Author: Chillmaadi Admin

Some time back I went on a trip to the nearby hill station along with college friends. College memories were relived and sudden nostalgia crept in yearning to be college goers once again rather than being part of the cruel corporate world. As usual my friends discussed their personal finance related issues and at one point one of them asked what Asset Allocation is? They had read it at so many times but never knew how to practice it in their day to day money management.

Well , once you begin your investment journey – there were will be 2 major set of things that will plague your mind.
First – making an investment decision without thinking enough (as most of us do, refer a website/ refer ratings and buying a product without any proper understanding). Second thing that would bother you is thinking too much about your investments.

Let me give an example of today’s times. There are many people who continuously think or rather suspect they suffer from disease 1 or disease 2 and would rather go to a doctor’s clinic quite frequently. The doctor would chuckle on your story and by providing you few pills for your mental satisfaction he would be done. That’s it.

Quite the same thing happens with your investments also. In fact many people also suffer from the same disease that their portfolio is diseased. One of the the most popular type of disease in this field is a faulty asset allocation. Many people often wonder whether their investment portfolio has the correct amount of allocation to both EQUITY and DEBT. Well, there is no perfect solution to it.

Asset allocation is just an exotic/fancy jargons used by professionals to confuse the commons. Rather It simply means investing your money in a manner that suits your needs. That’s it. My friends asked is it that simple to do asset allocation? Answer is Yes.

It is easy provided you are clear about your goals in life – The key to really figuring out your asset allocation is to make a rough work sheet or you may even use an excel sheet –

• List down all the things that you would want to do in life (which involves money)
• Prioritize your goals one by one (strike off which are unnecessary)
• Define when you will need the money and how much for each of your goals one after the other.

Half your job is already done!

What you need to do is to match your investment time horizon to the asset class. Asset classes such as FDs/RDs, then you have the short term liquid/ultra short bond funds and so on in the debt category (if your investment period is really short term in nature ranging from 1 to 12 months). Then you would create a stock portfolio or choose a well diversified equity fund provided your investment horizon is long term in nature (Period ranging from 7 to 10 years and onward)

Let me admit that the example cited above is just a simplified version but what I have been trying here is to make you understand and demonstrate the principals on which individual should choose their asset allocation. There are no set formulae though for right asset allocation but then until and unless you begin the exercise how will you make it simpler for yourself?………..Till then Happy Investing

In a short conversation with a small town investor, I discovered how they are pitched such mutual funds in the NFO category (New fund offers). The basic premise that the investor is made aware of is that you buy a fund in “units” and the price of each unit is called the NAV (Net Asset Value). You are therefore conditioned to believe that a fund with a lower NAV is far better and cheaper. So an NFO is better than an already running equity fund.

Please note if someone is asking you to choose a fund simply because it has a lower NAV he is simply misguiding you. In fact, what should really matters more for you is that –

1. What sort of a fund your are putting your money into?
2. What was its past performance during the different market cycles?
3. How the fund manager manages the fund?

So a fund “X” with an NAV of let’s say 20/- and another fund “Y” with an NAV of 200/- will generate the same returns if the underlying assets (stocks) and the overall portfolio is the same. So comparing the NAV of fund “X” with fund “Y” is quite a futile activity and this can actually lead you to make random investment decisions.

Second point of discussion is the “Dividends” that the mutual fund scheme generates. The problems with MF dividends are – they are practically not at all any dividend or surpluses of any sort!! Let’s take an example – say the value of your mutual fund folio is 2 lakhs and the fund house declares a dividend of 10,000/- the value of that investment would be 1.9 Lakhs (2Lakh minus 10,000). It’s that simple. There is no such additional benefit that you have garnered but a common investor is always conditioned to believe that a dividend generating fund is better than a growth fund and so on and so forth.

This dividend option is convenient if you would like to withdraw money from the fund on a regular basis. Please note you don’t get anything extra by opting for a dividend plan. Please note that dividend declaration by a fund is not guaranteed at any point in time, it depends solely on the fund house discretion to declare dividends for the investors.

So next time if someone tries to convince by stating that a lower NAV plans are better off than a high NAV plan & a dividend plan is better than a growth plan be cautious. What’s really unfortunate is that both these misconceptions are widespread. So make sure the next time if someone pitches you such a thing please think for a while before taking a decision. Till then Happy Investing.

I found below four books amazing, in my journey towards better finances and investments.

1. You can be Rich too with goal based investing by P V Subramanyam and M Pattabiraman.

This is a good, practical book for any Indian investor of any age. For anyone who wishes to take control of his/her finance this book is a must read. Very simply put, even an amateur in finance will be able to understand and implement.

So you want to start a home business, and don’t know where to begin. Like any other business, research the company your interested in. Find out all you can about their business practices, their creditability, what they offer and exactly what you will be doing in this home business.

