MARKET SINKING - Feeling Happy???

MARKET SINKING - How do you feel

I might sound like a fool, if ask this question to an equity investor. No, but I really mean it, if  you are an investor, not the trader and recent market fall panic you, then you need to seriously relook at your portfolio or time has come to change your financial planner.

Proper financial planning will help you to avoid such tensions and enjoy life.Let's see how it insulates you from market fall.

Normally there are 2 stages in any investments, first is Accumulation and the other is Withdrawal.

Accumulation Stage : This stage means that you are accumulating certain predetermined funds for some  particular goals or dreams which might be 8,10 or 25 years away. As the goals are too far you have taken an exposure in equity market to earn inflation adjusted returns.

During accumulation stage you are not putting all your funds on day one but contributing amount at regular intervals.

So if I had invested X amount at a higher market level then the fall in market is giving me opportunity to buy the same at discount. Hence, market fall is a good news for me rather then to be tensed.

Withdrawal Stage : Financial Planning suggests not to have any investments in Equity market when you are closer to your goals. So, if market falls during this period it shouldn't bother you as your exposure to Equity market must be nil.

Historically, it has been proved that Indian equity market has given average 15% annualised return over a longer period of time and in short period it has given return ranging from -13% to +101% (considering Financial Year wise) and for certain other period might be in the range of -50% to +100%.

This includes periods of :

1) GDP Growth from 3% to 8.5% - How it makes a difference in long run if some of the rating agency downgrades GDP forecasts by  50 or 80 bps.

2) Natural Calamity : Drought, Tsunami,Gujarat Earthquake ,Mumbai Floods.

3) Tragedy : Bhopal Gas Tragedy, Violence in Valley, Ayodhya Riots, WTC Bombing, Indian Parliament attack, Mumbai Terrorist attack.

4) Scams : Harshad Mehta, Ketan Parekh

5) Tech Bubble, Sub Prime Crisis and now U.S Downgrading

6) 2 Prime Minister Assassinated

I Quote Warren Buffett " Time in the Market is more important than timing the market".

Unquote, Inspite, of having all the bad phases which we can expect in an economy we have grown consistently.

Instead of getting worried about the market movement we should stick to the basics of Financial Planning to have the optimal benefit.

I am not Anna - I should not be

I AM NOT ANNA - and you should not be.

Anna really did what none of our leaders could do since decades. I strongly support his protest against corruption and condemn the action taken by government by not allowing him to protest , which is the constitutional right of every citizen in democracy.

I AM ALSO ANNA - Rather why me every citizen in the world would be Anna for fight against corruption. But should not be Anna for EVERYTHING he is asking for.

To support any decision/policy/Draft the basic requirement is to read it thoroughly and understand its impact. I doubt how many of Anna's supporters has really gone through the draft.

The time has come to be matured enough, that instead of blindly supporting a person, we should support his views or policies. For that we need to keep our mind open and try to see the big picture instead of what they show us.

We as an human being has an habit of following anyone blindly, whether it is some gurus, sportstar, Bollywood star or politician and if anything goes wrong start cursing them.

As they say "Error is to Human".

I request all of you to first go through the draft of proposed Jan Lokpal bill and understand the repercussions of each and every clause before supporting it.

As an citizen of India I feel if the Jan Lokpal bill is accepted in the format as proposed by Anna then it would be a much bigger threat to sovereignty of our nation then existing menace like corruption.It would put our growth on hold. Country will come to a stalemate. If you can win confidence of 10 members under lokpal you can easily rule India. 

I produce below Structure of Jan lokpal bill :(You can access full draft on www.indiaagainstcorruption.org)

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Structure of Lokpal

Jan Lokpal Bill proposes that at the level of Central Government, an institution called Jan Lokpal should be set up. Likewise, in each state, Jan Lokayukta should be set up. Jan Lokpal will accept corruption complaints against Central government departments and Jan Lokayukta will accept complaints against departments of respective state government.

Each of these bodies will have 10 members and one Chairperson.

a. Independence of Jan Lokpal and Jan Lokayukta

Jan Lokpal and Jan Lokayukta would be completely independent of the governments. Their independence would be ensured through following measures:

(i)   Administrative independence

They will be independent agencies like Central Election Commission, Comptroller and Auditor general of India and Supreme Court. Therefore, no politician or a bureaucrat will be able to interfere with its functioning.

