ONE MORE ON NPS

On a personal front I can be held guilty of taking a flip flop stand on the issue of NPS.
Initially I was a little skeptical about it or rather very skeptical. Then with the change in taxation rules about 2 years ago I had changed my stand and  advised people to open it. However the return over the past one and a half year does not really justify using NPS as investment mode and following are my reasons for it.
1. We have to compare NPS with other avenues on not only The returns but also the tax efficiency part of it.
On this count it does not hold very strongly against the pure debt funds.
In good times the pure debt funds of various maturity  have given far better returns despite the NPS expenses being on the lower side.
2. NPS allows us to invest a maximum of 50% in the equity sector and the remaining can be juggled between the private corporate bonds or the government securities. By virtue of this it can't really be compared with any mutual fund and hence most of the equity based balanced funds landed performing much better then the NPS schemes.
3. Now even after increasing the expenses tenfold this still seem to be a lot less because of which probably the fund managers are not greatly interested.
This can also be the reason of the poor performance.
4. Tier 1 is the compulsory option for starting NPS and in this your contribution remains locked till the age of 60. At which stage you have to put in 40% to buy annuity which means pension . Then at least of the remaining 60% ; 40% is tax free but 20% is taxed. This disadvantage will always remain with the NPS since all the pensions in India are taxable.
5. However now with the introduction of capital gains on equity is there is a case of comparing NPS with the mutual funds but in my opinion the outright locking of money in NPS takes away a large advantage for us ,the seafarers.
6. Tier 2 which is actually similar to tier 1 except there is no tax benefit and there is also no lockin for the funds- is not available to NRI. If this was available then possibly it could have been of some advantage against the mutual funds considering the low expenses.
7. Considering the fact that rules may keep changing for NPS and sometime they may come may become better for us, it is advisable that you open NPS account and maintain it by putting the minimum subscription because in the younger days there is no point in putting the money in inefficient avenues.
On the other hand if your spouse is working or even otherwise it is good to open her account and keep depositing whatever little you think is necessary because she will have the advantage of investing in both the tiers.
However my point of view is, not to invest too much in NPS in the initial years and watch for any  favourable change of rules.
In comparison for your wife and yourself if you are not an NRI you must open the PPF as it has more then quantifiable benefits which you will realise later on.

DIVERSIFICATION AND ASSET ALLOCATION WHAT DOES IT MEAN.

DIVERSIFICATION AND ASSET ALLOCATION WHAT DOES IT MEAN.

During my interaction with various people in the course of the financial conversation, I come across two types of people. One of those who do not wish to move out of the Bank savings account, FDs and probably post office schemes and on the other hand those who actively wish to have exposure in equities.

I agree that the latter category is in rarity on its own but if you speak with the former category few of them do convert to equity investors.

Now once this class converts to equity investors and they see profits raining they tend to go overboard and start putting most of the savings or all of the sayings in the equity through mutual funds or direct stocks.

At this moment they start seeing everything right with the equity and everything wrong with the low yield in fixed returns schemes like the banks and post offices offer.

Now which of them is correct? Obviously none of them!

One must at this point start to appreciate the concept of Financial Cauldron which I had introduced a few years ago.

This Financial Cauldron is essentially a pot which contains all your Savings and investments in all form of assets.

But why is it necessary to have everything in that pot of soup when the equity is the best returning and most tax efficient.

An equity investor who has entered the markets in last 5 or 6 or even 7 years has only seen the market going up he may have seen fluctuations and correction but he has not really seen a bear market.

The 8 to 10% fall which they have seen in the last 3 months can be sharp 20-22% or even more and can extend upto 1 or 2 years or longer.

As such  depending upon their life stage whether they are young or old , they start to lose the peace of mind and start to get worried because it is not easy to see one’s corpus go down by 25-35 and 50% in a matter of few weeks, but that may not be a remote possibility.

So what does diversification mean in context of India at least. I can speak about India because I am aware of the few options that are available in this country the readers from other countries should also explore similar ones in their own countries.

1.     Should I invest in PPF and waste the opportunity for a return of less than 8%.

My reply is yes if you as a NRI cannot invest or open a PPF account on your own you must try and open it and run it in the name of your spouse and children as far as allowed by the rules.

If you trying calculate the value of these periodical PPF deposits that you will make with the rapidly changing interest rates also you will find that in a period of 30 years the amount is fairly handsome. And more than Handsome when you consider that the proceeds are entirely tax free if removed and used for consumption.

