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Indian Equities – Past, Present & Future

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August 21, 2013

Indian Equities – Past, Present & Future

You must be thinking does this article still make any sense. From last five equity markets have not made any progress, investors have lost money & hence the faith. On the contrary, I think this is the best time to introduce this article to try to regain the lost faith for equities in you. I am planning to write series of article on EQUITY – hope those will be helpful.

Desmond Tutu said “we learn from history that we don’t learn from history” but Warren Buffet said, “If past history was all there was to the game, the richest people would be librarians.” Nevertheless, let us try to bring some balance, check the history, and try to gaze future. This article will revolve around my story. 🙂

Image courtesy of pakorn at FreeDigitalPhotos.net

Note: this article is purely based on facts and figures but still as they say “past performance does not predict future returns” so you should take this with pinch of salt.

Indian Equities - Past, Present & Future Click to Tweet

Past 2003

This was beginning of my career, just finished my MBA & I was desperately looking for a job in financial sector. During MBA I had lot of interest in reading investment & business magazines – due to this, I won all business quiz I participated in – and that’s the reason I was preferring job in financial sector. Finally, through reference of one of my senior, I found a job in one of the distribution house – biggest name in investment advisory services at that point of the time. And the journey started.

2003 was one of the worst periods for equity & mutual fund investor’s life. Year 2000 is infamous for tech bubble burst across the globe including India. We were facing aftermaths of that; lot of money was lost in technology sector stocks and IT sector funds that were selling like hot cakes in 1999-2000. There were lot of clients walking in our office but must of them were holding statements with huge negative returns. (Even real estate was going through secular bear market)

Media was having surplus supply of red ink so they were not missing any chance to use that. As they say, stock market is barometer of economy, so even that was down with fever. Things started moving a bit after mid 2003 but got some rude shock in 2004. NDA, which was promoting “India Shining” lost elections and market was falling like ninepins. I still recall we were at office and watching this meltdown… People lost complete faith in equities and were looking for safe avenues.

Read – Sector Fund – Should you invest?

Present 2013

After 10 years, I am still in financial industry but left my job & running my own financial planning practice. Happy with my practice, small contribution to financial planning profession & financial literacy, my book and family. Regulations have become more stringent, financial markets have developed & India has definitely progressed in comparison to 2003. UPA is promoting ‘Bharat Nirmaan’, not sure about election results but economy pundits believe change will be good for equity markets. (Real estate has seen secular bull market, properties have become almost unaffordable)

However, as an investor if we compare situation of 2013 with 2003, there is not much difference. Again, media’s oversupply of red ink continues, investors are in pain, economy is in pain & economists are writing death warrants. Investors are looking for safe investments and getting rid of existing equity investments including Systematic Investment Plans.

But I thought; let’s check things that have happened in these 10 years with investors who kept faith in equity in 2003.

Chart 2003 to 2013

Also Check – Why invest in Bad Times – check historical data

This shows that money has grown by approximately 400% in 10 years – which is not at all bad. With whatever you have faced in last couple of years average returns from equities are 15% CAGR. Now you will say 2003 we may have undervaluation or period after 2003 saw an exceptional bull run and market turned 6-7 times in 4-5 years. You may be right but do you think anyone was having slightest clue in 2003 that how things will shape up in future. It is as simple as that – who will participate in equity markets will get that returns, and if you will be with it in bad times, it will be with you in his good times.

Valuations 2003 vs Present

Last year Morgan Stanley Shared a report – Sensex at 2003 levels.

You can check full report here. Hope you got the message…..

Future 2023

I am sure that I will be running my financial planning practice and hope you will be reading TFL blog in 2023.

Hypothetical situation in 2023:

Sensex is trading at 60000 but investors are not happy because they have lost money in last 3 years – in 2020 sensex was at 80000 levels – as always investors came to party when markets were high. Everyone is blaming current government for stupid economic policies, onion is bringing tears in the eyes even without cutting as it is selling at Rs 700 per kg, Pakistan infiltrated in Jaisalmer but govt is not reacting. Pre Poll election survey results show Bharat Bachao Alliance (also known as 5th front) looking strong to win general elections – but they have to work hard in new states like Marsthan and Puttar Pradesh. 2G, 3G & 4G cases are still pending in SC – it looks CBI is puppet of current govt. etc etc blah blah blah………

Or

Sensex is trading at 60000 but investors are not happy because they have lost money in last 3 years – in 2020 sensex was at 80000 levels – as always investors came to party when markets were high. Indian economy is fastest growing economy in last 2 years, crossed Japan to become third biggest economy by GDP. Three Indians are in top 10 of Forbes richest people in world list, surprisingly Ambanis are not in top 50. etc etc blah blah blah………

Not sure what will the picture in 2023 but let us see what one can expect.

GMO (legendary investor Jeremy Grantham’s shop) have published their latest asset-class forecasts. 7-Year (2013-2020) Asset Class Real Return Forecast – as on July 31,2013.

They say, “The only opportunity for an average equity return–about 6.5% per year–will come in emerging markets (READ INDIA), which have been demolished lately. (The lower the price goes, the better the future return is projected to be). “

GMO report is not talking about India but emerging markets as a whole but definitely, India is one of the fastest growing economies – even when we are at 5-6%. They are talking about 6.5% real returns (Returns – Inflation = Real Return) – if we add inflation of 7% in that, returns may be around 13.5%, which is again not bad considering equity investments don’t attract tax in long term.

Let us check this data from Finametrica – Indian Equities

The information presented here is from monthly portfolio performance analysis for the period 1 January 1988 to 31 December 2012. The terms Best/Highest, Average and Worst/Lowest mean just that for the period in question. However, the Best/Highest result and the Worst/Lowest result represent extreme outcomes which have occurred only once in that period. A more informative picture of the likely range of results can be obtained by excluding the best/highest and worst/lowest 5%. The term High/Good means a result which was higher than 95% of the results and, similarly, the term Low/Poor means a result that was higher than only 5% of the results.

