Archive for the ‘Personal Finance’ category

Invite for a short seminar on Financial planning….

August 30, 2008

I will be doing a series of short “Why Management should be interested in Personal Financial Well-being of their employees – an Introduction to financial planning” seminars in the following locations on the following dates. This is being sponsored by myiris plus – a revolutionary personal finance software.

This is open only to Head of HR, Head of Finance or CEOs of mid to large corporates. Typical corporates we are looking for will have at least 200 employees.

For attending these in your town please send a mail to:

1) Hyderabad 10th September 2008

2) Delhi 25th September 2008

3) Mumbai 15th October 2008

4) Bangalore 12th November 2008

5) Kochi 26th November 2008

6) Ahmedabad 7th January 2009

7) Chandigarh 11th Febuary 2009

8) Pune 25th Febuary 2009

Only online registration. Limited seats, and your invitation will have the details of venue, timing, etc.


Life insurance illustrations – what is wrong

August 13, 2008

It is customary for life insurance salesmen (by whatever name called) to sell life insurance by showing what is called an “illustration”. What is wrong with this “illustration” that is shown to potential customers?

Simple, it does not mean a thing!

IRDA has stipulated that the illustration should be made with 2 projected returns: 6% and 10% p.a. growth.  This leads most prospective buyers of life insurance to believe (erroneously, of course)  that the policy will pay  at least 6% per annum.

The illustration makes assumptions on mortality charges (in some cases it is not guaranteed), fund charges (normally not guaranteed to stay there), stickiness (all customers will continue to be with the company), death values (valid), tax structure, etc. while making the projections.

Though there is nothing wrong with 6% and 10% as assumptions there should also be a lower expectation – why not an illustration with a 0% assumption? Look at what happens if there is NEGATIVE return like say Jan 08 till date. No illustration making NEGATIVE return assumptions is created by the insurance companies. Why? Well this question has not been asked for far too long.

Actually why is a life illustration made? Well it is for you, as a customer, so that you can compare the costs and charges across fund houses.

Human Resources (HR) and financial planning

August 5, 2008

When the very affable, 32 year old Priyanka snapped at Suryanarayan, the HR head, the young 23 year old Arjun put in his papers, when the 48 year old accountant Paresh was rushed to the hospital with a mild heart attack all during the normal working day for Suryanarayanan the new smart HR head he did not see a pattern.

Prima facie there seemed to be no pattern to the 3 separate incidents. However, there was a connection!

Priyanka was going through a tough divorce – the bum she married was at last leaving her. But he was unemployed, and the house belonged to him. She had a job, a kid, and no house. Her parents were partially dependant on her. She was getting no alimony, there was no balance in the bank, and she was a financial mess.

Arjun had committed himself to some EMIs hoping for a decent raise. He was now paying of an education loan, a car loan, a vacation loan and an occasional credit card spend. Seeing the pattern of the past 2 years, he “assumed” his raise would be Rs. 4000 per month. It turned out to be Rs. 1700 per month. Arjun was devastated. His immediate reaction was he thought he should find a new job. He had no clue where, how, when the new job would happen. He had no option of going back to the nest – his parents had smartly shifted to a smaller house to avoid the boomerangs! They did not want the kids coming back and eating into their nest egg. Very un Indian thought Arjun, but that was the rule. Arjun was a financial mess.

Paresh was a very meticulous man and had nicely saved a lot of money. It was in safe avenues – post office, ppf, voluntary pf, national savings certificates etc. He had a decent house, handed down by his father, and was financially well off. Well sort of. His spouse and 3 children were a source of joy only for the first few years of their lives! They had made him an ATM and made impossible demands on him. His eldest son had flunked college, trained as a cameraman spending Paresh’s money, had got married, and was unemployable! Paresh used all his resources but his 2 sons, 1 daughter, wife and an ailing mother had sapped him. He was underinsured, severely stretched, had no medical insurance. Paresh was a financial disaster.

When Surya saw the cases in detail he asked himself a classic HR question:

When does the company step into the personal financial lives of its people? He had no clear answer.

On a Thursday evening, finding his CEO in a good mood, Surya brought up the question of the company’s role in the financial lives of its people. The CEO told Surya “Remember Gaurav Shah, our operations guy who joined a BPO? Last week he died of a heart attack. He was all of 38.”

The CEO was very clear that personal financial learning, stress busting, yoga are things that the employee needed should come from employee’s own time and cost. He went on to add “Surya we hire good, smart, aggressive guys who can bring business. If they are so smart, let them take care of themselves”. Surya felt a little defeated.

He thought to himself if 99% of my staff here is working for money, and I am willing to teach them how to talk, how to hold a fork and spoon, which hair oil to use when in US of America…how come I am not teaching them Money Management?

He had no idea.

But by now it was 9 pm. He had to head home. Another 1 hour journey. But as he hit the car he thanked himself for one good decision. He now had a driver!

He sat down in the back seat and chuckled at his designation! He was wondering whether the words “human” and “resources” had any connection to the English words he knew!

He also remembered what his CEO told him “Do not ask me whether I have a heart. I don’t know. Ask my shareholders. They are Americans, their lives and their dollars are measured by Quarters!”

The 4 quarters in an American dollar are Q1, Q2, Q3, Q4

His eyes closed.

Jagjit Singh poured out his heart on the 5 track CD player.

Tomorrow was another day.

Financial planning – basic process

August 3, 2008

The process of providing financial fitness involves four basic steps.