Whatever other financial analyst may say about PPF but as seafarers it is rather necessary that you invest your higher salaries partially into PPF because after 15-20 or even 30 years you could withdraw amount from this PPF account for your consumption. And if need be you can remove from there and put it in your other Investments.

As I always say that post retirement one must try to keep their monthly income tax efficient or zero tax as far as possible.

2. Should I invest in Sukanya scheme in my daughter's name.

The answer is a resounding yes. And it is a yes precisely for the point that I have mentioned above. With the higher earning that you do it is rather insignificant amount that you will put into this excellent plan which works and slightly better than even PPF and may be helpful to your daughter when she goes to college.

3. Why exactly I am I opting for these low yield avenues.

My reply to this is- the dynamic and ever changing policies of the government.

As you may have seen during these past decade how various governments change the rules during the budget making some schemes taxable and making others tax free at any given time. Or even increasing the load of investing in particular schemes.

For that matter even the rules for PPF changed so fast that it is difficult to keep up with them.

In the scenario it is important that in keeping with the laws of the day you look into a particular scheme and let it run till it is advised by the government that it cannot be continued for a particular class of savers.

So what should my Financial Cauldron be like...

Bank savings account in NRI/ NRO - Yes

Bank NRE FDs yes

FCNR deposits- YES

PPF – YES

Sukanya scheme-YES

Equity Mutual Funds-YES

Debt Mutual Funds-YES

Gold in Demat form-Yes, slightly

Gold in bullion form- YES up to 5%

Real Estate ,Land- YES for your own house and maybe just one piece for investment purpose in case you wish to change the house tomorrow.

A good nice big expensive car sorry that's not an investment. That is why I have kept it out of the box.

Up to what extent should I invest in the above avenues?

For the small savings there is a cap but for the other ones there is none.

At the end of the day I can safely say that you must allocate your Assets and balance them very vigilantly so that over extended period of time of 5 to 7 years or even 10 years you get a overall return of 10% on the complete portfolio and when I see complete it means all the above things when put in your Financial Cauldron.

There is one thing that I have left out and that is the Senior citizen Saving Scheme and the Prime Minister VAYA VANDANA Yojana.

These are necessarily for your parents and the question arises that should you be investing in them.

Now for obvious reasons I cannot advise you to invest in them and it depends entirely on your domestic condition and relationships between different people.

But yes as per law you can gift any amount to your linear ascendant or descendant blood relations.

I'm considering these schemes as they carry a slightly above market interest rate that is about 1.5%.

The maximum cap for investment into these two schemes is 7.5 lacs in single name and 15 lacs jointly.

You may invest in these schemes if your parents do not have the retirement Corpus of their own.

This will make them slightly more secure and give you lot of satisfaction too.

But the take home lesson from the above is to maintain an asset allocation of Equity to debt that you are comfortable with. In the debt you can count everything except the real estate.  After that keep re-balancing the allocation ratio as you keep earning or as the assets start giving attractive returns or the market nosedives down. The Asset Allocation Ratio must be considered very sacred and adhered to. If this is done – you will be able to override any market condition.

The Four Ashrams and the Overlap

The Four Ashrams and the Overlap

To my post yesterday on Men and Women, one of the gentlemen wrote the  reply below.

Very well written Sir ...
मैं आपके विचारों से सौ प्रतिशत सहमत हुँ। भले ही मेरी उम्र 30 वर्ष और वैवाहिक जीवन का अनुभव भी नही परन्तु मेरे विचारों से यह बात होकर गुज़री है और आपके उपरोक्त लेख में मैं उन्ही विचारों का प्रतिबिंब देख रहा हूँ। वृद्धावस्था से भय किस सीमा तक होना चाहिए या यूं कहें कि क्यों होना चाहिए। क्यों मर्द उम्र भर दिन रात एक करके काम करते रहता है कि अपने वृद्धावस्था के समय में  आनंद  ले सके । अपितु सत्य कुछ और ही होता है। जैसा कि आपने जीवंत उदाहरण प्रस्तुत किया। अपने परिवार के साथ  आनंद से समय व्यतीत करते हुए वृद्धावस्था यापन करना मिथ्या ही लगता है। वर्तमान में एक परिदर्शक के तौर पर समाज में होते बदलाओं से मुझे भी वृद्धावस्था का विचार एक असुरक्षा की भावना तो लाता ही है साथ ही साथ उम्र के इतने वर्ष काम करने के बाद एकान्त और उपेक्षित जीवन के विचार मात्र से सिहरन सी उठ जाती है।
 एक पिता को क्या परिवार का आर्थिक स्तम्भ ही माना जाना चाहिए? क्या जब परिवार आर्थिक रूप से सशक्त हो तो पिता को वृद्धाश्रम की शरण लेनी होगी? ऐसे और भी कई विचार जीवन की सरलता पर प्रश्नचिन्ह लगा देते हैं।

