Monday, October 28, 2024
The glorious past and us
Wednesday, September 4, 2024
Compounding of Businesses - A practical case study
Compounding of Businesses
Friday, June 14, 2024
One of my hobbies is to collect, collate and interpret data to get some sort of a story or trend into which humanity is moving on short and long term basis.
Today after reading a news item in which the employers of banks, insurance companies and wealth management companies (but not mutual fund companies) are incentivizing the exclusive foreign travels of their distribution network and employees promoted me to extract the data of aum under each industry.
The article that I want to write was in fact about the commissions but I am also going to give you some eye openers about crores of people like you who are called retail investors in common parlance.
Size of Indian Budget that finances the entire country--- ₹47,65,768 cr
AUM of MF industry- ₹58,91,160 crore. (Of which 58.1% is in equity mutual funds).
AUM of ENTIRE Insurance sector. - ₹54,63,414 cr
Total deposits in Indian Bank s- 201,00,000. Cr
( AS FRONT RUNNERS OF FUTURE INDIA YOU MUST GET INTO THE HABIT OF USING THE TERM TRILLION FOR ONE LAKH CRORE)
Did you know that 88% of the equity investments in mutual funds is done by retail investor which includes small individual investors like me and the HNIs like you.
This is as opposed to only 16% of institutional investment ( domestic and Foreign )in the equity mutual funds.
Now furthering the discussion... 58% of the mutual fund outlay means 34.16 lakh crores OR ₹Tr are in equity MFs.
Taking a median expense ratio of 1.0% between regular and direct investments 0.34Tr₹ is the size of expense ratio that the AMCs collectively charge and distribute about 0.15- 0.30% to its distributors (depending upon the Tier cities) .
Now consider 35% of first premium and 5-10% of successive( of 54.163₹Tr) that insurance companies charge you , what do they do with that?
You guessed it right!!! That is the reason your insurance broker has a bigger car than you while insuring your life!!!
The lure is so strong that there are Insurance companies which have doctors, teachers, bankers ,tailors and even petrol pump attendants on private basis on their payroll.
A Seafarer from another WhatsApp group is so convinced with Ulips that he takes one policy every time he comes back from ship.
His insurance company has placed so much of trust in him that they have made him an insurance advisor. Now of course he is compensated handsomely for the premium that he pays for himself.
Now that you have understood about the insurance let us move over to banking which has almost double the amount of deposits then either insurance or MF sector.
Friday, May 3, 2024
The intoxication of Merchant Navy : The life within
The intoxication of merchant Navy: the life within
Somewhere in 1975 sitting on the wooden tiles of Fraser assembly hall of my school and watching some English movie on a 17 MM projector, I saw the vast expanse of the sea on the screen and somewhere from the back I heard the word Merchant Navy.
That was my first introduction to the world of Shipping. It was certainly not a career that I desired at any time during my school ,on the contrary I used to dislike it.
But destiny plays with us, and God does not gamble with us, but also throws the dice in the dark as Einstein said… I landed on a ship through the college.
From the very first moment when I saw the vast ocean from the tiny moving island that I was on, I could feel the freedom in form of the cool breeze on my face. It was a freedom bordering on liberation Which soon was to become my second nature.
It is almost unimaginable for a person who has not spent more than a week at sea that what this freedom means.It is not the freedom away from worry and responsibility of the world, but it is certainly the freedom from any laws of any country.
Even though technically, we follow the laws of the country that we arrive in , but practically we’re governed by the laws of the flag of the country that we fly, which is mostly in a nondescript country of West African Coast Also called Flag of convenience.
But as most would know that 90% of the time when we are out in the open sea, a sailor is governed by the laws of nature alone, and his survival depends on the cooperation and compassion of his fellow mates.As I have often said that having million dollars in cash at this point on ship would not even get you one square meal.
Your worry is not the world food problem or the Indian GDP but how much food do you have in the refrigerator rooms below the deck.
Apart from food and fuel for the ship, the Sailor is not worried about anything. He is beyond the executive order of even the most powerful man on earth, and probably at par with the richest man in the world as far as basic necessity of life goes.
This freedom or independence give him a certain amount of self dependence or Atmaram-nirbharta as the buzzword is going around in the country. Soon our friendly sailor realizes that the only thing that can happen is what he will do on his own, and the only helping hand is at the end of his own shoulder.
But to me early on in my career it dawned that not only in matter of philosophy, but also in matter of economics and finances, the Mariner is largely left to fend for himself.
His employer does not worry about his future , his health or his life.He has no pension or retirement benefits.His family thousands of miles away is left equally to the mercy of God and relatives both of whom seem to disappear at crucial moments. It is all this that continues to weigh on his mind and preventing him from becoming the enlightened one.
Due to lack of any guidance, he continues to put away his money or his savings in land or other avenues, which he cannot liquidate when needed. In Earlier times, his salary was certainly superior to the cost of living of India, and so the land that he could buy was not what other people on land could.
All these things used to bother me in no uncertain terms and continue to do today because not everyone has become financially savvy. Even today I find people being distracted and diverted from their core competence and delving in businesses which are not capable of giving them returns that simple investment in equity could with almost zero risk .
