A simple DIY for independent investors

Many times following the policy of “Jack of all, Master in none” we undertake multiple new tasks under our belt to reduce the daily interactions with numerous people. We want to try the DIY options and let go the hassle of talking to experts in different fields. We want to try new avenues of self learning and make the most of newest technology. To share with you one such incident, I spoke to one of my client asking them to invest in the list of given mutual funds in line with his goals. He asked me the reason for this allocation, I explained him the entire allocation thinking that he wanted to understand the given advice. However, later when he sent me the list of his investment around 50% of the allocation was made in the similarly mutual fund of my advice but not in the given proportion. He had taken the liberty of distributing too much dependency in one particular fund leaving the other one to petty amounts. Of course, when I asked my client the reason for it, he simply mentioned to me that I have personalized mutual fund software that devises the portfolio allocation for me based on my monthly income and fixed goals. I was shocked for a moment not realizing that I was not able to make my client realize the value of human input over software output. 

Over years, we have come across many prospects, which were willing to subscribe to various software packages and applications to help them their personal finances but not the same with their Personal Financial Advisor. They trust more of machines over human. It is fine to advocate the error free usage of software over human interface but there are certain limitations which should not be ignored. Today we would like to discuss some of the simple things any DIY investor should check in his personalized advisor tool.

Some check points 

·         Source of data- the software is dependent on human to add information for the latest investments/ SIPs or even information regarding the mode for payouts. It could be possible that we may miss out any on particular entry and not be able to get an accurate output of the investment valuation. So, it is best to set a fixed time – like particular day, time or date on which the information is added to the software. This helps to avoid any lapse in entry to particular investment.

·         Return rates – the future valuation is dependent on the software fed return rates. If these rates are not to the mark or updated, the results could be fictitious and unrealistic. So, it is essential to understand how is the rates is fixed.

·         Investment valuation - most of the software are cloud based and get automated directly but there are times when a user needs to update the data. So, please ensure that the software follows the required methodology.

·         Security parameters- there are usually two levels of security parameters ensuring that the client data is encrypted. If you are linking your savings account to the software please take care that your personal data is not compromised.

·         Reports generated – it is always better to have a bird’s view of your investment valuation and beyond that give you a recommendation on your goal achievement.

·         Recommendations and advice- An advice should be customized in line with your goal and age requirement. It should not be that the particular investment is adjudged on its individual capacity. Make sure that the entire investment goes well with your risk appetite and requirements.

·         Timely upgradation – it is better to avoid trial versions of your preferred software and go in full fledged application for your use. It will ensure you get all the required features and service.

A word of caution
 

Software may be good to run algorithms and give results in quick time. However, what it may not understand is your emotional mental status. It would not be possible to give you a sound ear on your personal move. It is best to talk to a human over machines. However, if you are person on go with ease of handling multiple agendas then it good to crack the DIY code well become plunging into them.

Thanks and Regards
Team
Saarthi Financial Planner
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Email: saarthifp@gmail.com

How much change have you lost?

“ Itna sa hi toh hai” a so common line for anything we loose. The bai spills some milk or your child drops some food on the floor, the leaking tap or even the cooking gas wasted when we cook our food in open vessels. The increasing shortage of small changes is becoming prominent in our small riksha rides where we let go the loose change. Also at times we are so relieved if someone gives us discount that we are ready to forget the quality of the product. It is our increasing mentality to adopt the route of mental peace and ease of doing things. The same principle we even adopt for our investment purpose. Go for something that is simple to execute and fast to accomplish. It may even that for that you have to loose some good percentage of profit but that is fine with you as long as you can gain some mental gratification.

The long run story in short ..

We need to change the style of investment. We need to understand that over long run- the only thing that gives us better returns is constant investment and compounding benefit. If we don’t take advantage of either of them then we shall not be able to earn as much as profit we can from our investments as we could if we diversified our investments well.

Lets us at a common example,

Suppose four different people make annual investments of Rs 150000/- in one of these investments each, then let us look at the amounts collected by them at end of the tenure.  

Instrument	Fixed Deposit	Direct Equity	Equity Mutual Funds	PPF
Returns % pa	7%	13%	12%	8%
Time	10	10	10	10
Returns	Rs. 2,95,073	Rs. 5,09,185	Rs. 4,65,877	Rs. 3,23,839
Tax	taxable +TDS	No tax after one year	No tax after one year	Nontaxable and locked in for 15 years

So, what seems like a small simple decision can prove to be a big hole in your pocket in the long run. So shun all your laziness today and make a diversified portfolio today. Plan your goals and give your portfolio a better design.

Thanks and Regards

Team

Saarthi Financial Planner

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Email: saarthifp@gmail.com

Life in a Metro...?

