Wish you a Happy Diwali ...

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Diwali, the festival of light, is when Hindus perform a Laxmi pooja. What are we asking for when we pray to Goddess Laxmi? We ask for prosperity, not just money. There is a difference between the two. In order to understand the same, let us look at the photo of the goddess we use for the pooja.

One of my favourite Diwali posters is one that shows Goddesses Laxmi and Saraswati along with Lord Ganesh. It is not for no reason that these three are shown together.  
 

While we all need blessings of Goddess Laxmi to be successful in life and grow, she must come in our life flanked by Goddess Saraswati – the goddess of knowledge and Lord Ganesh – the god of wisdom. If Laxmi comes along with these two, it stays and brings bliss in life. And that is true wealth – not mere financial wealth.

Trying to earn more and more money without proper knowledge and wisdom can lead to ruins. Money may come but that would not bring bliss in life.

The difference between “knowledge” and “wisdom” also must be understood at this juncture. “Knowledge” is to know something – to be aware of something – to understand and being able to explain it. “Wisdom” is intelligence – it is about being able to judge – to use discretion – being able to separate the good from the bad – the right from the wrong.

First, let us address the knowledge part. It is critical to know what one is doing. “Look before you leap” is not just a proverb; it’s a great advice. Whether it is income, expenses, loans or investments, it is important to know.

Questions on income:

·       How sustainable is the income?

·       How stable is the source of income? This is especially critical for self-employed persons and small business owners. However, in the present times, even jobs are also not guaranteed.

·       Do you understand the taxes on the income?

Questions on expenses:

·       Know the monthly budget – the expenses you incur

·       How much of the monthly budget is spent on necessities and how much on luxuries? Which of the luxuries can you cut down?

·       Is it possible to reduce some expenses through finding alternatives?

·       Have you kept provision for these expenses in case there is an emergency, e.g. health issue or loss of job?

Questions on loan:

·       Have you understood the terms of the loan?

·       What is the interest rate on the loan? Is it too high or too low? If it is too low, is there a catch?

·       What are the various penalty clauses?

·       What are the flexibilities?

·       Can you terminate the loan earlier without any penalty, in case you get funds suddenly?

·       What is the security required by the lender?

Questions on investments:

·       Have you understood the terms of the investment?

·       What is the (expected) rate of return?

·       Is it too high or too low? If it is too high, is there a catch?

·       Is the risk too high? Understand the risk involved. If you do not understand the risk, please avoid the investment. Every investment carries some risk.

·       Is there a lock-in or is the investment liquid?

·       At what rate would the earning be taxed?

This is not an exhaustive list, but only an indicative one.

Discretion is required both while earning as well as spending. Is the money coming in through the right means or are you taking some actions, which may be incorrect ethically or morally? Are you spending too much money for luxuries than fulfilling your responsibilities?

Wisdom and discretion must be applied to the assets and liabilities, too. Are you borrowing wisely? Is it really required? Is it a good loan? Are you investing smart? Or are you acting on tips without understanding the risks? There have been many instances when one has asked “Is it safe?” or “I hope there are no risks” in stead of asking “Please tell me about the risks present. And how do we manage those”.

So, this Diwali, make sure to pray for Laxmi to arrive at your place – but the right type and through the correct means. Pray to Goddess Laxmi to stay in your life forever. Make sure your life is worth for her to stay forever.

-        Amit Trivedi

The author runs Karmayog Knowledge Academy. Recently, Amit has authored a book titled “Riding the Roller Coaster – Lessons from Financial Market Cycles We Repeatedly Forget”. The views expressed are his personal opinions.

VMA event of 19th Feb covered in Hitvada on 25-Feb-17

Thank you Ranjit Dani

Five money lessons my son taught me

Managing money is not so difficult, after all. My son taught me some very important personal finance lessons. Click on the link below to read further:

http://www.moneycontrol.com/news/planning/five-money-lessons-my-son-taught-me_7287101.html

Why we are a nation of underinsured tax-savers

Tax saving and not the risk cover is the sole influencer on the insurance buying in India.

Read my article at: http://www.moneycontrol.com/news/insurance/why-we-arenationunderinsured-tax-savers_7086701.html?utm_source=ref_article

33 years ago, on this day, we made history ...

Exactly 33 years ago, around this time, many Indians were quite nervous. This was their date with destiny and the meeting was scheduled in the afternoon at the Mecca of cricket, the Lords cricket ground. The occasion was the final of the 3rd Prudential World Cup of cricket. It was a final match between the minnows - the Indian team - Kapil's devils and the mighty superpower of cricket and the title holders West Indies led by Clive Lloyd. While reaching the finals was unthinkable for the Indians, what they were about to face was a wounded lion. India had beaten WI once in the tournament on the road to the finals. Incidentally, just before the world cup, Indians were visiting the Caribbean Islands and had defeated them in a ODI match at the Indians' favourite venue the Port of Spain.