When researching a business, keep in mind these 3 red flags:

1. Introduction Material Costs Money.This information should be free. It introduces the company, tells what they do, what they offer, and how to sign up.
2. Promise of Getting Rich Quickly in Less Than 10 hours a Week. Though it is possible, it isn’t probable. It takes time to build a business and clientele. You should expect to work more than 10 hours a week, and it take awhile to build any income.
3. Limited Time Offers. A company is making promises (especially of quick wealth), but you only have a certain amount of time to enroll; I’d take a step back and reevaluate the situation. Generally, these are scams. There are reputable companies that use some of these techniques, just make sure to do your research.

My best advice is look for a business that interests you, do the research to enable you to make the best decision possible, have realistic expectations, and enjoy your endeavors.

The question is how different it is to manage larger sums of money compared to a few lakhs when one is young.

My view is it becomes simpler if you know what you are doing. By the time you are 45/50 you already know who you are, what is your risk appetite, what are your goals, what are your characteristics as an investor and spender. These behaviors are more important than selection of the illusive best stock or best mutual fund scheme.

Once you know your financial goals and if you can invest intelligently to accumulate an amount close to that amount then you are safe. You can then think of protection of your corpus and how you will draw from the corpus in retirement.

The important thing is that the more factor of safety you have the more you can take risk, that is stay longer and invest more in equity. In theory that gives you more chances of having a larger corpus at death to be left for your heirs.

If you have only just about adequate sum at the time of retirement then you must have the safety first approach thus invest more in debt so that capital erosion is avoided as much as possible. But if you have 30-40%more than what you need for the retirement duration then you can take risk and continue in equity.

Again this depends on your investment behavior. I have seen people worrying too much about stock market movement who have a portfolio of less than 1 lac and earning more than that in a month. And there are others who may have crores in their portfolio but can take 5% drop in a day in their strides. As you age you know who you are and then behave accordingly. It’s a personal matter and there is no right or wrong in it.

Personally I can keep my cool about market gyrations, so I can keep a larger sum in equity even though I am retired. But that is just me. Another person should follow a completely different route.

Another point is more money does not mean more stocks or more mutual fund schemes. It is just you have more units of selected stocks or mutual fund schemes. Thus there is no additional burden to track as you accumulate more money on the way.

So young men and women, do not worry unnecessarily about the future, concentrate on the corpus building, do experiment with different investment products with lower sums and try to understand yourself. It may sound easy, but it is not. Also, concentrate on other things in life, money is only a small part of life it is NOT life, it is just an enabler, by itself it does not give you any joy or happiness. Thus you need both good health and company of friends and family to enjoy what money can buy.

Picking a fund is really easy – Steps followed by a common investors : –

You would go to a website then check various funds ratings and its past performance statistics and you end up with a fund under your belt. The amount of research while selecting and finalizing a fund would vary depending on your level of understanding. But still in the end you would select a fund and justify your selection and begin your investment journey. All said and done the bigger question that we never encounter in the matters of personal finance is when do we really exit a fund?

Fluctuations, fluctuations and bigger fluctuations defined by big market movements really scare the common investor a lot. These days many are worried with their day-to-day returns! As in many blogs these questions are posed a multiple times. People really start fearing what’s next? Shall I redeem now? What do I do? Everyone start trying to safeguard their falling investment value and starts wondering shall I press the panic button!!

Well that’s exactly what you should refrain from doing in times like this. The whole idea of investing is to optimize your returns and maximize it by a margin

Market movement should not be the driving force for you to redeem your funds. Please note this is very much an intrinsic nature/trait of the market. They keep fluctuating in varying degrees. You need to stick to these market ups and down.

1.  The very primary reason why you should sell a fund is because you need your money. It’s as simple as that irrespective of the market movement.

2.  When you are restructuring/re organizing your portfolio. Why because you’re needs/your goals/ your requirements have undergone a change over a time period so you would dump few funds and select those funds which are more appropriate for your current situation in life.

3.  When your funds are doing badly over a longer time period. The time when you had invested you were pretty okay with the fund style but then it gradually changed its fund structure and started performing badly, another couple of years the fund lost its sheen. You should note that a fund cannot be solely judged based on a single market fall since there are many funds which would have given negative during the same time period. If this falling returns cycle remains the way in different market conditions then is the time to dump it. (Please do check the statistics though). If you are only trying to time the market well you will always have a lot of catching up to do. Markets will go down dramatically. Market fluctuations should not be the reason for you to sell. If that was the case and you are a risk averse investor)at the first level you should better remain with fixed income instruments provided by Banks like FDs/RDs/time deposits etc.

4. If you reach your goals simply sell your funds and redeem it. If you don’t set out any goals for yourself then it’s another story. But, if you have a specific goal in life with a defined time frame and a target amount and you have reached your goal redeem it friend. Don’t be greedy at that time.