Historical returns over the past 25 years for periods of 1 to 10 years are shown in the above table. For example, over periods of ten years, the average annualised return was 15.1% per annum with a good return being 23.8% and a poor return 5.7%.

So if you notice average returns for all 10 year periods, its around 15% which is the same that we have achieved in last 10 years.

Oh! You are still reading – hope this article was helpful – if this makes sense, must share with your friends. So, what we should expect in next 10 years – I think now you should answer this question. If you have any questions feel free to ask – I will also try to cover your concerns in next part.

Have you checked our “Goal Focused Investment Planning” Service?

Financial Lessons for Kids: What & When?

Family Finances

Hemant Beniwal

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August 16, 2013

14

Financial Lessons for Kids: What & When?

If you ask a 5 year old “where the money comes from”, most likely his response will be ATM or Purse. The kid is only saying what he has observed. He does not see a correlation that you invest your body and time to earn decent living for them.

Children today are more demanding and inquisitive. You can see in their behavior. They will blackmail you for an ice-cream for doing homework, they will roll all tears for a toy or a doll and make sure that you purchase it out of embarrassment. They want multiple dresses, stationary, shoes and everything moment they see it. And if you say NO, deep down they will start thinking “Are we poor?” or “”do my parents love me or not”?

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

Let’s see what and when to tell a child about money.

Age 5-7 Aim to teach: What is money? How his Daddy gets money to home.

Lesson 1: Ask him what is money? Show him the notes and coins of all denominations and tell him that everything has a cost which is money. The ice cream, the dress, the school, the van, the maggie, the fruits, the vehicle, the petrol, the fan, the electricity, the band aid, the water park etc. etc. so money is through which goods and serviced are exchanged. We cannot make school, diary milk at home. So money is important.

Also Check Infographics – 10 Lessons to teach your kids about money

Lesson 2:Ask kid does he/she misses you when you go to office? Tell them you miss them too but in order to earn money you need to go to office and work hard. You work for full month then you get some money which will be for entire month and this is the money office stores in the ATM which you can withdraw when it is needed. Show him that it is not the ATM which gives money, but it is the hard work and time you or your spouse devotes towards work. Instilling the relation between hard work and money is the crux.

Financial Lessons for Kids: What & When? Click to Tweet

Age 7-9 Aim to teach: Value of Savings & Investments

Lesson 3: This is the time when you can give some cash to kid to handle on own. You can give him a pocket money and tell him to that if he wants a picnic out on weekend he has to contribute. Or ask him what he wants… suppose he says a tablet, tell him that he needs to save X amount for Y months to get the tablet. When you shop something tell him to count and pay. Let him calculate balance and denominations of notes to pay. This is not one time but a routine.

Lesson 4:This is the time you sit with your kid and teach him about daily or routine expenses. You tell him that grocery is routine but vacation or expenses for higher education are not. Show him that you are saving for these long term goals. Tell him the difference between saving and investments. Explain him the non-technical way the concept of interest and accumulation (the grasshopper and the ant story). Share stories where people started savingand became self-reliant by reaching their goals without difficulty.

Age 9-13 Aim to teach: Basic concepts of Investments &Debt

Lesson 5: Teach them the power of compounding and interest concept in simple way. Tell them about savings bank account, recurring deposit and fixed deposit. Tell them how these avenues help to build corpus for future use.

Lesson 6: Teach them dangers of debt. Show them how home loan and credit card works. Correlate method of savings and debt. Tell them how you contributed maximum form your savings to lower your loan amount and pay less EMIs. Do role play by giving them small personal loan for their need and deduct EMIs from the pocket money.

And before you teach….

1) Show respect for money in your financial behavior.

2) Make wise investments & purchase decisions.

3) Put some time to educate yourself with financial concepts.

4) Lead in the eyes of your kid by setting examples.

5) Be patient with kids. Do not expect Warren Bufffet or Benjamin Graham attitude from them on day 1.

Being a parent I am eager to learn what new I can teach my kid and how? Do share your stories- how you tackle your kid or may be how your parents tackled you? Waiting for your comments.

Is Rs 1 Crore enough to Retire 2022 ?

Financial Planning

Hemant Beniwal

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August 12, 2013

21

When Kaun Banega Crorepati (KBC) was launched, people could not believe the fact that someone can win Rs 1 Crore in a game show? Not sure how many actually won that but still lot of people have a dream to become Crorepati someday. Later KBC increased price money to Rs 5 Crore.

But if I recall my childhood I still remember even having lakhs was a big thing – I am not too old & just talking about 2-3 decades back. If you remember movies of the 80s & 90s – Villains were doing diamond or drug deals in lakhs & kidnapping kids for thousands. But movies in the current era talk about crores & sometimes 100s & 1000s crore.

Image courtesy of hyena reality at FreeDigitalPhotos.net

Who’s the villain in your life?

Your biggest enemy brought this change – INFLATION. The above movie example clearly shows that the value of money is reducing & we require more money to buy some things, which were earlier available at a lesser price. If I talk about the housing sector – it may bring tears to many eyes. But we don’t have any choice but to live with this and a new set of numbers.

But whatever said & done, still, a lot of people feel 1 Crore is a decent number to achieve all of their dreams. Let me try to break this myth. And here I am not going to talk about a child’s future goals or any lifestyle goals but a goal which is common for everyone – RETIREMENT.

Must Check – What To Do After Retirement in India

Is Rs 1 Crore enough to Retire?

