NCDs and other Debt Instruments

 NCDs and other Debt Instruments

- Rajeeve Kaushik

I have been getting regular queries about investing in NCD on nonconvertible adventures and various type of bonds .

To start with as a nonresident, you cannot apply in these NCD and few other type of debt instruments, except the debt mutual funds .

However, you may  invest in your spouse name by first transferring to her bank account and then letting her invest directly from her account.

There has also been appointed that these are SEBI regulated and controlled .

This may be a matter of slight comfort, but actually in case of a default which is more likely in case of a debt instrument than equity- the process to get your money back maybe quite long.

Secondly, you must remember that with the new tax rules. The interest on those date instruments will be added to your income and not your spouse’s .

And now the mechanics of debt and debt instruments …

Debt is most essential to the working of the economy and development, whether of a country or a company or any entity, which needs to work . Just like you take various loans for your needs the government and companies also do the same.

The same way that you have the rate of interest attached to your loan. It is also part of the debt instrument which the government or companies use. 

Only thing here is that the debt paper, whether it be the government treasury bill or corporate commercial paper or debentures of various types or corporate fixed deposits they are all tradable in the market, which means somebody can buy them at a higher or lower interest rate than what is printed on it, which is called the coupon rate .

It is this buying or selling, which creates the opportunity to make profit in various types of debt funds .

The tenure for which a debt paper is issued determines that which category of the debt fund it belongs to .

For a individual, it is virtually impossible to invest directly in a debt fund, because not only each paper is of substantial value which goes in lacks and crows, but there is a quality of debt rating, which is issued by various agencies that determine the safety of a debt instrument .

So just like you prefer not to buy shares because you have to do too much research in that and you prefer to buy via equity MFs - in the same way it is always advisable to invest in different types or duration of debt funds.

This is the best way to secure your investment while ensuring reasonable return returns on it .

I personally find debt funds as the best asset allocation to fix income instruments .

Grihastha at 60 or AN Ode to Vanprastha

 Grihastha at 60 or AN Ode to Vanprastha

With 15 years of serious meditation in the Vipassana format behind me and having been eulogising the virtues of letting go of physical acquisitions, it must have been quite a fall for the natural forces around me when yesterday we moved into a new small hutment on top of a hill. 

Picturesque or otherwise it certainly provides an ideal atmosphere to delve inside myself, And even though it may not be exactly convenient for my wife but she is loving it more than me.

Economically and from investment point of view it certainly does not make sense to have or expand a physical acquisition at this age but perhaps my progeny and her young ones will probably understand my deviation from what I recommend as ideal financial situation

Technically located at exactly 1000 metres above MSL at least at present it has an untrammelled view of the Doon Valley around it. 

But it is true so many times we do things irrationally which normally would be considered in the range of human stupidity. However again the question arises that if one does not do such things then what does one spend on apart from charity; As a young entrepreneur told me some 16 years ago that how much can you drink and how much expensive car can you drive for how long?

With the children topshot busy in their own world and being unavailable for important milestones, the happiness and satisfaction is only partial.

Nonetheless let's see how far this goes and how much we are able to enjoy this...

Make your own Rules

 Query: Sir you said if your profolio is good redeem them in alphabatic order.should we redeem one alphabet one year & another next year or redeem A completely 1st then go to B.

Reply:

Good morning 

We are the first generation of mass investors, and the children of liberalized India .

So who will set the rules for us? 

Our parents provided the land, but we sowed the seeds and now we will see our trees growing, and very soon the overhanging fruits will be there.

Just imagine your Orchard will have different trees for different fruits and some just for shade .

When the time will come, you will yourself be able to select which ones to the redeem .

Each of the fund will be a portfolio by itself, and you will be easily be able to decide on your own .

Everyone’s story and situation would be different .

I will give a very good example here .

Generally, I was redeeming the funds which were not performing very well for past three years and one of the funds which came up quite high by looking at the XIRR was Birla SL  Frontline equity with a return of about 12% over the last 13 -15 years.

However, this year for the purpose of offsetting my cost of building a house  against capital gains I had to sell off some funds when I was doing it from the DSP small cap which, in my opinion would have been most volatile and expected to fall during the downturn, which I was expecting last year.

But a meeting with my CA revealed that in order to take the maximum benefit, I need to look at the gross returns rather than the percentage.

In this category again, the fund which came up was ABSL FL and ICICI which have actually been multi baggers over last 3 decades.

