A JOURNEY INTO LOSING MYSELF

My journey into losing myself

Yesterday was 16th November.

As I woke up I was staring at the ceiling... I remembered something and smiled to myself.

Slowly I made my way to the  drawer and took out the dusty folder and gingerly opened my CDC.

The Last entry declared 16th November 2014...5 years...

5 years is a long time in any human beings life and certainly in the life of a sailor who loses all relevance to the life that he has known for over three decades.

The journey started in a quest to lose myself and my ego .

It was certainly not any easy decision for a person who loves the sea as such and certainly admires the ship and its life on board.

It was certainly not an easy decision since people always heard me saying that I would sail till I can and then till I can't. 

Today , as I sit completely relaxed in my massage chair pretending to be 10 years older than I am...

I find these five years  to be an equally enchanting journey into completely different kind of self discovery.

There have not been many moments in these 5 years that I worried about earning anything or endeavouring  to earn money in any way.

Most of the days and hours were spent in working for people who are not related to me or my family.

I discovered the enormous and insightful world of of charity and living for others.

I can't claim that I ever dreamt or missed the life on ship or the bridge or the machinery of engine room.

I have forgotten the insides of the purifier and the crankcase but learnt more about the insides of human souls.

I have learnt more about human greed and selfishness and what it makes people do in their lives.

I have learnt and realised how difficult it was for my wife to spend those 24 years alone. I realised that she worked no less, rather much more, at home with my daughter and parents then I did on board.

I celebrated my silver wedding anniversary almost as if we were getting married and I renewed my vows with her and promised to be at her side finally...

... though this post is meant for my friends and colleagues on the financial groups of seafarers I must tell them that it is not about money alone...

It is certainly necessary that they gain financial independence as soon as possible but it is even more important  to gain understanding with their families. It is necessary that they develop understanding of life and develop hobbies and pastimes and passions which would keep them working past those golden years.

It will not matter when you will give up this enchanting ,charming and wholesome life at sea but it will matter how you will like yourself to be seen in those years.

Seafarers and Mental health

 Seafarers and Mental health

One of the key reasons which persuaded me to summarily give up my sailling career and venture out for some social service was the untimely death of three of my friends which included a batchmate due to to some or the other reasons related to mental health. All three deaths happened in a week’s time and due to natural causes.

As providence would have it I got associated with some social causes which helped me  look deep into to the human psyche and minds around me.

In neighbours I have seen 3 suicides in the last two years and some brain related problems in some seafarers.

The latest case that we all heard about Captain Khanna suffering from a unique syndrome is the latest in the series.

Similarly in 2005 my childhood friend contracted Julian berry syndrome which is sort of short circuiting of the nerves due to breakdown of the myelin sheath which acts as insulation otherwise.

I regularly offer my services at the Vipassana meditation centre and on the day of the  start of the course I regularly come across more than 15 to 20% of the participants suffering from some sort of mental disorder or addiction. This percentage is absolutely in line with what the UN has just declared as a percentage of Indians  who will suffer from issues of mental health by next year that is 2020.

The purpose of such a devastating introduction is that there are more number of people suffering from some sort of mental issues then they care to acknowledge. However due to a natural defensive nature in accepting such diagnosis very few people actually go for professional help.

We fail to realise that just like physical ailments,  the mental ailments could also be very very temporary but they have to be given the professional help as in the case of physical disorders.

Seafarers and mental health:

Usually it is a tendency for the Marine professionals to think that because of staying in relative  trouble-free environment ,fresh air and open sea they do not suffer from or cannot suffer from any mental stress and hence the question of any disorder cannot arise.

My wife had started a  marriage counselling service alongwith some social scientists and a psychiatrist more than a decade ago .

In the five year of its existence they interacted with almost 1470 couples who were undergoing marital stress. In most of the cases the reason was more of individual stress environment for the people and this included a sizeable number of seafarers as well.

Possible cause of stress to a Seafarer irrespective of his age or social status or professional rank:

1.      Extended stay away from home and familiar environment.

2.      Hectic deadlines both at sea and while a shore.

3.      Lack of sleep: this unfortunately is one of the biggest reasons of stress and depression in the seafarers. I remember in my junior time I used to treat almost everybody on board for insomnia. Bye I know everybody has read enough of it and knows that more than 2-3 days of lack of sleep can cause a temporary  breakdown in the mental status of a person. Release of cortisol the stress hormone increases and the secretion of insulin reduces. We all know what the state of mind is when we leave a port after hectic discharge operation, MOC inspection and superintendent's visit in the same port.

