Financial Plan for a Young Professional

A young professional asked for a plan where:
1. He could park his 1.0 lacs for about 2.5 years.
2.Have a Emergency Fund- he wanted to know how much he should have.
3.Invest a monthly investible surplus of Rs.60k/month.
4.Save his taxes.

Maneuvering within the restrictions , this is my plan considering his background and age.

I had to plan a little more seriously for you since the time span that you have mentioned is a little short of what we call long term and a lot more than Short term.

So I will give you a plan:

• 1.       Keep the Rs.1.0lacs (of surplus) in Dynamic bond Funds (list attached). Pref. being for BSL Dynamic Bond Fund, HDFC Hi-Interest fund-Dynamic Plan; ICICI Long Term Plan- all in Growth Option and Direct Mode so that you don’t have to shell out any commissions. Dynamic Bond- this fund is as good as a saving bank account and can be redeemed and received in your bank account the next day before 10AM. The returns over 3 to 5 years in these entirely Non-Equity have been stupendous and I have reason to believe that they will give over 10% for next few years.
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• 2.       Now with your monthly Kitty of 60k you will proceed as follows- to invest INTO EQUITY funds through STP instead of SIP.
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• i)                    With the 60K of this month proceed to deposit in HDFC Cash Management Fund-Treasury Plan- GROWTH option-DIRECT mode. Having done this set up a WEEKLY STP of Rs.7500 per week into HDFC BALANCED FUND- GROWTH PLAN- DIRECT MODE. This will transfer 7500x5=37500 every month and still leave some balance for STP for next month.
• ii)                   Next month: with the next Month’s Rs.60,000 start another investment in ICICI Pru Liquid Plan-Direct Plan and at the same time set up a STP of Rs.2000 from this fund into ICICI Pru Long Term Equity (Tax Saving fund)-Growth-Direct Plan. This will take care of your investment and TAX saving at the same time. Also start a STP of Rs.3000 from ICICI Pru Liquid Plan-Growth-Direct to ICICI Pru Value Discovery Fund-growth option-Direct. (So total Stp’s in this fund will be Rs.25K per month).
• iii)                 Further next month AFTER THAT  Invest your 60K in DSPBR Money Manager Fund-Growth Option-Direct. Once the Folio is created start STP of Rs.2000 per week from this fund into DSPBR Micro Cap Fund-Growth-Direct and a STP of Rs.3000 per week in DSPBR Small and Mid Cap fund-Growth-Direct.
• iv)                 In the 4^th month – again TOP up HDFC CASH Mgmt Fund. In the 5^th month Top up ICICI Pru Liquid Fund, in the 6^th month- DSPBR…ad inifinitum.
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• 3.       The above plan will ensure your tax saving to the max, at the same time investment in Stocks of all capitalization. In addition it will ensure that you have money available in Liquid funds at all given time. Your Liquid funds will never exhaust and your Equity investments will continue with due RISK mitigation across all market conditions.
• 4.       Even if you chose not to top up the Liquid funds- the STPs will automatically stop once the amount in Liquid funds exhausts. This will not pose any risk or legal binding on you. In ICICI once you deposit money in the source scheme of the STP , the STP will automatically start.
• 5.       I have not used the entire 60K for STPs every month , so that it lasts till you put money again into the Liquid Fund. You can divide 30k into any 2 funds every month or 20K into all 3 every month. Once you start- you will be able to judge and decide for yourself.
• 6.       You will only have to visit any of the above Mutual Fund office ONCE to start your investment. Your KYC data will be updated . Then you can start ANY investment in ANY fund from your PC- -in DIRECT mode. This will give you a saving of 1-1.2% in commission every year.
• 7.       For any other information you can visit valueresearchonline.com

Being a non-conformist and being a being a contrarian for the sake of being one are two separate things. Fighting with ghosts and shadows is not same as facing reality. Reacting to news is also not always the best recourse. There cannot be everything right with a idea or a policy- there also cannot everything wrong.Wisdom lies in appreciating the rainbow for a while but then having the capacity and intelligence to separate each and every color in your mind and be capable of admiring it too- because even a rainbow if moved at a considerable speed will only appear white.