I think if I will ask “Is 1 Crore enough to Retire?” most of you will say “Yes” & even I agree in some of the cases it will be YES. But unfortunately in most cases, Rs 1 Crore will not be able to provide you decent income to survive.

So I am trying to answer this question after taking a couple of assumptions & 3 families of different age groups.

Assumptions:

Retirement Age: 60 Years
Life Expectancy: 85 Years (hope you know, living longer is a risk after retirement)
Note: Age & life expectancy of husband & wife are considered the same.
Inflation: 7% (if inflation will be higher than this – things will be even worse)
After tax Retirement Portfolio Return: 8.5% (Debt 70% @7% & Equity 30% @12%)

Family 1 – Current Age 55

Here is an old Sharma couple from Mumbai– worked hard throughout their life & expect to retire in next 5 years. They don’t have any financial dependents – as kids are well settled. They don’t expect any support from kids. They have met all other goals & expect that anyhow they will be able to achieve Rs 1 crore retirement corpus. They would like to will they have decent money for comfortable retirement & small luxuries here & there……

Monthly Requirement	30000	50000	75000	100000
Yearly Requirement	360000	600000	900000	1200000
Expenses in First Year of Retirement	5.04 L	8.41 L	12.62 L	16.83 L
Retirement Corpus Required	1.07 Cr	1.79 Cr	2.68 Cr	3.6 Cr

Note: Monthly/Yearly Requirement is in present value & expenses in the first year of retirement are in Future Value.

Sharma Ji was a bit shocked that their entire life savings & dream figure of Rs 1 Crore will not even generate Rs 30000. He checked his expenses & realized that this is not at all sufficient for meeting monthly expenses. He asked me for the options so I shared this article. When you are not ready for your retirement.

Situation 2 – Current Age 40

Mr Singh is a smart chap & working for MNC in Delhi. He is having 2 daughters & is looking for “best” education for them. He has made investments for every goal but unfortunately most of the investments are in insurance products. He has also started feeling burnouts due to hectic job & retirement questions are started looming. But he is practical & feels his retirement kitty is very small to think about early retirement. Plus kid’s “best” education is biggest priority now & only after that he will be able to add more funds towards retirement. He also plans to buy flat before retirement which is another concern. Still he feels he will reach that magic number “Rs 1 Crore” before retirement. He would like to know, is he on track…..

Monthly Requirement	30000	50000	75000	100000
Yearly Requirement	360000	600000	900000	1200000
Expenses in First Year of Retirement	13.93 L	23.21 L	34.82 L	46.43 L
Retirement Corpus Required	2.9 Cr	4.93 Cr	7.4 Cr	9.87 Cr

After looking at the numbers Singh Sahab is in a little panic but I told him he is still have time on his side. I asked him to read this article – “Retirement Planning Vs Child Future Planning”.

Situation 3 – Current Age 30

Agarwal is happy to go, a lucky guy, & working in Bangalore. He is working in the IT industry from last 5 years but hasn’t saved anything – he feels retirement is still couple of light years away from his place. 2 years back he got married against wish of his parents. (Off course love marriage) But good part is both of them are earning & minting decent money. He is expecting nothing in inheritance & no financial support from family but feel that someday he will become Crorepati – the number that keeps coming to everyone’s mind.

When I told him that looking at your current lifestyle Rs 1 crore will only take care of first year of your retirement – he laughed & asked me to share numbers so here you go……

Monthly Requirement	30000	50000	75000	100000
Yearly Requirement	360000	600000	900000	1200000
Expenses in First Year of Retirement	27.40 L	45.67 L	68.51 L	91.34 L
Retirement Corpus Required	5.82 Cr	9.71 Cr	14.56 Cr	19.42 Cr

This guy is doubting my calculations– he is searching for other retirement calculators to prove me wrong. I can understand, this will take some time to sink. But still forwarded him this article – “Delay at your own cost”.

I can understand, that these numbers were shocking for lot of readers but you prepare or not your retirement is going to be there. One should have balance in lifestyle before & after retirement but in case people are not ready with these numbers, they have no choice but to compromise on lifestyle.

We have recently launched “Goal-Based Investment Planning” Services – this also includes retirement analysis & projections.

Feel free to add questions & share concerns that you have about your retirement in the comment section.

My “Financial Life Planning” Book with CNBC

Financial Planning

Hemant Beniwal

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August 5, 2013

29

My “Financial Life Planning” Book with CNBC

There is a very popular game on android & apple platforms by the name of “Temple Run 2”. A runner runs through different courses and hardships like fire, ropes, sharp turns, ditches etc. collecting gold and points to save his life. He has to run non-stop as a huge monster is behind him and moment the monster catches him he will squeeze him to death. No time-outs or break, nothing.

In real life we all resemble that runner and the monster is inflation. We face all kinds of hardships and events in life where we lose health and wealth. But can we stop running in life? No … this is because we are in social norms and being a social inhabitant we all have family to support and responsibilities to fulfill. So running for money is inevitable but slogging for it OPTIONAL.

Financial planning is d key to pursuing goals, yet most people spend more time planning their 2 week vacation than do their financial future

— Hemant Beniwal (@hemantbeniwal) October 12, 2017

Optional because Financial Planning can make your sweat disappear. Yes it is undoubtedly the best innovation in personal finance study and millions are benefiting from this. But still people neglect financial planning because:

1) They do not realize the importance of the concept.

2) They feel it involves lot of time and effort and are challenged knowledge wise.

3) They know and appreciate the concept but procrastinate or lack initiation.

Well to address all these issues I have worked upon for almost a year and have come out with a complete start-to-finish guide on FINANCIAL PLANNING.

This book “Financial Life Planning – Solve Your Biggest Puzzle” is divided into 3 parts and these 3 parts explore following topics:

Part 1 Understanding the Life Puzzle

Focus is on understanding the puzzle of life and it’s interconnection with financial planning. Understand the fact that financial planning is not just numbers as it starts with you.

