Credo Capital

Today the media will have a field day as equities crashed by over ‘1000’ points or 3% to put it correctly !. These are normal and Prashanth Krishnan in twitter mentioned that this has happened 55 odd times in last 15 years, I’m sure you don’t remember the last 3% fall, forget the first one !! Media works on the principle of bad news being good news for their business, more people watch TV and they can get more TRPs and advertisements which is more money for them.

As an investor, we make money by staying invested, ignoring the headlines and if at all there is a serious fall ( say 20% from top)  investing more if possible. We don’t make money by following headlines, in fact serious research has shown regularly following media ( be it on markets or politics is injurious to both your health and wealth, not to mention wasting precious time !) .

Be healthy, wealthy and wise !

Healthy – instead of seeing TV debates on politics, go for a walk !

Wealthy – instead of listening to “experts” on business channels, keep investing via SIP

Wise – Doing the above two will make you wise than most people you know !!

If you don’t believe me listen to what M/s Peter Lynch & Warren Buffett have to say on the subj. 🙂

What stock market?

Few days back i read this report in Mint about how much waiting in traffic jam costs you ?

http://www.livemint.com/Money/VX3SyEKsUZ8kYIldFVQXYL/What-is-the-daily-traffic-jam-costing-you.html

The report says you spend 20% more fuel waiting in a traffic jam. I was more worried about the time spent say half an hour one way stuck in jam, that’s an hour a day, time that can be spent better.

I thought about this from the angle of our financial lives, and what causes financial traffic jams and what is the solution.

Tough to avoid traffic jams, easy to avoid jams in your financial life. Let your money work for you, Invest well http://t.co/B2q7NhYBw5

— Credo Capital (@credocap) August 14, 2015

Are you keeping too much money in Savings account ?

So, this money is stuck in large jam hardly earning 4% p.a interest ( which btw, is fully taxable).  Check when you need the money. If you don’t need it for a year FD is better, if not required for 3 years you can look at Bond Mutual FUnds that are more tax efficient than FDs and if not needed for 5 years or more you can consider balanced or equity funds.

Are you keeping too much in FD’s and Gold ?

I know people who have more or less their entire investments only in FDs. This is being too conservative like having a top notch SUV but never using it !. If the money in FD is not required for many years there are better ways to let it grow. This is the traffic jam most Indians are at today. FDs can be a part of your investment kitty but not only FD. It is a losing propositon basically as taxes and inflation eat away your interest.  Since they are safe people prefer them but just like we can’t stay at home all day since it is safe, similarly you can’t have all your money in FDs. The same goes for Gold – at least FDs give some interest, gold gives nothing, in fact takes away as you pay making charges for jewelry and locker charges to the bank.

A good portfolio has mix of investment that works for you?  FD for emergencies, Debt Mutual Funds for expenses coming up  in three years,  Mutual funds with debt and equity  for > 5 year goals and Equity Fund for > 10 year goals.

As in past posts let me remind that insurance is like seat belt or helmet only to protect you and not give returns so don’t invest in insurance plans with an aim to make money but only for security with a term plan.

See the chart below of how much equities ( represented via Sensex ) has delivered. I’m not saying the same returns will be repeated but saying there is no ignoring equities as it remains the best asset class for long term investors.

Equity is a sloooow cook. Look at return rates over a 35 year period in this graphic. http://t.co/GgVtcWgo11 pic.twitter.com/6wUWu2ZHml

— Monika Halan (@monikahalan) August 13, 2015

The above return is for the sensex. A better metric would be to measure equity mutual funds that have been around for > 10 years. Most of equity funds have delivered around 15-20% pa. So you definitely need equity investments if you would like to escape the traffic jam of Gold and FDs. At 15% returns, a Rs. 10000 monthly investment can grow to Rs. 1.5 Cr in 20 years.

In our daily routine, we can’t avoid traffic jams but atleast ensure that your money is not caught in one.

A word of caution : Equities as the link of mint article above is ‘slow cook’ product not suitable for instant noodle types ! You would need to invest regularly ( monthly) give it 10 -15 years to create real wealth. It is about becoming wealthy not getting rich quick !

Happy Independence Day, plan for your financial freedom this year.

Most of us dream of owning a high end car or bike ( Harley this or BMW that ) because those vehicles arguably are the best in class and are seen as exclusive.  This works exactly opposite in investments. Many people, especially the high net worth investors get caught in this trap of exclusivity-is-better while investing.