*******************************

His message was well intended and reflected his concern regarding his behavior for future. So I had to think and review what I have been doing since I turned Fifty and what is exactly in store for me. Nothing works like your own behavior....
Following is the Reply to Mr.Digvijay Chauhan...

मेरे ख्याल में इसका जवाब इंग्लिश में टाइप करके देना चाहूंगा ताकि सब लोग भी इन्हें ठीक से समझ सके.
Despite what I have written in the above article the fact remains one must do what one is destined and designed to do.
Very unfortunately the scriptures found in our country,  in the form of Vedas, Puranas and Upanishads have spoken a lot and have been passed on to us by our forefathers but unfortunately nobody ever followed them.
It is a very common philosophy often quoted in our country that our life is divided into four phases.
The first phase demarcated for 25 years is to be dedicated for acquiring knowledge and skills to pursue further life and is called Brahmacharya Ashram.
The second phase of 25 years upto the age of 50 is to be devoted in raising ones family and bringing up his progeny to be socially useful and socially productive.
After the age of 50 it wise to start detaching oneself and let the family members start taking their own decisions. One should watch from the sidelines how each member of not only his family but extended family and neighbourhood are growing up. He should by the virtue of his by now strengthened financial position and experience be able to influence the lives of those lesser privileged around him. And by lesser privileged does not mean in terms of money alone but also experience and Outlook in life.
During this 3rd phase from age of 50 to 75 one is expected not to interfere in the matters of running of the world and start acquiring skills and philosophies of his personal survival. What is expected to look inwards and see what he has done right and if he has done some wrong, then how we can connect them so as to be able to build himself as a more socially useful and productive animal.
This 3rd phase call VANPRASTHA Ashram IS ONE OF THE MOST IMPORTANT PHASES BECAUSE AS I OFTEN SAY, IT IS THE AGE WHEN THE BURDEN OF ONE'S EXPERIENCE HAS NOT REALLY SLOWED HIS ACTIONS.
This is also an age for most of us partly because this stage also includes the part of the later age which we call Sanyas Ashram.
Since lesser number of people go past the age of 75 , so naturally part of the Sanyas Ashram has to be practiced with vanprastha Ashram.
This third stage of the third quadrant of life has to be deeply understood and which is what my yesterday's post was all about.
During the second quadrant of one's life one must make himself so strong on one's path and determination that he can continue with the moment into the next 25 years or the part of remaining life.
Unfortunately that has not happened VANPRASTHA Ashram was designed so that the growing people should be able to reduce their off- take from the resources of the society and start consuming less and less.
But that is not exactly what is happening.
When I travel abroad I find more and more people who are on holidays are in the late sixties and seventies because they are the only ones who have sufficient money in today's world.
Even on domestic front I find the people in the third quadrant to be consuming most of a Nation's resources.
Japan is a clear example how and where the senior citizens start taking out from the society the country starts faltering.
That country has had almost two LOST decades because of lesser resources available to the younger generation.
In Indian government services earlier the retirement age used to be 55 to 58. In the armed forces it was even lesser.
And the reason for this was largely philosophical and embedded in our cultural psyche of the FOUR ASHRAMS.
Other countries have not understood this concept well and that is why Canada is set to suffer with it’s retirement age of 67 and similar in France where large amount of resources are spent on the aged frivolously.
So the answer to your Question about what as a 30 year old must be doing ? Is that just do what you are supposed to do . Once you start approaching the fifties try to increase the area of your influence and think beyond your own family. Be useful to your children’s children , neighbours and the city and then the country.
In such cases your children will be proud of having you as the Figurehead. They will look forward to take your advice instead of you thrusting on them.
That is my reply to your sensitive and intelligent question.

