COST OF MONEY

COST OF MONEY

 

Isn't that a weird headline ?

How do you attach cost to money when money provides for all costs?

How can money be cheap or expensive?

Let's modify it slightly and call it-

" Cost of accessing money"!

Does it make things better?

Still not ? Ok then let's get some scenarios.

Imagine a person starts working in a different city or country and gets his salary check every month. But he does not get time to open a bank account and deposit that cheque.

Another scenario...

A retired person has to go the bank to get his pension only to be informed that the pension has not been deposited yet by the government or his employer.

He also has to provide a once a year Life certificate.

Yet another relevant one...

You work on a ship and receive your monthly salary in USD in cash at the end of the month. You find the remittance cost by your employer to be bit high and the banks ashore do not accept cash for telegraphic transfer.

Another one...

While applying for some exams or US Visa you need to send a bank demand draft of a particular bank which is quite far from your home.

Yet another one...

While going for a business loan by a MSME or a smaller company the charges for processing are deducted.

 

All these are examples of accessing cost of money. These are charges which necessarily reduce the net worth for accessing for any product or service or the utility value.

We balk at 2% MDR charges by a seller on credit cards but do not think twice about 20% something that bookmyshow charges for booking a ticket.

Not only all these charges but also the time spent to access that money must be taken into account as opportunity cost.

But how does this affect us  "The Mariners" as investors, consumers and service receivers.

If you start applying first principles think about how much time, fuel and cost of vehicle your spouse or you spend at visiting the bank to withdraw some money, make a bank DD, book a ticket, pay a bill. If you start quantifying your time with money that you earn on board it will make you lose sleep.

But that is what modern financial technology combined with information technology combined with electronic communication has done to the cost of accessing money.

All the above examples were given to make you realise what the scenario was just a decade ago when for various document renewals we had to visit Mumbai.

The cost of travel, stay, lining up outside offices and banks used to take away a third of the precious leave period..

Now imagine the agencies like banks that have brought these Fintech services to you on your mobile , how are they getting paid.

By reducing the cost of mutual funds purchases by almost 150% today how are AMCs still managing to make money for you.

By now you must have got the picture and what I'm intending to drive at.

Your salary coming by every month end into your account is a service that your employer does to you.

If that facility was not provided the results could be disastrous.

Not only you would have to provide money to your family before joining ship, you wouldn't be able to invest it during your stay( this problem still exist with some Indian companies whose ships are plying mostly in foreign waters).

Yes now the cost of accessing money has shifted to a different paradigm now! Mobile and the portable computing.

All these facilities reduce the load on your leave time and provide you with ample opportunity to use it as quality time till learn and do new things and also teach your children - some new things.

This is possible as long as these devices don't become your " devices for destruction of your time ."

I personally have been very cautious and miser with my time .

I always used to quantify my ego minute with the salary that I earned and later on became so paranoid that I wouldn't even waste it to make some quick money by dabbling in the stock market.

As a result I was able to travel with my small family - far and wide in the country.

The effect of this was seen on my daughter's ICSE - history exam. There used to be a question of identifying the picture that was given of a historical monument and some related questions on that.

Her class teacher complained that she is showing off by saying that she had seen the monument. I had to charm the teacher by saying that she had so enthused my daughter that now we actually travel to see these monuments.

Anyway... Back to the cost of money.

Please appreciate, accept and use the modern methods of money handling. Set up systems to efficiently use your cash flows so that you don't have any liabilities and your money can be invested by the 5th of the month.

Don't waste your time in trading or speculation about money, rather use it too acquire newer skills, read news books, get more degrees, develop new hobbies empower your family, raise your children in the true sense.

All this has been made possible because the Speed and Cost of accessing money has gone down leaving you lot of quality time to spare.

Even good roads, highways, efficient cars, cheaper flights... All these have added to reducing the cost of accessing money and services and leaving you time which if used correctly will pay you rich dividends and if missed it will leave you very poor.

Just to share with you even this article has been written on a flight from Mumbai to Dehradun today- reducing the cost of Money by utilising time you see...

