Mariners - Safety and Asset allocation

 

                                 Mariners - Safety and Asset allocation

   

 Prelude: How fast time passes - is a cliche'.. Well not quite. It's been 2 months since I posted here. It's not that I haven't written. In fact I have written over 50,000 words but have not been able to assimilate thm in one place for people to read.

This article was written exactly 25 months ago but was probably lost to digital storage.

Whenever I have written anything in the field of finance or psychology it has been mostly for seafarers and that has been aptly demonstrated in the Titles of articles, books, and groups that I have formed.

The reason for my focus is mainly because to understand the psychology, requirements, challenges of a Seafarer- I don’t have to exert or research. From morning to evening – whether I was at sea or  now on land- I was constantly observing them and observing the commonalities and also the differences between them.

As I have mentioned quite a few times before at various forums the first thing that struck me was somewhat ignorance at planning for future, and this I observed in my seniors more than the juniors. In fact, the crew was always smarter and with their penchant to spend less and less they had actually impressive businesses going for them. Except for a handful the Officers were without exception into – you guessed it- REAL ESTATE or Property as they called it. I do not remember a single person who told me that he had sold a property and used it for consumption. But…anyway we’re going off track here.

What I actually wish to delve upon is the topic of retirement. This is a word that can create great anguish in a shore-based person- depending what position he is working in. The higher the position – greater is the insecurity. This insecurity is not so much about the financial part as most of them have impressive pensions and provident funds and gratuities and superannuation funds and bonuses and the works. For them it is more about them losing the importance and social relevance once they’re off the “seat”.

Not so much about our adroit Mariner!!!

Even at 58 he considers himself fit enough to go for another few years. Mostly he has the same attitude to money and it’s planning as he had on the first day at sea. Social relevance is not important to him because he hasn’t really cared about the society so far and considered his family to be his universe. So he is free from all those complexes that his neighbor Chaubey ji – who is a Chief Manager in a PSU bank harbors. Is he??? Or Is he???

A mariner in the sense of his life long association with uncertainty and impermanence of his job always has this adhoc-ism in his life. Because of this factor he cannot actually bring himself to think of something of lasting value in his present or future. This is aptly clear from the numerous queries that we come across from people regarding how much would be sufficient for their retirement?

AND that is exactly the question that we intend to take up in this article.

HOW MUCH IS ENOUGH? And HOW are we going to ensure that we have it.

Finally the Mariner has realised that without Equity he has no chance of collecting enough money to fulfill the requirements of his dependents and his own. This realization is itself a big change in the mindset of thousands of Mariners- who so far never thought beyond the bank deposits and Real estate. To further ease his journey and adopt this equity into his planning, we found the new world of Mutual Funds where he could have his money managed by paying a minuscule fee . Mutual funds eased his burden and diversified his risk in two ways. By investing into a large number of companies and by taking away the decision of timing that investment. The SIPs and STPs objectified his decision of continuous investment which never happened before as his brain was always making him keep extra amount of cash in the bank waiting for some high-ticket expenses or an emergency. The STP allowed him to have his cake and eat it too – when required.

During this time, he also learned that since equity is risky he needs to keep some large percentage separately in Fixed Income or Debt funds. Fair enough it was necessary to keep something for contingency and risk!!!

Again, bringing back Neuroeconomics into picture- was this risk quantified? No, it was not quantified- simply a percentage of Asset allocation was adhered to.

Percentage? Why in percentage?

Is the duration of the risk to equity, known? Was it known that if the Stock market went down by half – how long will it stay there.

Was the quantum of risk known? i.e., was it known How much would he lose if the market went down at all.

In the Indian context, recorded history of stock market is about 40 years old. So can we on the basis of such a data actually draw any inference.

None of these questions can be answered affirmatively. So what can be attempted to is to discuss the asset allocation between Debt and Equity. Why? Because our GOAL should be only one- as a mariner-that our corpus should always outlast us!

I have recently received messages of concern that should they not go with conservative Hybrid funds which are considered safer or should they not have more than 50% in Debt in the final years of retirement.

I consider this is a very unwise step.

