Investing Large Sums in Mutual Funds

Investing Large Sums in Mutual Funds

Quite a few times I am asked by our Mariners about investing money in lump sum.

Sometime this arises from the desperation of FOMO or fear of missing out in the markets, and sometimes simply because a person has not been investing in the past, and has reached an age when he realized that he should have started earlier.

In both cases, I try my best to wean this person away and to satisfy his desperation.

I tried to tell them that at Best if they want they can increase the amount of their SIP or Stp (systematics as I call them ).

Only once in a while, I come across people who have come into large sums of money by selling real estate or by virtue of inheritance after the parents have passed away .

what our Mariner does not really understand is that the sums that they contribute as systematics is more than what other people would be investing as bulk . e.g. your single SIP of 25,000-50K May actually be the bulk investment of a person earning ashore

So it is the definition which changes in the context.

Still, to answer the question whether one should invest in bulk if one has the money or should one follow the SIP I will suggest following hybrid route:

1. When will you come into large sum of money which is more than your 1-2 month’s salary please treat it as a modest sum, and continue with your SIP. At best you can make 3 to 6 bulk purchases of not more than 5% of your amount at hand..
2. If you have acquired an amount which is more than your above salary and you wish to make some bulk purchases, then do so in their existing funds only, if they are doing well and do not try to increase the number of funds.
3. For the purpose of bulk purchases, try to not make a single investment of more than 10% of the available funds with you. Try to continue with your existing Systematic or increase them if you like.
4. If You are fortunate and you find that while continuing with the above ,the market has taken a correction downwards, then invest up to 10% of your total corpus for first 5% fall in the market. if you still have appetite for risk, then invest 15% for the next 5% and 20% for the next 5% fall.
5. The above is a formula which I adopted in 2020 when the market melted ,as most of you know. this allowed me to make my investments in a hybrid mix of Stp, SIP and bulk from the month of February to September 2020. However, I did not stop the systematics before this amount actually depleted and my fixed income portion came down to my pre-reset 25%.
6. There are a lot of calculations by financial advisors, floating in the market about investing more in bulk when the market goes up and Vice versa. But I am not tempted to follow any of them. Our investing journey should be long and our test is in retaining that investment for as long as possible while maintaining our asset allocation..

I hope this will satisfy you and your future queries, and you will be not tempted to time the market and continue with systematics.

Financial Crimes and Punishment

When a thief or a dacoit steals from a person there is a law against it to protect the common man because it is recognized as a crime.

Similarly, if someone hurts any person or kills him whether by accident or intent .

Then, again, there are different punishments, depending upon the condition, because it is obviously recognized as a crime.

But if a person is defrauded by any other person, or a group of people or an organization, and because of which he becomes unstable mentally and commits suicide, or with an accident, because of his mental state, there can be no punishment for the perpetrators, because it is not recognized as a crime.

This was my stand all the way, and I have said so openly as my strong protest against mis selling.

An old person in his 70s being sold ulips with a premium going into lakhs of rupees every year is a similar crime beyond imagination and explanation.

When you walk into a bank to simply open the bank account or fix the deposit and you are persuaded to buy insurance policy that you do not need or investing into some plan which is not regulated or septic or you do not need any such plan is actually Financial Crime being committed The punishment of which has not been spelt out so far because it is not considered a crime.

All those smart people at the bank, wearing creased uniforms or coming into your homes having your coffee and consuming your precious time and nothing less than those the quiet or financial fraudsters who run Ponzi schemes.

Therefore, is not only your responsibility to protect yourself from any such plans , which is too good to be true, but also protect your family members relatives, and colleagues by at least warning them about such incident that happened before.

The financial system in India has streamlined a lot, even though the penalty for various demeanors have not yet been spelt out .

Any such scheme, which appears too good to be true most probably it is .

It is not only the schemes which we are commonly faced with, but also the financial fraud being done everywhere nowadays-are something that we need to be wary off .

You just need to be off guard once and the damage could be something that you cannot forget in the lifetime and might affect your mental health.

Therefore, do not be in a hurry when any such plan is offered to you, because any such plans are always accompanied with the feeling of urgency by the seller telling you that this offer might be over .