Click to Tweet

Part 2 Parts of Puzzle

Learning and identifying the ingredients of Financial Planning. Learning the concepts of Budgeting, Debt, Insurance and Investments in a do it yourself way.

Part 3 Solving the Puzzle

And finally, the art of assembling the puzzle to provide a complete picture. How to mix the basic ingredients with other spices and preparing a relishing dish. It armors you with full requirements to build a plan for yourself (including online resources that you can use) and see all your goals are completed without stressing on money part.

So if you have any questions on Financial Planning, this book has the answer. The book can be used in two ways.

1) In case you are new to personal finance, the book will be your elementary-to-advance guide to financial planning.

2) In case you are aware of the concept, the book solidifies your concept and strengthens your conviction by bridging the knowledge gap in the domain.

The book is now on stands and I will happy if it finds a STAND IN YOUR LIFE…

Buy this book (Amazon)

“100% of the author’s royalty from this book will be used to promote financial literacy or making donations to charities.”

Beware: Income Tax Refund, Lottery Mails etc

Mis-Selling

Hemant Beniwal

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May 21, 2013

28

Beware: Income Tax Refund, Lottery Mails etc

In the world of internet, financial transactions are gaining momentum very fast and Internet Banking, Electronic Transfer are common to hear. Earlier there were robbers who used to steal physical money , now they are being replaced by HI-FI Educated Fraudsters who are playing the role of villain.

Internet Financial Scams are fast emerging and earlier it was only there to rob big banks but now fraudsters are aiming common man as well.

Now-a-days a common man is targeted is using FAKE Income Tax Department Web-site where you are asked to reveal personal financial information like your credit card number, CVV number, your passwords etc.

Sometime people also get mails that you won XYZ lottery. “जब टिकेट ही नहीं ख़रीदा तो लोट्टेरी कैसे खुल गयी.”

Beware: Income Tax Refund, Lottery Mails etc Click to Tweet

Please avoid such mails and press delete button. Never ever give any information, you may get robbed. That is how 21^st century criminals work.

Check this infographics & learn basics…

Coupon, Deals, Sale and Discount – Good or Bad for your Finance

Family Finances

Hemant Beniwal

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May 16, 2013

19

Coupon, Deals, Sale and Discount – Good or Bad for your Finance

Who likes to get a call on a Sunday, but it was from a friend, with a news that entire clan was waiting for. Finally somebody liked him…. I mean his marriage got fixed. And as usual it was my turn now to help him in arrangements. And since I know only one kind of work i.e. shopping so I took up the responsibility of shopping with him. (just joking, he had no other choice) And as a loyal net-Indian I thought to try through internet. Also I was receiving a lot of mails from few merchandised portals offering inaugural discount voucher, birthday coupon, mother’s day offers, deal of the week, deals from Caribbean, midnight sale and other similar stuff. After going through a few big sites, my first question to myself was: how can you call it a SALE, if you have discount or offer running for 365 days a year? Nearly all shopping sites opened with a sale banner.

Sale or Sell

Now these words like coupon, deals, sale and discount have a high significant impact when we are going to buy anything online. And events like marriage or festival or household requirement of stuffs like a birthday gift, grocery items, electronics, watches, books, magazines and an endless list of items force us to get something in price effective way. Then there are few who only buy when there is a SALE tag and discount. Many wait by adding there favorite merchandise in shopping carts and moment the mail or sms hits a discount coupon the cart goes empty and waiting time starts as merchandise goes on the way or en route to the customer.

Read – Budgeting – your first step of Financial Success

So words like coupons, online sale and deals have become an important part of our life as online shopping trend is on rise. Then why not we go deep into it and have a better understanding of it. In practical a coupon is a discount code which can be exchanged or availed for a financial discount at the time of purchasing a product. These coupons are issued by the manufacturers or retailer to be used by retail stores as a part of sales promotion. For the better approach these are issued widely by mails, through newspapers & magazines, by websites, via phone through sms, shopping malls and directly from the retailers. Basic idea is to enable retailers to offer a lower price only to those consumers who otherwise go elsewhere.

In present days these coupons/deals are the easiest and smartest way to step up your ways to big saving. It makes you a frugal buyer. (really?) What if you get an extra 1 kg sugar with your grocery purchase? Or Rs 200 discount on your next saving of Rs 2000? So if you use these promotions in a tactical manner you might go home with bag of savings every time you visit the store. Few years ago these coupons were available only through print media only through distribution of flyers or by post. Remember the Reader’s Digest exclusive offers during our childhood? But today we just need to go online and find printable and redeemable coupons. Apart from the dedicated websites, even banks have started sending these coupons to their customer. (check stationary that arrives with credit card statement) Generally this is done under tie up with a retailer. In my view looking at the economic downturn there is no harm in becoming frugal but we don’t have to go crazy with this. As we know that coupons have a very interesting way of popping on the internet, we have few dedicated couponing sites and many blogs (like snapdeal, ebay, junglee or groupon). These sites update users on what is the latest on web coupons offers.

So, coupons are good, but do they have a negative side? Yes they do have negative implications and depends on how they are used. And the basic question is do coupons really save money?

Read – Identifying if you are a shopaholic and 11 ways to curtail impulse spending

Do Coupons really save money for us?

There are no freebies in economics. A vendor giving you a discount in an open market is either playing cost card, i.e. he is able to make/arrange the good or service in low cost and hence the benefit is passed on to the consumer or the vendor is escalating the price and then attaching a discount to give an impression that product or service has gone cheap. The best to find out is to check price at different places.