In my opinion the asset allocation of Debt: Equity as 70:30 or 75:25 as recommended by Financial Advisors is quite detrimental and goes against the whole life philosophy. The asset allocation ratio has been formed with random figures without any thought to the actual Corpus.

Why does a person have to settle for a ratio?

 For safety!

Are the debt options safe?

Aren't the debt options subject to risk of continuously depleting interest rates.

One doesn't spend in terms of ratio but absolute numbers and sums of rupees.

Should a person having a Corpus of 2Cr and 4 Cr have same allocation to debt.

Again, should a person having 4 Cr and 10 Cr have same allocation .

I personally feel it all depends upon a person's lifestyle and family needs and dependents at the time of retirement. But it all boils down to reserve expenses for the number of months required.

Towards that I feel... Having more than 40-48 months of expenses is a waste to keep in debt avenues.

By short history of mutual funds in India, people have lost more in Debt than Equity funds.

Debt is an Avenue which is more translucent, if not opaque.

So how much you should have in debt...

For up to a Corpus of up to 1cr in retirement...90-100% ( If 1 cr is all that you have!)

For 2Cr- 90%

For 3Cr-75%

For 4cr-60%

For 5cr - 40%

For more than that 30- 20%

This corpus should never deplete!!! That should be your only goal.

 If you don't want to use this suggestion...

Just ask your spouse and think together for yourself.

I feel unless the couple sits down together no financial plan will ever work.

Once you have read the above, you must sit down and think about your respective situation. Consider your age, marital status, check out your expenses for last 5 years , the goals to be achieved in before retirement.

 

 

 

 

 

 

 

 

 

 

 

Few days ago I had sent a call for review of franklin Templeton schemes .

Just before this call I had redeemed my entire holding of Franklin India US opportunities fund.

The date of transaction was 12^th  April. However , the funds did not come in the bank within T + 3 period as expected.

When I wrote back to the company after a week only then were they credited it to my account yesterday late evening.

I could have understood this delay and have normally moved ahead as I have in the past few instances with other AMCs. But what I wish to narrate to all of you is a disturbing incident regarding Internet transaction.

On the pretext of wrong password my account was locked and any attempt to reset the password was sending me back to a email address/ mobile number that I used 16 years ago . There was no connection with the present Folio which I had redeemed.

The idea of this post is to inform you about the pitfalls of internet transaction and importance of keeping your user id and password current.

I will suggest to all of you to following steps so that you do not face any surprises at the time of your  redemption in case of necessity of funds.

 

1.      Check your email from AMC from time to time .

2.      Make test redemption of Rs.1000 now and then to be sure of the procedure and the time it takes for various class of funds to reflect in your bank.

3.      Write down the user id and password of all your accounts in a notebook and keep the book safe.

4.      Check your portfolio manager (wherever you maintain) with the  SOA sent by the AMCs from time to time.

5.      Don’t delete transaction messages and emails from your phone and pc.

6.      Keep important messages and details on the cloud. Better to keep them in the same cloud as your IT and Bank documents.

7.      Preferably keep one mobile and number dedicated to finances and do not load any app except of bank, stock trading account if you invest in stocks and AMCs.

8.      Retain at least one annual SOA of bank, MFs on paper and keep it safe.

9.      Complain to AMC of any non compliance freely, never hesitate.

I have been taking all the above steps already and hence am in a better position to face the amc.

In my view Franklin is on a shaky ground.

Regards

Rajeeve Kaushik

 

 

 

COST OF MONEY VS TIME

 COST OF MONEY VS TIME

 
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 every 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 and gain so much in experience.
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...
 

© Rajeeve Kaushik
10Feb2023
 
 
 
 
 

How much you save as a Mariner

 Rajeeve Kaushik, [17-03-2023 08:43]
How much you save as a Mariner

No the topic is not about what you may be thinking.
I have a habit of collecting data to generally get an idea about various aspects of the society. In the peak of demonetisation I had done a survey on how much cash do Indian families require from minimum to maximum.
Later another survey of energy requirements of Indian families.
Recently I was preparing a self assessment of energy and communication expenses tik prepare for another survey. During that it struck me to to prepare the hidden expenses of mariners which they never pay for.
From my very childhood I never appreciated two things about a salaried employment.