Not just monetary schemes, but selling of real estate,  loan against Gold, and many other things fall into this category of economic offense, which so far has not been defined properly in the country, and even if it gets defined unscrupulous elements will always find something new to keep their system lubricated .

Importance of Debt Funds

Importance of Debt Funds

As I have often said, debt funds are an integral part of one’s portfolio and the fixed income genre of asset allocation . However, lately I have stopped playing stress on it for  few reasons:

The new taxation introduced on debt funds from first April, 2023 has taken away the tax advantage, because now you do not get any indexation benefit, and even for long-term capital gains the gains are taxed at the slab rate, without any deduction that comes with the income .

Secondly, most of the officers are heavy weight on NRE, FD, which in the light of above taxation issue is actually beneficial as long as you are nonresidents. but as soon as you give up the NRI status the interest on NREFD becomes taxable. Under such conditions once again, dead funds will become relevant.

Once a person has reached a critical amount in the NREFD one must actually start looking at debt funds to park the long term money for the purpose of asset allocation.

The way to manage the asset allocation ratio, which I usually prefer to keep for myself at 75 equity, and 25 in fixed income and debt funds. It works both ways and used to work better before capital gains on equity was introduced..

Irrespective of the condition of the market, whenever One found that one’s allocation to equity has gone up by 2 or 3% then one could shift excess funds into the debt category of the same AMC. Conversely, when the debt allocation had increased one could shift to equity. Even at the cost of incurring capital gains. This keeps One safe, especially in one’s retirement or non-working times, and it gives an immense peace of mind.

Specially, during the retirement time, when once corpus is adequate shifting from equity funds to the savings account is also considered a wise step.

Usually what happens is that a person gets influenced by external inputs, and mentally starts pegging the market at high or low, depending upon his own short-term and long-term memory ( will write an article on this) whereas in retirement, one should specially look at once short term and long-term expenses, because that is what he has accumulated his wealth for.

Retirement must be used wisely for a person’s Peace of mind, and one must not worry too much about the management of his funds because he should’ve already set up the systems in place.

His discussion about the market or investments, must be only for academic level, simply for social discussions.

The amount that one is expected to accumulate will actually be so high that they would hardly be any possibility of shifting from one phone to another of the same category for better returns

This is because after paying the capital gains on one fund, when would probably not have much margin left in anticipation of making profit in the other fund.

Therefore, it is imperative, that we not only build up a respectable corpus before thinking about retirement, but also set up the systems and inform our spouse about the system that would be practiced during that life.

It must be remembered that doing nothing about investment is also one of the most important things to do.

A new Acronym

Sometimes it is important to use a small acronym, or a term to explain, was condensed a large term or idea for the purpose of brevity…

Just now, I have coined an acronym for the cash that people keep in hand to invest if the market goes down.

In Investment parlance, it is called, keeping your gunpowder dry to fight the markets .

So hence on we will call it as DGP for our convenience.

DGP  or Dry Gun Powder :

A term in investment , acronym formed by @RajeeveKaushik used for spare cash kept by investor to deploy in case of market downturn in addition to his regular systematic investments.

PRAY FOR DIFFICULT MARKET CONDITIONS

 PRAY FOR DIFFICULT MARKET CONDITIONS

Most of the people who started investing in the end of 2019 or even ine 2020 have made handsome returns.
This has nothing to do with their genius but everything to do with their determination and being a good investor. A good investor comes into picture only when the times are tough ,the market is down the environment is gloomy and everyone says the end is near as was the case in March 2020.
A lot of people who were very aware and in touch with the market sold out wholesale. I am very much aware of almost 75 crores INR being pulled out by people who were supposedly closed to me but did not consult me even once.
Instead they were around 47 very new investors who attended the 24th March Webinar and together we decided to put in more money gradually.
There were people who said that they are pulling out because they know that the market will fall further and then they will get a opportunity to invest at a lower level... They're still waiting.
Such opportunities in the market do not come everyday or every year and maybe just once in a decade and if you fail to act on it - it is lost for ever.

Similar sentiment is equal to in the famous Shakespeare play Julius Caesar where Brutus says....
There is a tide in the affairs of men,
Which, taken at the flood, leads on to fortune;
Omitted, all the voyage of their life
Is bound in shallows and in miseries.

