Notes for a New Investor

Notes for a New Investor

Very often through various social media forums or by email, comes a question – “I want to start my investment which is a good fund for SIP. “
Before I start finding the faults in the question itself let me point out how the people on the forum reply.
One says go to your bank and take the help of the bank manager.
Another says go to value research select the best performing funds from the start investing.
Yet another says take the help of a professional advisor distributor.

Now let us examine what was wrong with the original question itself.
Firstly the investor is not sure why he wants to invest.
Secondly the investor is not sure why he wants to invest in mutual funds.
Thirdly he is also not sure if SIP is some type of a fund instead of the method of investment.
The most important mistake in this case is that the investor does not have a plan why he wants to invest and what are his short or long term goals. This in plain language means that when would he like to redeem or sell his funds.

When a new investor wants to approach the world of investment through Mutual Funds more often than not he is completely unaware of the various types of mutual funds.
He does not know anything about large cap midcap and small cap or night-cap.
He does not know how much to invest and whether to invest at one go or distributed over a period of time.
If he starts going by the performance of the funds in the past one two or three years he may soon land himself in for unpleasant surprises.
It is very important to understand that the best performing fund may not be the best fund because we are not aware as to how much risk or AMD you risk the fund manager may have taken in order to deliver the return.
The same risk which he has worked for him for one year may not necessarily work in the next year.

Advice for a new investor:
 WHY: Before starting investment, please understand yourself and your money. Try to ask the question to yourself first. Why I am investing this money into mutual funds. Is it because everybody is saying or is it because the advertisements on the TV informing me to do so. Or have I discovered the fact that in the long term it is the equity class which normally performs best.

WHEN: before taking a step forward into investing your money in mutual fund ask the question when will I sell this fund. If the answer comes within one year within 3 years or even within 5 years then review your decision because you may be getting Better Avenue somewhere else to invest.
In my opinion you must invest that money into equity or equity Mutual Funds which you will -as good as never ever sell. Mutual Funds are designed so that the fund manager can take care of the market conditions and you do not have to worry. So unless you need the money really bad and as a matter of urgency you should try and never sell equity mutual funds.
The only exception to this is when you are fund is performing badly which we will discuss in another article.

WHO: Who meaning whose help will you take in your investment. Will it be a social media forum, Facebook or Whatsapp group OR are the tips from a magazine or the relationship manager at the bank.
Or are you going to go the way on your own by opting for the direct option.
For the reasons that I mentioned in the beginning of the article it is virtually impossible to conceive that a fresh investor will have much idea about the market capitalizations, fund managers and the funds themselves.
Hence it is very much required that a young and new investor takes the professional help for hand holding.
Do not be worried what your advisor is earning you should be interested in seeing that how much are you benefiting.
Sadly , we do not believe in paid professional service. We do not believe that to keep the economy moving we have to make sure that we pay for the resources that we use.
As a result even after quite a few years of investment people barely have few lacs in their portfolios.
It has also come to my attention that when people started investing on their own steam they have been quick to sell in times of market fluctuations.
It is the duty of a financial advisor or distributor to guide your investment philosophy and deter or encourage you to invest consistently.
The social networks and the social media should be used to confirm the action of the distributor and what he is asking you to buy is actually worth it.
But to think that you will have a good portfolio built up worth crores starting on your own is a little difficult and risky, but not impossible.
One heavily guarded secret that the AMCs would like to keep is the interaction that they have with distributors.
Most of the high performing distributors are taken into different locations both in India and abroad for two or three days and they are heavily grilled with the actions and information about what the AMC is are doing and plan to do.
Now whether this is ethical or unethical is a different matter but just like you attend the company's seminars where the company informs you about its future actions and then you take your career decisions based on that, it is same with the AMCs.

People treat me as a Financial Advisor whereas I am not; I am just an investor like yourself. At best I could call myself a teacher who just imparts what he has learnt. Yes I did learn a lot and I learnt from the best in the industry and I paid for getting that knowledge- which I aim to pass on to you- for Free.