Every time I visit my uncle at my native place, I feel so disconnected in everything I see around . The families sitting across the porch enjoying their morning chai, the children playing with their friends in puddles, the women gossiping with each other across grocery shopping or sitting outside the local temple. I always ask my uncle to visit us once in a while to enjoy the comforts of the city life and he always laughs me off. He raises only one query “What comfort are you talking about?”. Even before I mention to him any thing about multiple cuisines restaurants, malls, big skyscrapers, he clearly shrugs off saying “I feel suffocated in your air conditioned furnished flat. You can't see any one passing by from your tall building windows and everyone is locked in their homes. There is no one to talk once you leave for work. Only TV and a small garden in your compound are left for me to enjoy. I have TV here also and for garden I have the entire village full of greenery and fresh air. So, why should I come there and stop living rather you come here and enjoy life to the fullest”. I am shocked at his simple denial to come to see me at my home but it is the truth. We take our city comforts so granted that we believe that it is the only way to lead a happy life. Meeting friends once in a week, having dinner together and discussing politics, markets over coffee is too cool and is the only happiness left in life. It does sound like a good plan especially in our odd working hours where we all are in race to earn more. But what when we are back there resting in our home couch. Wouldn't the silence in your AC homes make you a little uncomfortable? Think about it?

Why suffer for life?

 It is understood fact that we live in cities in our working life to earn more money. But living like this after retirement is a foolish thought. What are we giving up for this? Our health, our family life and even after this we are still adjusting our needs. We cannot enjoy open space, fresh air or comfortable meeting with our extended families.

Plan Your Life, Plan it now

Life Planning is more important than goal planning. If you don't intend to live in this hustle bustle over retirement then why are you making non movable assets out here? Why do we sacrifice all our hard earned money in paying the EMIs. It might look cool in your net worth to own multiple real estate assets but over retirement you would only like to enjoy the rental income from it and not leave your current surroundings to shift to a more noisy environment. What are we seeking then from this attachment? Why is the fact of living in a metro or big city making us so arrogant? We live in this place not by choice but by need. We have multiple needs and the best place recommended to fulfill them is the metro. That's is the end of it. There is no other advantage of it. The real treasure is our health and family which is a lost in our current lives. Be prepared to disown it.

So as your financial guide, Saarthi always recommends you to build assets but more importantly earmark them to your goals. So, when the right time comes, you can sell it off to meet your goals. So, the first thing to do right now is to plan your move right now. See if you want to still spend your sunset days in this big busy city or you would prefer the calm of a small town. Make your choice now. It is your this choice which will eventually help you calculate your retirement corpus.

Thanks and Regards
Team
Saarthi Financial Planner
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Email: saarthifp@gmail.com

Whats your theme?

Every year, we have Margi Ganpati decorations adorning my home street. The decoration gets more and more lavish every year. It is fascinating to know that every festival in India has its own decorations and theme associated with it. On Republic day, the theme is to dress up in tri color of our country. On Valentine’s Day, we dress up in Red and for our auspicious occasions, we want to dress up in bright colors. Similarly there are mutual funds which make investments, which match their investment theme. Hence, they are known as ‘Thematic Mutual Funds’. Today, we would discuss about the background of these funds. We can call it an extension to the sectorial funds.

Common features of the Thematic Funds

a.    Very high risk – the AMCs place their investment bets on any particular goals believing it to outperform the broader index as a whole. So, believing in the strength of the particular theme, the fund manager makes all his bets across the same sector to gain maximum returns.

b.    Mostly Correlated Sector exposure – Thematic funds are usually investment made in same or allied industries. For example, if the theme is betting on gold theme- then the related mining, refining and grading companies are expected to gain profit from it. It can even be country based or a particular region based investment.

c.    Cyclical in nature- the funds under thematic funds could be cyclical in nature. It has its own ups and downs, which is in addition the broader index movement. They can be usually called the fruits of the season. They are expected to be fundamentally strong with the entire external environment favorable to their working.

d.   Limited investment options for a fund manager- Even if a particular segment of the thematic segment is less profitable over other, the fund manager has no scope of diversifying the investment risk.

e.    The average time frame of thematic mutual funds is more than 5 years depending on the gestation time of underlying theme. The generated returns can evaporate if we don’t exit the investment at the right time. 

Performance of few of thematic funds in past 

 

(Source- valueresearchonline.com) 

So, let’s all wait for flavor of the upcoming week of the union budget bringing in more ideas for thematic funds. 

Thanks and Regards

Team

Saarthi Financial Planner

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Email: saarthifp@gmail.com

BHIM- the digital revolution

BHIM App(Bharat Interface for Money) is a an app started by the government as result of our PM Mr. Narendra Modi efforts to make India transact cashless. Few weeks before we had discussed the working of a UPI system, BHIM is one of the simplest form of UPI app started. It is called BHIM after Dr. Bhimrao Ambedkar, one of the foremost person working for upliftment of dalits and poor people.