Coming back to the initial topic of the intoxication of freedom … it is important that this quality be channelized creatively in restructuring their finances , personal matters, expressing themselves as writers , artists, motivators and leaders.
What sea gives us is not easy to replicate but easy to distribute.
Jai Varun Devta !!!
Monday, April 8, 2024
The New Problem- Problem of Plenty
- If you stay in shipping career (even though ashore)- Keep your licenses and documents valid and not let them expire.
- Use your time ashore by gaining extra qualification - preferably in non shipping stream. You may gain the qualification within the shipping stream but try to get the best higher education.
Wednesday, February 7, 2024
Debt and its relation to economy and the bank rates
Debt and its relation to economy and the bank rates
Even though the entire focus of the public is always on equity, it is the debt market, which actually keeps the economy moving.
In simple terms, Debt is the money that is given by individual or an organization to another organization or the government.
This is termed in different ways, depending who the debt is been given to.
A private organization may take it form of commercial paper, debentures, or fix deposits, the government on the other hand may take it form of tax-free bonds, bank deposits, post office, schemes, PPF and it’s debt papers.
For the government, the papers, and the market is also referred to as GILT( at least in Indian context).
Needless to say, government or sovereign papers, have the highest safety, and while investing in the debt, it is the safety of capital that should be given the highest priority, instead of simply the returns.
We have seen with the case of Franklin india liquid fund and ultra short term fund. What happens in case of a default when we chase returns and ignore the quality of the debt papers.
Another very,Important aspect of debt, and its relation to the bank rates is, it’s inversely proportionality. Which means when the bank rates go up the return on the debt papers or the debt mutual funds falls.
As a corollary when bank rates fall down, the return on debt papers goes up.
THE IDEA OF WRITING THIS ARTICLE IS TO ELUCIDATE THIS IMPORTANT FUNCTIONALITY FOR NEAR FUTURE.
Even though the RBI has said that there is no indication of reducing the rates, but if the industry has to prosper, the bank rates and other connected rates like repo and reverse repo, will definitely come down, but when we cannot say.
Should this happen the returns from all the debt funds, including the GILT funds, will go up.
So what should be our strategy keeping this in view?
I have always maintained a ratio of 25% of the corpus in debt funds at all times. WheneverMy exposure to equity used to go above 75% are used to invest my salary in the debt funds.
Since it was very difficult for me to predict, what kind of debt funds will benefit, I used to spread my debt investments across ultra short term funds, credit risk funds, GILT funds and dynamic bond funds.
Invariably always I benefited immensely from the interest rate cycle.
Therefore, for those who have sufficient equity exposure, and are still earning, this could be a good time to start investing in the debt funds of the above categories or different categories as they feel comfortable.
Once again, I will request you to kindly do not fall for the highest return funds, but instead check the quality of the fund by checking the holding of the securities that they have. The papers or securities being held by the fund must be AAA RATING OR SOVEREIGN RATING (MEANS BE GOVERNMENT BACKED).
There is no need to shift your NRE fixed deposits to debt funds, and you should only invest the fresh earnings or proceeds from the sale of other assets.
THE TAXATION ON DEBT FUNDS HAS CHANGED FROM FIRST APRIL 2023, AND AS SUCH DOES NOT COMPETE WITH THE RETURNS FROM RRE FIXED DEPOSITS, DUE TO THE TAX NATURE OF THE LATTER.
As I suggested in the opening lines, the industry depends upon debt, and therefore lower the rate of interest more profitable. It is for the industry and government to borrow money from the public.
So certainly when the interest rates will go down the stock market will also get a boost because of projected company profitability, and they will be in the equity returns also.
Therefore, it makes sense that you do not sell any equity to switch into the debt funds.
From the author : this article may be forwarded to your other colleagues on board on leave or other friends and relatives, working assureso that everyone may benefit.
Monday, January 29, 2024
Horses and Investing - Lessons from history
In the olden times when it was required to move with speed and strength, a single horse would not do, and in order to harness the power off multiple horses chariot was designed.
In the chariot, the slowest of the horses were kept in the middle, and the fastest at the back . so that the slowest of the horses were edged to move faster, but overall power delivered to the chariot was enormous. It is possible that the fastest of the horses would not have had the stamina which the slower horses did.
Modern mutual funds are almost like that horses .
Six to eight horses are sufficient to give you that chariot for financial journey .
These horses should not be the same type in stamina or speed. They have to be different.
So, just having small cap horse will not be enough,They may be having a good speed, but the stamina is very less.Similarly all the horses cannot be large cap as they would have the stamina, but much less speed to cover the distance in less time. Apart from the desi horses, you may also need some Overseas horses from foreign world etc
But when they would start running, and if the fastest of the horses got tired, the slower ones would still be able to pull them along.
It is possible along the way one of the horses become sick, so you can always remove it and run with less horses, or include another horse who can be young and experienced, and also have the stamina.
In the initial times, you will need to move up the hill for accumulation of assets, and would need the horses which have stamina and speed, but but towards the later part of the journey when you will reach the top of the hill, and the road would become with less gradient, and you would have already covered a lot of mileage…. your Horses, even if they were moving slow would be able to cover your distance and take you to your destination.
At that stage, if you feel necessary, you may change your horses to more sturdy ones or continue with your existing ones. It all depends upon you because by then you would be an experienced charioteer …