I can help you start your journey but soon enough you should find yourself, a finance professional. A professional who can do the running around for you, advise you of pitfalls, who makes sure that your investments continue even when you are on board. He will make sure that your family understands what you have started and why it is important that it should be carried through. You can always consult me or other knowledgeable colleagues on the Finworld groups if what you are being made to do by your distributor /advisor is correct.

OF LIFE AND LTCG AND LIFE AFTER THAT

                               OF LIFE AND LTCG AND LIFE AFTER THAT

There was a very irritating message on the social network regarding Income tax anomaly- it has been doing the rounds for last 3 years at least.
Some people may not have liked my calling that post about Income Tax  as Trash.

But the fact remains that in this age of free opinion , it is becoming difficult to see some good ideas or opinions and even less,  good creative writing.
Sometimes bare facts stare us in the face and we fail to see or recognise them.
Almost since 5 years ago , I was talking about the impending Capital gains tax on equities, simply because the deal was too sweet. Even though I was benefiting enormously out of the LTCG exemption, I was quite aghast at the difference in the tax treatment between the Small Savings which were ACTUALLY being used for Nation building and Stocks +Mutual Funds.

For a moment if you pause and think , how exactly and whom exactly is the Stock Market benefiting?
I purposely put a Question Mark to the above.

Apart from broadly spreading the awareness about the country's Stock Index so that the foreigners come and invest in it and also the country- what is the exact benefit to the country?
When a company's stock price zooms who benefits?
 The company!
It benefits in the sense that it becomes highlighted and recognized and more people start investing in it and the Share price zooms even higher. Now the company does some trading in it's own shares to earn that extra profit. It also uses it's enhanced Market Capitalization (which has gone up due to the higher share price) to secure some loans at attractive interests to further expand.
Now in this entire process investors like you and me and the Mutual Fund Managers (on our behalf) make money by buying and selling the shares of these companies.
That is all that a Stock Market serves a person in nation building.

The backbone of the economy on the other hand, is the - Debt market.
Whether you deposit money in FDs , Debt funds or Post Office schemes. All the money is diverted to the Debt stream for the Government and the Corporate world.
The Corporate uses it to enhance it's operations and the Government uses it to do development in the country.
All the NPAs that you hear about are part of this DEBT world.
As you can also find out from the eternal and omnipotent internet; the size of the Debt market is any day much much bigger than Equity.

Now let's consider the fact that how much of your savings are in the Debt. Include all your Bank accounts, FD, Debt Mutual funds, Post Office schemes; Gold Bonds & ETFs.
Further consider that since 2014 you are actually paying Capital Gains on the Debt funds.
If you are following my style of investment, your majority of the funds are parked in Liquid Funds while you are doing STP into equity funds.
Which means for every transaction you are having a Capital Gain and that too SHORT TERM; and if you are a NRI then the Capital Gains is being deducted AT SOURCE i.e. TDS.
Now tell me how much noise did you or anyone in the country make while paying the Capital Gains or Tax (on FDs).
As regarding LTCG on Equity which has been levied on 1st Feb 2018 but will come into force since 1st April 2018- you will not incur this tax unless you sell.
Which means that since this is your COLLECTION phase of wealth- you don't have to worry.
So who is making the noise about the ELTCG (or Equity Long Term Capital Gains)?
Naturally it is the Big Ticket investors and PMS holders and operators and traders who are making a noise because they sell often. They are the one's who provide the volatility and uncertainty to the market.
But no-one noticed that upto 11months and 364 days of holding you were already paying 15% as STCG (Short term Capital Gains tax).
So you see most of the times - news is misleading, it's eye wash.
Not one person asked the basic question , which is applicable to over 520 investors who move with me.
Will the MF managers pay LTCG separately on their Sale Purchase of shares and we will again pay LTCG when we sell our MF units?
Isn't that the more relevant question.
The idea of this article is that instead of reading other people's forwarded views, please read things in original and think originally.

As my Guru, A N Shanbagh had told me often; never consider yourself less than any professional of any field. As a fresher starting with no pre-conceived notions will probably lead you to better discoveries than a professional whose livelihood depends on it.
Fair enough, with my own thinking and conviction I have charted my Nirvana and helping few others to achieve theirs.

