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As banks lower deposit rates, investors rush to lock money in post offices, govt bonds : Economic Times quotes Credo Capital’s view

Mumbai :  Investors are rushing to lock money into post office deposits and a government bond, which are yet to cut interest rates even as banks lower deposit rates.A bank deposit now pays a maximum of 7%, while post office deposits pay 7.8% and the government bond pays 8%.

“There is a rush amongst investors to lock into longer-tenure products and where there is no announcement of rate cuts so far,” said Vikram Dalal, managing director, Synergee Capital.

For retirees and other investors living on interest income from deposits, financial advisors said, the government savings bonds, which have a tenure of six years for small investors, make sense.

“There is no reinvestment risk as you can lock in at a rate as high as 8% for 6 years. It works well for those whose income is not subject to tax or who are in the marginal tax bracket,” said Dalal. The minimum investments amount is Rs 1,000 and there is no ceiling on the upper limit.

he bonds are issued in physical form.

“The only drawback of this product is that it is illiquid since they are not traded and cannot be encashed in an emergency.However, investors can opt to take a loan on this product, says Anup Bhaiya, MD, Money Honey Financial Services.

Interest rates on bank fixed deposits fell post demonetisation. Banks like SBI, ICICI Bank, HDFC Bank, Kotak Bank have all cut fixed deposit rates by 15-25 basis points.

Post the rate cuts, a five year fixed de posit fixed de posit from State bank of India fetches 6.5%, while HDFC Bank gives 6.75%. Taking a cue from banks, finance companies too have lowered deposit rates. HDFC now offers 7.65% for a five-year deposit, while Gruh Finance is offering 7.5%.
“The banking system is flush with liquidity and there are not enough avenues to deploy money .Given this and expected rate cuts, fixed deposit rates could head even lower in the coming months,”

says Shankar S, financial planner at Credo Capital.

Life before & after De-mo :)

Halfway through their term, the NDA government has unleashed a tsunami by withdrawing 500 & 1000 Rs notes( De-monetization or De-mo in short !).

The opinion on the outcome of this move is sharply divided, while no doubt it has caused hardship to people, most have accepted it as the cost to clean the system of black money accumulated over ages.  This is the big bang reform that no one thought would be even remotely possible to do in such a large,diverse and to a large extent un-banked country as ours.  Let us actually forget this for the moment (difficult as this is the hottest topic in the country!) and see what has been done in last 2.5 years before this move to see where we are heading.

While our GDP has averaged at 7% since 2010, our population growth has been slowing down making the per capita GDP grow at 5.8% approx, this growth if it continues makes us one of the fastest growing economies in the world.

  1. GST – likely to become reality early next year, this by itself is a monumental reform
  2. Fuel prices deregulation – done for diesel
  3. Direct benefit transfer – partially done,
  4. Repeal unwanted laws – many redundant laws have been done away with
  5. Bankruptcy code
  6. transparency in auction of resources like spectrum, gas etc – done
  7. Jan Dhan accounts – 22 cr new accounts opened in 2 years, to put this in perspective we had 40 cr accounts opened from 1947-2014 !!

Apart from this infrastructure developments like Road, Railways and reforming Agriculture are in ‘mission mode’ to borrow the phrase from railway budget.

So this is the report for how things have moved before de-mo, and de-mo is something that will pan out over a longer time frame. The half year report card reads well and if this pace is maintained we may truly enter a period of good growth with a much cleaner economy. That is what any one would want for himself as an investor but as a citizen too as these changes can pull many people out of poverty and into productivity.

A disclaimer : All the data has been culled from publicly available sources and believed to be reliable. The idea for this note came from a investment managers perspective.








A tale of two investments

Though we all know the proverb never judge a book by it’s cover, we seldom follow it, the attractiveness of the packaging is a selling point.

Over the last 15 odd years spent in advising people on how to manage their money, i have learned the sad fact that packaging sells more than the product.