An innocent & Genuine Query

 Xxxx Sxxx 4/E
Ok sir. I started reading your book. Regarding the downfall of adani  how we can trust share market. I mean, no offense sir. How can we closely watch the market. Here for adani, in a day or two he lost billions.

Rajeeve: This is a very genuine question and quite often asked.
A short and simple reply is we don't need to watch it. All we need to do is invest in Mutual Funds because there are experts who are doing it for you- not only watch it they are actively buying and selling for you for a very small fee and without incurring any capital gains tax for you.
Secondly, you're not really investing in a single company but in the Indian economy at large. A single company going up and down will not really make a difference to your portfolio even if it is State Bank of India since the maximum exposure allowed to a single company in any MF scheme is 10%. As long as you have faith in the economy of your country you will gain and for that you will first have to invest. If you don't have any faith in the economy of India then everything is useless even real estate or FDs won't work because they're all based on faith.

Thirdly, these funds managers are very smart. Except for one MF , no-one  had any exposure to Adani group. Only the passive funds lost a little.

Fourthly, you have said that Adani lost ₹Billions . Well that loss is notional, tomorrow if people start buying that loss will reverse.

Finally, His loss does not represent the loss of the investors unless they have purchased his shares. Then again if they have purchased without due diligence they will have to pay. This is applicable for all Investments otherwise they will give results like chit funds .

So you may have understood that without participating in equity you will not create an appreciable financial cushion for yourself.Since you're busy with your profession it's better to let other professionals manage it for you via MFs with minimum charges and maximum transparency and safety.

The Story of Personal Finance of my Generation

 
Lot of our young colleagues have asked about my journey of financial planning. Though I have said about this lot of times on the phone I would like to document for others so that they may make corrections to the mistakes that we have made.
From that stand point I am narrating a story which is not only about me but also my batch match and colleagues of approximately same age.
Our DMET batch passed out in 1986 in the middle of the recession in shipping which was necessity off shoot of Iran Iraq war of the seventies and was still carrying on.
The otherwise job placement situation which used to be more than rosy for DMET had become very bleak. In a senior batch they was just about 25% placements and for our batch it had come down to 20%.
However within about 4 to 5 months of our passing out this situation started improving and those of us who passed out late could also get placements in foreign companies.
The scars and insecurity of no placements was playing at the back of the mind of most of us and that somehow changed the behaviour of everyone in a different way. Some of us took the refuge of FDs, NSC ,Indira Vikas Patra, LIC policies sold by the hostel warden while others started purchasing land and real estate.
The economic liberalization of 1991 coincided with most of us getting down for our chief engineer exam and getting married.
The dollar was devalued almost 25% in a year and some everyone's salary went up and the credit was given to the lady luck of the young wives.
1992 coincided with the great scam of Harshad Mehta which brought in SEBI whose rule grew in importance in the succeeding quarter of a century.
The 1991 government liberalized lot of things for the non residents and introduced a new type of fixed deposit bank account called NRNR or non resident non repatriable deposit, the proceeds of which were entirely tax free and the rate of interest was as much as 18%.
This continued till 1996 after which the account was phased out as the government's foreign exchange position became stronger. 1993 saw the emergence of private sector in the mutual fund industry which was earlier dominated by UTI , SBI and one or two other small players.
Due to the great NRNR deposit there was no need for most of us to look at equity or even read about mutual funds.
However for some reason the word mutual fund had attracted my attention while I was in school itself. There was something very democratic and socialist in the word but I had not known about the working or the nitty gritty of it till I myself started sailing.
I acquired some literature from investment banks during my shore leaves and tried to make head and tale of it.
Still tethering to the fixed income and Bank deposits because those were the days of 12% + interest there was no real incentive to move towards mutual funds except some half hearted moves of rupees 5000 and 10000 in various funds.
As the debt funds also were giving returns of 12% and above those days,  I personally had restricted myself to those and also used to advise my colleagues regarding same.
Almost all the people that I have sailed with opened PPF accounts and have only recently started closing them after completing 30 years.
My venture into equity funds came after the dotcom crash and I started investing in HDFC equity ( now calledFlexi cap) ,prudence, Reliance Growth age vision and Sundaram select midcap at the turn of the century.
With time my exposure to HDFC equity fund constituted almost 25% of my portfolio in over a period of 17-18 years.
In 2006 I took exposure to DSP midcap and small cap.
2010 to ABSL front line equity and ICICI bluechip.
These were my main stays of the portfolio and there  few funds having small amounts for testing.
Debt funds for feeding these Equity funds were changed off and on.
In 2007 the entry load on mutual funds was scrapped and the direct investment category was instituted in 2013 , though I did not change over to this mode till recently and that too at the insistence of my great distributor.
Today I do possess a larger number of funds and that is because my investment philosophy has changed and I like to restrict exposure to one fund to 60-75 lacs.
But when I see in retrospect is that given the tools and the information available my distributor always suggested the correct funds.
In that light I can safely say that having a varied exposure to Flexi cap funds and supported by Mid Cap and small cap funds one can achieve optimum Returns.
My exposure or diversification of portfolio is into MFs, ETFs, gold, PPF, very minor amount in NPS and real estate only. Though I don't consider real estate in value as I will never be able to enjoy the gains unless someone offers 100% white.
My view of the world has changed in these 40 years...and changed so many times.
I have seen how wealth gets accumulated and also how it gets lost...all in one generation.
I have seen intelligent and wealthy people bite the dust and mediocre but persistent souls thrive.
I have learnt that if your wealth is not donated and consumed it destroys itself.
The most apt definition of investment is "Delayed Gratification". Hence our definition of gratification will change with time and we should have the means at all times to fulfill those elements of Gratification ... Which sooner than later will include donation and charity.
Even Buddha said the first duty of a householder is to earn and generate wealth for his family and the society around him .
As Mariners you have a positive impact on the society as you move ALMOST 94% of all the goods produced on the face of this earth.
So help you God.