(ii)  Financial independence

Their expenses will be charged to the Consolidated Fund of India/State. They will be provided whatever expenses they require.

(iii)  Manpower

They will have powers to assess their manpower requirements and employ them either from existing government servants (who can come on deputation basis) or directly from the market.

b. Single anti-corruption agency

Anti-corruption branch of CBI, CVC and departmental vigilance wings will be merged into Lokpal. Anti-Corruption Branch of Police, state vigilance departments would be merged into Jan Lokayuktas. In 1986, when Karnataka Lokayukta was created, all existing anti-corruption and vigilance agencies in the state were merged into Lokayukta.

Presently, we have institutions of Lokayuktas in 18 states. They are merely advisory bodies. They neither have resources nor powers. They will be replaced with Jan Lokayuktas through Jan Lokpal Bills.

c. No more advisory bodies

Jan Lokpal and Jan Lokayukta will not be advisory bodies. They will have powers to start investigation or prosecution in any case. For that, they will not need permission from any government agency.

Jan Lokpal and Jan Lokayukta will also have powers to impose departmental penalties on bureaucrats."

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If the above conditions are accepted then Jan lokpal would become the most powerful body. In a democracy  how can be a privately elected body can be more stronger then formed be people's representative.

It means to take control of our country you just need to have command on these 10 people, and I think which is not a difficult job at all.

I have full faith and there is no doubt in credibility of Anna. But he is not going to be there for ever.

So, before supporting such a big issue please go through each and every minor details.Even after that if you agree to the draft, then we have constitutional right to protest against government and we should do it.

Request you to bring awareness and share it with everyone you know.

AARAKSHAN - A Father's perpective

"AARAKSHAN" -   A BIG issue during our college and school days. I remember the days when "Rajiv Goswami" had gone for self immolation at the age of 19 against V.P Singh's implementation of Mandal comission recommendations for reservation. 

I also played my bit by protesting against it as a head of Bajrang dal for my college.

After years the same issue clicked to my mind looking at reviews of to be released movie of big B with the name "AARAKSHAN". It forced me to rethink that, reservation is really a bad word.

Being young, we never apply much of a logic .But assess things looking at our benefit. After studying for 13-15 hours a day and getting 85-90%, we can't get admission to medical or engineering college whereas these people from reservation class gets admission even at 34% (Which are passing marks) and the funny thing is inspite of that the seats remain vacant in that category. We felt it is just a way for the government to secure their vote bank.

But, today being a part of a financial planning industry for more than 10 years, I come across different kind of investors from different classes with different needs. The one thing common amongst them is every one wants to give best education, infrastructure and facilities to their kids.

They get them admitted to best schools, will stand whole day to enroll them to coaching classes, make there study area perfect, provide costliest stationery, branded pens, best of food or a 2 wheeler - so that they can comfortable commute between coaching classes and school, clothing or everything for that matter is available at their disposal. If they ask for any thing related to studies, parents get them however costly they are. During these period they live a prince life.

But, when I thought of so called reserved class in this context, it changed my views about "AARAKSHAN". 

Even, after working for whole day they are hardly able to take care of their livelihood in this inflationary period. However, they manage to study in a street light or a single bulb in the whole room, by having the minimal stationery or books and without any access to coaching class. The only thing which they get is government school (condition of which we know very well) or schools run by Trusts - Even they have became a money making machine and if there are some good ones left, they are always lack of funds to provide the best education.

Inspite of all the hurdles, if that child is able to continue his study and scores 45 to 50%, It means more than a distinction for him. He should for sure be given priority or motivation to continue the same and strive a better life in future.

Even thinking from social aspect, if we will not try to uplift them by providing certain reservation today, the difference will grow more and more with every passing day. The days are not far that instead of asking for food they will snatch it from us.

I quote "No one is born criminal, but the hunger makes a thief of any man " or "Poverty is the mother of Crime".Unquote

If we wish to live our life with security and comfort, we should try to help them by providing the environment and basic infrastructure, so that they can also grow with us. By compromising one hotel visit or a movie in a year we can help a child to pay his school fees for the whole year.

I wish while making a financial plan every one should set aside some portion of investments towards philanthropy to make the world a better place to live.

How to Teach kids value of Money

Lot of parents ask me how to teach children about money management. In present time kids want to have every new product they see in the market or with their friends. Thanks to advertising world, which do not leave any stone unturned to lure them with attractive and licking offers.

