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20 Things to Not Do in the Volatile 20s

(This column was first published on Value Research Online.)

The markets are volatile. A drop or rise of around 300-500 points on the Sensex has become commonplace. Most people don’t even bat an eyelid at such numbers, but that doesn’t mean there aren’t people who aren’t losing sleep because of the ups and downs of the equity markets. There are numerous investors who are confused about the investment approach they should adopt right now. Well, instead of telling them what they should be doing, here are 20 things that they shouldn’t do, in any market situation.

  • Don’t check the value of your long-term investments on a daily basis
  • Don’t stop your SIPs in equity funds
  • Don’t say “yes” when your better half asks if she’s looking fat in a dress
  • Don’t try to wait for a market correction to begin investing
  • Don’t expect people to behave or act the way you think they should
  • Don’t ignore fixed income if you think there’s opportunity in equities, every asset class has its own value
  • Don’t begin putting money in equities till you have adequate insurance and reasonable emergency funds
  • Don’t overlook tax-saving investments, money saved is money earned
  • Don’t fall for compliments from all and sundry, you never know what vested interests they might have
  • Don’t think twice about apologising when you know you’re wrong
  • Don’t ignore equities if you’re retired, it’s the best way to beat inflation
  • Don’t be negative, gloominess begets gloominess
  • Don’t believe everything a financial advisor or distributor has to say, be sceptical
  • Don’t put your money in unit linked insurance plans and such, it’s not your duty to make the insurance sellers rich
  • Don’t think of gold as an investment, buy it only for consumption
  • Don’t shun senseless comedies, sometimes it’s a relief to leave your brain at home when you go watch a movie
  • Don’t invest in sectoral or thematic funds, diversification earns more rewards
  • Don’t ignore a question that your child asks, no matter how stupid it is
  • Don’t dabble in stocks directly if you don’t have the time, knowledge or understanding of the markets
  • Don’t blindly follow everything listed here, understand what fits your needs best
Oeuvre, Value Research

Tackling the Hungry Monster called Inflation

(This column was first published on Value Research Online.)

Among the many peculiar habits my wife has, the one I find the rummiest is her tendency to not have an entire bar of chocolate in one go. She likes to eat the chocolate one piece at a time, leaving the rest for later so that she’s able to cherish it for a longer period of time. This, I can’t comprehend. Me, the one with the sweetest sweet tooth, can’t help but devour an entire chocolate—or any other sweet—in one go and as soon as possible. I don’t worry about cherishing the sweet for a longer period, because there will be something else to have at a later time, right?

Now, this was one of her habits that I find peculiar. But on a related note, there is one habit of mine that she finds extremely annoying. She doesn’t like it when she leaves behind her chocolate to have later, only to find it gone. Why wouldn’t I gobble up a chocolate that’s lying around in the fridge? What if it’s feeling lonely? What if it’s feeling ignored and unloved? We’d never know. The purpose of its existence is to be eaten, which is exactly what I do. But don’t tell my wife that, she’s not buying that theory.

Of course, I can understand why. No one likes it when something they’ve saved gets consumed by someone else. To cite another example of this—inflation. Inflation is a sneaky, hungry monster. It’ll creep into your savings surreptitiously and eat away your money little by little.

And this is why your money shouldn’t be lying around idly. The best investment avenues are those that will earn you more than the prevailing rate of inflation. Which, obviously, is equity. Equity could be in the form of direct stock investments or equity-oriented mutual funds. Long-term investments in equity have been proven to generate returns that have beaten inflation over various time periods. Fixed income, on the other hand, hardly ever manages to beat inflation. And money in your bank account is just calling for inflation to come and eat it up.

Since the value of your money remains stagnant if it is not invested, inflation tends to erode this value. What you are able to buy today for ₹ 100 will be costlier in coming years because of inflation. Hence, your money needs to outgrow inflation so that you can afford the higher expenses and have something left behind as savings as well.

The worst thing about inflation is that you won’t even notice that it is eating into what you’ve saved till it is probably too late, unlike a chocolate-eating husband. My wife hides her chocolates to make sure I don’t end up eating them, and in a similar way, you need to invest your money in a way that doesn’t allow inflation to eat it up.

