Category: Investment Advice for Defense

29 Jun 2017
Kitna Mileage deti hai- Financial Planning,

Kitna Mileage deti hai?

Sir, I’ve told him that he has a 80% Debt and 20% Equity portfolio where safety has been given more importance as this is his retirement corpus, but he insists that he won’t accept anything less than 15% annualized returns since the markets are now booming!” -I could make out my hapless young financial planner was at her wits end.

“Sanjeev, what is this yaar? My overall portfolio returns are 25% CAGR (Compounded Annualized Growth Rate) but this one stupid fund is stuck at 17% and my planner is just doing nothing about it!”, ranted one of our aggressive customer.

One of our bigger investor has moved almost 50% of his life’s savings to a well-known Portfolio Management Service (PMS) because his initial ‘test-drive’with their 100% equity portfolio produced great results in these rising markets.

We routinely get calls from prospective clients who ‘haggle’ with us on ‘returns’ – if they invest with us, will we surely get them 15-20-25% returns? If not, then why not? During such conversations, sometimes we feel as if we’re in the business of manufacturing returns rather than managing portfolios, helping meet customers’ future financial goals and keeping them away from harm’s way!

So, what am I trying to bring out here by these examples? ‘Safety’ and ‘Returns’ are two ends of the investment scale. The twain shall never meet!! Your own personal investment slider has to be placed on that scale in such a manner that it meets your risk comfort level, takes you solidly towards meeting your future requirements (‘financial goals’) comfortably and of course, takes care of the market conditions – now and in anticipated future. If you want more safety, you have to move away from returns expectations while desire for more returns will always compromise safety. This is a universal rule and never gets flouted.

The way we do not buy a car just because it gives high mileage disregarding all other factors, we do not need to only look at best returns all the time disregarding its suitability to us, risks taken by it and whether it enables us to get the money when we actually need it.

Most of us know this but we still keep hoping to hit upon that magic formula, that magic investment avenue, which will get us the ‘highest returns with highest safety’. Many unscrupulous elements, sensing this innate human desire, have made their fast bucks on it – the Hofflands, Sterling Tree Magnums, Ponzis and sms-stock-tipping schemes know this weakness and routinely surface to earn their millions and billions. We all hear and read about them, sympathize with the conned ones, bless ourselves that we’ve not fallen for such schemes and then go about looking for such quick returns schemes ourselves! Somewhere we assume that ‘high risk, high returns’ actually implies that if you take high returns, you get assured high returns!!

Herein comes a very basic question – What is the actual aim of investing? Is it to get highest possible returns at any cost and risk, Or is it to make our money grow so that we can meet our future requirements of life, give our children the best education, give our families a great standard of living, and have the money available in the right quantity when we need it? We can already sense you nodding to the latter. If that actually were so, why not make that as the start and end point of our investment process? Why not plan out how much we need for our future big-ticket expenses, what are the best investment avenues to accomplish each one of those ‘financial goals’, how to go about it so that we reach that end point without much risks and how to remain tax-efficient during the whole journey? Believe us, the investment journey will be more pleasurable, more sure-footed, and lead to far less sleepless nights if you change your focus from ‘Kitna Mileage Deti Hai’ to ‘Meeting my financial goals in life’.

And that’s where the concept of financial planning comes in – but then that’s a separate topic by itself, of which a large amount of knowledge is available on our Blog

And for heaven’s sake, do not fall for those predictions of Sensex or stock levels – such predictions keep coming all the time and they sometimes even turn out to be true. But then, even a dead clock shows correct time twice a day!

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14 May 2016
Liquid Funds- 4% more Interest without you doing anything….

Liquid Funds- 4% more Interest without you doing anything….

Col Sher Khan is a go-getter infantry officer, known for his professional acumen and is a sought-after party animal. He and his family live life to the full. His only Achilles Heel is finance. He routinely has a large amount – anything from Rs 75,000 to even 2-3 Lakhs lying in his savings bank account at any given time, earning 4% savings bank interest. And just because it was lying there, unimportant expenditures would come up and suddenly become urgent and the most important ones to be done then and there. He was fully aware that bank interest is fully taxable and he being in 30% bracket, it practically earned him a mere 4% – (30% of 4%) = 4% – 1.2% = 2.8% interest. He wanted to do something about it but didn’t know what and how.