Very they easily understand that dad we are getting 2 free on 1. But do not understand that we have to still pay for 1 which might equal to cost of 3.

As a parent we have a lot of responsibility towards our kids for teaching them good habits to be a better person and a better citizen. Which includes habits like - table manners, giving respect to others, sportsmen spirit, being cooperative, not to use abusive language, help elders etc. But many a times we forget to teach the manner of money management which is in no way of  lesser importance to shape up their life.

Most surprisingly, none of the school teaches the biggest subject in life i.e how to manage money. There has to be a subject of money management in every class. So that they can inculcate it since their childhood and avoid making mistakes in future like most of the investor does.

I am putting some points which can help parents to make children learn the value of money and its management:

1) How to start - Big Question WHEN and HOW ?? We should start talking to them as soon as they start saying "I want this". At every age take opportunity to make them understand how you manage money. Model how you make money decisions while shopping, paying bills, going to bank, avoiding or delaying unnecessary expenses.

2) Many Parents might feel that when I myself is not good at money management , how can I teach kids for the same : Whether you teach them or not they see how you handle the money. To quote James Baldwin:

"Children have never been very good at listening to their elders, but they have never failed to imitate them"

Unquote.You are a role model but you are not required to be perfect. Try to demonstrate the best use of money in front of your children and try to make them as positive as you can. Do not forget to discuss the mistakes you did with money and repercussion of the same. Share with them your emotions and value of money.

To illustrate: My son wanted to have an PSP on his 12th birthday. I made him understand that if you wish I can get you a PSP, but you will play with it for hardly a year or two. Our priority right now is to accumulate bigger amount for your future or we might need to buy a computer which would be more useful through out your carrier, which would not be possible if we will not cut down on such higher avoidable exps.

I know every time this is not going to work, let them have some of such stuff  (If you can afford) as they should not be left behind in this fast growing technological world. Make them understand difference between necessity and pleasure.

Do not forget to appreciate them if they agree and never scold if disagree.Make them understand that we do not spend everything we earn but save something for future and present improved life style is result of that.You can take real life examples within your circle or relative who has faced a sudden financial crunch because of not managing their finances well.

3) Try to make mission statement by involving the family: The best way of money conservation is get your family along with you for writing a financial mission, outlining your families values and priorities. Invite your kids to brain storm answers to questions like: What is important for our family? What do you think our goals should be?  What can each of us do to get the money we need for our goals? What should we do with our savings? & lastly Most important - how we can help the society?

4) Pocket Money: Give them pocket money. Try to match it with the expenses you expect your children to spend, so that they can learn that they can't spend unlimited. Ensure you do not allocate any additional amount for pocket money and let them learn how to manage within available resources.

5) Set saving goals : If you child wish to buy a costly game or gadget, let him accumulate the money for it on monthly basis in this way he will learn value of every penny saved and will be more happy when he will buy it with his own saved money. It would also ensure that he will take proper care of the it as he has worked hard for it.

6) Place to save: Provide them a place to save whether it is piggy bank, wallet, envelope or in closet.

7) A special piggy bank to share: Teach them to save something out of total saving for sharing,charity or special cause like paying for stationery exps of your housemaid etc.

8) Let them make choices: Allow them to make choices what they wish to buy. Do discuss with them what they might loose (Positives and Negatives) if they buy it. It will help them to understand difference between wants and need.

9) Reward them: Whenever you feel that they are asking for food or drinks which are not good for him. Give them option of either go for it or have an additional contribution to piggy bank to have corpus to buy the gadget earlier.

10) Take help of Certified Financial Planner : Long term investments are best to reach you goals easily, take help of a financial planner to make them understand meaning of the same. Financial planning is a process of wisely managing your finances so that you can achieve your dreams and goals - while at the same time helping you cope up with adverse situation which comes in every ones life. Managing finances is ultimately your responsibility, but you can take help of a financial planner. A qualified financial planner can help you to take decisions that make the most of your financial resources.

Mantra for Fit and Healthy Life - Financial Planning

Mantra for Fit and Healthy Life - Financial Planning

Must be thinking what's the relation of Financial Planning with healthy life.