Always be future Proof: By thinking originally in your own mind's eye, always weigh the possibilities objectively; and howsoever they may seem improbable or impossible don't discount them; But prepare for them well in advance.
I had taken LTCG into my account of things almost 5 years back- and had told you in every seminar- that as of now you are having this advantage; when the rule changes- we will see.
Well now the rules have changed- so we take that into account - and move forward.

Instead of posting on social media and and creating unnecessary debate I have sent the following suggestion to PMO.
In addition to the LTCG of 10% after 1 year; please consider modifying the law as follows: LTCG is reduced to 7% after 2 years of holding, it is further reduced to 3% after 3 years of holding and ZERO after 4 years of holding.

This step if accepted by the FM will provide stability to the market and giving advantage to the true investor and weed out short term opportunity seekers.
In a similar way I look forward to some creative ideas from you.

On a parting note I wish to leave you with a unsettling feeling. Please prepare for the Government doing away with Tax exemption for NRIs within next 5 years.
Now don't tell me that it will never be done. You already know my viewpoints about governments of the world.
 Ciaao!!!

Red Alert- Few mistakes that I commonly observe with fellow investors

Red Alert- Few mistakes that I commonly observe with fellow investors

In the last 6 months we  had two seminars and four of them in last 18 months.
After every seminar I am inundated with phone calls WhatsApp messages and emails.
It is very encouraging to see each time people taking interest in in the future however I am also amazed to see the kind of mistakes  people have made before they attended the seminars.
The objective of this write-up is to point out the mistakes that I am seeing randomly but consistently with most of the investors.

1. First issue is about investing from a savings account. Since most of the people reading this article will be NRIs I need not remind them at all the Investments must take place place from either there NRI account or NRO account.
If they have been NRIs for one or two years they must have their n r e and nro accounts in place and must close down their savings bank account.
There has been a very complex case where a person is the first holder in a folio but is investing from his wife's savings account , the funds into which are flowing from his own NRI account. This is not only untenable but also a grossly inefficient way of planning ones finances.

2. Second issue which I have commonly observed is having too many folios in the same fund house and for the same scheme. This is normally happening if you are investing through some Bank where the relationship manager keeps changing and every time you wish to invest in the same scheme he or she creates it under a different folio this creates gross complexity of your Investments.
Hence please remember that if you have ANY number of funds under 1 AMC then you need to have only one folio if the first holder of all the plans is same.
In case you you have investment in the same AMC from NRE and NRO account,  in that case only you need to have different folios.

3. Another common thing I have observed is people having invested far little money but into too many funds. Since you are one of the  higher salaried people you can start with just one fund in the beginning and need to have not more than 5 to 6 funds distributed across 3 to 4 AMCs. As a Thumb Rule you can continue in this way till you have a total Corpus of about 50 lacs. Then if you feel you can increase 1 fund  for every 10 lacs. With time you will realise that it’s not really beneficial to have more than 8-10 Equity Diversified funds.

4. Next case very commonly which I have found is people investing mostly in the NFOs(New Fund Offers) and closed ended funds. This obviously is due to the miss selling by agents or distributors.
So please remember not to invest in any NFO or a closed ended funds. Also avoid sector funds. There are plenty of well reputed open ended funds funds, diversified equity funds which have excellent track record over a period of 10,15 and even 20 years.

5. Another instance is of people who are familiar to me having a very poorly constructed investment plan. Some of the people who are known to known to me for years , talk to me and consult me in such a  way that I assume that they are looking after the finances properly.
However after few years I normally and commonly find that not only have they invested wrongly but also created a corpus far less than should have been expected with their financial well being.
Please understand just by being my good friend your finances will not start improving unless you plan yourself.
As you know very well I do not make open recommendations. Hence after taking the consultation from me you must look for a professional distributor through whom you should proceed to make a well constructed portfolio. Familiarity in these cases causes your loss.
I consider myself as a humble teacher who just passes some information that I possess. What you make of that information will depend entirely on you.

I have created various forums like Whatsapp group called Finance at Sea ; Facebook Group called Kaushik’s Finworld and my own blog called holisticrajeeve.blogspot.com. Apart from this I write for Marineinsight.com .