Oeuvre, Value Research

Invest in the Gujarati Thali of Funds

(This column was first published on Value Research Online.)

Juice, Salads, Khichdi, Rotis, Different rotis, One more variety of rotis, Puris, Vegetables, More vegetables, Even more vegetables, Sweets, Sweeter sweets, Diabetes-inducing sweets, Side-dish, Side-dish on the side of side-dish, Papad, Rice, Daal, Curd, Jiggery, Pickle, Butter milk…

Behold the Gujarati thali. For those unaware, the Gujarati thali is a single serving that comprises an assortment of food items. It is one dish, but a big one at that. The dish comes with several bowls and once the entire menu is laid out on it, there’s seldom any space left to give away the colour of the dish.

The best thing about having a Gujarati thali is obviously the wide variety of delicacies that you get to eat. There are so many things in front of you; you get confused about what to start with. But that’s a good thing. No consumer has ever complained about being spoilt for choice, and this is one place where you definitely won’t.

Apart from the wide variety it gives, the Gujarati thali is also said to be very healthy because of the options it provides. Sure, naysayers would say that the sweets are not healthy, but they don’t harm you because you end up eating only a bit of everything. Any one single item won’t have an adverse effect on your health, but all of them put together will only do you good.

The same way diversified equity funds do you good. We recommend diversified equity funds as the ideal long-term investment option for the same reasons – a variety of stocks working for you, without allowing any one to have a major adverse effect on the returns generated. The stocks in the portfolio of a diversified equity fund work in tandem. The fund manager can pull money out of any sector that’s not doing well and at the same time, invest in a sector that shows bright prospects. During a bull run, most sectors are doing well and a diversified fund is best placed to capitalise on them and generate returns. And in the event of a bear phase, there will be some sectors that will fall more than the others, which allows the diversified fund to cushion the fall.

This is exactly what a thematic or sectoral fund can’t do. Investing in a thematic or sectoral fund that comes with a constrained mandate is like having only the sweets from the aforementioned Gujarati thali. It’ll feel great momentarily, but the long-term effects will only be harmful. Sure, a diversified fund feels pallid as compared to a thematic fund. But it is always better to have a wide variety of things, with each contributing towards the overall outcome.

Oeuvre, Value Research

Start Early to Reap Benefits Later

My nearly-five-years-old son thinks he’s too young to go to school. On any typical school day, he’s exasperated when he’s woken up. Of course, most of us don’t like to wake up early, but sleep seems even more precious to a kid who doesn’t seem to understand the logic behind needing to wake up. “I’m too young to go to school,” he’ll say. “I’ll start school when I’m your age.”

But he has to start early, we all did and so will our kids. You start school when you’re very young because you need the education when you’re older. The sooner you learn, the better you’re able to apply the knowledge that you’ve learned. And of course, there’s the whole bit about having a strong foundation as well. The things we learn and adapt to early in our lives help us study further and amass degrees. This is why schooling begins at an early age, so that the children can learn the basics while they’re young.

Why, then, shouldn’t investments also begin at an early age. Obviously not when you’re a kid, but at least when you’ve started earning. Youngsters in their early 20s, when they begin with their first jobs, wouldn’t be too interested in saving and investing for their retirement, which is an eon away, much like the 4- or 5-year olds who can’t understand why they’ve to go to school at such an early age. The young students are beginning early for college that is 12-15 years away. For a young earner, retirement is nearly 40 years away. So, to plan for that is something wouldn’t naturally come to mind.

But the advantages of starting investing early are unparalleled. In most cases, you don’t have anyone depending on your income when you start earning. That is the best time to inculcate the habit of saving. Sure, you’d like to spend the money you earn on products and services, and there’s nothing wrong in being materialistic. But if you can manage to invest even a small amount to begin with, you’ll see your savings grow substantially. There’s something called the power of compounding that also comes into play, and it makes a huge difference without being conspicuous.

So, start early. Start at a time when you have the ability and capacity to make substantial contributions for a brighter future. Your destination might be far away, you might not even know where you’re headed, but the sooner you start off, the better chances you have not getting stuck in the middle of the road.

Oeuvre, Value Research

Get Your Money a Job

(This column was first published on Value Research Online.)

I got my money a job.