 First was getting up at on early hour and commuting long distances for one's job.

Second was an early realisation in life that what ever one earns he or she spends the large amount of it in simply performing age keeping that job,  this can be equally applicable to a school teacher or highly paid executive.

Luckily, like you I landed in a profession where I did not have to commute daily nor was there much expense involved in performing that job.
Around 4 years ago my daughter got married and both of them landed in what is perceived as premier services in the country. While helping them settle in their jobs and set up their households I realised that their salary was nowhere close to even being sufficient for bare survival.
This further provided some input to my thought process which has triggered writing this article to help you appreciate at actually how much you are earning in real terms by working in the merchant Navy.
An article is never considered good if it is written in a tabulated way but I have no choice but to write in a mixed format.
1. Training for the job: the cost incurred for your training is at par with any private training institution, in fact now even a government funded IIT requires almost half of the cost of college education as compared in merchant Navy. So that levels the ground here .
2. Joining first time: most of the jobs required you to travel on your own where as in merchant Navy you are given a flight ticket along with Hotel accommodation at both ends and the agent taking care of your taxi expenses.
3. When a person on shore joins his job in a new city he pays for the rental accommodation the brokerage for that rental accommodation setting up the house for minimum at least including furniture even if not any kitchen expenses. Cost involved is minimum 25000 monthly + 1,50000 for other paraphernalia requirements.
4. When you are working in a city you would require a television at a cost of at least ₹25000. Monthly cable network at rupees 700.
5. Wi-Fi requirement for internet and OTT is about ₹1500.
6. Even if you do not maintain a kitchen while working on shore, and want to order by swiggy or Zomato you will have to keep minimum requirements for breakfast which will start at cost for the fridge at ₹ 30000-50,000. Otherwise where will you keep the beer.
7a. Daily breakfast at minimum rupees 150.
7b. Lunch in dinner from outside at a daily cost of about ₹600 minimum. However the meals that you get on board a certainly worth much more and cost the company at least 9 to $10 a day.
8. Daily travelling aur commuting to work may involve your own vehicle or a public transport or a cab and none will cost you less than rupees 250 a day. Let's not count the cost of a 2 or 4 wheeler.
9. The clothes required for your office require minimum upkeep but certainly ₹50,000 a year or ₹ 4200 a month.
10. Let's even out the cost of mobile phone which you would have to pay from your pocket in either of the cases.
11. Electricity for power and microwave would be at least ₹2000 a month.
12. If you manage to maintain your NRI status simply enhance your monthly salary by 35% instead of deducting anything else.

So a salary of $2500 a month actually becomes 3375 and pro rata for senior ranks.Considering above we realise how much we're saving without doing anything, so all the more reason for us to stat saving and then investing the saved amount.
Now please do not respond by mentioning the difficulties encountered while working at sea because that is not the topic of discussion. The topic of discussion is that in real terms your salary is more by the minimum amount that I have mentioned above. So you certainly have a case of investing regularly and more than your shore counter part.
Please do let me know how much you're saving.

© Rajeeve Kaushik

Accumulating your first crore why it is difficult and how to do it or Mission OCR