So different situations will require different response from you, but one thing is for sure that you will be in a sweet spot.

Reconstructing the portfolio

 I have received few messages from the old members of the group, specially.

They're asking for rationale regarding my shift to index fund and back to face on next Nifty and all market index funds.

I fully understand their concern because I have changed my advice and strategy over the years. But this is not unnatural and infact one must keep reviewing once owns stance and portfolio with the changing Times. 

10 to 15 years ago there was no total market fund and index funds were just being introduced with no clear direction from the AMCs.

The large and midcap funds were giving decent returns and the small caps were having a good run. 

On my personal front I was always preferring what are now called Flexicap  funds because the multicap fund had also not had a separate Avatar.

In fact 2018 when various funds were re-classified with not just the change of name but also the mandate.

This naturally disrupted lot of things and before we could say Jack Robinson COVID struck.

After covid there was a massive Bull run which gave astronomical returns across all funds and very soon the valuations became unrealistic.

The small cap and mid Cap fund managers started becoming scared because there were no stocks to buy.

In this entire turmoil which people saw as opportunity I observed that just sticking to 1 particular market cap was becoming very difficult ; as in a short time the scrips were moving from small to mid and mid to large caps. This was making selection of fund very difficult.

Therefore in an attempt to further automate the decision making of investment I decided on two strategies: 

1. Firstly to have one active and one passive fund in the market cap that we were investing. e.g. if you had a large cap fund then add a next Nifty index fund to it.

2.  Secondly instead of trying to catch the Nifty 50 or sensex 30 index fund aim to maximize the profits by investing in more active companies which were less volatile than the midcap and more active than the larger index which is Nifty 50, you can say taking the middle path. 

3. Thirdly I observed that over limited period Nifty 500 give an average return of all the large mid and small cap. And just about 2 years before Nifty total market index was formed which included over 766 top funds of the country. 

In my view this was the best fund which could impart stability to any portfolio without compromising on the returns or any AMC falling out. 

This is a calculated strategy which will work as long as your expectations are not unrealistic and you should not hesitate in making adjustments to the strategy as you move ahead.

You should not limit yourself to this group and take professional advise also whenever you feel unsatisfied with your portfolio. Always select the best advisor and pay the top dollar to get his advice.

But you should always remember to ask the rationale if the advisor suggest some radical changes.

What to do in this down market?

 What to do in this down market?

Quite a few of you on this group, maybe seeing a market falling like this for the first time and it may be unnerving you and some of you may have started thinking if you have done the right thing .

Today I must say that this has happened so many times before not only for a day or week, but even for months together . 

So naturally to a new investor the most automatic question which comes to mind is what to do in this type of market situation. 

Usually, there are three types of actions which a person wants to do, and depending upon what kind of a person we are, which means that the action is actually in the mind much before we even take it.

To a very new investor who gets unnerved- the most natural reaction is to sell and run because he thinks that he has come to the wrong place and this is not his fault and the FD or maybe even the saving the account is much better.

To the second analogy, more experienced investor the thought comes that let me sell and wait to buy again at a lower level .

A third type of investor who still has money will like to put all at once to take the advantage of the situation.

But an even more seasoned investor will start making bulk purchases, but in steps and in addition to the SIPon STP that are undergoing . This is of course, the most equanimous  situation.

It’s A no-brainer that the last situation, obviously the best . 

In addition to this, then maybe other people like me who have been invested fully and have nothing more to invest. Such people would be like yogis who just sit  still and either watch things happening or don’t watch them at all but definitely don’t do anything at all. THIS IS CERTAINLY THE MOST DIFFICULT THING TO DO, BUT IT IS WHAT SHOULD BE DONE. 

But there are other things that a person can do as a investor apart from simply investing more or not investing at all..

1. They should review each and every Fund of their portfolio by opening out the list of all funds from Value research and checking how much their fund has lost in the last three months. They should go to a longer history and see how the fun has performed at different times like during the last election or the two lockdowns or in 2022 .

comparison with other funds and checking out the weather performance who have kept themselves in the top 25% will give them a fair idea of what is the nature and capacity of their fund and the fund managers.

2. They can also compare their funds with the index funds and the ETF funds of the same category and the benchmark. This will provide them with a self-made Plan for future.

3. We should check the performance of all the star funds and their managers which they had been listening to in the last two or three years like those of Quant , canara robecco, Motilal, and the others.