Always cross check the price at two or more portals or at physical market. If you observe that the price has major variation at two places the discount/sale/coupon is bogus. The portals save lot on cost as they have limited expenses. Generally goods are couriered at the expense of the buyer hence the margin is wide. So it really depends on the seller to pass on the discount. So if through a coupon or discount you are getting something lower than market cost, saving you valuable time and driving, it makes a good point to buy online.

Just a few checks before you plunge into this discount world:

1) Resist temptation to buy what you don’t need and you have not planned.

The vendor moment you place your first order would try to glue you on his portal by sending you catalog, updates, redeemable points and gift vouchers for your next purchase. These discount vouchers have limited expiry date. Let them expire and do not fall into trap if you do not need a new thing. These will continue forever and you will get enough opportunities.

2) Discounts/coupons make us do want we don’t want.

You want to buy a Videocon AC but coupon will make you buy from Haier. You want to celebrate birthday at home, but coupons will make you venture a new restaurant. A discipline in expenses is required while dealing in such situations.

3) Coupons and discount also lead us to bulk buying.

Buy 3 get 5 offers will make your wardrobe suffer with stock as you end up buying 5 shirts when you wanted one. Than just select five you will rush and will include which you liked less or change in fashion and then chances are that you will not wear them in future. So avoid over stocking.

4) Check the fine prints of the coupon and the merchandise.

Merchandise can be cheap if it is near its expiry date or there is change in model or trend. A restaurant coupon may have an offer on week days only or only on snacks and drinks will be on card rate. These terms condition are part of fine print and do care to read and benefit from them.

5) Look for quality vendors or merchandise.

The online place is filled with cheap goods with no warranties and full of hazards. These goods can be harmful to health and society. Hence do not be lured to collect shiny plastics, fake antiques, toys made by harmful material, health equipment with no approvals and similar things. Coupons will make you do “let’s try once”. But be rational.

Online is a new trend in shopping and is really gripping. So you have to be equally ready to face and counter the tactics of sales. And no doubt by being extra cautious you will benefit from this trend also. Do share your thoughts and experience on this subject – I know you are much more experienced than me in this case. 🙂

How to Identify Companies Which Dupe Investors?

Mis-Selling

Hemant Beniwal

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May 9, 2013

26

How to Identify Companies Which Dupe Investors?

Hope all is fine and you have no outstanding from the Shardha Group of Cheating Companies. If yes than, my heartfelt condolences. Although the West Bengal politicians want that the residents of the state to smoke more (strong contender for case study at London school of Economics) and pay for lapses but all said and done it will be a long process by which you can get a part of your investment back.

One bad decision, one bad advice, one bad selection and one bad result. These so called investment avenues called by legal names and working under the legal framework of Collective Investment Schemes” such as Chit Funds, Multi-level Marketing or Deposit Raising companies have eroded the common man’s wealth and then also people fall prey… again and again.

Read – Speak Asia Online – Ponzi Scheme

Why does a scheme defaults?

1) It is made to cheat and siphon off money from general public. The promoters of the company have no business plan but they know that if they can mock a business plan they can get investors and then they can exit taking cash and other assets.

2) The company started with a plan but could not settle and planning failed. Promoters do not want to accept failure or they have their credibility, brand or other business at stake so they do not consider winding up legally instead prolong the affairs by window dressing books, media play and false commitments.

How to Identify Companies Which Dupe Investors? Click to Tweet

The type 2 is easy to know as they are established companies going a down fall. The information regarding these companies is wide spread as they have been operating for good amount of time. Sometime these companies have sister concerns listed in stock exchanges and the financial data is known to general public. By studying these data and a bit a research from market experts can be helpful to know about the real motives of the promoters.

How to identify a Runaway Bride?

It is tough to identify the type 1 companies. Although difficult but there are few ways and parameters to identify a scheme which is going to default or run away. These ways are:

1) Over the market returns:

These companies offer over the market returns. Returns act as stimulus to greed. You offer a rate which is 4-5 % of bank fixed deposit rate, people find it attractive. Even the retiring uncle will be tempt to put 20% of his retirement kitty in these companies, explaining himself that the company won’t run and even if it runs away I will be ruined by 20% of net worth only and that will be a god willing event. Just ask question to yourself that when Banks are flooded with liquidity, why doesn’t the company take a bank loan and pay interest which will be less in comparisons to what they paying to public. The reason is simple that bank has access to financial information and credit worthiness of the company and they are not willing to take a risk. But public has high appetite of risk. Isn’t it?

Read – Double your money scam

2) Over the market middleman’s commission:

These companies offer very lucrative commission ranging from 2-6% as per target achievement. The agents also get freebies like holidays on resorts, vehicles like cycles to car, gadgets and achievement awards nights (read: free alcohol drenched parties often presided by Bollywood’s B grade actresses, handing over shining trophies). Also in rural areas normally an influential person like teacher or village headman is appointed as agent so that people get influenced by the person also.

3) Business Plan:

These companies normally do not have a business plan or may have one or two unit operating on small scale to cover up for the existing business. An upcoming hotel & resort chain, a media house, a precious commodity which only few can bring underneath the land, a thousand of acre of land near Mumbai, sudden demand of some green herb in US or Europe are some examples of the business objective that are displayed in general public. The idea will be that the line of business will have low awareness, so most people believe what is told since they lack questions and facts. Sometime play is made around cost also that company is making and X product in 50 percent less cost in comparison to competition hence benefit is passed to the stakeholders. As Warren Buffett said, do not invest what you don’t understand. Stick to this basic rule.

4) Strong nonexistence guarantees:

When an investor question the risks involved the agent or the company lay false guarantees in form of cash reserve, gold reserves or the land bank in the name of the company. They make the size of your investment to peanuts and make you believe that company has lakhs of depositors investing crores of rupees and they are paying each one of them since so many years. Guarantees are often perceived guarantees when celebrities are brought (read: bought) in to inaugurate the company offices. Respected people or politicians are used as board members or called chief guest in functions. The brochure and wall of the company offices will full of such photographs specially clicked for these purposes.