 1 crore is not a magical figure which will make any major difference in your life.
It is a Psychological barrier in Indian context which makes one feel a sense of achievement .
There was a time when OneCRore was considered to be more than sufficient for one's comfortable life and all major expenses and was advocated by none other than my revered Guru AN ShanBagh.
Later on the figure remain fixed but it required to be accumulated to carry on with life and it's intermediate goals like children education and maybe the marriage, but was a figure considered to be separate from the retiral benefits .
In the context that I mention OCR - specially for the Seafarers is for them to be assured that they are on the correct path and must proceed on without much deviation.
In the process of accumulation of this figure one learns about various necessities of money & the ways to go about accumulating it by saving first and then investing it -I call it the learning stage though the professional advisors call it accumulation stage.
In the journey towards this OCR a person starts learning about virtues of patience and self discipline. One sees the money grow by a few percentage points every year but also going down by a large amount at another time frame and yet bouncing back in another much shorter time.
What OCR represents is also biggest mental block and challenge because one faces it at a time in the beginning of ones professional life when his salary is at its minimum and exposure to life is equally low.
With a thousands to maybe a lakh of salary one starts multiplying it by a factor to see how fast one will achieve it.
In the beginning of one's life one does not understand where one CR stands in his overall life planning and what it can help him achieve what with the parental experience thrust upon him he does realise that it must be a very big figure and difficult to achieve.
He faces various hurdles and impediments thrown at him in form of dubious saving schemes and low yielding plans of ULIPS , endowment  and money back schemes.
It becomes very difficult for him to let go of the secure thread of the parental guidance or advice procured from conventional sources and resources.
He is constantly reminded that equity means stock means speculation or Satta and why it is not good for people from good families to invest in it.
Of course nowadays things have been made much simple by the constant advertisements about "mutual fund sahi hai" but does create doubt in minds of the people and of course confusion because there are thousands of schemes available to choose from.
He gets easily beguiled by terms like debt and risk.
The tea-time advice from seniors on board  also does nothing to make things easier.
How to go about OCR
1. To start your journey towards accumulating OCR one first must understand that what is possible by and through equity in the capital market is not possible through any other method. One must break down one's thought process to understanding that when he invest in a company stock or mutual fund which are nothing better than collection of various company shares and his actually part ownership into those companies.
One must clearly understand that as these companies will grow the business the value of the companies will increase and will be exhibited by the share price of that company.
He must further appreciate that these companies are the backbone of the country and its economy. I such depending up on the policies of the government either these companies why the virtue of their management will do well or not. He should further appreciate that by taking stand in these companies he is actually making himself a participant in the countries economy* .

Which means if the country grows he grows in terms of his personal wealth.
Not only equity but even debt has an important role in the economy of the country, as it is debt market which provides the money required to create infrastructure and grow various businesses.
For that matter even a passive investment like gold which may be seen to grow at a very slow rate but actually it is a store of value for uncertain Times.

2. With this knowledge intact one must approach one's first Mutual Fund in form of passive fund or a index fund purchase directly with the AMC other mutual fund company.
Mutual fund offices are available even in Suburban towns or otherwise the RTA is or the registrar and transfer agents which means CAMS or KFINTECH offices in these small towns can also do the job.
As I have always advised , one just needs to go to these offices with one's CDC, passport last contract form, cheque book ,Aadhar Card & PAN card .
Start the process of investing in anyone index Fund with the minimum amount which is 5000 and also commit to SIP for at least 1 year which he can extend later.
After the system is set for the first fund one can start investment into another index fund or a Flexi cap fund which comes in the active fund management category.
One must try to outlay at least 35% of one's annual income divided over 12 months.
As one can observe from the Excel sheet that I have circulated quite a bit by now that the money would slowly start growing like a train chugging out of the station.
Once a person has started off investing into three funds he can add one or two more inform of midcap fund and a small cap fund. This will complete the portfolio that one needs to achieve one CR as it is the investment from one own side that will do the job.
3. Ups and downs:Now all that will happen on the way is  that the market will fluctuate and thereby the value of equity fund also go up and down in fact it will go up and down even for the debt funds.
This is where person will have to observe Equanimity which means he will have to be in a steady state in whatever happens to him and his portfolio.
 Because you must understand that a falling market is actually good for you as it provides the opportunity to invest your current money at previous or old prices when you did not have that money.
It is this singular habit of not changing your funds too often and not stopping your investments even for a month that will ultimately prove as a boost to your investment portfolio.
4. Experience: ultimately it is his habit which will propel him forward and the events en route' to his OCR journey that will add to his experience.
By the time he arrives at the train station of one CR he would have gained knowledge of all the avenues where he can invest and will start advising people around him also.
He will understand the pitfalls of various other avenues available to him and of course will also take inform decision in direct stock investing.
Since no two people are equal .it is possible that a few  may boost their portfolio by direct stock investing.
However if this stage arrives after he reaches his station of OCR it will be very beneficial.
If one just starts dabbling in direct stocks or any other avenue to enhance his capital it might result as a heavy opportunity cost for him.
5. Finally the OCR station: one day our young investor finds that the total assets in his portfolio manager are indicating this magical figure of ocr. Though this may have taken him a few years but it does provide a sense of joy and achievement.
By now he will become substantially confident of his method and methodology.
What has taken him a few years to achieve in terms of OCR will now take much less to get to 2Cr because by now his salary has increased and so has his confidence and faith in the system which will propel him to invest more  in the system.
Now his stage is like a youngster who has been learning cycling with the help of a trial wheel and now he is ready to remove the trial wheel from his bicycle and can properly ride a bicycle.
You can also compare his stage to a tree which has grown out of a sapling .
This sapling requires lot of care ,nurture, manure of fertilizer regular watering and beyond everything protecting it from outside animals and stray cows to be eaten up.
Now that the tree has grown by a few feet and the trunk has become reasonably strong,it does not require any protection and does not even require watering or fertilizer as he will draw its own nourishment from the ground.
Even from the stand point of mathematics and observation of the historical market data to grow from one CR to 2 CR and four CR will take only for the 4 years and 8 years respectively