4. Lastly, the above observations will provide them with food for thought whether it should exit their star fund to move with the more seasoned and vanilla type performances or should they give more proportionality for their existing funds.

I GET LOT OF MESSAGES EVERY DAY ASKING ABOUT EVALUATING THE PORTFOLIO OR ASKING ME TO APPROVE THEIR FUND FOR INVESTMENT OR ANY OTHER ADVICE REGARDING FINANCE. but I am happy to say that this time even with the market falling somewhat no one has actually come with the question if they should sell most of them in fact, I’ve asked if they can go for bulk purchase purchases..

This is a sign of great maturity of the members of this group and I must commend group for that.

As you may have read so many books on finance, (which, fortunately I have not), you may have come across the famous words  That-  be  greedy when others are fearful.

So this is the time to apply that saying, however there is something weird that is happening this time and that is the people are not fearful at all.

Almost every day the mutual funds are making buys in 3 to 4000 crores.

This is again the immense faith of the people in the markets.

So Godspeed, all of you and a very happy Makar Sakranti Pongal and happy kite flying.

Tenth anniversary musings

 Tenth anniversary musings

… And so today I complete 10 years of exiting my career and sole means of livelihood and maybe to others what may seem as the only identity that a person bears.

I have tried to write something about my life into self-imposed retirement, almost on every anniversary, but nothing ever made any sense; and that may have been it is a point in life, which maybe , has no bearing to anyone else.

…And why should it be?

A person is born as a piece of statistics every second and is only important to his mother or his immediate family. Slowly as he keeps growing he keeps finding out that he’s actually of no importance to others and his life actually makes no difference to this vast World.

Like every other human being, capable of doing something… he keeps doing something for himself to grow his small feathers which can make him capable of flying in this world. The process keeps on till he further gives birth to another human being and imposes his will on that entity by giving his selected name, religion, nationality, and further subdivisions that Society can recognize him with.

Very soon with the passage of time he finds that his agile body does not remains so anymore and his spine, which could at one time help him stand in the face of this world … now starts getting a little bent, but not flexible.

This inflexibility does not remain restricted to his body, but becomes a part of his beliefs and psyche, and it refuses to change but expects that everyone should adjust to his ways of thinking… how comical is that?

As a male and probably some female too, all that remains of its identity and entity is the profession that he has been known with. Even in the modern world, he is no different than the other menial task carriers of century old underprivileged people who were known by the profession that they carried out . Just like people were known with the surname of leather workers or pottery workers or jewelers, etc. even in the higher economic group their only identity was that of engineer, Dr , chartered, accountant, politician, etc..

He never tried to show to this world, his other facet of his personality, which actually make up one’s character.

It is this conventional image that I wished to shake up and shake off. Having taken up the profession of an engineer, rather very reluctantly I did feel very proud of it as long as I practiced it because it helped me keep my brain working and the fire in the hearth burning.

However , all through my career and life I was very sure that I had to only work as much as it could provide the means to sustain my future life and no more.

Even in my childhood, I could see thousands and thousands of people getting up in the morning and rush into the jobs coming back in the evening and at the end or beginning of the month getting some paltry money which just about kept them alive. Of course, this was not applicable to those who did the conventional jobs which could sustain the society, but even to those of the creative and artistic Creed, like writers, poets, musicians, singers, actors, etc. Almost everyone had very sporadic bursts of financial means which somehow could not sustain him or his family for life and do some good manage to keep their head above water. Most of them died in abject penury and tuberculosis.

I knew I had to change this. I also knew that I had to change it not only for myself, but those who worked with me and those worked like me and around me. 

What I did and I am doing in that direction is known many and there is absolutely no need of going into that but I did realize one thing that be it artistic independence or search of spirituality it did not come to a hungry stomach and it was absolutely no romance in being poor.

Certainly , having too much of financial muscle and too much affluence did make one arrogant insensitive, and disconnected from the society but it also goes without saying that the absence of financial means made one weaker.

Now 10 years into that unknown world of getting up on the morning of 17th November, and not being answerable to anyone was quite a heady feeling and certainly not scary.

My career at see certainly did allow me to feel arrogant and humble (at the same time ) Apna about two things.