That’s the time he got introduced to Liquid Funds by a friend. He suddenly realised that he could earn double the interest, have the money safely tucked away so as not to be ‘very easily’ available but still be available at one working day notice through sms, phone call or net login. He started it and found it reduced unnecessary expenditure while not affecting his life-style in any way.

So what are Liquid Funds? Liquid fund is a category of debt mutual fund which invests primarily in extremely safe instruments like certificate of deposits of the banks,government treasury bills, commercial papers of highly rated companies etc. They have no lock-in period and withdrawals from them are processed within 24 hours on business days. The cut-off time on withdrawal is generally 2 pm on business days. It means if you place a redemption request by 2 pm on a business day, the funds will be credited to your bank account on the next business day by 10 am. Liquid funds have no entry load, exit loads and like all mutual funds, have no concept of TDS (Tax Deduction at Source) unlike the bank savings bank or FDs. This implies that you can put in any amount any time, and withdraw any time while the rest of it lying in the fund keeps earning its good interest.

Liquid funds are among the best investment options for the short term during a high inflation environment. Their taxation is as per your tax slab but double the savings bank returns ensure a large additional surplus returns to you. During the past years, some liquid funds have even offered higher returns than bank fixed deposits, which levy a penalty on premature withdrawal.Many fund houses give the option of transacting (investing and withdrawal using your bank account) in them through sms and phone from registered mobile number apart from the internet, thus bringing your money to your literal fingertips! One fund house even gives an ATM card for withdrawing up to about Rs 50,000 from bank ATMs.

Finally, what should you use your Liquid Fund for?

  • Surplus money which earns practically nothing, lying in your savings bank account.
  • Money you leave in bank account catering for EMIs or instalments over next few months.
  • Sales proceeds of your previous house/flat till you invest in new one.
  • Funds created for your child’s education /marriage till you use it.
  • Lump sum amount lying in your bank account which you may be required any time
  • Large amount of money lying idle over long weekends whether your own or the company’s. Example: Rs 1 Cr kept for one day will earn about Rs. 2200 per day as per current Liquid Fund returns. This means, this happening over weekends throughout the year in your company will earn you Rs 2,28,000 (salary of one person?).


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03 Jun 2014
5 Common Investing Mistakes - Hum Fauji Initiatives

5 Common Investing Mistakes

We take a look at common investing errors and suggest solutions to ensure you make better investment decisions.

As emotional human beings, we tend to be our own worst enemy when it comes to making investment decisions. Below are 5 common ways in which investors slip up, and suggestions on how best to avoid these mistakes.

1. Letting anxiety rule your head

Back in 2007 you might have been feeling nervous about the stock market, with equities at all-time highs, and pondering whether it might be time to offload some holdings. In 2008, you may have found yourself thinking that markets couldn’t go much lower and it was time to plunge your money back into equities. The chances, however, that you actually managed to accurately pick—and act on—these two turning points are very slim. Furthermore, miscalculating these points could have had a seriously detrimental impact on the value of your portfolio.

It’s difficult to ignore your emotions completely but the statistics prove that stock performances over time tend to improve and come back. If you’d been fully invested in debt between 2000 and 2003, you might have been rubbing your hands with glee as you watched equities tumble amid the bursting of the tech bubble. But that same portfolio today would have substantially underperformed a mixed stocks and bond portfolio, even taking into account the stock market crash of 2008. The key message here is threefold:

  • Taking a long-term view is important because it reduces the impact of volatility
  • Trying to time the market leads to slip-ups
  • Diversification is very helpful for spreading risk.

2. Trying to time the market

As alluded to above, timing the market is a lot easier with hindsight. Accurately timing the market is pretty difficult, and many would argue it’s impossible. Instead, focus on setting your investment goals, picking your investment strategy and spreading your investment risk, which will ultimately lead to steady returns—returns that would have been substantially reduced if you’d tried to time the markets and missed, say, the best-performing month of each year. Trying to guess market movements is a risky and fraught investment style.

