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?).


Read more about such financial nuggets at our blog, Need help? We’re just a call or email away. feel free to reach us on, or call + 011 – 4240 2032, 40545977, 49036836

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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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