All these forums provide you with a platform to make your queries and also assist new investors get something out of your experiences.

So please avoid these pitfalls and build your own secure future at your own pace and comfort. There must be no one between you and your money- as I often say.

Something again About Philosophy of Life and Investments

 Something again About Philosophy of Life and Investments

Yesterday I posted a 50-point checklist ( On Financial Mistakes that we make) on this group which was copied from somewhere and not that I agreed with completely. Rajeev S Devasthali advised that what is the point of mentioning the mistakes when I'm not suggesting corrective actions.

Now again, since I have published a list of Do's and Dont's a million times and said it from the seminars, I found that there is nothing much left to say in that direction. Such a list is now increasingly being floated around by various Financial Advisors - and I'm sure the people are sick and tired of reading it- even though they may not like to follow it ( in the sense still our major wealth is in bank FDs).

Around 8 years ago I started a blog with the name holisticrajeeve.blogspot.com .That was because I believe in the approach of leading a complete life. It all would come from having a self sufficient life which is backed by optimum wealth which has the spirit of not being ostentatious or showy. The life must have the essential elements of compassion for others, charity for the deserving and not only the needy.The life should have the main aim at acquiring knowledge rather than information.It should have a detached attachment towards your worldly acquisitions , not only your own but also those inherited by you.

With a view to such a life Rajeev S Devasthali and other distinguished Ladies and Gentlemen of the group and the world here is my offering:

The following list if for those who do not consider wealth generation as the only motive of life but want to be assured that they will not go hungry if their employment ceases or any calamity befalls . In case you are looking forward to double your money overnight, please stop reading further on.It's NOT FOR YOU.

Let's start...

.

1. Earning your living and saving for a rainy day should be the aim - not acquiring wealth. As the latter makes us lose our perspective and goal of life.

2. Whatever you can save must be invested in assets and avenues that have the sanction and approval of the law of the land.i.e. it should not only be legal but also be tax efficient.

3.In your pursuit of making your savings and investments grow- CUT your taxes by making use of laws available, not avoid it by hiding your income , savings and investments.

4. Remember , what is not on paper and does not have the sanction of the Law of the Land is not only UNSAFE, but may also be ILLEGAL. e.g. ponzy schemes like chit fund, MLMs, Committees, kitties.

5.There are always sufficient provisions in the laws for you to grow your investments that you do not have to resort to unconventional methods.

6.Like other schemes, till Real Estate comes entirely above board, i.e. entire proceeds are paid off in white or tax paid; it will never be profitable .The newer laws prohibit you from doing anything with cash.

Till such time Real estate will never give sufficient returns as compared to equity.

7. The real reason of the skyrocketing of Real Estate prices in the last decade were not some god sent , but due to the Greed of the investors. If everyone had bought a house only for their needs and stuck to equity for investments the Real Estate prices would have been more realistic.

Hence please buy real estate only for consumption and not investment .

8. Modern Idea of a bank is to keep money for your needs and regular withdrawal. Please let your Banker know that .He should not pursue you for any investment and /insurance.

9. The basic idea of ANY insurance is Risk Coverage and not earning money out of it. This is true for House, Car and even Health insurance. Accept the fact that the settlement of Insurance in case of a mishap will NOT be able to completely cover your loss.

10. Risk coverage also applies for life . Hence you should ONLY buy the TERM LIFE INSURANCE with a sum assured to sufficiently last your family for at least 10 years . It is assumed in 10 years your dependents will learn how to live life on their own.

11. Having covered your life as a bread winner and your assets like house, car, health you should endeavour to keep at least 6 months of expenses as EMERGENCY FUND untouched.

The method of keeping this EMERGENCY FUND can be a Bank Fixed Deposit or even Liquid Mutual Fund.

Since you will not use this fund in regular expenses A LIQUID FUND will mostly give a return higher than a bank deposit and more tax efficient if it stays there for minimum 3 years.

12. Wealth creation is a very tedious and boring job. Just because your shares doubled in a year is not exactly wealth creation. You have to recreate that plan every day, every week for every penny of your savings being diverted to your investments.

