Random Ramblings

There are several approaches to investing one can take. And there can be many of these approaches that can be right. Not necessarily the ones with maximum returns, but the ones which fit your objectives. It can be maximization of returns (but with capacity to take risk), capital protection, diversify and so on. Yet we make mistakes. Almost everyone does at some point of time or other. And many times. However, some mistakes are more common than others.  Based upon my observations, here are the most common mistakes that investors make: 1. Too much debt in life - These people typically correlate affordability of things to access to loans & availability of EMIs. EMIs can come in different shapes and sizes. It can be 10% car loan, 12% personal loan, 14% consumer loan or 36% credit card debt! And before you realize. you are in a debt trap. Many of these people may though, not stop SIPs in stock market, because "stock markets give 15% assured returns in long run", they h...

Should you save money or should you live life king size and enjoy your life - is one of the perennial question about people who are interested in doing a bit of financial planning. (Of course, the question doesn't arise if you don't do financial planning at all - you'll, in all probability chose the latter). Taking a step back, one needs to understand what is meant by "living life king size" in the above? Rather than going into an attempt to give a standard definition, I'll try to pose scenarios - Do you always want the latest model of iPhone? And the iPad? And you are willing to consider buying an Apple Watch also? Your car needs an upgrade every few years? From an Alto to i10 to Honda City to (hopefully!) CRV in few years. For you affordability of things means easy access to EMIs? You want to keep upgrading something or the other in your house every few months - One year it may be the cupboards, the other year it may be the sofas, and the next year...

Often one is sold (or at least made an attempt to!) products/ schemes/ investments which seem great, and sometimes too good to be true. But these great things are usually built upon some assumptions, some seemingly credible, some seemingly shady. But are all these premises true or there is more to it than what meets eye? Few instances - - An insurance/ ULIP agent selling us policy which gives x % returns (but assures nothing, so you may be exposed to more risk than what you think) - SIP returns calculator letting you calculate based upon "assumed" 15% rate of returns (reality can be different on either side - so, be aware of both scenarios unless you are an incorrigible optimist!) - Bank FDs giving assured rate of returns, assume that banks will be able to return money (or the government, partly, if the bank goes bust!) - Assumption that real estate will grow @ x% and give "assured returns"? Or your will earn rent equivalent of EMI (don't understand how!...

PPF (Public Provident Fund) is one of the common investment options among Indians - be it salaried individuals or someone else. In addition to offering Income Tax benefits under Section 80C, it also offers assured returns (current rate of interest is 7.6%). And even the interest earned is also completely tax free. But is it really worth investing in PPF or are your investments better off in some other avenues? Here are some pros and cons of investing in PPF. Pros Tax benefit up to Rs. 150,000 under section 80C of Indian Income Tax Act.  Good rate of returns - currently at 7.6%. Rate of returns is typically 50-100 bps higher than that of FD in major banks. Effective returns are more since the interest earned is also tax free.  Since there is a lock in period of 7 years (after which you can start withdrawing partially), this can form a habit of forced savings, if you are someone who is prone to impulse buying. Over the years, the amount of interest you can earn on you...

"Investment" - This word is much used and often much abused one. One keeps on hearing this almost all the time be it in office or catching up with friends or attending a family functions - almost everywhere. More so when we are fed with lot of information about how one needs to make money work to get more money. However, for a lot of people, the clarity on one question is often lacking - What is the purpose of investing? And even if one knows his/ her purpose of investing, it is often not implemented in real life. For instance, purpose of one's investments may be having sufficient funds in times of need. Yet they may opt for a personal loan when faced with pressing need for money. Based upon my observations, below are some of the most common purpose of investments (in no particular order) I invest because there is some sufficient funds lying with me and I can get great returns. I am investing for some specific goal - buying a house, education of kids, m...

Stocks (and hence mutual funds) are often sold as something that give "assured" long term returns over a period of time. While this has been true for most of the times, and all time if we consider a long enough time horizon in India's recent history but is this always true? Can it be possible that stock markets can give lesser, say 10% returns over next 10 years? Or 5 percent annual returns? Or, taking inspiration from Nicholas Taleb, a black swan event happens and your end up barely recovering 80 percent of your principal amount (i.e. 20 percent loss) -   Theoretically yes.  Hopefully no.  I am not a predictor of future, nor are thousands others who claim to have more than 1000% percent surety of future events. So, if you are contemplating taking a personal loan @ 12% for some financial need and want to be invested in a mutual fund for "assured" 12 / 15/ 18/ 25 percent returns, maybe you need to rethink. If you want to borrow money @ 12% just to inv...

How often have you heard that - Real estate prices never fall? Given the recent woes in the sector, this is no longer true for most of the markets in India. And the question of whether real estate sector is worth investing, especially for investing purpose, remains. Let's look at some arguments made by pro-real estate enthusiasts & sharing my comments on the same. 1. Tax savings on home loan - Yes it makes sense, and you can save a substantial amount if tax by investing in a house. These can fall under: Section 80C - Payment of principal of home loan can make you eligible for tax exemption under Section 80C. And so can PF/ PPF/ NSC/ ELSS etc, which may give better returns too. Current limit for this is Rs. 1.5L per year across all instruments. Section 80B - Payment of interest of home loan (up to Rs.2 Lac per annum). Does tax savings in this case offset the cost of borrowing? Probably by a little. But if you are hitting an interest of close to the maximum amount with...

Of late, I have been observing people around and specifically trying to understand their attitude towards personal finance. And during several of several such observations, I have realized that there are a lot of things that people are probably not doing right. While everyone has his or her own priorities while planning for personal finance and chasing goals or things in life, here are some of my observations about some of the possible flaws and incorrect assumptions made by people.  1. Assuming that stock markets give almost assured returns  While historically markets have given good returns over long run & will probably continue to do so in future, the returns are not "assured" . So a person selling you mutual funds saying that it gives 15% annual returns is intentionally or unintentionally misleading. Markets may give you 15% annual returns. Or even 25%. Or even 10%. Or even no returns at all. Probably, the recent rally in markets has made people to assume and sal...