4.      Anxiety regarding one's future:

5.      Anxiety regarding one's finances:

6.      Anxiety regarding one's family:

7.      Anxiety regarding once interpersonal relations with the spouse: While the above three causes are self explanatory ,this in fact has been the most recurring of the reasons that I have found amongst the colleagues right from my first day at sea.

Nowadays I get more phone calls regarding this matter rather than even financial planning matters.

It is the general tendency for both the spouses to think that the other person is not being understanding. Which actually is the case because neither does the wife understand the physical and mental pressures while the spouse is at sea and neither does the sailor understand what the wife goes through every morning from the time that she gets up to the time that she goes to sleep at night.

The insecurities of shore life and the pressures from the peers and relatives cause a permanent twist in the nature and character of the wife.

So this is certainly not something that needs to be wished away.

Personally for me, I find that even the people around me who passed away due to some physical issue had the reason deeply entrenched in ones brain.

I remember a very funny incident that we had in school . Whenever we used  to make excuses for not going to school by saying that we are having a stomach ache, by noon at least I would get proper stomach ache. So strong was the working of the mind even at young age that just imagination could bring about a temporary situation in the body.

So what can we do to alleviate or handle it before we reach such a situation.

The few things that I have found out on my own but specifically by asking the expert around me:

1.      Relax: after coming home on leave and after a few days,  plan a vacation with your family . It doesn't matter even if you need to take few days of vacation for the children from school. Seafarer's children learn more while they travel than they do at school. This is my personal experience.

1.      Why on boar,d also try to to give up your mobiles and laptops for a period and just lie down .

2.      Exercise physically: this I need not teach the youngsters today because they are very active . But let not your exercise schedule become into a exercise syndrome which causes stress on the body and the mind.

3.      Exercise mentally by reading different kind of literature, playing different kind of brain games, learning new language from your onboard colleagues and designing quiz for the ship staff.

4.      Listen to good music: it has been found that the memory related to  music is deeply and permanently etched in the brain and remains even with the Alzheimer patients. This I have seen in a friends case.

5.      Meditate: this is the most important part and one must adopt it in one's daily routine. I would go as for as saying that if you adopt meditation in your daily routine you will be able to to overcome any challenge even if you do not do any of the above four things.

There are many kinds of meditations going on around us but please do not confuse this with Pranayam.

I have personally being doing Vipassana meditation for a decade now. But the true testimony to this is provided by the famous author of Sapiens and Homo Deus ,Yuval Noah Hariri . An Israeli national, he is not only a practitioner of Vipassana but also a teacher and visits India every year for 2 months to refresh his practice.

In India we have over 94 residential centres catering to at least one in each state. We are lucky to have one in Dehradun itself which is about to complete its 25 years.

Almost every fortnight when a 10 day course starts we have few patients of mental condition with various diagnosis of bipolar-ism, Schizophrenia, depression etc.

But mostly we get healthy meditators quite a few of them very young.

The feedback from most of these meditators indicates that after doing the course and regular daily practice they find themselves to be much sharper with the high level of concentration and the ability to take quick and logical decisions in times of crisis.

I am sure you will find all these qualities to be necessary at sea and also in your personal and family lives.

The basic and minimum course is of 10 days and gets over on the 11th day early morning. The boarding and lodging during the course is absolutely free as each course is financed by the donations of the previous meditators who have benefited from such courses.

The course is absolutely non-sectarian and devoid of any prayers, chantings, rituals and worships .

Apart from this I call upon you as fully aware and conscious colleagues to look around in the ship to see the condition of each and every of your shipmates. The empathy that you will gain by this exercise will help you when you come home to your family.

May all of you be blessed and Happy.

Managing risk aka IIFL,ESSEL and DHFL crisis

Whenever a crisis especially in the financial sector looms large or is indicated- what do you do?

Do you simply retract all your steps and go back to ground zero and start again on the drawing board.

At least this is what I observed in the recent IIFL, DHFL AND ESSEL debt crisis.

Most of the investors did not even have any Investments in the affected funds, still, the moment they heard Liquid funds are not safe - they pressed the crash landing button?

Why was that?

Did they even for a moment realise before investing that their fixed income schemes would be risk free.

Would anyone pay a higher premium over the normal rate of return if there wasn't any risk.

