investing in relationships is as important as investing in good stocks and mutual fund schemes.  You need to be a consistent investor.  Invest daily in small quantities but invest regularly.   We invest in mutual fund schemes regularly and one day, we get bewildered by the huge corpus of wealth that we create.  But before the amazing returns arrive, there are many ups and downs.  Similarly, if you take your time out to invest daily 25-30 minutes of your time to spend with your family, that would be more than enough.  Now, these 25-30 minutes with them should be totally dedicated and devoted to them.  Quality time.  Take dinner with them.  Pray together in the morning or thank god together before going to bed at night.  Investing regularly not only will keep you in the heart of your family and friends but it will also nurture and deepen your relationships.  You will survive the tectonic movements and the stormy weather in your relationships with your boss and spouse.  You wouldn’t be required to give explanations for arriving home late occasionally.  You will be understood and your many responsibilities will be shared by the others because they do understand you and know that you are honest and sincere to them.

But, the reality bites.  Just like we want to earn superb returns on our investments, we expect the same to happen in our relationships.  Having spent a decade in a relationship with my wife and more than three decades with my parents, I am now realizing how different types of relationships move.  They all move at their own pace.

People are the real wealth.  They are your real assets.  Sean Covey in fact has one of his habits mentioned in his bestselling book, “The 7 Habits of Highly Effective Teens” named as “Relationships Bank Account”  People who want to get ahead in building wealth should invest in people.  The kind of people who you sit with, spend time with and share your months with are the real stocks of your life.  They may go down at times but they will rebound and turn into multibaggers only if you stay invested in them.  Mind it, the kind of people you are investing should have their fundamentals strong like the companies do.  Don’t try technical analysis.  Technical analysis basically looks at the trend and presumes that the past performance will predict the future.  No, it neither happens with the stocks nor with the relationships.  Believe in Value investing and don’t trade.  If you stay this way, you are bound to be wealthy my friend.

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Spread your Imagination beyond MCLR

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Few days back, the largest lender in India, the State Bank of India(SBI) announced the deep cut in its MCLR.  The MCLR has been reduced to 8 % from 8.90%.  This is the deepest cut that the bank has made in the past one year.  ICICI bank and other banks followed suit announcing the reduction in MCLR.

Its good to know that the interest rates have come down drastically.  It should imply that the cost of funds borrowed will be lower compared to earlier.  The interest rates are dynamic and keep fluctuating.  But, a borrower who is the most affected party of this hardly understands it.  Let me ask you a simple question:  What is MCLR?

Some of you might just copy and paste the word and google it and find end number of webpages opening up and explaining the technicalities.  But, I could hardly find a borrower friendly explanation to the mystery of MCLR!

None of the web links that came up could really make a borrower understand the true significance of the MCLR on their housing loan.  Some of the newspapers and business channels are telling the viewers that they have the best opportunity to buy a new house.  Some are telling the existing buyers to switch to the current MCLR from the erstwhile Base Rate System of Interest rate.  But, converting the Housing loan from Base Rate to MCLR carries a conversion charge.  So, how does it affect them?  Does it make their Housing Loan cheaper ?   These are the questions that every borrower has in his mind.

Let me first tell you how what is MCLR.  MCLR stands for Marginal Cost of Funding Rate.  If you want to know about how it is calculated and why the RBI asked the banks to switch to MCLR, you can just follow the Google Baba and he will guide you through.  I am not the right person to teach you finance and banking.   But, I will tell you how it affects you.

So here you go.  The housing loan interest rate is made up of 2 components: the variable and the constant.  The variable part is called MCLR.  The constant part is called Spread.  The variable part as it states is subject to change.  Banks revise the MCLR according to the monetary policy movements.  RBI decides the monetary policy and the banks toe the line.  But the spread is that part of the interest rate that remains unchanged though out your loan tenure.