The Demon of Demonetisation.

The Demon of Demonetisation.

People are definitely facing immense inconvenience in the face of this currency crisis (lets call it CC).Most of the people who are facing the heat are either the rich who did not bother to have a backup in form of legitimate money and non paper assets; and the Very Poor - who could not open a bank account due to various reasons.

These reasons were their lack of ID proof, not willing to lose a day's wages in going to open account etc.

But mostly it is the sniggering attitude towards the government announcements and policies.

The previous governments have made us have that attitude- because they ever used to mean what they say.

NOW... to all the readers of this piece , I ask one thing!

We the people, are aspiring to be like the residents of developed countries in terms of latest mobiles, cars, branded clothes, Single Malt Whiskey's etc. But what mediocrity we are steeped in that most of these luxuries are paid for in cash, otherwise how is it that in NCR the number of cars are more than the Income tax payees. If you are on New York airport , you cannot buy a cup of coffee with cash.

Start from morning....You consume breakfast for which you can pay by bank transfer from mobile to the friendly neighbourhood "poor" vendor. He can pay back to his dealer the same way who can pay back upwards. Next comes your taxi- which too is paid in Uber or Ola money.

I remember the movie called Police Academy II. Eddie Murphy asks the local Police Chief- " Do you have a $20 bill ". Chief replies " I'm a married man with 2 children in college, haven't seen a $20 bill in 5 years.

This is of course a joke. But on reason why inflation is going up in India and making things expensive is too much loose money chasing too few goods and services. As a result the supplier of those goods and services controls the price. Just watch in a ffew days how restaurants offer happy hours and Car mfrs offer discounts. 

Why do you think toothpastes and edible oils in the supermarkets are cheaper than the neighbourhood  Lala?

It was always the middle class who paid their taxes and took the government announcements seriously- both the other classes ignored the country and are now paying for it.

Even if we undergo a small operation on the toe it is painful.This is a major operation of the entire nation. The people who are guilty are most quiet.Once again it is the vigilant and upright middle class that is speaking out.But they are being wrongly fed with incorrect information.

By the virtue of Demonetisation of this currency , the government (or RBI to be specific) will be able to bring  or inject all those cash notes that were not in the banking system back into the system. This will enable money is available to only those to whom it rightly belongs.

It is so very fascinating to see that the premium that you paid for your second apartment,and extra money you paid wrongfully to get certain goods and services will be removed from the system-automatically.

For once the government is ahead of the unscrupulous elements. 

Don't you remember seeing your neighbors in government services getting new cars, ipads,house facelift, furnishings and expensive gadgets just before the month of March ended.

That was all your money which will come back to you- but indirectly.

Please stand up to face the hardship, after this a lot will change... and most of it will be for your good..