Not directly, but indirectly for sure there is a very strong link between them. I believe that a financial plan can keep your sugar level in control and would not allow your blood pressure to pop up.As freebies it also helps in creating a strong family bonding, caring and respect for each other.

During my financial planning practice and writing plans for my clients. I found that most of the individual wants to live life today and is not worried about future. First priority for them is to spend money on everything they require, leisure, shopping, purchasing white goods and if anything left is being invested.

Most of them have never thought of how much amount they would require to fulfill their goals. If some of them have done that, then it is on the basis of present cost without accounting for the inflation. Forget Goals and dreams they are unaware of even what they would require to maintain their present lifestyle.

According to me there are three kinds of Investors:

1. First -Who don't want to compromise on their present and leave future on god. They don't believe in saving or investing.
2. Second- They know what they would require. But not able to cut down on their discretionary expenses and just invest the surpluses (If left). They are ready to compromise their future instead of cutting present expenses.
3. Third - Have strong will power Knows what they require. Take help of professional . Plan it, tries to start cutting on unnecessary expenses, allocating funds to different asset classes depending on their requirements. They take benefits of all the 3 Musketeers of Investing i.e Starting Early, Investing Regularly, and remain invested for longer period.

Most of the Diseases are result of present life style and financial worries. The third category of investors who follows Financial planning process knows it gives them freedom from all the worries and insulates them from lots of disease which are babies of present lifestyle and needs. Let's see how :

Key to proper financial planning is as follows:

• Budgeting : The first step in financial planning process is budgeting. The prime requirement for every house hold is to have budgeting in place. Since years my parents used to jot down the bigger purchases to be made during the year and used to prepare a budget for such bigger exps. and subsequently monthly budget for groceries etc. It also helped us to come close as a family. We saw our parents sacrificing their needs for us and subsequently we also learned the same and started doing same for  our siblings. 

Even today the practice is very relevant the requirement is to stick to it. It helps in avoiding impulsive buying of the goods which are not the necessity. I have seen people changing mobile, Television, Two Wheelers every year or cars every three years...

It is said that "Need is the mother of all inventions" But in the world of advertisement and media it should read as "ADVERTISEMENT - Making all inventions a need for individuals".

An unexpected expense creates tension, which might in long run become a reason for hyper tension. Plan your Budget and stay away from it.

• Cash flow: We should keep a diary near our bed and inculcate habit of writing expenses on daily basis. The proper integration of expenses under different heads would help us to find out what are the expenses which were discretionary in nature and which were not. If we would have the records we can always see that how many times we dined out or partied, or had been to multiplex to watch movie. By reviewing the list can reduce unnecessary expense and surplus can be created for future goals.

By making a cash flow we can have a good night sleep. It will cut down on dining out, avoiding eating Oily, Spicy and food containing artificial ingredients, alcohol, smoking etc...leading to a balanced life and can save us from hyperacidity and High Cholesterol.Keep your Lungs and liver healthy.

        

• Identification of Goals: In present inflationary environment it is necessary to identify our goals and the requirement of funds.
  

I have come across a case wherein the client was having enough saving to meet up all his future goals and dreams. But had a portfolio having equity weightage of 80%.Does he require to take such a risk and to have unnecessary tension in case market turns bearish. 

By knowing what our dreams are and planning for it properly, we can keep our blood pressure level under control.

The other constituents of financial planning apart from above are Net worth statement, Asset allocation, Insurance need analysis and reviewing  financial plan regularly will take care of our financial as well as physical well being. The entire process ensures that we are prepared well in advance for all financial responsibilities and will help us to stay away from hyper tension, High Cholesterol, Acidity, Blood pressure.

There is not much of difference in approach of investor's as well as patients. Even the patients are of 3 types :

1. First one are on suicidal path who do not want to take medicine neither compromise on life style with an attitude " Ek din Marna sab ko hain, Jo hoga dekha jayega".
2. Second ones are ready to live entire life on medication without compromising on present lifestyle. Eventually power,frequency and quantity of medicine keeps on increasing.
3. Finally third one who have strong will power. Thinks that I will not leave my entire life on medication. They take all the precautions, exercises, avoids eating Junk food, maintain a proper lifestyle and finally nullify or even able to cure the disease.

 Actually, financial planning inculcates a discipline and can shift people from first and second category to third which will keep you fit and healthy.

 SO, GET YOUR FINANCIAL PLANNING DONE PROPERLY AND STAY FIT & HEALTHY.