Isn't there a risk even in FCNR deposits- that of exchange rate. Or the fact that if they are forced to liquidate their deposit even a day earlier than 365 days- they get no interest.

Risk and return are two sides of the same coin whichever walk of life you move.

The same job that we do on board, carries lot less remuneration on land. Do we stop sailing? We just take risk mitigating factors .

So what steps should we have taken before investing in debt funds ?

Before that we must ask what the risks were.

The first risk was that of interest rate. Any rise in interest rates could have led to the returns falling.

And second risk was that of liquidity itself. Which means that the underlying papers could not have been sold.

In the same series third risk happened to be that of the default by the debt issuing company itself which finally happened.

But how could somebody not see such a big default happening?

To answer this I must tell you the story about a famous neighborhood Lala who was in the business of collecting money and paying interest on it and also lending money to the weaker section and charging interest on that.

Despite being well educated my father and grandfather followed his scheme and deposited weekly installments to get a return to the tune of 18% in 1970s. To cut the story short both the money and the Lala just vanished.

Add to this various chit funds and committees which are regularly defaulting in repayment of their debts.

So does that mean that we stop investing in the fixed income assets and stick to bank fds , Post Office schemes or other supposedly safe avenues.

No absolutely not.

We must realise that it is the our investment in the fixed income assets which actually form the backbone of the National  infrastructures projects.

In the same way the companies also fulfill the finance needs from these fixed income assets like the above 3 companies went to the mutual fund industry to get money.

It is not everyday that the companies are defaulting on their payments. But at the same time we cannot jeopardize our hard earned money by taking chance with even one such incident.

So what would I do?

I would most certainly go for a big AMC which has been in the business of managing debt instruments for long time. 

Then again we keep reading articles mentioning that the size of the fund does not guarantee safety or returns either.

Well it doesn't but when we put our money in a fund of the size of about 15000 crores then most certain its exposure to any single company would not exceed 2to3 percent. And this would certainly protect its downside in case of any such default.

If you will see carefully you will not miss the fact that two of the largest AMC are not there in the list of affected mutual funds.

So it automatically follows after selecting an old big and reputed AMC the second thing that I will select is a debt fund of reasonably large size.

The third selection criteria which I will apply to my entire portfolio is...

I will opt for overnight funds liquid funds or Ultra short term funds. The underlying securities or debt papers of such funds have a very short maturity which in essence means that the the borrower has promised to pay the money at his earliest which is within 6-12 months.

So by following these three steps I would reasonably secure myself.

After following such a course of action if I am still faced with a company defaulting then my entire risk would not probably exceed 2 to 4 percent which means that for an investment of 1 crore I would stand to lose a maximum of 2 to 4 lacs.

Apart from the fixed income plans we had also seen prices in the equity sector on account of PNB earlier last year. But even with that a good fund house like HDFC did not suffer more than 2.3 % on the NAV.

But unlike the debt papers, the fund manager went into bye buy additional PNB at the lower rates and benefited once the market and the PNB stock moved up.

So the mantra should be- don't avoid risk.

Manage it.

Fear as an Element In Personal Finance

                                               "Fear is the enemy of rationality"-

In life situations it can be said that fear gives us that nervous energy to do better it can also serve as a deterrent but when it comes to personal Finance of financial planning it may actually serve different ends.
From time immemorial in independent India LIC had sold expensive and rather useless policies based on fear.
In fact even today most of the insurance is sold packaged in a cloak of fear rather than as a risk mitigating tool.
Another aspect of fear in personal Finance is keeping too much savings in liquid form or cash waiting for something to happen which may never happen.
A substantial amount of one's savings remains in cash at home, saving bank account and even low yielding fixed deposits just for this eventuality which could actually be mitigated by some astute specific insurances.
However in the Indian context we do not really believe in in those plans and insist on financing them with our own money.This leads to do some serious opportunity cost.
Opportunity cost of an investment is something which can never be calculated unless looking in the rear view mirror and driving forward.
Nonetheless since so much has already been written about the importance of investing in equity it is important to understand that amount to be invested in equity formats must be substantial part of one's savings.
In the garb of looking at high rate of interest on Savings and fixed deposits we forget a large amount of our money need not be put there at all.
The liquid cash whether at home in savings bank , FDs or even liquid funds must be kept in such a way and balanced at such levels that it takes care of your daily expenses for a few weeks as long as you are working and maybe a few months when you stop working.
But despite the best of advising for consulting this cannot happen unless one overcomes the fear.
This fear also prevents a person from making the best of a bear situation in the stock market. In fact it puts brakes on the investing cycle of a person when he sees the market dropped by 10% and heads straight for the sell button, effectively and undoing the hard work of the previous few years.
Of course the fact that this fear also affects a person in a professional life intervention from taking decisions appropriately...
.... But that's a story for another day.