This was sadly discovered by the singer Suchitra Krishnamurthy who was a ‘privilege’ customer of a large foreign bank. Check the link for the full story.

http://www.firstpost.com/business/money/hsbc-suchitra-krishnamoorthi-case-the-moral-is-do-not-mix-insurance-and-investment-1964163.html

Sadly, this not an one off event and has happened to many. Even public sector banks are not immune to this disease of selling toxic investment products to their ever believing customers who believe that anything sold by a ‘government’ bank or insurance company is safe. Check out the link below for an example.

http://www.livemint.com/Money/57wQlkkdLuC8GvifojfdMK/How-to-shrink-50000-to-248.html

In investing, simple stuff works best. In the past highest return came from buying-and-holding on to investments like equity  mutual funds for 20 years( 16%+ p.a from equity funds).

But as one’s wealth grows, it attracts lots of attention foremost from your bank as they are fully ‘aware’ of your account balance.  You will be tempted with Gold Privilege Account, Private banking, exclusive relationship manager   along with free invitations to concerts, limitless credit cards and other such knick-knacks.

While buying any investment please remember that what matters most is

1. Where is the money being invested ?

2. What is the cost ?

3. What is long term track record of returns ?

4. How quickly can you sell?

5. What are the charges for selling?

Read all this in the application form before signing. Many who happily sign on the dotted line without reading do not realize that their hard earned wealth is being invested in things that can not be sold easily, has high costs and mostly low returns.

What is the solution for the investor then ?  Whether one is a HNI or not, I suggest sticking  to simple open ended equity funds that have been around for 10 years or more (only if you have the patience to wait for next 10 years at least). While mutual funds do not guarantee any returns, they are the most transparent investment products and are well regulated. While future returns can vary, they will likely remain the best option for wealth creation.

So next time when some one tries to push an investment plan along your way, please remember that it is not a good idea to mix investments and insurance, Term Insurance is what most of us require for protection and investments are for growth, keep it simple and separate.

PS :  I advise on mutual funds and hence am biased towards it and against other products. But most of what i write is from my personal experience of seeing  investors suffer after buying products with long lock-ins and low returns.

Myth No 1. Only rich can invest, for middle class only PPF and other savings makes sense :

Not really, while PPF and other deposits give around 8-9% p.a returns over 15 years  equity funds have given around 14%p.a to 20% p.a.

One lakh invested in equity funds ( see picture below) is valued anywhere between Rs.  7 lakhs ( for a very low performing fund)  to Rs. 15 lacs ( for a good fund) today, whereas the same Rs. 1 lakh in PPF is Rs. 3.9 Lakhs. The difference is Rs. 3 Lakhs, not small difference for a Rs. 1 lakh investment.

So any one from middle class can be rich, if they set aside a part of their savings to equity funds  and forget about it for 15,20 years. Of course PPF is safer, equity funds may not be, which leads to second myth.

Myth No 2:  Equities are risky.

Yes, but that is no reason not to invest in equity at all, by all means continue investing in PPF if safety is paramount but do invest in equity funds too and give it the same time as you give your PPF. Missing out on this 15%+ kind of returns is wrong, most of us in middle class can never become financially free if we continue to depend on 9% returns to get wealthy while we pay 10% interest on our home loans and 12% for educational loans.

Myth No. 3 :  It takes money to make money.

It does, till you see how little money it takes to make big money.

Rs. 5000 invested p.m ( or Rs. 166 per day if that gives you some ideas to save ) at 18% return for next 20 years can become Rs. 1.1 Crores, 18% is what equity funds have delivered over last 20 years, some have been higher at 20% too. Even assume we get 15% in future, it will be a cool Rs. 75 Lakhs.

To sum up :  Equity is the one asset class that is missing from an average middle class families portfolio today, most diligently stand in queue and invest in PPF, have some gold and real estate but nil to very little equities. If one gives the same time as PPF to equity funds and invests regularly think the results would be satisfactory to say the least.

Happy investing.

Picture source : Manoj Nagpal via Twitter @manojnagpal

The now famous ad from an online retailer has a song Whataydeal, whatafeel. For a few days the retailer had announced discounts hence the advt. The nice video of happy shoppers dancing to the song is a great ad which reinforces that we are always happy getting a good deal.

This sadly however does not happen in investing, very few dare to invest when markets fall, and no one for sure dances when markets fall !! Instead we have pictures of people gaping at the prices in front of stock exchange.

market at 50% off in 2009 but no one is dancing ! Image Source : Reuters

Newspapers use words like panic, mayhem, blood bath etc.

The investment gurus tell us that buy low sell high is the mantra to make money but that would require the investor to muster courage to buy when everyone is selling in panic.

So, is it impossible for an ordinary investor to get the deal which market offers ?

No, the simple way is to invest a fixed amount every month in an equity mutual fund that not only helps us to increase our wealth but also ensures that we buy more when markets are down ( since we invest a fixed amount, lower prices would mean more quantity) and less when markets are up.