The best performing investment over the last 20 years has been equity and along with it equity mutual funds but many are still reluctant to buy equities but dont seem to mind buying Insurance policies that can at best give 5-6% returns after 10,15 years but are sold well as the packaging is good ( never talk about lock in, costs and actual returns but make great advertising about childrens education and retirement etc!)

I have lost count of the number of investors who have been taken for a ride by their banker, agent or relative who pushed a insurance policy that gives low return but packaged well as money back or some other name ( your own money coming back after 5 years that too partially is somehow a great idea !!), etc., While most investors are afraid of the volatility in equity they seem fine taking the same risk with a ULIP which will give a lower return !

Packaging is fine but what is inside is whats going to give you the returns, Buying a soap or shampoo as the ad or packing was good is fine, as one can stop buying it from next time. when it comes to investing where the results are after many years away, it is better to focus on what is inside than how it is packed !

Have a great weekend !

Shantideva on investing !

Yesterday, by any parameter was a remarkable day, every year we get few remarkable days like this, sometimes the news is good but often not. Britain voted in favor of exiting the European Union and this brought down the markets the world over.  This is like a country divorcing from a common union and will take years to resolve. Obviously, the markets were surprised  and went down (some 600 points on Sensex in India). The whole day there were conference calls, research reports, endless discussion on TV etc. I stayed away from almost all except for one report which focussed on what exactly is meant by exiting the EU, as per the report it is still not official as once it is announced, Britain has to negotiate trade agreements separately with all the countries since now EU negotiates as a block. This will take years to resolve and in the meanwhile as an investor there are only two things that we can do

A. If markets fall a lot, see if we can invest more or

B. Do nothing since markets are where it was about few weeks back, they were much lower in February as China was slowing down.

These things will keep happening, it was Raghuram Rajan last week, China few months back and we are hardly 6 months into the year. Investing in equities is never smooth and that is why it gives great returns, If it were smooth the returns wont be this good.

Shantideva  – a Buddhist scholar who lived in Nalanda during the 8th century said ” If you can solve your problem what is the need for worrying and if you can not solve it what is the use of worrying ” As investor we have very little control over what happens in the world but have control over our own emotions. Use it and invest wisely. Spend the time with doing what you love to do,  save time and money !!



The 80/20 Rule of investing or how to make money in investing

Pareto principle or the 80/20 rule is fairly well known simply put it says  20% of inputs is responsible for  80% of results and vice-versa, which goes to show that most results are due to a small number of factors. This seems to hold good in investing too but with a twist.

IDFC mutual fund recently came with an intriguing ad IDFC Ad – want to loose money ( click for the ad)

The ad makes an interesting observation,

  1. When markets are cheap ( ie they are down badly and it is a good time to buy) hardly 1% investors put money and this 1% investors make amazing returns over next few years (29% p.a is the return over next 3 years)
  2. When markets are fairly valued ( they are not down but are not expensive either) around 19% investors put money to work and they get good returns ( ~ 19% p.a is the returns over next 3 years )
  3. And when markets are over-valued ( they are up and expensive ) a whopping 80% investors put their money in and they see pathetic returns (hardly 3% p.a over next three years)

If you add the investors in 1 & 2 above it is 20% investors who make good money and 80% investors do not make money.

Why does this happen? Answer lies in our memory which is oriented to look out for only short term,

In stage 1 above when equities are undervalued, the news flow would be negative ( Ex : some crisis in Italy /high interest rates in India/ Recession in US or something like that) at this point in time the past return from equities too would be poor, so no one would be interested in investing except for the 1% and they are buying at the cheapest rate available for the next few years !!

In stage 2 some positive news is emerging  and past returns would be o.k but nothing great, at this point in some more investors come in thinking it is still fairly valued.