It had been lazing around in my bank account for quite some time. It would just sit there, not doing much, if anything at all. Minutes would turn into hours, hours would turn into days, days into weeks, weeks into months, and the only time my money would even move an inch was when I would try to withdraw it. The rest of the time, I would sit comfortably on its backside without a care in the world. Eventually, what happened was that my money got too comfortable with the easy lifestyle that the bank account provided. It was then that I realised that I had to get it to do something useful.

I also realised that it wasn’t in my interest to allow my money to be lethargic. They’re right when they say that one has to try and get the best out of all of one’s assets. I don’t know exactly who “they” are, but whoever “they” are, “they” are right about this—whatever asset you have, you have to put it to use if you want to get wealthier. And money is definitely such an asset. I couldn’t afford to let it loaf around idly in the bank account. It had to get it out in the real world, it had to work, it had to be productive.

So, what I did was I pulled the money out of the bank account. Understandably, it was reluctant to come out of its comfort zone. It was apprehensive about how it would fare in the world outside. It wasn’t sure if it would be able to meet my expectations. But I consoled it. I told my money that I would put it to work in a place where it would know what to do. I would get it a job that would be right down its alley, something it would be comfortable with.

Having built up my money’s confidence, I put it to work in mutual funds. I got it jobs in a couple of mutual funds of different types, where it would be exposed to different types of market envir0nments and challenges. And to its credit, it has been doing pretty well. My money has settled into a productive way of life. Now, my money works hard to earn more money. Every day, like the rest of us, it goes to work and tries its best to grow in value.

And I must say, I’m very happy to see my money be so productive. Getting it work in the right kind of mutual funds has definitely been better that seeing it sit around purposelessly in the bank account. It’s something I recommend you do with your money as well. Put your idle money to work in mutual funds or other investment avenues and see how great it feels to see it grow.

Oeuvre, Value Research

4 Ways to beat Investment Stress

(This column was first published on Value Research Online.)

Oh, yes! Investment-related stress is as real as any other kind of stress. And probably just like physical stress or emotional stress, it creeps into you unnoticed. But stress, of any kind, is never as innocuous as it seems.

What investment-related stress does is that it makes you take financial decisions injudiciously. It makes you take kneejerk reactions that might seem sound at that time, but would be detrimental to your overall investments.

So, yes, investment-related stress is real. That’s the bad news. The good news is that there are real ways to beat this stress as well.

Clear out the junk

Many investors believe that they need a large number of funds to build a diversified portfolio. This is not true. You can get adequate diversification even with a few number of funds. Different strategies, different fund managers, different exposures, is all you need and what you can get without piling on fund after fund. So, clear the junk and build a portfolio that’s easier to manage and track.

Keep a scrapbook

Maybe not exactly a scrapbook, but at least an account statement of your investments. Very often, we come across cases where investors know they’ve put their money in something, but have no idea about what that something is. That is a situation everyone needs to eschew. Keep a record of your investments as well as your insurance policies, and keep them handy so you don’t waste time searching for them when you need them.

Take a walk

Literally, take a walk. When you look at the markets falling and think about redeeming your long-term fund investments, take a walk. When you see the markets rising and think about betting on a particular stock a friend tipped you about, take a walk. Basically, take a walk before you jump into any investment decision. A walk will clear your head and you’ll make sure you don’t end up with a regrettable decision.

Eat small meals often

Meals, here, means SIPs. The best way to invest in mutual funds is by putting in a small amount regularly, rather than a big amount in one go. Systematic investment plans have proven to be extremely rewarding in the long run because they average out your investment cause and allow you to buy units across various market conditions. And over and above that, SIPs become a habit that’s worth holding onto.

Oeuvre, Value Research

Saving for a Rainy Day

(This column was first published on Value Research Online.)

What’s happening in Greece is an unprecedented situation. However, like we are witnessing, unprecedented situations are not implausible ones. But the problem with unprecedented situations is that they’re largely unforeseeable. The situation in Greece, which is being called Grexit, might have been anticipated. It was almost a situation-in-the-making. But there are numerous other crises that are not. These are exigencies that take place in our daily lives and if we are to tackle them with any amount of ease, we need to save for a rainy day.