SHARE OF SHARES IN OUR PORTFOLIO

 SHARE OF SHARES IN OUR PORTFOLIO

In the book that I wrote for the Financial education of Seafarers I broke a few well established beliefs.
This was not on the back of any complex calculations as the modern day economists are used to coining but simply on the back of two things:
1. Common sense as applied to self.
2. The result of the risk and experience that I took and benefited.
In times when even the AMCs themselves are expounding the benefits of SIPs I advocated STPs- that too the weekly and daily types.
Another area that I tried to encroach and dispel the notion was advocating Equity diversified MFs instead of direct stocks.
I did ruffle a lot of feathers of the established brokerage firms , few of which were of good friends.
But this recommendation was based on some very simple facts:
We the merchant navy personnel have a  very intermittent stream of cash inflow in form of salary. It is mostly 6 to 7 months  year. Upto the time that we complete our last exam which could be as late as the age of 30 there are prolonged periods when income is ZERO. This is unlike the landbased people who invariably get paid for all their training and exam periods.
Hence it becomes imperative that we try to save / invest our funds in best avenues which can create a corpus for our immediate and long term needs.
I will not dwell upon the inefficient avenues like Small savings , PPF and even Insurance policies that people get sucked into.I will simply elaborate upon the smart ones who recognize the power of equity due to whatever influenced them. 
These wise men ( and I actually mean without sarcasm) start buying stocks with the help of  tips from colleagues , friends on shore or brokerage firms. Few of these stock purchases make them some profit in short term further encouraging them to pump in more funds. Our friends do learn few nuances about share purchases but largely do not learn about technical analysis of the companies.
It is in fact not easy either to learn about Equity Analysis and then confidently invest in a handful of companies based on that knowledge.
As a a result our seafarer does invest in stocks , but the quantum as a percentage of his total earning is not very large- at best I have seen about 10-15% of the salary being invested. The remaining earning stay in either NRE savings or FD accounts. Some in FCNR too. This amount which stays in Fixed returns and small savings actually works counter productive to the health of his wealth as it brings down the total return due to tax and inflation.
Now, all the stocks do not have the ability to become multi-baggers , and most of them appreciate by about 15- 30 % . If you calculate the percentage of equity in his entire portfolio, it is not even close to being noticeable.
So in effect though he has invested in equities, the asset class will hardly make any benefit to his planning. In fact we can hardly blame him, even by my own standards...
I started investing from the first year of my sea career, and since stocks were only option - I had obtained 200FCD (Fully convertible debentures ) 0f L&T. The selection was largely based on "engineering identity and compassion" since I myself was an engineer and thought that only a engineering company can help in building a country- how naive I was?
Over last 29 years , I have held my first scrip and it has paid me rich dividends and has grown more than any real estate that I could have held. Similar story about another company that I bought 10 years back because my relative worked there- has grown  39 times in 10 years.
But when I analyse them in relation to me total portfolio , they form less than 10% of the total corpus.
In addition the above 2 stocks have made you starry eyed- I have not yet told you how many stocks that I invested in have turned out duds and a large number of them have gone unlisted.
In comparison , Mutual Funds have given me a broad based selection ground. Where I can simply select 4 funds of various Capitalisation and my selection of Equity as a Asset class is complete. My money does not stay waiting for an appropriate opportunity in bank accounts.
I simply kept putting my entire salary in debt funds and created STPs into corresponding good Equity funds of those fund houses- as long as I earned. Sometimes I checked the underlying stocks in those MFs and was surprised to find companies that I had overlooked , and also a ot of companies that I had never heard of when they were listed and have turned from small caps to Mid caps and from mid caps to Large Caps in last 15-17 years.
To wrap up the argument, my case has not only been investing in Equity class but also of investing substantial and majority of the saved income. If you have proper guidance , then by all means invest in direct stocks- but ensure that the guidance is reliable and proper . How you will ensure that the guidance is proper and just- is your outlook.
If however you cannot decide if the guidance is fair and just- stick to Mutual Funds. You simply have to chose from about 10-15 Large Cap, equal No. of Mid and Small Cap and Multi cap funds.
Yes there are over 1800 funds but you don't have to go through everything - do you?