In the finals, the Indians were to bat first and could put up a paltry 183 all out on board. West Indies required to score 184 in 60 overs match to retain the trophy.

What happened afterwards, is HISTORY.

Well, here is an article I wrote in 2011 quoting the significance of this win. How such a match help us understand the concepts of personal finance. Click here to read the story.

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An article on a different subject. Loved writing it.

Three questions can help you in arriving at the right decision when it comes to your housing need.

Happy reading

What is better - investing by oneself or with the help of mutual funds?

Read my article in Mid-day Gujarati edition today below:

            It is better to invest through mutual funds



Read the English translation below:

“Should I invest in mutual funds?” One keeps getting this question time and again. It is with a surprising regularity that the question keeps resurfacing. What should be the correct answer? Actually the question itself is not appropriate. One does not invest in a mutual fund. One invests through a mutual fund.

Let us understand what exactly a mutual fund is. Well, all of us need to invest our money from time to time. These investments can be made in various financial instruments ranging from Government sponsored schemes to bank fixed deposits to company debentures to shares of companies or real estate properties of even precious metals like gold or silver.

One option we have is to manage the investments ourselves. That would involve finding the right investments and carrying out the related research and administration work. The other option is to outsource the entire job to a professional or a company engaged in such a business.

Mutual fund is that second option – it is managed by a team of professionals, known as the asset management company. This is what really needs to be understood. By choosing to invest through mutual funds, one is not investing in alternative investment options, but only changing the way of investing money. The entire job of investing is outsourced to a professional firm.

Let us go back to the question we started with. The person asking “Should I invest in mutual funds?” actually wanted to know which of the two choices is better – investing myself or taking professional help to manage my investments?

This question should be broken down into three components:

1.     Can I do the job myself?

2.     Do I want to do it?

3.     Can I afford to outsource?

We will take each of the above questions separately and see.

Can I do the job myself?

This is the question about ability. In order to do a good job, there are a few requirements, viz., ability to do the job and the availability of time required for the same. There are tasks where one may not have the skills and knowledge, e.g. a history teacher may not be able to help her daughter to study Mathematics in the higher classes. At the same time, one may not have enough time required for the job.

In either case, one is unable to do manage money oneself and should consider outsourcing it.

Do I want to do it?

Let us now go one step further. Let us assume that one has the required skills and knowledge to manage one’s money. However, it is very likely that one may not enjoying money management – either the research and analysis or administration or both. At the same time, one may want to spend time on certain other activities, e.g. spending time with family and friends, pursuing hobbies.

That also means that one needs help.

Can I afford to outsource?

A lot has been discussed about the cost of investing in mutual funds. We also covered it in one of our articles. The agencies involved need to be paid their professional fees. These charges depend on the type of the scheme and the size of the fund. SEBI has issued guidelines on the maximum amount that can be charged to the fund.

Most people make the mistake of comparing these fees with zero cost of managing one’s own money oneself. By this comparison, the cost of mutual fund always looks higher between the two options.

What is missed out in this comparison is the hidden costs of doing the investment management job on one’s own. This hidden cost comes in the form of one’s time and the potential mistakes that an individual investor is likely to make.

First, let us look at the cost of one’s time. Let us assume that a person generates the same investment returns as what a fund manager would have generated before the costs. Let us also assume that the cost of fund management is 2% p.a. This means if one is able to generate 12% p.a. by investing oneself, the mutual fund scheme would return 10% p.a. net of the fund management charges. On a portfolio of Rs. 10 lakhs, this amounts to a saving of roughly Rs. 20,000 for the year. Is it worth spending the amount of time one is required to spend for this saving? Please consider the amount of research one has to put as well as the administration and accounting work. Someone may start thinking that this means investors with smaller portfolios should invest through mutual funds, but the bigger ones should not.

This is where the concept of value of time should be looked at. The value of time may be higher in case of people with more wealth.

Think about it. For most investors, mutual fund would turn out to be a better option than to build the portfolio oneself.

-        Amit Trivedi

The author runs Karmayog Knowledge Academy. Recently, Amit has authored a book titled “Riding the Roller Coaster – Lessons from Financial Market Cycles We Repeatedly Forget”. The views expressed are his personal opinions.

Where does this road lead to? - My article on www.moneycontrol.com

Where does this road lead to? Asking the right question can put you on the right path. It holds good in the world of personal finance too.

Read more at: http://www.moneycontrol.com/news/planning/where-does-this-road-lead-to_5859581.html?utm_source=ref_article