When I say that we should save for a rainy day, I don’t mean stocking up on umbrellas, raincoats or windcheaters. Of course, in case of an actual rainy day, that would really help. But a rainy day from a financial perspective is when a crisis happens or you’re faced with a monetary emergency. When the skies open and you’ve to run for cover, you would either need an umbrella to stay dry or an adequate amount of money to make sure you don’t get wet.

This is why we often advocate that before an individual starts investing in stocks or mutual funds, they should first make sure they buy pure term insurance and have an emergency fund that is easily accessible. The emergency fund could be in the form of a savings bank account, bank deposit with an overdraft facility or a short-term debt fund. Enough already has been said about the importance of a sufficient term cover. It’s an expense that should be made.

Having insurance will safeguard your dependants in case of tragedy, while a contingency fund will allow you to be prepared for any situation that requires immediate cash. The last thing you want is you and your family running around looking for shelter after the downpour has already started, because we know that it doesn’t take long for our world to get flooded. In purely monetary terms, this would mean you’re scurrying about to gather the money you need to meet the emergency. And while you waste precious time doing that, the situation is only going to from bad to worse.

So, save for a rainy day. Stock up on umbrellas and raincoats. While you’re doing that, don’t forget to create an emergency fund. But before you do both of those things, get yourself adequately insured in the purest form. And once you’re done with all of that, enjoy the monsoons.

Oeuvre, Value Research

The Devil in the Disclaimers

(This column was first published on Value Research Online.)

“Mutual fund investments are subject to market risks. Please read all scheme-related documents carefully before investing.”

You probably read this disclaimer the same way you listen to it on radio or TV ads – without giving it a second thought. Right? Who cares about disclaimers, anyway? They’re merely a collection of obscure words that pass through our senses without garnering any kind of effect on us. We read or hear them, and we forget about them even before we have finished hearing or listening to them. Such is the life of disclaimers! Nobody takes these poor souls seriously enough. Certainly not mutual fund investors.

And maybe, just maybe, it’s not entirely your fault. These scheme-related documents that you’re supposed to read probably remind you of the texts you faced before your 10th standard board exams. You somehow did manage to cram your way through your exams, but you’re definitely not interesting in suffering through the fine print before you invest in a fund. And so you largely ignore the disclaimer.

But you probably wouldn’t if the disclaimers were a little bit more realistic, specific and hard-hitting. Something like – “Mutual fund investments are subject to market risks. Your hard-earned money will go down to the drain if you’re not fully aware of what you’re investing in.” Now, that is something that would surely make you sit up and take notice.

You would not only sit up and take notice, but look at your distributor or agent sceptically if the disclaimer was something like – “Mutual fund investments are subject to market risks. You’re being shown only a trailer, not the entire movie about how this fund has actually performed.” As we all very well know, the movie rarely manages to live up to the expectations created by the trailer.

To take this a step further, how would you react to a disclaimer that said – “Mutual fund investments are subject to market risks. Your fund distributor or agent is probably going to benefit more from this investment than you.” You obviously wouldn’t like this, would you? But such an explicit disclaimer would be as true as the subtler ones. Agents and distributors often push financial products that earn them higher commissions. It is up to you to make sure you don’t fall into a trap. You have to ensure you make an investment that will be best poised to help you meet your goals.

And hence the statutory disclaimer that asks you to read the scheme-related documents carefully. The fine print is important because the devil is in the details. He’s lurking somewhere in the tiny texts that you will have to squint to read; he’s banking on the fact that most investors remain unaware of his presence. Your ignorance is the devil’s gain. To make sure that doesn’t happen, read all scheme-related documents carefully. Or at least, be fully aware of what you’re investing in.

Oeuvre, Value Research

Investments Dhadakne Do

(This column was first published on Value Research Online.)

My wife has this peculiarly Indian habit of trying to find something of value from everything. Even movies. I tend to look at movies as merely stories. Some of them have a moral, some of them don’t. It’s as simple as that. But no, not for thy missus. A movie that doesn’t give out a message, a take-home of sorts, isn’t a good movie in her books. The only take-home that I’m interested in is my sanity, which is a difficult achievement these days, given the kind of movies that Bollywood is churning out.