Very interestingly what does "act" refer to here?
It may be different in different context but here in the field of investment it may mean...
a) Not doing anything and letting your investments just be there and watch their value fall.
b) It may also mean watching your investment value fall but stopping further investment which should not really happen.
c) It may further mean (for a matured investor) watching their investment value fall and adding more money to it with every fall.

Allowing your investments to fall because of general market condition or socio- political reasons and watch them dispassionately is not only an important part of investment journey but also an important part of your personality which shows that you're maturing and any difficulty in life will not deter you.

So all those who have shared their successes with me yesterday and also in the past need to be congratulated for their astuteness and their self belief and I hope they continue their journey with the same zeal.
They will discover in the times to come that not only there portfolio has grown to unimaginable levels but also their personality and character has become more settled and matured.
They will always be honest citizens going by the law of the land that they live in also helping others whom they don't even know personally.
Remember that, to consume is human, to give away is divine.

HOW SHOULD A MARINER PLAN EXPENSES SAVINGS & INVESTMENTS

What is a good way of SWP… Assuming i just signed off and will spend 8 lakh rupees in next 4 months of holidays..? I dont want to keep this 8 lakhs in my bank?

  HOW SHOULD A MARINER PLAN EXPENSES SAVINGS & INVESTMENTS  

 

 Suppose you start earning your  salary of $100 for 6 months a year ( means $50 a month). as agreed before you start investing 17.5 a month in equity mutual funds as a mark of respect to the income tax that you are not paying. From the remaining takeout double the monthly expenditure ( say $20) and either put it in your wife's saving account or your nre savings. After the month is over or even during it let the remaining amount from this get invested in mutual funds, ppf , ssy in your wife's name. Remaining 12.5$ a month will go either to your nre FD. Make variable  FDs of small amounts like $5  for periods like 12 months ,13 months, 14,15 months etc. ( You can multiply this$100 with whatever number of times your monthly salary is). After 2-3 years your every salary will only go for investment and NRE FD for future expenses. After 3 years of continuous FD building your interest roll over will be able to take care of expenses.  Since there is a difference in talking in percentage terms and actual sum , I'm sure you will be able to adjust your salary to this cyclical self sustaining outlay. There is a caution here... Moment you plan to become a resident for whatever reason start putting money away in Debt MFs also. As a resident the FD will become tax inefficient age debt funds will be able to generate the compounding effect better. Because of the deffered nature of capital gains on your Debt funds over  interest on FDs,  the advantage will actually become amplified. The way debt funds gain advantage is... Liquid funds give better returns than FDs upto 6 months Ultra short term debt funds give better returns than FD upto 1 year duration  Short term DFs give better returns than Fd of 18-24 months duration..  Gilt funds give better returns than FD of 5 year or more duration.  I personally have a varied structure of debt funds invested in upto 23% of the Corpus value. They're difficult to select and same debt funds may not perform best under all conditions. But they're better because all of it was invested earlier than 01-04-2023 when the new tax laws came into existence. So choose wisely from the gamut. Send me a personal query since each one of this has a different situation.

For the RE- tired

 Xxxx Jain:
Please advice if someone have done a comparison between Senior citizens saving scheme vs debt funds. I m looking to make a lumpsump contribution at this stage and need to find which debt instrument is better in terms of returns. Thanks

Rajeeve Kaushik:

With the phasing out of guaranteed pension and FD interest at historical lows( as compared to 2 decades ago the retirees have come into dilemmas. Despite lot of options available they are unable to find the difference between most of them and decide.
When someone is looking for comparison between scss and debt funds then it is obviously for the senior citizen who has retired.
The person is moderately to high risk averse and will not like to take chances with his retirement nest which is quite fair to expect.
It is the mind set which will control the choices.
For the purpose and taking taxation into account I would suggest that retired person himself takes the call as to he will like a fluctuating return or a fixed return.
Few other factors have to be taken into account here..
1. Is the person drawing pension or not.
2. Capital gains from debt funds will not be able to be adjusted against the deductions.
3. Scss gives returns higher than a normal FD and quite in line with the debt funds.

 4. Finally and more importantly it is the risk taking ability of the person that will decide the option.