ONLINE FRAUD IN BANK ACCOUNT

ONLINE FRAUD IN BANK ACCOUNT

 

FOLLOWING FROM SOCIAL MEDIA

QUOTE//

 Let me tell you my experience with ICICI bank which happened 10-12 years back. I had 1037147/ in my bank account. I did not operate my account for almost 02 year and was looking for right opportunity to invest. One day when I checked my account I was to see only 137 rs was left in it. I lodged a complaint with police and with some political clout I expedited the case. There were three people who through phone banking changed my phone number, my email id and asked bank to issue new debit card and online id and pwd. When it came to my mailing address, they tricked the postman saying that I am Mr. Khulbe and do not give these couriers to my brother since I do not have good relation with my brother. They took debit card and online banking pwd and robbed me of more than 10 lacs. I had accused ICICI Bank, post office and these people for fraud in FIR. I wrote that since icici bank was the custodian of my money how can somebody penetrate their security system and rob the customer. This was the headlines in news paper and tv. My son was very happy that I am on tv channels 😊.
To cut the long story short these persons were arrested and some amount was recovered from them and rest was paid by icici to me to protect them from bad reputation.

Irrespective of whichever bank you open an account, It is time to be extra careful as you can see different approach by fraudster to rob you online. Only write online pwd in your mind and nowhere else. Anyone unknown who calls me for all these things, I ask for their Aadhar and PAN to be sent to me on WhatsApp. And truly speaking no one has sent their Aadhar and pan and if they send then I will
Ask them to come on video and verify. This is the only way to verify their credentials.

From a WhatsApp group

/// UNQUOTE

 

This is certainly "happenable" I have already heard about something happening like this in the past.
In the digital world of today when things have become convenient- they have actually become so for both the customer and the fraudster.
In this scenario few things that one should do is...
1. Not to have too many accounts one or two 2 are enough.
2. Check the account activity at least once a month.
3. Keep your mobile numbers and email address updated.
4. Do not keep too much money in savings account.
If you remember I had shared about 8 months earlier when I had some transit funds in very large figures in the bank which I had to plough back in  I converted the amount into a lot of small small FDs.
5. This is also the reason why I suggest that your investment in mutual funds should be directly with the AMC eliminating all the mediators.
6. It is a matter of experience but my experience of 27 years with Mutual Funds has shown that their maybe a sluggishness somewhere But your funds and money is always safe with the AMC.
7. Take regular statements from the bank and your investment  entities.
In fact NSDL n cdsl do send consolidated statements as per SEBI regulations but are not very regular. 

8. DO NOT GET ANYTHING BY POST IF YOU HAVE AN OPTION.

 

A Clarification

 Good morning Gents
I have got some feed back on the videos produced by CE Praneet Mehta with me, that they're too basic and what next...?
I said that is all to personal finance what else they want?
I was told that they want the simple names of 8-10 MFs!!

Now that doesn't work like that for 3 reasons .
Firstly my book or the videos I produce are largely for education purpose or to Kindle curiosity. They are generic in nature and need to be relevant irrespective of whatever happens in the market. It's like learning basics of Marine Diesel Engines after which you can work on any make or type.