Now go back to the news that you read in the newspaper and find out the spread.  The banks have increased their spread.  This implies that the banks are giving you the benefit of the high liquidity in the economy for the time being by reduction in the MCLR. But the spread is high.   For example, SBI has cut down on its MCLR by 90 basis points but the spread is 0.65%.  Prior to the announcement, the spread was lower on home loans.

This basically means that the new loan borrowers who take the benefit of low MCLR and low effective interest rate now may enjoy the benefits for the next one year.  But after one year, the rates will be reset on their home loans.  As a result, there is no guaranty that they would continue to enjoy the benefits.  Everything will depend on the then prevailing market conditions.  High Spread in my opinion is not good in the long term because if the MCLR goes up, the high spread is bound to compound your effective interest rate.

Demonetisation

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The one new item that is doing the rounds these days is about Money.  The physical form of money.  It is there on everyone’s lips.  Whether I am travelling in train or buying vegetables in bazar, I can hear echoes of demonetization everywhere.

The evening it was announced by our Prime Minister, even I could not believe the news.   One of my customer called me up to confirm the news.  As I was not before the television, I consoled the person assuring him that such a move is just not possible practically.

Since then, there have been views and opinions.  Some have applauded the move while the remaining have called it a big mess.  Of course, no one is wrong.  But, this is a useless effort.  The train has left the station.

It’s now time to move into a new era of cashless banking.  The use of cash is set to reduce in the coming years.  As the mobile and other digital technologies gain ground, it will be easier and faster to move money without carrying it.

So, let’s take a look at the options available to us.

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  1.  ATM Card: ATM card is just like your teller.  It helps you to withdraw and deposit cash.  ATM machines are being upgraded to serve other needs like ordering checkbooks, updating mobile numbers etc.  You may also use the ATM cum Debit Card to shop online.  RBI(India’s Central bank) has made it mandatory to insert the PIN(Personal Identification Number) so that your transaction are double safe.
  2. Internet Banking: This is banking on the go.  You can login to your bank account just the way you do for Facebook or gmail.  You get a host of features:inb
    1.  view your account balance
    2. what got credited and what got debited.  there will be a brief summary of the transactions as well.  So, you can recall whom you made the payment to or at which ATM location, you made the cash withdrawal.
    3. Order Checkbooks, replace your ATM card, place draft orders
    4. In case you have a issue that you want to be resolved, you get an option to send an e-mail to the bank.  Their CSR(Customer Service Representative) will respond to your queries.  You can even request a call back and talk to a bank official in person.  This way, you eliminate the pain of visiting a crowded brick and mortar branch in your office hours.  It saves times and “TIME is MONEY”.
    5. Internet Banking also lets you open accounts online.  For example, you will be able to open a Fixed Deposit Account or a Recurring Deposit Account online.  As these accounts are self opened, you may close them as and when you need the funds by just a click of a button.
  3. Mobile Banking:  The most handy device that remains as close to you as your money wallet.  Some banks provide the access to your Internet  Banking services on mobile platform.  So all you need to do is download the ‘app’ from google store and login with your Internet Banking ID and Password.  You are good to go.  Some banks may require you to register for mobile banking by separate registration.
  4. e-Wallets:  These are virtual wallet like your purse.  As you hold hard cash in your wallet, you store your banking details in digital format in these mobile e-Wallets.  These wallets are available on your mobile phone through app store.  This is an emerging area of e-commerce and there are virtually all telecom companies trying to cash on this opportunity.  If you have heard of Pay TM, then you know what I am talking about.paytm
  5. When you transact in any of the above ways, you not only go cashless, you actually go green and save the planet.  The amount of paper used to print notes, print bank vouchers and the paper stationary used in the banks will be saved.