NPS- National Pension Scheme and The Marshmallow Experiment

It's been almost 72 years since India became independent and all the while the general public suffered from one basic aspect and that was The old age pension system and a social security system.

Traditionally up to 1991 the earning populace was so used to putting their money in FD and RD at 12% that it never really mattered for them to look anywhere beyond NSC or other post office schemes and of course the omnipresent LIC.

Last was the Ocean into which the public was throwing away its money which spoiled the investment culture so badly that people would rush to them for princely returns of 5% over 20 years and more.

Just like the story about frog who was put into a pot of water and slowly it was heated;  in a similar way the government kept reducing the interest rates on all small savings PPF and fds and to add insult to injury also introduced TDS on the fixed deposits.

Around this time something deceivingly spectacular made its way into the Indian market and it was called ULIP.

ULIP came riding piggyback on the mutual funds which had already made an entry about eight years  before.

Mutual Funds were not so aggressively sold so less than 1% of the investing public invested their hard earned money in them.But the ULIPs were being sold heavily at mind boggling commissions and hence were thrust down the throat of the higher income group.

Slowly few people caught on to the mutual funds and started making money with the return in excess of 15% on rolling basis.with this kind of return the people did not even mind losing the money to Ulips as they had tasted blood.

It seems very automatic to them that putting money in mutual funds was a sure shot way of gaining minimum 15% next year unless of course Y2K and 2008 happened.

The Dotcom bust in year 2000 and the global subprime crisis of 2008 pulled away a lot of people from the equity market.

Around the same time in 2009 NPS was introduced after being tried out for Govt employees in 2004.

It was supposed to be a path breaking plan backed by government of India and controlled by PFRDA.

NPS was supposed to be sold on the back of infinitesimally low expense charges , in fact fraction of what Mutual Funds were charging but having the same 8 fund houses as the fund managers.

The mechanics of NPS is a little complicated. You have 3 streams or asset classes to allocate your money to viz Equity, Government bonds and Corporate bonds. As a conservative gesture the government did not initially allow more than 50% allocation to equity (now it is max 75%). After a lock in upto the age person could take out 60% of the Corpus on his 60th birthday but 40% minimum would be allocated to buy annuity from insurance company . Annuity in simple language meant that 40% of the Corpus would be given to the insurance company of your choice who will continue to give you a monthly pension at a fixed rate which was not very high until subscriber’s death. At the time of death  the pension could be continued for the nominee or the annuity sum would be returned to the nominee.

What was important was that NPS was opened not only to the organised sector but a it also replaced the government pension scheme and was open to anyone who wished to open NPS account.

The next 10 years brought in a lot of changes and another asset class was added as Alternative Investments or AI. 40% of the Corpus which a person withdrew was made tax free and the lock in period or the period till which a person could defer its annuity was extended upto 70 years of age.

As things stand today there are 8-9 fund managers and NPS operates in Tier 1 and Tier 2 mode.

Tier 1 mode is compulsory with a minimum of 1000 rupees subscription and can be used for tax saving under 80C up to a sum of rupees 2 lacs. The lock in up to 60 years of age is in Tier 1 only.

Tier 2 also operates exactly like Tier 1 except that there is no lock-in and you can distribute your money into various asset classes.It is important to note that as soon as the funds appear in Tier 2 you can withdraw them anytime at a short notice.

The Unpopularity: the Indian middle class who had tasted the returns of mutual funds had become used to the instant liquidity nature of various types of funds.

Some of them preferred MFs over FDs also which is a very good thing.

The main thing which was pulling away the Indian public and even those who did not have any retiral benefits for gratuity and pension were not in a mood to keep their money locked in for such a long time till the age of 60.

This is precisely why I have written this article.

I am a self made mutual fund investor who started with the first mutual fund introduced in India. I have made my portfolio in due course of time but I would say one thing at this stage that, if something like NPS was available to me and everybody 30 years ago then probably Mutual Funds may not have been so popular.