Second Reason: is that in such a video I cannot suggest mutual fund schemes as it amounts to general recommendation. I cannot publicly recommend because I'm not qualified to do so as I'm not certified finance professional.

Third and most important reason: because of which I can suggest ON THIS GROUP based on my own investment profile is because not all funds are suitable for all investors.
I like to see the age , rank and the life stage of a person. It is is possible that he's a 4/E but married or a C/O and not married or married with grown up children.
So I like to adjust the selection of funds in keeping with the risk that a person can take and the money that he has at hand to invest or will have in future.
My recommendation of funds does not have any clash of interest like the professionals who recommend stocks. This is because  a MF need not be sold for profit booking like a stock ,so timing is irrelevant in MF investing.
You can even start investing on a holiday as the transaction will only happen during the working day.
In fact now my only transaction are for selling which I do leisurely on a weekend.
So please have faith in one to one interaction otherwise there are 1000s of videos and reccomendations on the net and it's curious no fund is ever on two sites as the best performer.

Ground Relation & Bird's Eye View of Inflation and Equity

Ground Relation & Bird's Eye View of Inflation and Equity  

I had written the article below a week before I read the following news item.
The price of wheat flour or Atta. Do you know how much it has risen in 1 year. The most basic of food which is used to make almost everything around us has risen all most 40% in just one year.
Now onto the story...
Inflation is always viewed upon as a villain or as a corrosive acid which eats into your hard earned income and salary and finally renders it as useless or insufficient almost like a wooden almirah or furniture rendered useless by termites.
Whenever we go out into the market after coming back from ship and look at the prices of essential commodities and manufactured products we almost get a shock. For that matter very rarely have I seen that people come back from ship and ask the wife what is the household expenditure OR the wife giving a straight answer.
But whether we ask our spouses and whether they tell us or not the fact remains that prices never ever come down.
In order to counteract this menace of The Invisible Giant called inflation there are only 2 ways.
First, is that we have a consistently increasing salary. This is really not possible as we have seen the salaries stagnating for over a decade in the Maritime world. Ever growing dollar is unable to keep up with the Indian inflation because the cost of living or the practical lifestyle inflation far exceeds the rate of rise of the dollar.
Second is by investing more in equities and less in Fixed income or Debt products.
This article basically tries to give a layman's point of view of why "equity will always outperform inflation " and it is very simple to understand.
After all the inflation means rising prices of the services and products that are available in the market and which the consumer always buys.
Consider a good diversified Mutual Fund investing in all the sectors of the economy and further on with at least two companies from each sector. Now as the product prices of various goods and services increase the earnings of the companies involved will also go up and so will their share prices of the companies. Infact not only the blue chip companies, the smaller and midcap companies related to those sectors will also go up.
Along with these  what will go up will be the NAVs of your mutual funds.
It has been observed and accepted that net return of your nav will be equal to the GDP growth plus the inflation.
So now you can easily see that your return on your investments in equity MFs will almost always exceed the overall inflation .
I have two very distinct and personal examples on this.
My younger brother worked for a battery company. Seeing the scope of his job I purchased few shares of it and conveniently forgot about it.
After 13 years of getting good dividends when I sold them to foot a large family expenditure I had made enough profit to buy batteries for all the cars that I would buy later on in life.
Second is a rather sad example. Where a family member had to go on a brand of insulin manufactured in India. Seeing how many doses were being recommended by the diabetologist I purchased some shares of that company. The company has grown enough to foot the bill of the insulins for quite a few years.
If you will extend this example to the banks, auto companies that manufacture buses and cars, cement, Steel, Glass, electric wires and switch gear, water pipes, car Tyres, lubricants, medicines and hospitals, petrochemical products, gold, watches, clothing& fashion, mobiles and the list goes on...
It is obviously not possible for us to buy shares of each and every company in every sector. So the best is to buy the mutual funds  that buy these companies at the cheapest cost which means index or active which ever is possible and buy them continuously. At any given time you will be buying the company at a different price than before and even if it is higher the already purchased shares would have risen to give you good Returns.
This is the only counter measure that you have for the inability to not have unlimited income but certainly unlimited demands; which incidentally he is also the first lesson of economics books.