On Growing Old

                                                              On Growing Old

Was just reading an article by Khushwant Singh in his book " Not a Nice Man to know".
The article was titled "ON OLD AGE".
When KS passed away at 97, there were a lot of jokes on the media comparing his 97 to the 92 years that the great yoga teacher Ayyengar lived.
However , all jokes about his Geriatric merits apart- he does coin some nice acronyms related to advanced age and also few expressions with various disabilities that follow old age.
He makes such a casual fun of his own auditory disabilities, bowel and urinary movements that it sounds so matter of fact.
He also has advice for those growing old. He tells them to come to term with it and don't expect to have their children and grandchildren around themselves 24x7.
In fact that is  the topic that I have been trying to broach for a very long time.
I see innumerable posts on FB and whatsapp everyday ,where the people advise others about looking after their APs (ageing parents). There are others who put up photos trying to raise some emotions.
Firstly, it is incorrect to  advise people about their personal matters. It is not same as liking photos of gods and goddesses .
But more importantly it is the ageing parents and we ourselves who have to take care of ourselves.
We need to get a bit more introvert or inwardly seeking. Start living our lives by our own standards and for ourselves.
As Khushwant Singh says, if you are too old to do things for others, then start doing for yourselves.
Live correctly by your standards and what makes it more fulfilling for you, not what is considered as the ideal way.
It's nice to get up early go for walk, go to gym , yoga etc etc. But if you would rather avoid everyone and sit down and write, listen to music, paint- so be it. The outcome of Vipassna as I have understood so far is to keep observing yourselves internally and objectively for all the vast mount of changes happening at microscopic level. Now whether those changes are giving you pleasure or pain- just be unaffected by them and stay as an observer. This philosophy works very fine for the old and ageing. They do not give into the physical discomforts of their ailments and just accept them as matter of fact.
However, what has happened in our country has been quite unfortunate.
In the garb of family values, we have sacrificed our own lives for our parents and children alike.
We did not save anything for our old age sustenance. We assumed that our children will look after us and earned for them instead of ourselves. Had we brought our children up in an independent atmosphere and taught them to work for themselves and earn for themselves- they would have been independent and also proud of us about the fact that we were enjoying our old age.
We collected money to pass onto our children.We built house so that our sons could stay with us and in turn took away the virtue of self reliance from them.
We never gave any credence to independent thought or views.Everyone had to be guided by the collective wisdom and independent greed. It was impossible to think that any of the family members would go against the entire imaginary family value.Life was designed as per the Hindi movies of 40's and 50's.
We wanted our children to get educated and get good jobs but stay near us.
The marriage of the children and their better halves were considered a family property.
This could have and did work fine when the family had common business or means of earning.But even there it had long started falling apart as one or two of the children would start riding the bandwagon.
So could we say that it was actually the refusal of the patriarch which brought the bad times on. Had he taught independent endeavor to all of the offspring it could have taught him self reliance too. What he had done for his own parents in different ear and conditions , he expected from his own children 30-40 years down the line.
It was this expectation that was the crux of all miseries and self pity that we saw and continue to see.
So what is the need of the hour ?
WE all have to think about it!
Living with grace and dignity is the ultimate goal I think.
This grace and dignity will not come by simply wearing white clothes and sitting pretty- even though that will be a part of the drill. Personal hygiene and pleasant countenance will be important to start with.
Next comes a good accommodation which they must plan before hand.Whether it will be community or singular- that must be planned beforehand. The old age homes abroad are almost Five Star hotels with doctors and nurses on round the clock standby. Here we need to create those facilities. There are a few already but cost a bomb and may not be for even the upper class.
But more than the facility is a long term preparation that the seniors have to prepare in keeping themselves  to themselves.
The Indian scriptures recommend Vanprastha from the age of 50. Which means the begining of withdrawal from active social life. It may not be a great idea as most of the populace actually wakes up to worldly life after 50. But the stress is on giving the children a free hand in managing their affairs. Do not meddle and wait for your opinion to be asked. This again is so difficult to imagine in the Indian milieu where the parents are ready to live the life of their children and their spouses.
In the present context where the children are going away to different cities and countries , can they really be expected to do anything more for the parents and grandparents back home. When they head back home for 1-2 weeks of their annual leave- what can they really contribute to the well being of the latter.
At this time it becomes imperative that the seniors try to welcome them into their lives and make the children feel instead- that they are well and capable of taking care of themselves. This will remove any guilt that the children will be having in their hearts. This will also help the children to become confident themselves about their own future life.   They will also be able to gauge the actual requirement and expectation that their parents might have from them.
I think the time is ripe when in the common interest, parents let the children know that their life earnings are for their own comfort and remaining life. This will propel the children to exert on their own and become better achievers. A small help now and then may not be out of place but broadly it always must be one unto himself or herself if you want to keep your self esteem intact.
Instead of their own children.. the seniors must cultivate their neighbors and young people around. Help them during their own active life. Set up support and self help groups. This might- just might ease their own life later on. You help others and maybe the system you set up will help you back.
Setting up chain of procedures to be recalled  in case of medical emergencies ( phone nos of doctors, hospitals with insurance cards must be kept ready and handy for helpers to find). Keeping some cheques signed for fixed amounts and keeping either of spouses aware of them are some practical things that need to be done.
Finally the most touchy topic. Death- the ultimate reality. We must all be holistically and objectively aware of it . They must ease the last rite procedures so that even the neighbors can follow it as per their written desires.
The idea of my writing this piece is to effect that essential change in mindset.
We can never blame others for our condition; not even god.
But whether to derive sympathy or just to comfort our own being- we do exactly that- delve in self pity. This has to stop.