One particularly effective method of investing is a systematic investment plan (SIP), which is when you invest equal amounts of money on a regular basis into your portfolio. This allows you to bypass the risk of making poor investment decisions during tumultuous times. Rupee-cost averaging can help investors limit losses, while also instilling a sense of investment discipline and ensuring that they’re buying equity at ever-lower prices in down markets.

3. Misunderstanding diversification

A common mistake to make is to think that because your portfolio contains 15 different funds, you’re well diversified. But diversification isn’t about the quantity of holdings. Good funds combined in the wrong way can make a bad portfolio: diversification means spreading your investments across assets, regions, sectors, and investment styles. One year’s ‘hot topic’ can become the next year’s dud. Anyone invested fully in one area takes the risk of watching their portfolio swing violently between notable gains and substantial losses. But a savvy investor who had spread his money across a range of assets, sectors and regions would have achieved much smoother returns over the same time frame.

4. ‘Old age’ means time to pull out of stocks

By all means, as your investment time frame shortens you may want to move from a more aggressive investment style to a more conservative one, perhaps shifting assets into bonds and cash and out of more volatile equities. But just because you’re broaching retirement age doesn’t necessarily mean it’s time to focus your portfolio fully on fixed income.

There are three key points to take into consideration here:

  • Firstly, retirement income horizons are increasing—if you can afford to retire early, then congratulations.
  • Secondly, we’re living longer these days—in fact a couple aged 65 at present have more than a 25% chance that one of them will live into their late 80s; so that’s more than three decades of living costs they need to have saved and invested for.
  • Thirdly, inflation erodes purchasing power. The value of a portfolio invested solely in fixed income will decrease over time, even at the current low rates of inflation, and increasingly so as inflation rises, as many expect it will do given the vast quantity of money injected into the system by way of the government’s economic stimulus programmes. Keeping a portion of your portfolio in other assets such as equities can help protect again inflation-erosion.

5. Procrastination or inertia

“I can’t afford to invest right now, I’ll do it later once the company reinstates bonuses, 7th Pay Commission comes in, etc.” Sound familiar? The problem with delaying is that it reduces the amount of time your money has to work for you and also reduces the long-term advantage of pound cost averaging. If you had invested Rs 2,000 per year over a decade, the value of your investments at the end of the time period would be far greater than had you started investing Rs 4,000 per year halfway through that period.

An additional benefit of long-term investing is compound interest, exemplified by the oft-quoted trick question of whether you would rather have Rs 1000 per day for 30 days or One Paisa that doubled in value every day for 30 days. The savvy investor would pick the doubling paisa and be looking at Rs 50 Lakhs at the end of 30 days versus Rs 30,000 if they opted for the Rs 1,000 per day.

Hopefully you’ve noticed that these investor mistakes all lead to the same few suggested solutions:

  • Take a long-term view
  • Understand that market corrections do happen
  • Stay the course rather than attempting to time the market
  • Take advantage of rupee-cost averaging and compound interest
  • Diversify your portfolio
  • Act rather than delay

(This article initially appeared on Morningstar’s UK website and has been edited for an Indian audience.)

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28 May 2014
Common Equity Investing Mistakes -

Common Equity Investing Mistakes

With the new NDA government coming to power, many investment experts believe that India is on the threshold of a long term secular bull market. While it is certainly easier to make money in bull markets, it is also easy to make mistakes in bull markets. Mistakes cost investors money and therefore must be avoided. We should clarify that this article is addressed to investors. Here are eight common equity investing mistakes in bull markets.

1. Trying to time investments at the start of a bull market: Retail investors wait too long trying to time the market. Most retail investors are not able to spot a bull market when it is taking off. When the market runs up significantly, retail investors realize that they have missed the bus. Timing the market is incredibly difficult. Even experienced professional investors often do not get their timing correct. Equity investing should be goal based, not timing based. Set investment goals and invest for the long term. Timing does not matter if you have a long time horizon.