Financially Literate

On 26th of September, I got an oppurtunity to give a talk on “Financial Literacy”.  In fact, it was not simply a talk but a well planned speech/lecture accompanied by a power point presentation.  The reason why I am saying it was talk is that I did not take the usual stereotype lecture format to deliver it.  I ensured that it was a casual and interactive session which it really turned out to be.

download-1I was stunned by the kind of questions that were raised post talk.  I was asked questions like ” Why stock prices fluctuate?, How to open a FD ?  What is the current interest rate on FD?, Why is JIO providing services for free.  You may be presuming the audience to be well mature or atleast grown-up.  No, they were simple school kids of 8th, 9th and 10th std.  This shows that the generation of tomorrow is very smart and they are learning things very fast.  I was glad to see this.  I hope I can deliver better stuff next time.

Needs And Wants

If you have a baby, you would know. Those who don’t have would also be knowing that there is a big difference between these two terms- Needs & Wants.

 

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Just think how hard you work for your money.  You sacrifice your family life at times to meet deadlines at work.  You forego your leaves and your kid’s annual functions to ensure that the paycheck comes home without a cut.  In fact, you toil through the month to see that lovely paycheck.  But, the moment it lands in your hand, goes down the drain faster.  You pay all your bills,  get your groceries and your car serviced.   You go out to have dinner with your family and friends to enjoy the hard earned leisure.  Within a few days or maximum by the end of first week, the money is over.  Now, you look for the next paycheck to arrive and you end up living hand to mouth very single month.If you happened to fall in this category of hand to mouth existence, you need to take a good look at where your money is going.  Because if you didn’t, you can never ever  be financially secure without good savings habits.  Financial security would not come even when you would be earning multiples times more.  Because, by the time, your pay doubles or trebled, your expenses would have quadrupled.

Savings are therefore of prime importance to have a good relationship with money.  You can’t afford to have a bad relationship if you dream of total independence in life.  Finances are the backbone of your life.  You can’t afford to keep it fractured if you wish to move ahead quicker and faster.

But, how do we do this?

Lets look at the below mathematical equation:

Income – Expenditure= Savings

Well you may be wondering, what’s special in this?  Everybody knows that and does it.  This is what you do every single day.  You earn and spend and whatever is left after expenditure is your savings.   This equation is self explanatory.  Why am I using it here?

At the outset, the equation would mean that Savings is the result of what remains after spending from income.   But this is the mistake most of us tend to make.  We keep savings at the end of the equation.  It’s not a priority.  Supposedly, it is left out portion of the income.

Savings should come at the top of your expenditure plan.  You must decide on savings priorities than on spending priorities.    But, how do you do it?

To start with, consider the following questions when you go spending:

  1. Do you consider the utility of the goods or services that you are spending money on? What are the factors that go into making a decision to buy?
  2. Do you plan your expenditure periodically before you go shopping or buy impulsively?
  3. Are your purchases driven by emotions or practical use?
  4. When you or your family member spends, does it happen in isolation or with consensus?
  5. Do you think about the regular financial commitments that you have every month or fortnight often?
  6. How often do you check your credit card statements, your electricity bills or your mobile bills?

In order to answer the above questions correctly, you are required to understand the two basic concepts:  Needs and Wants

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Needs are the physical and practical requirements of our daily life without which we cannot imagine our existence.  Wants are emotional needs.  These can be foregone to save to achieve big goals in life.   Anything that you buy may be either be classified as a need or a want.

So, let’s do an exercise.  Please classify all that you buy in a month into needs and wants.  After you have listed all your bills and items that you spend money on, you would have realized that the wants outweigh your needs.  Needs of any person are limited but wants are unlimited.  Therefore, the first habit in cultivating a good habit of savings is ÜNDWERSTANDING NEEDS AND WANTS and reducing the wants to the minimum.

The second step will be planning your expenditure which is Budgeting.  Budget your expenditure and avoid impulsive buying.  You are walking by a store and you see a lovely Levi’s jeans.  You want to buy.  This is impulsive buying.  Please don’t do that.

  • Set your goals: Setting your financial goal is vital to save money.  Unless you know what you are saving for, you won’t be motivate to save.  Having a clear purpose in mind directs all your efforts and you end up saving quite a lot.