5) Dubious in where about:

When you ask about the company office the first response is that company has offices in every main city of the country. The address provide are either nonexistent or belong to group companies. The real promoters do not come in open very often and let key employees handle the affairs. There addresses and verifications are usually wrong and sometimes foreign addresses are provided so that it becomes difficult to trace. Even the assets which company says belong to them are not specified. The promoters also may have shoddy past and seem to be changing business very frequently. After Shraddha instance, my eyes too blinked when I came to know that promoter’s father also ran same kind of cheating business and to avoid connection he went for a plastic surgery!

6) Modus operandi:

The business starts with full fanfare. No stone is left unturned- glossy brochures, website, employees all things are lined up. Initial investors and agents are rewarded in ceremonies. The big cheques of interests and commissions are paid in front of media to establish a brand. Big advertisements appear to appoint agents and franchisees. Company pays dues for few years through the Ponzi mechanism and they wait till the debt book swells to millions. Then all of sudden the cheques are dispatched late, then they are dishonored by the banks for insufficient payments. And before media and public make noise, the promoters get themselves under ground or leave India. Agents surround offices to shift blame of their foolishness and greed on company only. The investor as usual cribs on his luck (not on his irrationality and ignorance). Finally the lawmen arrives and a long legal battle starts to get the money back, or at least a part of it.

Returns are dependent on Risk taken. But is the risk of this nature worth to be taken to earn a some more returns?

Share your views what you think of these duping companies and did you have any encounter with these companies. May be we can save few investors in future.

It is not legal for an NRI to hold Resident Saving Account or open PPF account

NRI

Hemant Beniwal

-

May 3, 2013

106

It is not legal for an NRI to hold Resident Saving Account or open PPF account

Moment your residential status change to NRI, there are many rules & regulation in personal finance which get applicable to you or simply get changed. Right from your bank account to the properties you may hold, all of them have different status. Most of people tend to ignore some of them; unaware that these are illegal in laws and will attract penalties. The most basic of these is saving bank account which is the starting point and attractive investments like PPF.

Updated October 2017 – PPF Account deemed to be closed on resident Indian becoming NRI

Update 23rd Feb 2018 – October 2017 decision regarding NRI PPF is put on hold.

Here’s what the laws says and what you should do when you attain the NRI status-

Resident Savings Account

Most individuals make a mistake of continuing a resident savings account even after becoming a NRI but the law does not allow it. Or in simple words it’s ILLEGAL to hold savings bank account for NRIs. As per FEMA regulation, when a status changes to NRI the resident savings account have to be converted to a NRO account.All income which is receivable in India such as rentals from property, investments, pension etc has to be deposited in this account and any payment towards insurance premiums or EMIs on loans which you availed while in India also has to be mandated from NRO account. For this you need to inform your bank on status change within a reasonable time period.(This period is not defined but you can consider maximum 3 months)

The bank then will designate your existing resident account to NRO account and your payment will continue as it is. Alternatively, you have an option to close existing account and open a new account in case you choose to change your bank.Do remember that if you continue the resident savings account and it come to the notice you will be penalized for the same. Funds from NRO account are now repatriable upto $1millionnow but with a condition that you have obtained a certificate from Chartered Accountant for payment of taxes as applicable on your income in India. For depositing funds from abroad one will need an NRE account where there is no limit on repatriating funds back to the resident country.

All your investments and payments are linked to bank accounts. If your existing resident bank account is changed to NRO then only the status is changed. In such case you may not have to inform the respective institution. In case if you open a new account then you will have to give the fresh cheques or if it is being done through ECS then ECS mandate will have to be changed to the new NRO account. The same process will be applicable for any payout with regard to investments.

Read – Tax Planning for NRIs

PPF Confusion

PPF Update October 2017 “Provided that if a resident who opened an account under this scheme, subsequently becomes a non Resident during the currency of the maturity period, the account shall be deemed to be closed with effect from the day he becomes a non-resident and interest with effect from that date shall be paid at the rate applicable to the Post Office Saving Account up to the last day of the month preceding the month in which the account is actually closed”. (Same will apply to NSC)

PPF is a very effective savings tool for long term planning which you would have availed as resident Indian. But NRIs are not eligible to open a PPF account.However, the most unclear rules are for existing accounts. From 2003 onwards, if you have open a PPF account while you are resident Indian and then your status changes to NRI, you are allowed to continue with your PPF account. You can make contributions from NRE or NRO account. On maturity the funds will have to be withdrawn as they are not allowed for extension and the proceeds will be deposited in NRO account. Not only this, Post 2004 RBI has allowed repatriation upto Rs 1 million USD from NRO account which makes even the PPF maturity repatriable now provided the necessary rules have been followed. However, if you do not take any action for maturity, the PPF account will be designated as “extension without contribution” and will be continued in block of five years for an indefinite period. You will keep earning the interest on it. The major difference can come in the taxability. Although in India the interest is tax free and one can also claim 80C benefit from investment if there is taxable income here, but the maturity or accrued interest may be taxable in respective country where you are residing as NRI.

Check – Cheapest way to send money to India

What you should do when you become NRI

If you have recently obtained an NRI status then these should be the first step for you:

1. Inform your bank that you status has changed. Approach your branch which will help you in necessary paper work for your new accounts.

2. Redo your KYC in your investments and update your accounts.

3. Reissue the cheques from new account in all your investments and liabilities. If it an auto debit then change the bank mandate to NRO or NRE account.

