Credo Capital

1. Check and collate all of your investments : Be it Insurance, Mutual Fund, shares, bonds, FD, anything. Put it all one folder, use a good spreadsheet or software ( we use Mprofit)  to track all of it in one place. This will not only help you know where you stand but also help you at the right time in filing tax returns. This will take time but will save you lots of pain later. Automation can help you here, if you give same email id across investments it is possible to get one statement for all your MF and equity.

2. Keep investing simple : Investing is about making your money work for you, that is all. 4-5 Mutual Fund schemes via SIP, 1 bank account, 1 term plan and a medical plan that is all one more or less needs. Ensure that there is nominee for all your investments and that you have a will in place. Never buy  investments under “pressure”, be it from relatives or bankers.

3. Never sweat the small stuff : Things change everyday, don’t fret. Talking heads on TV are paid to talk, but no one pays you to listen, so don’t. Always think will this decision matter one year or two from now on? If not, it is small stuff, this will be the key question to ask before you take any decision financial or otherwise.

Finally, in life small improvements like small investments make large gains in future. Start today and declutter your investments and you will thank yourselves 2 years down the line.

Happy weekend,

Don’t compare yourself to others. Compare yourself to yourself two years ago.

— MicroCapClub (@iancassel) April 17, 2015

Who does not want to save taxes? All of us i’m sure.

But, do you know the best way to save tax? I’m sure your reply is PPF, Insurance policies, you have heard this thing called ELSS Funds or Mutual Funds which let you save tax too but you thought they were ‘risky’ and hence did not invest.

I will leave insurance out as i believe insurance is not meant for investments and is for protection. Mixing both is not a great idea ( it is as if expecting your helmet to give you returns ! it is there to protect you and not give you returns!)

That leave us with PPF and ELSS ( I will leave out the other options such as NSC, Sr Citizen scheme etc as they are not that popular)

PPF tenure is 15 years and return is  8.70%, it is doubtless a great investment that gives both tax saving and tax free returns and judging by the many people diligently updating their ppf passbooks in banks regularly, it is very popular too.

This leaves us with the ELSS, the neglected cousin in the Sec 80c family.

Over last 15 years ELSS funds have given around 15% ( the lowest returns among funds completed 15 years is 15.7% and highest is 21%) , let us assume only 15%, after 15 years that 1 lac is Rs. 8.1 Lacs as opposed to PPF return of Rs.3.49 Lacs ( slightly more than this PPF rates in 2000 was 11% but was reduced to 9% next year so it varies).

One can argue that we have chosen one particular time frame ( 2000-2015) where as return could be different for other time sets say 1999-2014 etc. It could be a valid argument but I really doubt if ever on any 15 year period one got lower returns than PPF, the oldest ELSS Funds are Canara Robeco and SBI Taxgain both around since 1993 and have given around 15% and 18% p.a returns since 1993.

Going by the returns one would think that people would be queuing up to buy ELSS funds but no, the entire category of ELSS schemes has something like 38k cr totally while PPF is 1.8 Lac cr

The reason for not many investing in ELSS is that they don’t know about it and those who know think it is risky ( it is risky, but one can always invest some amount in ELSS along with PPF, say 30% or 50% of what you put in PFF and forget about it for 15 years)

The best way to get the full benefit of ELSS Funds would be to start a SIP ( Systematic Investment Plans ) and monthly invest in it, do that for 15 years to get both tax breaks and tax free returns as returns from equity funds are tax free too after 1 year.

Before i end with the usual disclaimer of Mutual funds are subject to market risks and past performance may not be repeated in future, please read the scheme documents carefully etc.  do remember that the biggest risk would be the risk of not investing in equity and missing out on the great returns it has and can still provide.

Notes : ELSS funds are locked in for 3 years but to get full benefit of it better invest for 10-15 years time frame, tax rules be it for PPF and ELSS are as of today and may change in future.

Better be a ploughman (worker) on your legs than a gentleman on your knees (seemingly rich but in debt) – Benjamin Franklin

Muthu recently wrote a blog on what is short and long term http://wisewealthadvisors.com/2015/05/24/short-term-and-long-term/

thought i will expand on it a bit.

Short Term : Play now and pay later

Long Term : Think & decide

a hoarding screams

On the trapdoors of capitalism… pic.twitter.com/v6zrjNWEQN

— Sanjay Bakshi (@Sanjay__Bakshi) May 22, 2015

The above hoarding is an example of play now and pay later, in this case EMIs for 24 months.

Now this is clear, if you want to play now, you can as from cars to phones everything is available at zero or low down payment, but do remember, you definitely will have to pay later along with interest.

So, what is long term thinking here: first think. Every financial expense means you are borrowing from yourself in future as you alone have to pay the bills later.  An investor thinks the opposite, invest now to get more later.

After thinking if your decision is to still spend money on buying stuff, please go ahead but only with money you have.If you don’t have the money, you can not afford it so find an alternative till you can afford it.

A reminder here, i’m not all suggesting that investing is denying life’s little pleasures, definitely yes. I’m all for the weekend movie or dinner, the key word here is ‘little pleasure’, spending one months income on a gadget is definitely not little, though the EMIs make it look as if it is little, they add up to a lot!.

I’m not against borrowing for purposes of long term benefit, such as a house or education of children. They are basically investments for a good future, the 50 inch TV does not fall under investments even though it may be smart TV, but you would not be smart to buy it on installments. It is downright dumb to have a smart TV but not much saved up for a rainy day.

Pay for it if you can afford, else, look for alternatives. Your life will not improve much by owning too many gadgets, which seem to go out of style every weekend but your bank balance and investments will certainly improve and that to me and i hope also to you is the ‘deal of a lifetime’

Profit from folly, do not participate in it – Warren Buffett.

This simple Calvin and Hobbes cartoon, captures the essence of how consumption benefits investors.

Waste & want that is my motto.

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

In 1971, Govt’s Enemy Property Office had shares worth Rs. 29 Cr’s value mostly belonging to people who left India during Indo Pak war of 1965. Cut to 2015, exactly 44 years later, the shares have been valued at 10,000 Cr. That is approximately 345 times in 45 years !

Imagine what % return per year it must have taken to grow by 345 times ?

approximately 14%, that is all.  Over 44 years that 14% made 29 Crs turn into 10,000 Crs !!  This was a static investment on which nothing was done,  This is not all, the dividend last year alone on this was some 40 Crs ! The 14% return does not include dividends. This is what equities can do over long periods of time, create real wealth.

But hardly anyone invests in equity or equity mutual funds and those who do don’t stay invested for more than 2-3 years, forget 20 0r 30 years !! Only 20 or 30 years can create wealth, buying and selling every 1- 2 years will create lots of paper work and not wealth !!

Moral of the story : Invest for really long periods to create wealth, Don’t have 29 crs to invest for next 44 years ? Don’t worry, I don’t have too 🙂  but surely some of us can invest Rs.10000 p.m over next 20 years, at the same 14%  that can turn into Rs. 1.31 Cr’s.I’m fine with that, and guess you will be too 🙂

Source for the news on Enemy Property :

http://www.business-standard.com/article/markets/enemy-shares-to-be-dematerialised-115041700037_1.html

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 ?