But thankfully, Dil Dhadakne Do wasn’t one of those no-brainers. It wasn’t cinematic genius; it was what they call a family-entertainer. Mind you, this isn’t a movie review. I’m writing about Dil Dhadakne Do because, under the pressure of my wife’s expectations, I did find a take-home from the movie. No, no, it doesn’t have anything to do with a healthily beating heart. It has to do with how one is rewarded by staying with something for a long time, even through the rough periods.

In the movie, the family of four—father, mother, daughter, son—rarely see eye-to-eye. The father and mother have forgotten the love they once felt for each other. The daughter has been packed off to her husband’s home and the son struggles to make sense of what is happening in his life. We are not told for how long the family has been having problems, but it’s a safe assumption that the issues they face aren’t recent. It’s like 2008 for the Sensex, but every year for many years. But in the end, sticking through the rough weather is worth it because they are together and there for one another when the need arises.

This is exactly how investors who brave the volatile market conditions are rewarded. It is natural for anyone to think of stopping their equity fund SIPs when the equity markets are falling every other day. You begin to doubt the fruitfulness of your investments, which are going down in value and pushing your anxiety levels up. Every time the markets crash, you contemplate squaring up your losses and walking away with whatever little you have.

But, if you’re a long-term investor, and you decide to stick through the bad times, you can be sure of being amply rewarded for your gumption. It is common knowledge that the best returns are earned when an investment is bought low and sold high. This is what having your SIPs running through a full market cycle allows you to do.

So, to cut a not-so-long column short, don’t give up when you face rough weathers, investments dhadkne do.

Oeuvre, Value Research

Lessening Burden of Increased Service Tax

(This column was first published on Value Research Online.)

Ever since the Union Budget was announced earlier this year, most people, especially the beleaguered middle class, had a niggling fear at the back of their minds—the increase in the service tax rate. It was announced by our revered FM that the service tax in the country would be hiked from 12.36 per cent to 14 per cent. The hike came into effect at the beginning of this month.

On the face of it, a 1.64 per cent hike may not seem like a too much to some people. On the other hand, to some other people, even the earlier 12.36 per cent tax was probably too much by itself. Why should I pay tax on some service when I’m already paying for the service itself, they’d argue. But there’s nothing one can do about that. After all, as the hackneyed Benjamin Franklin quote tells us, nothing else in our life is as certain as death and taxes. (I would like to add termites to death and taxes over here, but let’s leave that for another day.) We can’t do anything about the 14 per cent service tax that we now have to pay, but here are suggestions to lessen its burden on some of the services we generally avail.

Give missed calls. All of us have experience with this. We’ve given missed calls in the era of chargeable incoming calls on our cell phones. It might now be time to revisit those stone ages. Give a missed call and let the other person call you. Lesser outgoing call charges mean lesser service tax on your phone bill, after all.

Here’s another trick, many of us, especially the missed calls giving ones, would have experience with ordering soups in one-by-two quantities. You don’t want to have the whole thing, so you share one portion between two people. Some might even say that you end up getting more than half the bowl in each bowl of soup. Considering that speculation to not be conjecture, we can easily apply the method to other parts of our food orders as well. You know where this is heading—less restaurant bill means lesser service tax on it.

You can come up with such creative ways to pay less service tax when you avail other services in travel, banking, et al as well. To what extent these tricks will work is anybody’s guess. But the one place where not a trick, but a tweak will help you pay lesser service tax is a change in the method of investing in mutual funds.

The increased service tax is going to hike up the expense ratio of mutual funds as well. Service tax is levied on the management fee that a fund company charges, and also on the distributor’s commission that has now been brought under the service tax net. As a result, investors in the regular plans of mutual funds will be affected by the service tax levied on distributors’ commissions, over and above the one levied on fund management charges. The only way to get out of having to pay service tax twice is by investing in the direct plans of funds. Since there’s no intermediary involved in the sale and purchase of direct plans, there’s no second service tax to be bothered about.

Of course, there is anyway a strong case for the direct plans of funds, especially equity funds. But the case is even stronger now, with regards to lesser service tax to be paid. You might feel gauche in giving missed calls or ordering food portions in one-by-two quantities, but there’s nothing awkward about investing in the direct plans of funds. Lesser service tax is ultimately equal to higher returns, after all.