Caution

I have heard from our NRI clients that few bankers suggest maintaining status quo on SB account but if any liability arises they will not be there to help you. (You don’t have to be present in India to do this & can be simply done by informing bank through letter) Similarly in case of PPF one of our clients clearly asked manager of Public Sector bank that he is an NRI so can he open PPF account – manager said YES. He opened that account but now I have suggested him to discontinue that.

NRI Guide – read on SlideShare or Download it

If you are an NRI please share your practical experience with Saving Bank Account & PPF in comment section.

Before Buying a Car – must answer these 4 questions.

Financial Planning

Hemant Beniwal

-

April 29, 2013

56

Before Buying a Car – must answer these 4 questions.

This writing does not have any connection with the fact that sale of cars is down for the third month in row but definitely with increase in car sales in last couple of years. Buying or replacing a car is an important financial decision. Car is considered an asset by some people… (I may not agree) because simply it adds to the show off value of an individual. The expensive it is better goes the perception that you are well placed and rich. Hence people tend to make costly mistake when they have to take decision of buying or replacing a car.

Few basic questions that you should answer:

Is a car an asset or a liability?
When do you need a car?
How much should you spend on your first car?
When you should replace your old car for a new one?

“Acquired my dream possession, a second hand merc c 200, 3 years old for 18 lakhs” was an sms that I received from my friend who was a banker. I knew he was earning somewhere 15-16 lakhs per annum so it means insane to spend more than your annual income on a this caaaaaaaaar. Also does his profile suits a Mercedes C class vehicle? I was about to call him but when I read the words “dream possession” in the sms I understood that calling him would make me a villain.

Before Buying a Car - must answer these 4 questions. Click to Tweet

Is car an asset or a liability?

You know, it is in our roots to consider car an asset. For most of middle class people, car was something that was for rich people. Parents also said “I work so that we have a decent house and car during retirement”. In fact a wedding was good and well planned if one gets a car in dowry (ooo… I mean to say the well decorated car, which serves as cheer leader to people who come to attend the wedding). So car was always a distant dream. So moment you start earning your itch to get one arises. Then there is peer pressure. I have seen people directly buying a sedan, when they still have to learn car driving!!!

Just do a simple experiment. Walk into any car dealer and buy a car and get it transferred in your name and after 15 minutes, tell the dealer to cancel the deal and make refund. Ask for full amount. Will he refund 100%? No not in any case… he will offer you 15-20% less saying that he will not take it back but will arrange a buyer if you accept the discounted value. Now call in your friend circle and ask them that you have a car just one day old and you want to resale it? Will someone take it for 100% value? After all, the car is just a few hours old. I am sure no one will take it on your purchase value?

An asset is supposed to give you future earnings through price appreciation but car depreciates moment it is on road. So the basic definition of asset does not support the fact that car is an Asset. In fact this is an “essential liability” when you look at expenses associated with possessing a car.

One should buy a car or not?

So question is should we buy a liability? Yes we have to as there be compelling social and aspirational reasons to buy it. All you can do is prolong till you feel that it has become an absolute necessary. If you travel mostly alone and have no family to support you can very well live on a two wheeler. If your job involves lot of traveling within the city car can wait a bit. If your city has a good public transport you can enjoy commutation at reasonable rates. If your salary is at starting levels, you should save for down payment (if possible full payment) and should wait for the appropriate time. Usage also should be considered to go for a car or not and also to decide the size and variant (petrol, diesel or CNG/LPG).

How much to spend on a car?

Car is an experience also. So if you are new to driving, it makes sense to buy an entry level vehicle (second hand if possible) first and progress to high end on later stage. Buying a car will have two essential financial implications:

If you buy cash down, a part of your saving will get exhausted and your liquidity will be absorbed.
If you part loan it, you need to pay interest through EMIs. Also EMIs will bring down your monthly savings or you have to cut back few current expenses.

The basic rule is you should save for the car and buy it on cash. Buying on cash can also benefit you in negotiating price with the dealer. But if time does not permit and you have to avail a loan, stick to the principal of “maximum down payment and minimum loan amount”. The down payment means cash available freely, without much impact on emergency fund. It is advisable to avoid an impulse decision of buying a four wheeler as it provides negative impact on current financial situation. One must plan this buying decision and should accumulate the down payment in a planned way.

Also the basic principles of availing debt should be adhered to. The total EMIs including the EMIs of auto loan should not be more than 30% of the monthly income.

Owning a car is not a one-time cash outgo. You should consider insurance, maintenance, cost of accessories, fuel and repair also. Although no planning can be done for emergency repairs but yearly insurance and servicing can be covered in your financial plan.

When you should replace your car?

Lot of you are compulsory car replaces. A mental rule is made that car needs to be replaced once in three to five years. And when you replace an UPGRADE is a must. People with this thought also do not take care of their vehicle, because when vehicle demands servicing, they overlook or use cheap spares and vendors to run their vehicle.

First of all, why a replacement after 3 years? That too replacing a car which you bought on finance and paid major part of interest through the EMIs. Also upgrading means again financing, so car loan becomes and infinite loop and integral part of monthly budget.

I am not saying that you should not replace at all and stick to old vehicles. The replacement decision should be made by considering following points:

How reliable is the vehicle?
What is the age of the vehicle?
Will a decent repair increase the life of the vehicle?
Has technology changed and your vehicle lacks it?
Has your requirement changed and require upgrade model? These can be space, fuel cost or usage.

How much it cost to buy a car

Lets take one example that how much you are going to spend on a car in your lifetime. (Here we are just talking about purchasing cost & not running cost)

Scenario 1: Let’s assume you plan to replace your car every 7th year till your retirement. You feel that you will always buy a car around Rs 7 Lakh & resale value of that will be Rs 2 Lakh. You bought your last car 6 years back so planning to replace that in 2014 so you require Rs 5 lakh. You don’t want to take loan for these purchases so will be dipping into your savings.