Simple features of BHIM

• BHIM works all major banks and there is no need to download multiple applications to transact online.
• BHIM works on funda of IMPS (Immediate Payment Service) . It transfers money immediately.
• It is not necessary to register the payee beforehand
• BHIM is available on all 365 days across 24x7
• BHIM doesn't require the user to remember the bank details of the payee just the UPI address is required.
• In case, if the payee doesn't have UPI based payment system, it is possible to transfer money using mobile number or scanning the QR code.
• BHIM can operate without internet connectivity to transfer and receive money.
• BHIM is over the time expected to authenticate using thumb prints over Aadhar details.
• BHIM is designed with a simple interface keeping in mind the needs of a simple village person.

How do I start?

• Download the BHIM app from google play store. It is currently only available for Android users.
• Follow the instructions which are then made available , once the app is installed. It is available in various local languages.
• It will then verify your mobile number.
• After this, a 4 digit password is to be registered which is required in every future transaction.
• After that select the bank, where you have your account. The app will automatically show the account number linked with the mobile no for that bank.
• Select the account number and you are started.

Now in future to transact, you just need the UPI details of the person to transfer the money. Usually the default UPI address is the mobile number of any individual. Almost all banks currently support BHIM application. For the complete list, click on the link as follows:- http://bhimapk.com/
 Our intention at Saarthi is to make all our readers aware of the latest happening in the digital transaction world. If we were to follow, our PM, then he sees our country going cashless in next 5-6 years. So, it is best to adopt the required application at earliest. Chota Bhim, Bada Karmveer.

Thanks and Regards
Team
Saarthi Financial Planner
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Email: saarthifp@gmail.com

Plan Your Business Succession

Last evening, I was watching the rerun of the recently released “The Intern” on one of the movie channels, wherein a young woman who meet success in a short span at a very young age finds herself incapable to manage the growing business singlehanded. However, she was reluctant to bring in a CEO to guide her run the show more smoothly attaching a lot of drama to it.

It is not just a story but infact an alarming truth. In India,  If you want to eat fruits of our sown tree you need to take good care of it and even nourish on time. Similarly, if you want to ensure that the business set up by you is successfully transferred to your next generation then it is necessary to plan for its succession on time. As per the recent survey of Family Business Survey, 2016 conducted by National Bureau of Economic Research Family Business Alliance 43% of family run firms do not have succession plan in place and only 12% carry on business till 3rd generation. Like everything business also needs fresh thoughts and different approach to do things. So, better plan for this transition on time.

Problem areas of succession planning in business

• Business is not just about profits or growth; it has deeply rooted values, culture and entrepreneurial style. The family run businesses usually face a road block when it has new generation talking about change, technology and resources.
• Lack of strategic thinking. The missing component mostly in any family run firms is the creation of strategic thinking. Thinking that is dedicated to long term. There is a lacuna for understanding the transition from current level and expected level of business growth. The perspective of growth is different for everyone.
• Overlapping of personal and professional lives makes succession planning difficult. Sometimes the domestic restraint overpowers the important succession decisions.
• Absence of rightful successor. It is quite possible that your family is not interested or incapacitated to run your business.
• Difficulty in delegating work and sharing the load. The more an individual grows a successful the lesser he trusts the younger generation working capacity.

Simple probable solution to plan successful business succession

• Develop a collective vision, goals and objectives of business.
• Make a simple list of skill set of all probable succession family members. Also, list out the probable areas of shortfall of skills. Try to do it with consensus of current management.
• Identify the potential threats in business and prepare the combats to face it. Once, you have identified the mechanism to face the threats, it is easier for the younger lot to plan their current situation.
• Bring in the fresh experience from outside. It is necessary to bring a third party in the family run set up to bring in the required professionalism. Although, it might take time to accept a stranger in business but it is the only way to scale and have a neutral approach to things.
• Start delegating roles in your presence so that work doesn't stop in your absence. Switch from a role of Active member to active Observer. Let there be mistakes in near term but in long run it would be improved.
• Prepare a written document expressing your idea of succession plan for all the family member.Discuss it with all the beneficiaries.

If your family is not interested in your business

• If none of your family member is interested is in continuing your business, it is best to either planning a sell out to a suitable competitor on your death or when you want to quit it. The proceeds can then be distributed in your estate planning.
• If you are keen to maintain your business name, even after your demise, you can plan to create trust to run it and appoint a suitable manager/ CEO to run it. Please ensure the person so appointed is young to outlive your age.
• If your spouse is dependent on your business income, it is best recommended to make them actively aware of the business working. If the spouse is incapacitated to run it after you, it is better to sell it and transfer all amounts to her.
• If multiple homes are dependent on the business,  please ensure you have planned well for the legal dues of your staff and labour. This would ensure co-operation from them as well as loyalty.

In case of minor children, a trust form of business ensures safeguarding of business till your children become adults.

Business is like your own baby, as you ensure your child gets the best, so should your business. Plan to grow it, expand it and on suitable let the legacy go to a more stable hand. It is wrong to let the once successful business die away in shambles. Plan for your succession and plan it soon.

Thanks and Regards
Team
Saarthi Financial Planner
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Email: saarthifp@gmail.com