In stage 3: This is lift off stage, there is no dearth of positive news ( India GDP at all time high / ABC Group buys largest steel company in US / GLobal markets are up,etc), Last 3 years returns are a great 25% pa and business channels are saying this is a ” New era ” !! This is when even your uncle and his neighbour are heavily investing ( the 80% investors move in quickly seeing the past returns ) and both stage 1 & 2 investors become nervous &  don’t invest more. Anyone investing at this point historically is likely not to make money but that does not stop us from trying as we believe that the great returns of the past will keep happening, what happens instead is poor returns at best or loss of capital at worst. In 2-3 years after stage 3, Things will be likely back in stage 1 & history repeats itself.

The best choice for investors is invest via lumpsum in stage 1 & 2, even though it would be tough to do so when no one else is investing and stay put for 5 or 1o years, and avoid  buying near stage 3.

In this new financial year, here’s wishing that you are in the 20% who make good returns.











What investors really want

We want to save for tomorrow and spend it today – Meir Statman

Prof. Meir Statman’s is the author of the book ” What investors really want “, while many may think it is simple enough as investors want returns, it is not that simple. Let us take a quick look :

Prof. Statman says when taking decisions involving money we look for one or more of three benefits as follows

Let us take buying an expensive watch for example :

IWC Grande ~ 18 Lacs


  1. Utilitarian benefit – What does it do for me  :  Shows me time and date
  2. Expressive benefit – What does it say about me : I’m successful with good taste
  3. Emotional benefit –  How does it make me feel : Accomplished as I  flaunt it.

While buying a phone or watch based on above benefits is a decision that depends on what we want out of our purchases, We make the mistake of following the same pattern in investing or even in taking a decision not to plan or invest.

  1. Investments offer utilitarian benefit of either preserving or growing our capital, we can be misled into buying what is not good for us because of what it says about us or how it makes us feel.
  2. We should be aware of buying investments that make us feel ‘exclusive’:  Invitation only real estate project launches,  low risk and high return products that need to bought today before the ‘opportunity’ closes etc.
  3. Emotional benefit of having an investment portfolio that can see us through retirement and not the emotion of play today and pay tomorrow.

Avoiding these emotional mistakes while pursuing our goals can make us better investors and in turn better decision makers in general.

You can see the full presentation here :


Keep walking

Tomorrows ‘cheerful’ headlines are being written today : “Mayhem in the markets” &  “Blood bath in the street ” are all time favourites. This will make investors bit nervous, but what is the data saying :

Sensex is currently 23000, it was 30000 at some point last year, and from that level is down more than 20%, this sounds scary, but is it so actually?  Let us see what scary things happened to investors who bought in at various points over last few years :

2 year returns :

In Feb 2014 , index was at 20400, if you bought back then and held the return would be around 6% p.a, not great but definitely not ‘blood bath’ or some such nonsense. this is for index, most of us invest in equity funds in a mix of large and multi-cap funds , let us see the returns there :


3 Years  : Min 7.5% p.a & max 22% p.a

5 Years : Min ~7.5% p.a and max 18% p.a think the average returns would be around 10-11% p.a

10 Years : Min 10% for index fund ( which i don’t suggest for investors) whereas active funds is around 12% and max 16%, think the average would be 13% p.a

These are the returns one would have got as of yesterday by investing 3,5,10 years before. All the screaming headlines of blood bath and mayhem gave this kind of returns to patient investors,

SIP returns for the above period too have been same or higher than the above returns ( ~10% pa for large-cap funds and 15% for multi-cap funds over 5 years and 11% to 18% over 10 years)

So move away from the headlines, stay calm, cool and as the Johnny walker ad says Keep walking and keep investing for a healthy and wealthy future !

Data source : Valuresearchonline



Things that matter

Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it. – Warren Buffett.

Phrases like “market panic”, “mayhem” and “meltdown” are being seen in headlines over what is happening in China, which has been dragging the worlds equity markets down for some time now.

As investors hearing news like these, we have two choices

1, Does it matter?

It does matter if your investment time frame is a week, month or may be even a couple of years. But if we are clear on our asset allocation ( how much we invest in equity and debt ) and are investing for what matters most to us like our children’s education and our own retirement, what is the headline on markets today, this week or next month does not really matter.