Changes for 2023

Changes for 2023

Yesterday I was listening to an interview between Pranay Roy and Ruchir Sharma.
Ruchi Sharma makes certain forecasts for the following year on NDTV and more often than not the forecast are quite in line. His forecasts range from the world macro economics situation to even the most micro one's.
Two of the main forecast out of 10 which he has made for 2023 have taken up my interest and it is my duty to inform all of you.
First and not so important as second one is the emergence of Japan back as a developed nation with their profit margins rising almost twice in a decade.
The second and most important which concerns all of us is the forecast of the US market going down.
According to him the u.S market follows a pattern of decade. Which means for one decade the economy will grow  and another decade it will remain down. He forecasts the US economy to go down for a decade at least, starting 2022.
If we include another of his forecast which says that the virtual industry economy will lag behind the old and traditional economy (meaning the IT and the metaverse will lag behind the traditional business of manufacturing etc.) then it is obvious that in future the US economy will follow the same pattern as of 2022 which means going down.
Rightly so the market cap of US is at all time high of 60% instead of 45 to 50% which it has been for the past century. So following the law of Reversal to the mean, we could expect us economy to continuously move less aggressively than before.
In the light of this statement we must re analyse our investment in International Funds which are largely in the US market by default. However we should not take any action in a hurry or panic.
Members on this group have been investing into International Funds largely in 2 funds i.e. Nasdaq which is the index for mostly technology stocks and snp 500 which covers the top 500 non tech stocks of the USA economy.
I have observed a certain uptick in these funds in the last 3 months, but whether this is short term or a reversal of trend I cannot say because I am not qualified to read the macro or micro situation of US.
All I can suggest to members who are retired and cannot see their Fund value going down from what it is may just stop further investment and if they feel they can gradually redeem their holding.
The youngsters who have just started investing can either ignore the American market for the time being and start investing later or outlay a minimum amount to the American sector. In any case we were always cautious to say that restrict your exposure to International Funds to a maximum of 10%.
Those who have keener interest may look out for the talks on this topic and interviews with commentators on American economy( not stock brokers).
I personally have been entering and exiting the US funds regularly because of various reasons. However going forward I will be investing in the US market in small amounts even if it is for 10 years  of non performance and beyond.
What other members can do is track other foreign funds which have a strong Asian focus.
But as I have been already saying that exposure to International fund maybe considered by only those members who have already accumulated a large amount of Corpus and have started understanding the way of working of the equity market.
Till then funds like Parag Parikh Flexi cap and SBI focused equity are sufficient to keep your small exposure to foreign equity.
I am sharing the link for the above interview between Dr  Prannoy Roy and Ruchir Sharma separately.