The Colour of Money 1.02

The Colour of Money 1.02

Today the following news made headlines ...

http://economictimes.indiatimes.com/markets/stocks/news/rakesh-jhunjhunwalas-portfolio-grows-5-5-times-in-seven-years-a-sneak-peek-into-his-top-bets/articleshow/53856002.cms

It was an interesting piece and soon after reading it I got a call from a senior master who I had initiated to MF investing in 2007-08.  The times were very bad and everyone on the street were pessimistic. Subprime was a common lingo of the petrol pump attendant just like the word "devlauation" in 1991. In those times I somehow convinced the entire Indian officers to start investing in MFs.
So today this Capt.XXXX phoned me and said- " Rajeev Bhai what is this news about Jhunjhunwala  and his portfolio going up by 5.5 times since 2009!"

I said , " Isn't that surprising and wonderful".
He retorted, " What wonderful? My portfolio has gone up by 4.75 times since I started investing. So how is his 5.5 times great by any measure".
I was shocked (guru gud hi rahe, chela chini ho gaye), but gained my composure and did some quick thinking, and asked " 4.75 times are you sure?"

He immediately said , "NO, Not 4.75times but...."
I smiled to myself  Haha some miscalculation by the Captain. It's usual for them you see...
..." actually about 7 times but I can't put a figure to the enhanced value of my real estate which I sold my old one and bought much bigger area out of the proceeds and  saved Capital Gains too...

I was about to die with envy... but then applauded him and suggested " You see you must have kept adding your salary to the investment every year and so it must have grown to this amount. We don't know maybe RJ (popular name for Rakesh Jhunjhunwala) just put the money and enjoyed while you were slogging out at sea."
The Mighty Captain was visibly hurt, his ego and pride deeply bruised.
He snorted , " And what makes you think I was not enjoying my work".
I tried to pacify , " No no it's not like that maybe I did not explain properly.."
He interjected " No you listen to me .You maybe knowing a bit about investing but let me tell you something deeper about MONEY."
Money is nothing but a token of the efforts that you may have or may not have put in to earn it.
You could have stolen the money, earned it by avoiding taxes, using your brain, manual power or the life skills that you learnt.At the end of it , it is just a token of your efforts, it is not the token of your status in life.
I meekly protested , " why not a token of your status. After all it is exactly what people judge you by. We know RJ because he made his wealth grow 5.5 times in just 7 years".