2. Can we control it ?

Obviously not, what happens to China or oil prices and how it affects our markets is something which we have no control over.

Instead if we focus on

A. Saving more : Having a budget, saving at least 30 -40% of our income, not falling for the  ‘great online shopping sale’ that seems to happen every weekend. Having at least  3 months of monthly expense for a rainy day.

B. Investing the savings properly : Having a goal for the investments, investing for real tax efficient return ( ie post tax and post inflation return), Just as we earn monthly, investing the savings monthly helps us to create wealth.

C. While investing it is better to  avoid products that are  too complex. Avoid products which club insurance with investing, Keeping investments simple with bonds, equity via mutual funds is the best way to go.

Once we focus on the intersection between things that matter and things we can control, what happens in China last week or somewhere else next week becomes less of a concern.




Financial emergency box

The oft repeated but ignored idiom ” Save for a rainy day” really happened for many of us in Chennai.Though the city not only recovered from this punch from nature, it has more or less stood up thanks to thousands of volunteers, armed forces and workers.  Now comes the damage assessment and its financial impact, which is not going to be easy. Some pointers for the future & how you can have a financial emergency box :

  1. Keep at least 6 months expenses in an investment that can be sold easily like a short term FD or a short term debt fund.
  2. Digitize all documents from education records, passports, voter id etc.,  Make a pdf copy of all these and send a mail to yourself so that you can download them again when needed, you can also have a copy in file sharing apps like dropbox.
  3. Make a simple spreadsheet of all your documents details such as passport no, bank acct no, debit/credit card no etc and save them too. Use a password vault like keepass or Norton vault for storing passwords, if you are worried about the same being hacked you can memorize first part of password and save the second to make it safer.
  4. Consider householders insurance that covers the contents of the houses but ensure that the cover is against all types of calamities, no point in having fire insurance only but not floods since there was never flood in your area.

Saving 6 months expense may sound tough job but work on it, tracking all the data and digitizing it will be tough but do it still. Be prepared as the scouts,say.




Secret of Rakesh Jhunjhunwala’s success

Actually, it not a secret at all. But people are curious if we add the word secret 🙂

Rakesh Jhunjhunwalla is a regular on Forbes list of richest Indians and is a billionaire. He is as far as i know the only “investor”  in the list, in the sense that his wealth has come from investing, and not from running a company or inheriting wealth. Starting out in 1990’s with a small capital, RJ is the real big bull of Indian stock market.

Recently Mint newspaper did a cover story on the secret to his success, turns out that the secret is something all investors know but very few practice, which is holding investments for the long run. Mint analysis of RJs portfolio reveals that his highest returns have come from stocks that he held on for 10 years ( 3 stocks held for >10 years now account for 50% of his known holdings net worth ).

source :

While RJ must have invested in other stocks which went nowhere over last 10 years too, holding on for more than 10 in these few stocks has resulted in great wealth ( almost Rs. 4000 crs !) . How tempting it must have been to sell when the value reached 100 crs, then 1000 crs etc ??

Compare this with the data that average investor in Mutual Funds hardly hold their investments for just 2 years, it becomes clear that why ordinary investors don’t get high returns.

Over last 20 years, many equity mutual funds have given 20%+ p.a returns, Just Rs. 5000 invested every month is worth Rs. 1.58 Crs against invested amount of Rs. 12 Lacs ( Rs. 5000 * 240 months).

So even a middle class investor can create serious wealth by investing regularly and holding on to those investments for long term.

We already hold our other investments for a long time, be it gold, even FD’s, while these are safe investments they seldom beat inflation and taxes in case of FD and making charges etc in case of gold.

We tend to look at short term volatility in equity and avoid investing but miss out that they create enormous long term wealth.

For many of us researching and holding onto stocks is a tough task given that we are not full time investors, so investing in equities via Systematic Investment Plan of equity mutual funds helps us to create wealth in the long term in the easiest possible way.

Hoping that many of us reading this start out on the path to wealth creation,

For more on SIPs :