Over the last 10-15 years, equity funds have delivered anywhere from 16% to 21% p.a. Anyone who invested as little as Rs. 5000 p.m for last 20 years has made Rs. 1.1 crore ( assuming a return of 18%)  now that is whatay deal & they are dancing their way to the bank !

If you want whatay feel in future, please do invest a fixed amount for next decade or two in equity mutual funds to get whatay feel returns !

Start with as much as you can and increase as you go, when you can save more, when you get a raise etc.

Not many will do this, those who invest in equity funds regularly are few and far between, it is much easier to buy some electronic stuff for Rs. 29999 only that they will throw away to buy another whatay deal product after couple of years( or is that too long these days 🙂 . But those who do invest, are likely to be seen dancing their way to the bank in future, singing whatayfeel 🙂

Note : though returns can vary etc. Historically equities generate the best return and that investing fixed amounts is the best way to invest in equities. Returns can vary but my take is that equities will remain the best place to invest in future too.  That said, Mutual Funds like anyother investments are subject to market risks. Past returns may not be repeated, future returns are not known etc.,

Image Source : http://in.reuters.com/article/2008/01/21/idINIndia-31510420080121

The letter below,written by a dad, whose 7 year old son saved 500 Rs per month and gave to his dad for investing. Think his dad wanted to teach him about investing in a disciplined way through mutual funds so gave this amount as pocket money. Before you say nice story and move on, as after all, what can Rs. 500 p.m grow to, a few thousands by the time the boy reaches college or gets married? Here are the numbers and they are startling..

College is 10 years away when he turns 17. by the time the little boy goes to college, it will be Rs 1.68 Lacs. Decent money, but definitely not enough for a good education that too ten years from now.

At 27, when the ‘boy’ is old enough for marriage the investment would have grown to Rs.11 Lacs good sum but dont think enough for the typical big fat Indian wedding even today, forget 20 years later.

Let us assume that since it is not enough for education, or marriage the dad will continue the Rs. 500 investment and the son after getting a job invests the same amount every month till he is say forty,

So the total amount invested is  Rs. 1,98,00 over a 33 year period ( Rs.500* 12*33)

Assume 18% return ( markets have given 20% in the last 20 years but let us assume 18%)

The total value is a whopping Rs 1.22 Crs.

All from Rs. 500 p.m invested diligently over a long period in equities as they give the best returns over long term. If it were just increased by Rs. 500 more to Rs. 1000( which is what you may be paying for your mobile bill every month!!) it will be Rs. 2.44 Crs. Agree that inflation would ensure that Rs. 2.44 Crs may not be enough 33 years later but it is better then not investing anything, right?

Now, what is your excuse for not investing, that you don’t have Rs.500 or Rs.1000 pm ?

“My wealth has come from a combination of living in America, some lucky genes, and compound interest.” – Warren Buffett

Though we learnt it in the 6th standard or so, understanding this is not easy, small shop keepers have understood it to make millions while many with degrees in finance struggle to understand it.

And how long would it take to get to 1 crore ??

I fear not the man who has practiced 10,000 kicks once but one kick 10,000 times – Bruce Lee.

Best selling author Malcolm Gladwell wrote that it takes around 10,000 hours of practice for anyone to be an expert. Bruce Lee seems to have found that out much before with the above quote!

As investors most of us are try different things to increase our wealth, which is not wrong but we also need to practice that one kick ( consistent investments over the years ) to make a meaningful difference. the one kick that i can think of in investing world is SIP, ( systematic investment plan which is fancy way of saying monthly investment!) that one kick once a month patiently done over last 20 years has made people ‘ Crorepatis’ without winning KBC !!

Let us see how one can do this. Franklin Prima Plus, an equity fund was started in 1994, completed 20 years last year. A monthly investment of 5000 Rs since Jan 1995, is worth 2.2 Crs today. All one needed was the patience to keep investing that 5000 Rs and not stop it for any reason. Even 2000 Rs, for 20 years ( 2000* 12 months * 20) precisely what i could have afforded from my salary of 5000 RS then, would be 88 Lacs today as against invested value of 4.8 lac’s. All this by investing amounts that one can afford and leaving it be for long term.

I’m telling this because young investors should not repeat the same mistake, salaries are much higher today, and people spend 2000 Rs on their phone bill every month, not to mention 1000 Rs for going to the movie in a multiplex.

So if you would like to practice one kick 10000 times and become rich slowly but easily, start investing today and keep investing for next 20 years or more, If you can increase your investment as your salary increases may be you can make 10 Crs or more with the same 18-20% returns, though i would be extremely happy with any return over 12-15%. As the return is not in our hands but investing monthly is ( one kick, repeated every month !)

Remember even Bruce Lee feared the man who learnt one kick 10000 times !!