2. Ignoring asset allocation: In bull markets hot stocks and mutual funds are always in news. It is important to select great stocks or mutual funds to get higher returns. But investors do not realize that a much bigger portion of portfolio return is attributable to asset allocation and only small portion of returns can be attributed to stock or fund selection. For example, even if you select a great mutual fund that gives you 25% compounded annual returns, if 90% of your portfolio is invested in fixed income assets yielding 6% post tax returns, your overall portfolio returns is less than 7%. You should pay more attention to your asset allocation and consult with your financial adviser to get appropriate guidance on the right asset allocation mix.

3. Adopting trading strategies in bull markets: Investors should understand the difference between trading and investing. Traders are usually professionals and aim to generate profit over a short time horizon, ranging from a day to a few weeks. Investors, on the other hand, aim to create wealth by investing over a long time horizon. Trading and investing require very different strategies. Retail investors in bull markets, seeing market rise sharply, switch to trading strategies. Investors may even be able to make decent intraday or positional trading profits in bull markets. But investors should not think that they are expert traders just because they have made trading profits. Trading is extremely technical in nature and requires considerable expertise and experience which most retail investors do not have. Investors should especially avoid taking leveraged positions using derivatives like futures and options because they can incur big financial losses, if the market or the stock moves in the opposite direction of their trade.

4. Blindly investing in hot midcap tips: Midcap stocks get beaten more than large cap stocks in bear markets. Consequently some of these stocks rally sharply in bull markets, when valuations of large cap stocks seem stretched. Often in bull market rallies, midcap stocks outperform large cap stocks. But in case of a lot of midcap scrips, the up moves are essentially momentum moves and not backed by strong fundamentals. Picking quality midcap stocks requires considerable skills and experience. If you are not an expert stock picker, it is always advisable to invest in midcap funds instead of directly buying midcap stocks.

5. Paying too much attention to monthly economic data: The media goes on overdrive over daily, monthly or quarterly economic data, be it exchange rate, index of industrial production (IIP), inflation statistics, CRR, repo rate etc. It is true that the market reacts to these numbers. But they are not relevant for long term investors. You should stick to your investment strategy and not react to these numbers. The best investment strategy is to get your asset allocation right, and invest in high quality stocks or mutual funds with great track record, and let their investment compound.

6. Panicking in sharp corrections: In a bull market, stock prices rise sharply but they can also fall sharply. In a secular bull market, sometimes these corrections are prolonged and may last several days or weeks. Investors, who cannot handle volatility, cash out during market corrections. But by cashing out during bull market corrections, investors are compromising on their long term financial goals. Investors should remember that such corrections are always of shorter duration than the periods during which the market rise. Over the last 20 years, the market went through many sharp corrections and yet the Sensex is many times higher. Therefore investors should stay invested through the periods of volatility. Their investments will grow in value once the uptrend resumes.

7. Turning off SIPs during a downturn: Successful investors have made money in the market by buying stocks when everyone else was selling. Retail investors often find it difficult to handle volatile markets and stop the Systematic Investment Plan payments during a market downturn. This is a mistake. SIPs enable the investors to buy equities at a low cost in market downturns. SIPs work on the principle of “Rupee cost averaging”. By investing a fixed amount, every month or at any other regular frequency you can buy more units when the prices are low and less units when the prices are high. SIPs ensure good return on your investment and help you meet your long term investment objectives.

8. Hanging on to underperforming stocks or funds: While investors should have a long time horizon for their investment, they should make sure that they do not hang on to underperforming stocks or funds. Even if the investors have performed adequate diligence in selecting stocks or funds, it is possible that some stocks or funds may not perform well. Retail investors often hang on to underperforming stocks or funds, especially if they are making losses in these stocks or funds. Sometime investors buy additional units of underperforming stocks or funds, to average the purchase cost or NAV. While this strategy may sometimes work in trading, this is a wrong investing strategy. Investors should monitor their investments on a regular basis. If there are stocks or funds in your portfolio which are underperforming relative to the benchmark for 2 – 3 years, then you should exit from these stocks or funds, and switch to stocks or funds that have been performing well. Even if this entails booking losses, investors should not hesitate in exiting underperforming stocks or funds


Investors should avoid these common mistakes when investing in equities. Equities are essentially long term investments. By selecting good stocks or mutual funds, and remaining invested in them over a long period of time, investors can create wealth in the long term by leveraging benefits of compounding. There is always a lot of surround sound in the media with regards to equity markets. Investors should cancel the noise in the surround sound and stick to a disciplined approach to investing.