© Rajeeve Kaushik

New approach to FFP

 
New approach to FFP

Investors now a days are caught in a conflict between what their parents and elders practiced and what they should themselves to now.
Traditionally anything to do with the capital market was frowned upon by the elders and was called Satta . If they were not in the government job they had their EPF and they could plan easily with 12% bank interest for their FDs. Their life revolved around saving as much as possible by cutting down the expenses and keeping the savings as high as practicable. Biggest expense used to be daughter's wedding and building a house, both of which used to happen closer to retirement.
Now our young Seafarer who goes out to sea at the age of 18 or 19, when he starts earning he gets torn between the advice that he gets from his parents and what he sees around him on media and television. Whether to choose between a well trodden path of savings in the bank or investing in mutual funds and stocks which some of his colleagues also follow on board.
This is a question that almost 90% of the youngsters ask me.
Answer to the question lies somewhere in between both of them - that is the conservativeness of the parents and the modern Outlook of Equity investments.
The economy in the yesteryears before 1991 lay in savings and keeping the money locked either in the safe or in the bank. That was the biggest reason for our low growth rate. The governments attitude was reflected in its citizens also.
The government used to control who will eat what ,who will produce what and in what quantities. Things went even to the extent of what anyone will wear.
There were 3 brands of scooters with 5 year waiting list and 2 brand of cars. Income tax rate was as high as 95% .
Slowly everything changed as the income tax rate was reduced to 50% and below and later the economy was opened up in 1991 and the licence Raj was almost abolished.
This liberalization did not only remove the shackles from the producers manufacturers and importers but also from the minds of the people who slowly started opening their coffers.
Slowly our economy became the economy of consumption. Consumption boosted the earnings of the companies and also their profits. The new companies were encouraged to access the public for money via IPOs. Thus people got access to a new source of capital enhancement.
In 1993 the country got exposed to a new method of investment which could involve even the smallest earner who had the capacity to invest at least ₹5000 at one go and later as low as ₹500 per month.
What we are seeing is almost 25 years of capital market development made possible for the lowest of earning population.
So where does the old thinking fit into this?
The answer to this is- in the wisdom of savings that our forefathers taught us.
The wisdom of the old and conservativeness applied with the technique of today is the answer to the modern approach.
No longer can we afford to save as much as possible and expect to get high returns because this is a economy of consumption.
Nonetheless we must save like our elders taught us. Because of you don't have the habit of saving how will you invest it.
 If we will not spend on all the sectors that exist, the companies will not profit or move forward  and we will not get the  returns on MF and stocks. So it has to be a wise mix of spending and consumption.
We must remember this that in the mutual fund returns that we get from the capital market it is the contribution of the lowest of earners and even the non earners like beggars and destitutes. Everyone buys goods and services and pays GST on it. Company creates profit and passes it on to us.
If everyone in the country decided to only save then we will be back to pre 1991 condition. Everyone decides to mostly invest and not consume that will also lead to imbalance.
So this brings us around to conclusion that economy would only start moving and remain in the fast lane as long as those who have a large amount of dispensable income to consume and also invest.
This automatically brings us around to the topic of discussion that we should conjoin the old philosophy and wisdom of saving and a modern outlook of balance of investing and consumption.
Home must be built,paints , electrical gadgets must be bought, cars and new clothes must be bought more often .
Dinner outs must be had and also Zomato services must be used, holidays must be spent in hotels and of course unhealthy lifestyle must be pursued so that Pharma companies and hospitals remain in business.
So help you God.