13. Those who are professionals in their respective fields or employed in other offices - please remember your main job is the one at hand not reading the PINK paper every morning and being glued to the TV whole day long.

The Mutual Fund managers have a whole staff to look after your money and take informed decisions. Select a good fund and trust your fund manager to do the buying and selling. You just do a consistent job of putting your hard earned and well deserved savings into the funds.

I have often thought about the value of money in different forms and at different stages. I've written the article " Colour Of Money" twice but somehow was not able to get to the root of the complex question.

It is something like this...

What is money and what does it represent? What does money look like?

Just 300 years ago it looked like Gold and Silver100 years ago it looked like pieces of paper.

So what do my bygone years of life and labour represent today? Is that just a few figures on a L.E.D. screen.

I will again attempt to write an article on it

The Time Has come and it's staring ...

There was a post by a Mr.Prateek Shah on some channel http://www.dailyo.in/voices/bjp-demonetisation-communal-politics-fake-news-congress/story/1/19272.html .

He has shown his disappointment with BJP despite his longstanding loyalty. I was for once inspired to write something.

I do not agree with Prateek Shah.
That is because I never believed in BJP, for Thai matter I did not believe in Congress either or the amalgamation of all those called coalition.
Yes everytime a change happened, I was hopeful and happy.
I thought Congress losing in 1977 was great even though I was just 13 then , but I thought ..a change.
I felt happier when Mrs.Gandhi returned in 1980 and Sanjay died in a crash. I felt country was safer now.
I was even more hopeful when Rajiv Gandhi swept the mandate and sad when just 5 years later a daughter had to be released to free some terrorists ...
I was happy when PVN became PM and Manmohan depreciated the₹ .
I thought later that Atalji was a blessing to the nation and that APJ could change the political culture.
I waited 10 years for Dr.MMS to do some miracle.
He just passed by after quoting a pretty bad शायरी।
I was jubilant when a person who never was a MP or any dynasty became PM by his own strong will.
In all these cases I thought India would change.
India did change, but our problem was that of expectations were really high.
Indians do have high expectations. Whether it is from a son or his wife- they can't do much but the expectations are the least that we can have.
My best of friends took opposite views and formed their camps.
Even those from service class sold their land in crores and hid their profits in cash.
But it was Modi whose Demonetisation failed.
It was he who could not bring the black money back while we bought and sold our property in black.
We hired CAs to cut our tax outgo and it was all these PMs who failed India.
All my business friends never had a bank account...
But.. openly said...इस देश का कुछ नही हो सकता।
But Sir logo, ab nahi hoga.
This guy is after you.
You know he will be back in 2019 and will be after you and me.
He has openly threatened the most powerful lobby of jewelers and this year the CAs and he will stop at nothing.
He is not trying to settle scores, he is bringing out all the old cases and bent upon solving them.
Rajiv, Atal and PVN tried but failed because you and me were determined to be corrupt. This guy will not let you be that way.
He has slowly and steadily set up systems one on top of the other without giving anyone the power of discretion.
I never voted for him or the BJP ... ever! But that was because my local MP came from royalty and I hate feudalism.
But Sirs and Madams... Friends and relatives..and neighbours... Clerks and bureaucrats... You are advised change , because he is a guy who trusts no-one.
And... Now is the best part...
While he keeps you busy with beef and pork controversies he is out there dismantling and changing the system.
His tenets will go against straight play that we are used to preaching, but have we played straight with our nation. He is confident that he can manage with bypassing laws because he knows he can manage his conscience.
While you can keep complaining about 3000crores of Adanai or Ambani -he will make sure that others fall in line.
He has bypassed the traditional bureaucracy and suspended IAS and IPS and now there are changes in their South and North block which you will shudder to hear.
One thing that is sure is that though it may seem that he did his 8th November act in a hurry, he is not in a hurry.
Mr.Prateek Shah has alleged that the government believes in hiding facts.
अमाँ मियां, आप अपनी तनख्वा बीवी तक को नही बताते हो और सरकार आपको अपने राज़ बता दे?