PS :The 20% return mentioned above has come with years of low or negative returns (of even 50% once! ) and years of high positive returns (ranging from 30%+ to even 233% in one year! ) but those who stayed the course reaped the benefits. Future will also hold such negative surprises as well as +ve surprises, and the investor will be tested and tempted to quit, and as in past rewards are likely to be for people who hold on.

Wish you a happy and forgetful new year 2015 !!

Let me explain 🙂

Fidelity Investments did a study of their investors to find out who made the best returns, one would like to think that those who made the best returns were either most educated, or people who carefully analysed their investments and went to investments conferences to get new ideas etc or even people who were emotionally strong investors who did not sell during a panic or buy at the top. The answer to who makes the best investor is surprisingly simple that people who had forgotten that they had investments made the best investors.

Why is this so? Investments compound wealth over long periods, so when some one says 15% annual growth our minds immediately calculate 100 Rs becomes 115 at end of year 1 and stops there (not exciting,right), but does not move on to think it will be 132 Rs at end of 3rd year, things get very interesting from there on. At the end of 9th year the total return is 50 Rs approx which is half of the initial investment of 100 Rs, at the end of 15 years the annual return exceeds the initial value of 100 Rs and by 20th year it is almost twice the initial investment every year. So if you spend Rs 50k today instead of investing it, you are potentially losing around 8 Lacs in twenty years, and around 1 lac per year after 20 years. 1.5 lacs per year in returns after 22 years etc.

So the really large returns ( not % returns but amount wise returns) happen after longer period of times, While someone who invested Rs 50000 and took out Rs 1 lac + change at end of year 5 did make 15%, he never made 50k per annum that the investor who stayed till 15 years made or 1.2 Lacs per annum that investor who stayed till 22 years made.

I can hear some of you say where do i get 15% fixed return, I agree we can’t get 15% but the volatile markets where one could lose money in some years and make more in some others have delivered an astronomical 18%+ over 20 years, so anyone who stayed the course for 2 decades has made 20 lacs out of 50000 Rs. In fact mutual funds like franklin bluechip have delivered 20% over last 20 years.

The reason why the fidelity investor made large returns was because they had forgotten that they had invested and the money was compounding for them quietly all the time, if they had known that there was such an investment, chances are they would have taken the money out and donated the money to poor companies like Apple or Google for buying gadgets that will be outdated in about 2 weeks 🙂

So, in 2015 please ensure that you invest in a good diversified mutual fund via monthly installments or SIP and forget that you invest till you retire, the results are likely to be an happy surprise for you !!

Disclaimer : Mutual Fund investments like just about everything else in life carry risks, please understand them before investing.

Inspired by the Make in India campaign of the Prime Minister.

India has one of the largest stock markets in the world, extremely well regulated and has given spectacular returns over long term which is tax free to boot. yet most Indians prefer real estate or gold. While in the past this may have had some validity ( As gold was like cash and can be borrowed / sold fast during emergency, Real Estate provides security etc) it is not the be all in today’s world. Your bank ATM ensures that you can get hard cash 24*7 and what is more pays you some interest (even  6% in some cases!!)  unlike gold which you pay to safeguard ( even if some one steals from ATM your money is safe whereas if your gold is stolen it as good as gone). Agreed that a home of ones own is every ones dream, and all should work towards it but it is sad to see many people buy real estate for investments and struggle to pay EMI’s for the next 20 years.

Sadly, while majority of us focused on past short term returns to buy Real Estate and Gold, we missed the long term story unfolding in Indian equity markets which has given around 16% returns over last 10 years and around 18% per annum returns over 20 years. To put that in perspective at 18% your investment doubles every four years. Mutual funds that have been around for 20 years have given around 22% or 53 times in 20 years !!

Indians shun equities because they think it is ________( fill your pick here : gambling / risky / volatile etc) this is again an old tale, Indian markets have delivered amazing returns to those who invested and were patient, I’m not for a minute suggest that one should invest only in equities but that one should at the the least ‘also’ invest in equities.

What is more, investing in equities can be done in small chunks monthly by almost anyone ( from 1000 Rs / month)  so that it is easy on your budget and can help you create wealth ( Rs 1000 invested every month in Franklin India Bluechip for last 20 years has grown to Rs 28 Lacs, no doubt it was not a smooth ride of 22% every year but lumpy as some years saw great returns and some negative)  but overall the performance was excellent. In fact if one had started at 1000 Rs and increased the investment as their incomes grew, the resulting wealth would be in crores !!

So, Invest in India. If you believe that this country can do well, its stock markets would do much better !!!

Note : Past returns may or may not be sustained in the future / Mutual Funds are subject to market risks. Come to think of it that is true for Gold and Real Estate,too !!