In addition to the lock in the people refuse to believe in anything which is backed by the government or is sovereign in nature. This mistrust comes on the back of the famous US 64 debacle , through which the government royally cheated the investors.

Having considered both our aspect what I also feel is that with the popularity of the equity market and mutual funds people have lost the concept of pension.

It is a mindset which makes them feel that they can take care of their own Investments.

While this is a healthy thinking but if it is not backed by adequate qualification or determination and discipline it could actually prove to be undoing.

Most of the investors whom I know have invested or started investing in the last 10 to 15 years. In these years also they're on the constant look out for a good and a better fund hence exiting and entering various funds every year. This mindset does not give constancy and in certain cases people exit at a low and enter at a high. They confuse mutual fund investing with direct equity investing and carry the same mindset here.

This I refer to as the marshmallow syndrome.

Most of the investors are in such a bad habit of looking at the returns every week or every month that they cannot digest a little fluctuation in their NAVs.

If the downturn in the market continues for a few months in a year then they are quick to exit instead of investing more. NPS dissuades a person from this.

However much we talk about long term investing and compounding, the investor can never take a look beyond 5 years. The slow and boring process of compounding can produce spectacular returns is something that a person refuses to acknowledge or even consider.  

Considering the NPS as the investment and security avenues I feel that Tier1 should be made as an investment and also a tax saving Avenue and a small amount of money can also be deposited in the Tier 2. 

Tier 2 is exactly like normal Mutual Funds but at a much lower cost than the index funds or the ETFs. The taxation is also of the same level.

Due to low expenses The returns as seen in the last 5 years have been a little higher than the mutual funds in both equity and debt segment.

So what is keeping the Indian citizen away from an excellent pension scheme which has almost equivalent allocation as a equity hybrid fund.

As I have mentioned the first detractor is the lockin which  can be for almost 35 years for a youngster who is barely 25.

The second aspect is the annuity which is actually controlled by the insurance companies as PFRDA does not have a system of managing it on its own.

Strategy for the self-employed or those in the Merchant Navy: NPS provides a much simpler way of managing your savings and channeling them on a long term basis into a relatively secure system.

in my opinion one must open NPS account as soon as one starts working and should start investing smaller amounts equivalent to at least 15 days of salary. The option must be kept with maximum equity allocation which is 75% at present 15% Government bonds and 10% corporate bonds.

As one grows in age one will be able to see the consistent rise in the Corpus and if encouraged by that one can keep increasing the allocation to Tier 1. 

Along with this one can experiment by putting smaller amounts in Tier 2 which one will be able to withdraw as and when one needs it.

As one approaches the retirement age that is from 55 onwards one should increase the allocation into Tier 1.

5 years of increased allocation will boost the overall courses on the back of the returns that one sees over extended period of time.

In my opinion it is the very lock in nature of one's money which will give it the necessary boost even if it is against one's liking.

Since NPS also serves the central and State Government employees it is my feeling that it will never be allowed to be diluted and The returns that one sees will be greatly enhanced.

I cannot see for sure but as a speculation I feel that a part of the annuity could also be made tax free in future.

Hence as the government sector gains on the back of various improvements in NPS the common man should not be left behind.

2018 has seen the large cap return dwindle in the actively managed MF but higher in the index funds or ETFs.

By extrapolating this hypothesis I can say that in future the actively managed funds will continue to generate lower and lower Returns but before the exchange traded funds or index funds beat the actively managed funds , NPS would have beaten them fairly and squarely.

CONCLUSION: I am a fervent supporter of mutual funds and the basis of my propagation of Financial literacy rests on the versatility of Mutual Funds.
Mutual funds are beyond doubt very flexible when it comes to selection and allocation of funds. But one aspect that they severely suffer from is the ability to be purchased because of 47 Fund houses and each having at least 200 odd variety to pick from. Add to this the severe shortage of good advisors and distributors who can advise going beyond personal benefits.
NPS gives a secular platform to the Lowest Common Denominator to start investing his money in a fairly diversified manner, all the while knowing how much he is generating as returns from each asset class.
He has just 8 Fund Managers to chose from and hence choice is simpler even if he has to change the fund manager every year, which comes at a very small cost.
Apart from allocating funds to the NPS Tier 1 and 2, one can for comparison purposes invest in 1 Hybrid Equity fund and 1 Multi Cap fund.
After a few years of sustained investing, he will be able to decide for himself which is the best course for him.