 

  • Incorporate all you family members in planning the Budget: It is important that every family member including the kids participate in the planning process.  This would help you to segregate wants from needs and also allow you to incorporate the needs of all members holistically.
  • Automate your payments: there are bills to be paid every month like Credit Cards bill, Electricity Bill, Mortgage payments, car EMIs etc.  This would help you to save on late fees and penalty by paying one time.
  • Pay yourself first: Do you realize why the government deducts Provident fund contribution, TDS(Tax deduction at Source which is nothing but your income tax) from the salary. They never reach you.  You earn them but don’t get them.  These are statutory savings and expenditures.  I would suggest you to incorporate this habit of statutory savings in your monthly paycheck.  This way, you will a definite amount every month.  If a begger can live on alms.  You too can live on the remainder of money after paying yourself first. 

A good way to show the importance of saving is to tell the story of the ant and the grasshopper.

In a field one summer’s day a grasshopper was hopping about, singing to its heart’s content.  An ant walked by, grunting as he struggled to carry heavy pieces of corn.

“Where are you going with those heavy things?” asked the grasshopper.

Without stopping, the ant replied, “To our ant hill.  This is our third delivery today.”

“Why not come and sing with me,” said the grasshopper, “instead of working so hard?”

“We are helping to store food for the winter,” said the ant, “and we think you should do the same.”

“Winter is far away and it is a beautiful day to play,” said the grasshopper.

But the ant went on his way and continued their hard work.

The weather soon turned cold.  All the food lying in the field was covered with a thick white blanket of frost that even the grasshopper could not dig through.  Soon the grasshopper found itself very hungry.

He staggered to the ant’s hill and saw him feasting on the corn which had been stored up all summer.  He begged them for something to eat.

“What!” cried the ant in surprise, “haven’t you stored anything away for the winter?  What in the world were you doing all last summer?”

“I didn’t have time to store any food,” complained the grasshopper; “I was so busy playing that before I knew it the summer was gone.”

After a long discussion, the ant shared some food with the grasshopper. The grasshopper saw the big mistake he had made and vowed never to make the same mistake again.

This story helps to explain why it’s important not to spend all your money but to save some money to be used when you need it. It’s a valuable lesson that illustrates the benefits of hard work, preparation, and saving.

 

Earn, Save & Invest

“Earn as much as you can,

Save as much as you can,

Invest as much as You can”

-John Wesley

Money speaks to everyone.  It speaks to you, it speaks to me.  It is one of the integral part of our lives.  We can live without water but not without money.  Money will buy you water.

I started this blog after a long thought process.  Firstly, I am delighted by this amazing technology called internet.  It goes everywhere.  Right into our homes, on our mobiles, laptops transcending boundaries of state, country and geographies. 

Money is a universal theme and relates to all living people on this earth.  No matter where you are, what your currency is, you talk about it all the time.  Rich talk about it, Poor talk about it.  I am lucky to be in the field that connects everyone.  I want to give you and share with you the knowledge and the experience which I have gained over a period of time using or misusing money.  This will not make you rich right away but if you are able to cultivate some good habits on savings and investments front, I bet you will rake in moolahs!   

There are no short-cuts to making money but there are smart moves you can make to earn well and live a better lifestyle.  The purpose of this blog is to make you understand your money in a holistic manner.  We all work very hard to earn our livelihoods.  The income that we generate is not sufficient to fulfill all our needs.  But, at least it should fulfill most of our meaningful needs. This is possible only when we will understand how money works.  What are the systems in place that it goes through.  Money never remains static in your bank account.  It exchanges hands.  Earn, Save and Invest is a triad born out of this philosophy.

The process starts with generating income.  You work on a job or run a business.  You make money as regular salary or gross revenues.  Then, you spend on your expenses and overheads.  What is left is your savings or profits.  These savings when deployed strategically for future income becomes an investment.  

If you are able to do good job with your savings and investments, earnings will follow.