Health insurance, for those who have it, pays for medical and dental treatments in the event of illness. There are different types of health insurance policies that provide cover for care at varying levels. By qualifying for health insurance cover, paying the monthly or annual premium, you may claim on the insurance for your health care treatment needs.

Consider the benefits of health insurance

In a country such as the United Kingdom, having health insurance provides a number of benefits:

• Access to medical and dental treatments through private care
• Receiving treatments not available through the National Health Service (NHS)
• Having more choices in healthcare provision
• Getting treated faster without delay caused by waiting lists
• Options to be treated abroad
• Cover in event of emergencies

Increasingly, people are seeking treatments through private care, such as for orthodontic care, cosmetic treatments, implants and transplants. By having health insurance cover, a person may choose to be treated through private care and receive treatments otherwise not available through the NHS.

For example, dental treatments with invisible braces may not be available through the NHS, nor may an individual qualify for a weight loss surgery or treatment. Health insurance gives options in healthcare of provider and treatment.

Some people are placed on waiting lists due to the number of people seeking healthcare through the NHS. Waiting for a medical or dental treatment may cause discomfort, distress and even worsening of a medical or dental condition. By paying affordable monthly health insurance premiums, medical care may be accessed sooner and the costs are covered by the insurance company.

Insurers may partake in partnerships with other cheap medical aid companies, giving their members additional benefits, such as options in treatment abroad. More and more people are combining travel with treatments at world-class retreats.

Weighing private care versus NHS care

Certain people may benefit from gaining their care solely through the NHS. Those on benefits who cannot afford even the small monthly health insurance payment gain advantage from free medical and dental care through the NHS for meeting their treatment needs. In such cases, health insurance may not be suited.

Health insurance may suit the wider population, giving access to both NHS and private care. Any of us may be affected by an emergency situation at any time, whether on home soil or travelling abroad. Health insurance may provide the necessary cover at home and abroad to receive the treatment needed.

Cost of health insurance

There are choices in health insurance plans, what they cover and monthly premium amounts. Comparing providers is a start to learning how you may be able to access treatments of choice. Health insurance may be tailored to suit individual or family needs.

Children should be taught the value of money. Here’s how you can motivate your child to save money. Money is important. It gives people the power to make decisions and grab opportunities.

Educating children on its importance should start early in life. Children should be motivated to become regular savers and investors. Here are some ways through which parents can educate children about managing and saving money.

As soon as child starts counting, he should be introduced to money. Parents should play an important role in providing them with information. For instance teach what they can buy with a one rupee coin and tell him how to recognize the money, the symbols in the coin etc. There are 2 ways that children learn – by observation and repetition. Talking to children about your values on money – on how to save it, how to make it grow, and how to spend it – will have a lifelong impact on them.

Children should be made to understand the difference between ‘needs’ and ‘wants’. This will enable them to make good spending decisions right from childhood. Setting goals is also important for learning the value of money. If a parent has the habit of buying everything that his kid asks for, it will only spoil the kid. What you can do at home is set a goal for your kid – give him a task and award him with pocket-money in denominations he can count. Once the money grows he is entitled to buy toys, chocolates, Etc. this would make your kid responsible.

Keeping good records of money is another skill that ought to be taught. It is a good idea to maintain a book for keeping good records of money, saving and spending.

I came across an interesting old article called “10 Rules to Building Wealth.” I enjoyed the article and thought it made sense, so I’m presenting a summary of the article here:

1. Start early – The power of compounding interest is amazing. The earlier you start paying debt down and saving money, the better off you’ll be.
2. Use your EPF – If your employer offers a EPF matching program, you’re crazy not to take them up on it. Not only are the funds compounding tax-free, the matching program brings your returns higher than any reasonable investment out there.
3. Keep it Simple – If you have a full-time job outside of picking stocks, leave it to the experts and pick a proven mutual fund, or even better, simply pick a market index. .
4. Don’t Try to Beat the Market – It’s almost impossible for you to beat the market, and even most professionals have yet to do it over any significant period of time, so stick to basic mutual funds or market indexes.
5. Don’t Chase Trends – Your goal is to grow assets over the long-term, there is no sense in trying to time the market or chase trends.
6. Make Saving Automatic – Once you’ve found the debt solution for yourself and successfully paid off your high-interest debt, make saving automatic by setting up a plan or direct debit.
7. Go Heavy on Stocks – If you’re in it for the long-term (which is how you build wealth), go heavy on stocks, they’re above-average performers.
8. Hold Down Fees – Avoid mutual funds or asset management programs that charge high fees.
9. Ditch Credit Card Debt – Ideally, credit cards are to be used only for convenience. The high interest rates these cards charge can quickly eat into your returns or savings plans. Find your own debt solution and get out of credit card debt as soon as possible.
10. Defer Taxes – Buy and hold, avoid selling assets if you don’t need to, as this creates tax liability, when you could be deferring this liability and earning interest or returns.