Firstly, that once we were outside the port limits of any country, we were beyond the laws and rules of any entity and any political power of this world . Your survival at sea was not dependent upon the political laws laid down by any constitution, but by your own good behavior amongst your comrades and colleagues. There were many who flouted this cardinal rule and ended up at the bottom of the sea.

Second aspect that I realized almost in the first week at sea was that we are almost like paper boats in the hands of the five elements that we saw around us. When I used to read the news about countries and individuals fighting against each other I used to and still do feel pity and compassion at them and their small thinking. Nobody even realizes that they are nothing but small specs , lesser than the dust, in the hands of nature and it takes less time to extinguish them than the flame of burning candle.

However, the morning of 16th November, when I disembarked last time from my last vessel at Amsterdam I was certainly emotional, but very determined and upbeat about my future life and was telling almost everyone from the boat driver to the immigration that it was the last time that they saw me as a sailor.The past decade has mercifully seen me putting on so many caps and masks and trying out every activity that could satisfy various urges of my physical and mental existence on this planet. I succeeded with all of them to varying degrees because when you have set your own goals, you can never fail. 

A Sailor’s career prepares himself for one thing and that is immense faith  in himself. When at sea he knows one thing that except the five elements and his interaction with them , there is nothing and nobody who can come to his Assistance and Rescue. A similar parallel could not be extended to his personal and family life. it was this that I wanted to work on.

At the end of these 10 years of retired life, I have moderately succeeded up  in bringing independence to the financial life of a sailor and make him strong enough to stand on his own without the support of any government or his employer or society.

I have absorbed in a few cases that where a mariner has financial independence, he could still be troubled with various mental phobia and agony because of low self esteem. I am working on this by creating various interactive groups, specially for people who are in the age group where they have to prepare to quit sea .

Members of my brethren did not see me as a person teaching the tenants of financial independence to them, but give me the rare privilege of looking into their most intimate and private life, and help them with various traumas that they were facing .

All this did make me more tender and receptive, but it certainly did not slow down the process of my aging . The physical activity through regular regimen could not still keep the same level of agility as it was on board. Within a short time, I developed various issues because of long driving that I enjoyed and extended period of sitting in meditation..

Now, when I look at the decaying body in the mirror it does not sadden me because I feel that I have gone beyond the body by utilizing every day and every moment to live; and living or enjoying not in the conventional or hedonistic way, but beyond that by utilizing every unit of time and every cell of the body for others. 

My practice of the Vipassana oriented meditation taught me objectivity and not torturous methods of organized faiths.

And know when I looked towards the seventh decade of my physical existence, I wish to do it without any significant change or variation without any grandiose plans .

I do not wish to change the world. I do not wish to make it a better place to Live. Because I know, and I realize that it will change as itwishes to do.

I want no remembrances of it, and I do not wish the world to remember me either .

I do not wish to be known as a person who made any mark in this world or leave any indelible signs. 

I know better than that than to expect all this.

A person on this planet is only capable of just being there How important he may seem to himself he will be forgotten, almost as soon as he exits.

So all that one should aspire for is discovering peaceful way of going into the deep slumber from which no one rises again. If it can be done painlessly, he has succeeded if not, then he should Try better in the next world.

Children and their Foundations

 Today’s ET Wealth had an article about teaching equity investment to teenagers, and there was a case study shown of a 16-year-old who had been using the trading account of his father.
For the first time I felt cheated that such a great publication can actually misguide the youngsters
Instead of actually teaching children about the basic concepts of economics and how it helps to build up national and personal wealth, the publishing articles which will actually detrack and distract the youngsters.
As it is a large number of youngsters have lost phenomenal wealth by doing trading after the lockdown because they got into the habit of it during the Covid lockdown.
Now by doing this, they are targeting the younger age group, which should actually be learning about fundamental subjects to build a great edifice of their life on it.
Or simply teach the children how an individual or a company or any organized entity helps in building the nation that should be good enough .
Simply teaching those children the basics of Bank and banking should also be good enough .
What we need to teach children is that our WANTS are unlimited, but MEANS are always limited .
What we need to teach children is that they have choices to make, and what other factors which can help them in making those choices .
Please do not get swayed by such articles and misguide your children. There are so many things that your children need to learn along with their sciences and other aspects of life.
Please do not be shortsighted by teaching them about simply trying to make money by the stock market instead of concentrating on their profession .
Even I am of the opinion that finance as a subject should be taught in schools, but that does not mean that we start teaching children how to play with fire when it is hardly required .
Please be careful.