Regarding Financial Planner or Professional Guidance

 Regarding Financial Planner or Professional Guidance


Few days ago I had suggested to the group members to opt for a professional review of their portfolio and continuity of investment journey.
The reason  was largely personal and as follows:
1. When a member joins the group and he is fresh- guidance is provided to him to start his journey in a methodical and minimal disruption to his lifestyle.
There are also cases where people have been investing in traditional avenues of real estate and fixed deposits.
Both  the classes of people do not entirely give up their approach and adopt our method of equity investment in a nominal way or as a token. The way their mind works is -"let me start of in a small way and later increase my investment."
But they never truly take up the equity mutual fund way entirely or substantially which can make a difference.
2. Some of the people do take up in the right amount and proportion of 35% or more of their annual income.
But at any critical moment like the past pandemic and lockdown or even a call or rise in the market they stop their systematics.
3. There is another smaller group which does continue their investment but do not give a feedback on the progress or performance of their portfolio.
Now I believe that for all the above category of people it is important to be connected to someone who can give them a continuous and consistent feedback and also suggest any changes.
I have observed that the worst portfolios are of those people who are otherwise close to me or well known to me. Which brings me around to the conclusion that they do not take me seriously.
Right now I am in the middle of a wedding in Vadodara and two very important things took place.

First, I met a person who had just survived a life threat earlier this year. I had gone to meet him and in that moment he realised that he wanted me to look at his portfolio which was being handled by foreign bank based in India. I had summoned his wealth manager and given him a earful and restructured his portfolio to a slightly more aggressively tone.
I was pleasantly surprised that his portfolio has increased by about 25% in 9 months- which was better than my own.
Now apart from my own, this is one portfolio that I could see in detail and compare it with what it was earlier.

Second episode which was even more important - I met an Australian fintech person who manages the software for Australian pension system.
He elaborated to me in great detail how various options are given to the pensioners there. He reviewed the small endeavour that I have made and has approved of the method and assured me that it will take care of everyone who follows this path diligently.
As I have learnt that in the Australian equivalent of NPS , a contributor can himself manage his own Corpus instead of the fund managers( as an option).
So we are precisely doing this on our own.
Further than this I would suggest that please do form clubs in your city where you can meet at fixed intervals of 2 months or more and discuss among yourself what is the right and wrong that you are doing in your portfolio.
The ground rules of consistent and perennial or regular investing should remain intact.
In fact in the past 7/8 years many a times I have underlined the importance of organising yourself city wise and having regular meetings like we have in Dehradun.
Furthermore we can have regular webinars to discuss our personal finances in which you can join with the audio only.

Hope this awakens the sleeping ones.

Changing the Mindset

 Today a member of Finworld@Sea group suggested to others that we should keep our traditional Life insurances running..

Quote///At least with the name of lic policy and paying premium yearly save some money. Because i have seen lot of Mariners spending all money and going back to ship without saving anything.

///Unquote.

I was actually pained to read it after so much of the effort that I'm trying to put in to change this thinking.

Still I tried....

This is my response...

 All this is old thinking and behind us. That is precisely what we have been trying to change for 25 years.
Days of little bit here and little bit there and 4-5% returns are over. Now neither can you buy property like yester years and hope for it to multiply from 1cr to 200cr , nor can you get 12% returns from banks.
We move cohesively and so far over 2200 people that I'm aware of are on this path and plenty have retired safely and others are guiding their colleagues further  on their ships.

Over 11 people in this year alone have reported reaching the critical point of 1 cr , and by some strange coincidence most of them are of 2/O and 3/E rank.  The reason for this could be that the seniors do not wish/like to share their status for some reason.
So you see, it's not sufficient to halfheartedly prepare for future life, it is not possible.
The effort has to be well thought and researched and then followed aggressively  only then will you be able to get the best out of the hard work that you're putting on the ship.
Don't count the days on board in terms of the salary, think of it as the days of sacrifice and blood , sweat and tears. The days away from wife, children and parents. It represents time that will never come back.
Hence it is in our interest to be determined and ensure that our salary is treated like a seed or sapling which SHOULD grow into a big fruit tree. This tree will give fruit if we care for it for some time- till it reaches a certain height (or quantum) after that this tree will give you such sweet fruits and in such sumptuous quantities that you could have never imagined.
Instead of looking around at toxic products , we must keep reading to see how the equity scene is changing or the bank rates are moving. e.g. The rise of Index funds and ETFs, some optimism for debt funds etc.
We should read more about Personal Finance to understand the pitfalls.
In my opinion more than money it is Time , Patience and Strong determination that is required to attain Financial Independence.