Traditional Insurance plans - Fortune or MISSED - FORTUNE

Lot of buzz had been created about higher commission payouts and charges under different heads charged by the insurance companies in ULIP's. This all started after the public spat ensued between the two financial regulators SEBI and IRDA.

Result was rationalisation of charges in Ulips, which made them a slightly better option for people who view it as the most convenient way of buying life cover with an investment element.

Will not discuss how ULIP's have been shaped up after the newer regulation. But will concentrate on bigger picture which everyone including media as well as regulator missed out i.e. traditional plans.

Traditional plans basically come with certain fixed premium for particular sum assured depending on the age.

Majority of insurance business done by state run insurance company comes from this basket.

Even ULIP in older format was better (Atleast in one sense) that it used to disclose all the charges upfront, whereas charges under traditional plans are hidden . The regulator and insurance cos. easily moved away with need of regulating the traditional plans, which is still creating a big hole in policyholder's pocket.

As the expense structures of these plans are not available let us review the cost attached to it.

• First year commission paid to agent is somewhere between 25-40%.
• For subsequent year 2 & 3 it is 5% - 7.5% in most of the cases.
• Nearly 5% for rest of the term.
• Commission to Development officer between 6 to 8% (Only for 1st year)
• Salaries and other benefit to employees.
• Exps. of Management & overheads
• Taxes
• 5% of profit to Govt. of India
• Policy claims

Now, lets look at investment process of traditional plans -It invests funds in securities issued by Central Govt, State Govt,Municipal Bonds,Debentures , Govt. approved housing schemes and Equity shares. (Majority of investments are done in Govt. securities and Equity allocation is very less - Investment style is somewhat like an MIP scheme of Mutual Fund).

Historically, MIP schemes have generated return between 9-10% on a longer period.
In addition to that Bonus declared under traditional plans are never compounding. But it just adds up for all the years and paid at the time of maturity.

After accounting for expenses investor themselves can evaluate, what return they can expect from this plans.

For ULIP's under newer regulation IRDA capped the difference of Gross and net yield as 2.25% for term more then 10 years. Whereas from above calculation it is clear that difference will be extraordinarily high in case of Traditional plans.

The question is not that the ULIP is better or TRADITIONAL plans.But I wish to emphasize on the fact that both investments and insurance has to be managed separately.

As insurance is a push product the cost is always going to be high, so buy insurance from the insurance company and plan investment with lot of options available in the market or seek advice of a practicing Certified Financial Planner.

For insurance one should always look at Term assurance which can get you a bigger and required insurance coverage at lower premiums.

Don't let fraudsters take away your hard earned money

Just wish to warn investors against lot of schemes running in the market which assures returns more than market rates (Enclosed fate of one of such scheme investors). In last 1 month or so I have come across lot of news in news paper wherein people have been duped of 100's of crores and these are the figures related to filed complaints, otherwise actual figures must be much higher.

They run this business in Multi Level Marketing Formats wherein firstly you become member by depositing the money and then on every additional member referred earn commissions.

Just to list a few schemes which I heard of are :

1) Double your money in 3, 6 or 9 Months
2) Deposit Rs.750 and Get certain amount of Food Grains viz; Rice, Wheat, Grains and Oil actual price between 3000 to 4000. 3) Deposit Rs.19000 against which company will invest money in gold and will return you amount of Rs.150000 in 3 years by way of post dated cheques.
4) Give money to builders wherein they will give interest@36% and return your money in 5 half yearly installments. Interest for the whole term will be provided on initial capital investment without deducting for installments refunded.
5) Buy diamond jewellery by paying in cash and get the refund of full value after 2 years.

and the list goes on...........

This reminds me of the time when in U.P. there were people who used to pay big amounts for formulating such schemes. An example can be taken from movie "Banti and Babli".

Investors should use common sense while investing in any of the innovative schemes. An ALARM should ring immediately if you hear of such schemes. Always try to invest in the schemes which well regulated. So that if anything happens to your money, government will be there to support it. The best example for it is U.S.A., inspite of involvement of Big names in the scam, the govt had no option but to bail out them.

I would recommend you to consult a Certified Financial Planner or any person who you feel have good knowledge of various in and out of Investment instruments.

Please do share this write up with all of your dear and near one. If you have come across any of such schemes do update, so that lot of other people can be saved.