Assumptions:

Retirement 2036
Inflation 7%
Return 10%

Numbers:

Amount required to buy next four cars in present value Rs 14 Lakh
Amount required to buy next four cars in future value Rs 50 Lakh

Scenario 2: Now just imagine that you want to replace your car every 5th year & also upgrade it every time. You assume that resale value will be used to upgrade the car – other assumptions remain same.

Numbers:

Amount required to buy next four cars in present value Rs 24 Lakh
Amount required to buy next four cars in future value Rs 82 Lakh

Do you think this will impact your other important goals??

Thumb Rule of Buying Car

There are few rules that you can follow:

Value of car should not be more than 50% of the annual income of the owner.
Purchase a used car or buy a new & use it for 10 years.
While buying car with loan stick to 20/4/10 – Minimum 20% down payment, loan tenure not more than 4 years & EMI should not be higher than 10% of your income.

You must read & share “Top 10 Financial Planning Rules of thumb”

Car will always have an aspirational value. The “the girls will always love dolls and boys will always fancy cars”. But the way you deal this financial decision makes you stress free and relaxed.

Do share your experience on how you dealt with buying and replacing your car. I will eagerly wait for your observations in the comments section on this subject.

What I think about Gold Prices… Now

Investment Options

Hemant Beniwal

-

April 19, 2013

46

These days I am getting lot of queries regarding gold & most of them start with “What should I do with my gold funds?” so I decided to share recap of what has happened in last couple of years & what I think now.

In August 2011 when everyone was Gung Ho about gold – I asked TFL readers “Your views on Gold Prices” & I also shared my Views:

My view is “Trees don’t grow to heaven” – I don’t know it is a bubble or not but if it is, gold price will come down at some point of time. That doesn’t mean gold price will not go higher from current level but do you think you will be smart enough to exit before the bubble burst?? If your answer is NO then have a proper asset allocation & if answer is YES – question is do you think you will be smart enough to exit before the bubble burst?? (Keep asking this question till you get the answer NO)

Before I share what I think about gold prices NOW – let’s check few charts & recap this journey.

World’s Biggest ETF – Performance Chart

Gold ETFs gave investors a new option to invest in gold – they don’t have to worry about security. SPDR Gold Share is world’s biggest gold ETF – Asset Size of this fund is $ 75,391 Million.

What I think about Gold Prices... Now Click to Tweet

Or $ 75 Billion
Or INR 4.14 lakh crore (approximately 50% of Indian Mutual Fund Industry)
Or more than 1300 tonnes gold – which is double than Indian Gold Reserve (550 Tonnes).

Have you ever thought, what will happen if people will lose interest in gold as an asset class??

India’s First Gold ETF

Goldman Sach (earlier benchmark) Gold ETF is the oldest Indian gold ETF with asset size of Rs 3377 Crore, this makes it biggest ETF in India.

Not Bad 2.5 times in 7 years or 14% CAGR.

DSP BR World Gold Fund

This is a feeder fund & was launched in August 2007. Investments were rooted in Blackrock World Gold Fund – which is investing in gold mining companies. Story shared was “that gold mining companies will perform better than GOLD.” Result is in front of us.

Gold Savings Fund

Mutual Funds (other than DSP) were not able to capitalize (earn money) on gold rush – they needed more assets to earn fees on that. ETF as a concept has not picked in India so Reliance bought first gold savings fund (IPL award Nayi Soch) – you invest in fund & they will invest in ETF. (they will charge double expenses)

I wrote this article “Should you invest in Reliance Gold Savings Fund?” & concluded:

“Everyone is ready to convince you that gold price will only go higher but we just want to say – gold should be small part of asset allocation and the reason of buying gold should not be rise in price. I think I have already expressed my views on Gold Prices & also shown you expenses in this product. End of the day it’s your hard earned money.

Agents will come to you & show you 5 Year & 10 year return charts – ask them for 20 years & 30 years chart. You will find gold have even underperformed Fixed Deposits.

Have you ever wondered where were these guys 5 years back when gold was 1/3rd of its current price??”

I also argued (my mistake) in comment section with some Mutual Fund Agent.

You can see difference in return between SPDR($) & Reliance Gold(INR) in the same period – this is because of INR depreciation vs dollar in last 2 years. Check INR Vs Dollar chart.

Reliance Gold Savings Fund Asset Growth

Concept was well accepted by investors (or pushed by asset management companies & distributors) – as investors are always looking for convenience. Current AUM of Reliance Gold Savings Fund is 2270 & Reliance Gold ETF is 2926. That means direct investment in Reliance Gold ETF is just Rs 650 Crores.

Image Moneycontrol

SBI Gold – Number 3

There is long list of gold funds that were launched in this period but third rank goes to SBI Gold Fund (I shared some interesting data & comparisons at the time of fund launch) – this fund came from arguably India’s second (I believe first is our LIC) most trusted brand.

SIPs in Gold Fund

These funds promoted SIPs in Gold funds – if someone invested Rs 1000 per month since inception of fund.

Fund	Investment Amount	Current Value
Reliance Gold	25,000	25,748
SBI Gold	19,000	17,982

I think….

I think I have no clue where gold prices are heading because we don’t know the size of bubble (IF….) – this we earlier discussed in “Indian Real Estate Bubble – will it ever burst?”

I think there are lots of lessons from what has happened with gold prices in last 40 years.

Great investment analyst Benjamin Graham (guru of Warren Buffett) was asked what it takes to be a successful investor; he replied

“People don’t need extraordinary insight or intelligence.

What they need most is the character to adopt simple rules and

stick with them.”

I will love to hear your views & lessons in comment section.