(Source: Dwaipayan Bose,, 28 May 2014)

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15 May 2014
Verdict 2014 The Way Forward For

Verdict 2014: The Way Forward For Investors

Hardly 24 hours remain for the world to know who is going to occupy 7, Race Course Road, the official residence of the Prime Minister of India. All of us are waiting with bated breath to know if Narendra Modi as predicted by the exit polls will win the elections or will the Indian electorate throw up a surprise tomorrow. The exit polls have already given thumbs up to NaMo and team but history shows that we cannot blindly follow these numbers. In this scenario, the question that plagues most investors is what should be their plan of action for May 16, 2014. I have tried to answer this question by putting down three scenarios that can emerge tomorrow and what investors need to do if any of them becomes a reality.

Plan of Action for May 16, 2014

Scenario 1:

Narendra Modi led BJP comes to power, finally ending the decade long rule of the dynasty. This is going to be music to the ears of our investors who have been waiting patiently to see some action on the ground which in turn will positively impact their portfolios. In such a scenario, investors should just relax over the weekend and start slowly entering the market via the different options available to them like SIPs or STPs. They should not consider investing their surplus into the market on either May 16 or in the coming days. If Modi comes to power, we need to remember that he cannot make a vibrant India in a few months’ time. The euphoria that we have been seeing in the market for some time is not based on any fundamentals. It is on the hope that if the BJP is able to put forth a stable government then it will be possible for them to implement a lot of policies which their predecessors were unable to. UPA government was known for its policy paralysis and finally rating agencies had to threaten India to get it into action. This is inspite of the fact that this coalition was headed by an economist turned PM who in 1991 brought about economic reforms which changed the face of India in the global markets. Hence, if NaMo gets a majority mandate, then we believe that the next 5 years should be good for investors. In such a scenario some of the categories of funds which we have been betting on since their downfall like mid & small caps, banking and infrastructure will see a revival. Hence, investors who have been taking an exposure into the same on the basis of our advice will have something to cheer in the coming years.

Scenario 2:

India gets a hung parliament and in this scenario, what will happen to markets is only a foregone conclusion. The immediate reaction of investors will be to get out of the market as soon as possible and switch their existing surplus into liquid funds. However, do investors really need to punish themselves and start thinking from their heart while taking investment decisions? Hence, my advice is that if there is a correction, then consider it as an appropriate time to enter the market aggressively. The reason behind this recommendation is the macro-fundamentals of the Indian economy. At this juncture a majority of our macro indicators are not in a great shape: India is growing at less than 5% which can be gauged from the GDP estimates; IIP is as always volatile and currently is in the negative territory; both the inflation indicators that is WPI and CPI are moving upwards; RBI is not showing any inclination for reducing the policy rates; the list goes on. This is a clear indication that the economy needs a quick cure, or else things will spiral out of control. Hence, even if an unstable government is formed, they will do everything in the book to get India to recover from the current slowdown in growth momentum. This definitely will take time, but we can confidently say that if the macro-economic indicators improve, investors will only stand to gain in the long run.

Scenario 3:

India decides to give a third chance to UPA and here although the market would react negatively, investors need not worry too much. This is because the incumbents have already learnt the lesson of waking up late and trying to do the impossible in a short span of time. Hence, a third chance means that they will consider this term seriously and rectify the errors of the last 5 years.

In short, my advice to investors is not to get carried away by the chaos in the market but to stay invested till their goals are achieved. During this time, there will be several months when their portfolios will be in red but over a period of time market is known to reward patient investors.

(Source: iFast Financials article dated 15 May 2014)

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