Of Men And Women The Eternal Question

 Of Men And Women The Eternal Question

The other day while I was driving out of the club an elderly gentleman waived and asked me for a lift to the nearest taxi point.
While driving to the point during the course of conversation he revealed that his wife had gone to US to be with the children as a grandson was born and he had come from Delhi to stay in the senior citizen Complex where he has a room.
After the gentleman got off the car it set me thinking. Do men lose their utility as they grow  older?
Is that what they are scared of as they move towards retirement, that now what will they do because the skills that they had learnt will come to an end with the job.
Is that the secret fear of insecurity.
With a little more thinking and basis of my discussions with a lot of older friends I found that a man by gender is largely a monochrome personality.
And by monochrome I mean even if he is a Renaissance man of lot of skills he still does not have the ability by nature to be able to contribute to the society in more than 1 ways.
Even in the process of raising a family he may be a successful personality in his profession and may have achieved Heights but his contribution to family largely (and by largely I mean percentage wise when we speak of data) , his contribution rests by way of his monetary input or giving the financial stability. This financial support or stability indeed is important and without which not many things can happen and by the virtue of driving that point home a number of times does he really contribute to the making of his family?
Does is really find time for his family?
Historically even if he has found time for his family what were the skills by way of which over the period of Thousand Years he has been able to enhance the process of evolution.
In a very male-dominated way, we always say the early man- man discovered fire- man made the wheel- man developed from Hunter to agrarian animal etc.
Even in a history books we always see the picture of a man doing everything the woman is shown somewhere in the backdrop.
What were the skills that man imparted to his progeny over so many thousands of years. Were those skills imparted by man alone and were not in the domain of the women?
More often than not and in terms of actual generalization when a person sits down he always remembers his mother and her contribution in the enhancement of his evolved and developed life. He always remembers the compassion and patience that his mother had imparted and shown during his upbringing and not the manliness that was preached by his father.
So if gentleness, compassion and love were the domain of the women then what has been that of man?
If only fending for food was the main point of his life then does he not become less useful as he grows old.
Is that not why a woman finds herself more useful to the society even to the last day of her life. So isn't the women still imparting the skills that she had learnt from nature AND because of her nature to teach the children and their children's children, the natural skills just like that of a elephant  or a bird or a tigress teaching their offsprings to stand, walk and hunt.
Now doesn't the question once again  arise that in such a case weren't the skills of food also imparted by the woman.
And then again I ask what were those which were imparted by man?

पुरुष बुनियादी तौर पर बांझ होता है|
न की शारीरिक रूप से अपितु मानस से भी .
जब एक पुरुष ने करुणा हुए प्रेम व मैत्री की बात की तो उसे बुद्ध , महावीर और क्राइस्ट कह दिया। 
जबकि नारी तो अनंत काल  से  करुणा और प्रेम अपने अंदर समाये हुए थी। 
    न् कि वह स्वयं संतान की उत्पत्ति के लिए अनुपयुक्त है अपितु  वह अधिकांशत संतान के लिए कुछ भी रचनात्मक योगदान करने में असमर्थ होता है|
अपनी जिस संतान की उत्पत्ति के लिए वह जीवन भर  अपने लहू की दुहाई देता रहता, उस संतान की उत्पत्ति में भी उसके शरीर का सबसे सूक्ष्म cell ही प्रयुक्त होता है जबकि बालक के जन्म में नारी  के शरीर का सबसे बड़ा cell प्रकृति प्रयुक्त करती है।
 

केवल अपने रोजगार और उसके प्रति हासिल किए हुए  कौशल को वह उपलब्धि मानता है, और परिवार को जीवनपार्जन के लिए दी धनराशि अपना योगदान मानकर सन्तोष कर लेता है।
इसमें उसकी कोई गलती नहीं है क्योंकि ऐसा उसे समाज और संसार ने समझाया है|
किंतु ऊपर अंग्रेजी में लिखी घटना ने जो मुझे समझने पर मजबूर किया कि एक सफल पुरुष के जीवन का, जीवन भर की उपलब्धियों का अस्तित्व कुछ ही पलों में सिमट जाता है।
यह वास्तव में एक सोचने वाला विषय है।
और मेरे साथ ही अन्य पुरुषों के लिए यह भी  महसूस करने का वक्त है कि उन्हें अपने नौकरी के अलावा भी कुछ हुनर सीखने पड़ेंगे यदि वे चाहते हैं कि समय के साथ में चल पाए और समाज में अपनी जरूरत बनाए रखें।
केवल नाईं की या चाय की दुकान पर बैठकर राष्ट्रीय और अंतरराष्ट्रीय मुद्दों पर चर्चा करना उनके हुनर में नहीं गिना जा सकता।

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.