SOME MORE ON SIP, STP AND BULK PURCHASE

SOME MORE ON SIP, STP AND BULK PURCHASE

Two year ago I had written an article in Marineinsight.com laying out the comparative advantages of STP Vis-a -vis SIP. I had tried to explain why STP works better for the Marine Professional rather than SIP. The Mutual Fund industry has gone so much overboard in repeating the word SIP that people have come to think of SIP as a product rather than a method of investing in Mutual investing.

However, as long as methodical investing goes Mutual Funds are unparalleled in any country including Philippines, Sri Lanka, Singapore, Hong Kong and even Russia, the only limiting factor being their political conditions. As long as a Marine Professional is investing regularly after selecting the right fund, he can actually fine tune his strategy to get the best out of assets.

I will again attempt to unravel, demystify  and simplify the above three methods.

Bulk Investing: is simple .When you buy for a appreciably large amount like $1000 and above one time thinking that the market conditions are correct in your perspective, it is called bulk investing. This may happen once in a while or irregular intervals.

SIP or Systematic Investment Plan: is an automated system when  an amount determined by you is automatically transferred from your bank account to the Fund that you have selected to invest. In this paperwork is done through the fund house who sends the information for conformation to your bank and the process can take upto one month to start. This more often than not takes place once a month.

STP or Systematic  Transfer Plan: is another method where a fixed sum is shifted or transferred from one fund (you can call it source fund or S-Fund) to another ( call it Destination or D-fund).For our purpose of primary investing this takes place mostly from a debt fund to an equity fund. STP cab any frequency Monthly, weekly and even daily.

Now let me point out a few points regarding inherent advantages of STP:

1.       For Seafarers, the main issue is the irregular availability of funds. Even for the six months of work due to the uncertainty of joining and signing off, he remains uncertain in investing.

Hence allocating funds to SIP becomes difficult because one has to make a large outlay in the NRE account. Instead   s(he) gets inclined to make lump sum investments.

2.       With STP he is secure in the knowledge that if the liquid fund runs out he need not worry as there is no liability. Additionally the funds in the Debt fund which is the S-Fund are for his use whenever S(he) wants.

3.       Cancellation of STP takes 3 minutes online whereas SIP cancellation can take more than 2 months.

4.       With STP, apart from the equity funds even the debt fund ( which is your source fund) is earning and appreciating. If you check immediate past 2 year performance equity and debt funds have performed similarly. This may be an aberration but a fact nonetheless.

5.       With SIP one's money in NRE savings of fixed is almost lying idle and depleting with inflation.

6.       With our kind of salaries the amount that one needs to invest per month , for productive gains, one has to invest a large amount per month.

If you put that in 1 SIP per fund, from my point of view it is as good as bulk purchase.

7.       Now consider a single SIP off₹50,000 split into 5 STPs per week. And you have truly diversified your risk. Plus the amount that was in the debt funds in between these 5 STP dates also continues to appreciate at a higher rate than in a bank account.

Last week's fall of 5% and the NAVs at which the last 2 STPs were booked will prove my point.

8.       With the weekly STPs , one is more in touch with reality and any fall in the market  like the last week's, it will give you opportunity to  put in extra lump sum to extract more out of the situation by switching about 5 to 10% into your equity funds.

9.       A single monthly SIP would have deprived you of the situational opportunity.

10.   Last but not the least when you are on board switching from one fund to another will take much less time than making fresh purchase from your bank account.

A lot of advisors do not go into sufficient depth and explain to the investor that a falling market provides you with an opportunity like a time machine- to go back into time and invest at a level which was much into the past. Hence a person who is earning and earning like the Marine Professional does, can actually go back into time and invest at a level which was when he did not have that money.

SIP is a good strategy for a modest salaried investor who never has a large chunk of money except when he gets a bonus. It’s effect on wealth generation for a seafarer reduces when coupled with the money lying idle in the bank account.

 I cannot but repeat and repeat, that try and automate your method of investing by utilizing the tools. Mutual Funds provide with immense flexibility and convenience. You just have to use the tools to form a long ranging plan and portfolio and then keep investing and increasing that investment amount as you progress through to the Captain or Chief Engineer’s rank. The first step is the most important to take , since I  have found that people drag their feet over selecting their first fund  for years together losing out on opportunity every day.