Now the Master and the commander changed his stance to more relaxed and sermonising one.
"Rajeeve listen. We all work either because of the need to work or because we enjoy it. We work every minute of the day even when we are on leave. When we are not working, we are either acquiring more skills or more resources for that work, or thinking about it or simply recharging our batteries to again start working. But we keep working all the time. The work simply expands for professionals to fill up their life.
The lucky one's like me and RJ ( now the Captain acquired a bonhomie with the great bull), enjoy what they do. While I kep enjoying my work and putting the investible surplus into my corpus , RJ kept simply thinking and shifting that money from one to another stock till his wealth multiplied.
His time was occupied always thinking about money but not creating it.
While my time was spent fulfilling that avenue of service where the money paid to me was created by producing something of fulfilling that gap of demand for those goods.
So at the end of the day RJ did add to his corpus or portfolio whatever you call, just like me. While I added the token of my labour , he added some small transactions but we both invested the same thing in our portfolio- TIME.
My mind was getting foggy, just as most of the investors do when I am lecturing. I think Captain sensed it..he said.. let me make it more clear to you.
You see, my skill was taking the ship at sea from point A to Point B.. and I knew everything that was involved with it. From 2007 when you lectured me on investing to till date I worked at my job and really enjoyed every bit of it. I spent quality time with my family for almost 6 months a year but 24 hours. I accompanied my children to school, my wife to market and went vacationing with my family and friends to distant places . I slept just like RJ , maybe better. Did all the things that he did, maybe I did more of enjoying than he did- but for fairness in my mind, I felt as the most satisfied person in the entire world.
I did not have any heartburns at seeing my wealth yo-yoing because I knew I was there for the long haul...really long haul.
"You are saying that I added to my portfolio, well how is that bad if at the end of the day it is going to grow. If my funds are surplus, they are surplus. Meaning- I cannot or will not spend them.
I simply listened to your theory of compounding , but looks like you forgot it.
By now I was getting all those feelings that come when one is listening to things which one actually tells other people.
But the Captain was in a mood and did not look as if he would stop anytime now.
But he did...
" So Rajeeve , while I was talking I did some calculations.. the land that I bought after selling my old one has actually doubled in 3 years. So that actually takes my Portfolio about 7.5 times in 9 years."

So now I will leave you with that because I know you will want to write an article on our conversation. You are such a good friend that one cannot trust you with secrets, so I am only leaving you with the figure of 7.5 times...bye for now." And he hung up on me.

I am turning all shades of green while writing this . I can tell you a lot of things, but one thing I will surely say what that Captain wanted me to tell you.  Think less Invest more. It is the most and highly informed who make the least money. Compounding works on only one precept...TIME.

Why did I call this write up as The Colour of Money 1.02, well because I have written a few articles with that name earlier too. But this one is one of the colour of money.

BREAKING FREE FROM PAST

Whenever there is a calamity or a loss due to destruction in one's life- one should ponder as to the purpose of the act which may or may not be within his CONTROL.
You may have been given a lot of philosophical explanations for such losses but this one is hilarious.Read on...
My laptop HDD crashed night before last and with it went the records of all my existence, scans, passwords, over 1000 pages of writing that I had done in past years, articles,e- books , what we consider most precious- Photographs...everything.
For exactly 15 minutes I pondered over the loss.
Realised that in today's digital world you could actually lose your existence in case the servers of the government or banks crash in case of any eventuality like erstwhile Y2K or a nuclear attack.
However on a philosophical note , this presented me with unlimited opportunities.
Firstly , creating and reconstructing my records from scratch ,and at the same time evaluating how and where a hacker might hack and get hold of my information, thus plugging the loopholes.
But secondly and more importantly it gave me an opportunity to create new ideas for writing and at the same time evaluate where I was wrong or right in judging myself and those thing, ideas and people that I interact with .
Lastly it has taken off any extra baggage that I was carrying in terms of keeping things for reading and enjoying it later on.It has given me an important lesson of reading and thinking in present instead of keeping it for later on- whether it is data on the optical medium or anything in life. So many less Almirhas and wardrobes to build...
My 45 years worth of carefully acquired Book library just lost meaning.
If you are reading this piece , then just read.
No need to save it or forward it , because it will have no value after you have read it.
If you have read it and thought about it it will be YOUR idea and your's to spread forward.
This is the most graphic representation of breaking free from past that has ever crossed my mind.
Hope I did not waste your Sunday afternoon.
Rajeeve Kaushik