If you have the time, objectivity, inclination (to take time off from your family to do this) and expertise in accounting (to file your tax returns), investments, taxation, insurance, and estate planning, you can do this process on your own.

However, avoiding personal bias is not only difficult but almost impossible. The most important business for financial planners comes from fellow financial planners – who can bring objectivity to all portfolios except their own! Most people find it helpful to seek the aid of various professionals to derive the most benefit from this comprehensive process.

Let’s take charge!

  1. See where you stand!

It is important to first develop a profile of your financial health. This is accomplished by gathering and organizing your financial and personal data. Your financial data should include a current tax return; a listing of your assets and liabilities; a breakdown of your monthly living expenses; information about your retirement plans; life, health, and other insurance policies you own plus any estate plan documents (wills or trusts) that you have. Do not forget your company pension scheme, your provident fund balance, any inheritances, divorce decrees, etc.

Your personal data should include information on all family members; a clarification of your goals and objectives and an accurate assessment about your tolerance for risk.

2. Diagnose: This step should analyze the data that has been gathered to determine your strengths and weaknesses. Proven concepts and principles may then be applied to reach decisions regarding aspects of your financial situation.

For example, your emergency cash reserves should be reviewed.

Are they sufficient?

Are they equal to at least three months fixed living expenses?

Are you hindered by too much debt?

Are your current (liquid) assets sufficient to meet all current obligations (those due within the next twelve month period)?

Also, do your investments match your stated goals and objectives?

If income is your goal, would you consider a money market mutual fund account more appropriate than a portfolio of speculative mutual fund schemes?

3. Prescribe: This step is where specific course of financial action are selected.

For example, if one of your objectives is to generate income, you might select an investment in an income (bond) fund. If you want greater growth potential for a portion of your assets, equity mutual funds or shares might be more appropriate.

4. Monitor: You also need to review your plan on a regular basis (at least annually) or on the happening of an event – birth, death, marriage, divorce, change of job are just some examples to make appropriate adjustments based upon changes in economic, financial and/or your personal circumstances.

This regular “follow-up” will also provide an opportunity to compare results with your goals and objectives

Basics of Investing

August 3, 2008

I did a TGIF speech about investments – I met a person who told me that he clearly felt my blog was not addressing the new investor. Withing 5 minutes of him saying that one girl told me “i could not understand anything in your blog”. I hope this post removes that flaw in the blog.

Immaterial of whether you are in your 20s or in your 50s and you are looking at an investment you should know some of the basics of investing, so here it is.

By and large at some stage you must have been approached by some investment advisor. He (increasingly she) must have offered you mutual funds, ppf, unit linked plans, and thrown a lot of jargon.

Throwing jargon is one of the easiest (and impressive) way of getting the fees that the advisor earns. ALL industries do that. Take a simple English word and give it a different meaning, and then go about explaining it. Take a mouse, for example!

But what is an investment, shorn of all its jargon?

It is a sum of money that you outlay hoping to get a higher amount back. This can take two forms:

  1. Investment like a lender
  2. Investment like an owner

  1. Investment like a lender means you are giving your money to an organisation for them to use so that they can grow their business. As a compensation for using the money, they pay you interest. If you invest in PPF, NSC, Kisan vikas patra, RBI bonds, etc. you are lending money to the government of India. However if you keep money in a fixed deposit in say, Hdfc you are lending to a private sector body. Bank deposits also fall in the category of “investing like a lender”. What are the advantages and shortcomings of such an investment?

· Certainty of interest, when it will be paid and when will the capital come back

· Convenient to handle

· Simple to understand – the only thing you need to know is the amount of interest, and will the original amount that you put in comeback


  • Inflation may erode the amount, substantially. For e.g. if the inflation rate is 6%, the value falls by 44% in 10 years time. So if you get the SAME amount (back) that you put 10 years ago, inflation has eroded its value.
  • Default risk – the person taking the money does not repay. Many co-operative banks, some nbfcs, some small business owners, may fall in this category.
  • Delay risk – if the government of India decides to postpone your PPF payment by 10 years what will you do? Looks odd, but remember some politicians may decide that all amounts above Rs. 5L should be paid in installments you may have to grin and bear it.
  • You take the risk, but if the company does well your rewards do not increase.
  • Debt is not risky in the short run, but it is risky in the LONG RUN.

2a. Invest like an owner means you are joining a company as its partner. This obviously means you get a portion of the company, you get the accounts of the company, they report to you on a quarterly basis, they allow you to participate in the well being of the company, ….all the perks of ownership.


1.You get to participate in the well being and in the ill being of the company.

2. When the company does well, you get a fantastic hedge against inflation

3. You get dividends and price appreciation as rewards for holding shares


· Stock picking is not just watching TV and buying the “hottest stocks”. It takes a lot of effort to pick a good stock, to structure a portfolio and keep allocating resources to the correct companies

· It is very risky in the short run

· You require a good head, and a greater stomach to make money with shares

2b.Not enough attention is paid by people to investment in real estate (I mean actual, active investing, not buying a house and hope it will appreciate). If you can keep buying properties, rent it out, sell when appropriate, real estate will also give you an excellent inflation adjusted return. The advantages are that in a worst case scenario, you can use the assets, however it requires a lot of expertise. Also individual real estate calls are complicated (Real estate mutual funds – we have been hearing about it for long, hope it happens fast). A very unstructured, unsupervised market. If you find a good advisor, you are blessed. My real estate portfolio is with a veteran who gives me stunning returns.

2c. Starting / Partnering a small business! Small business is big business. Most of the world economy is supported by the small business owner. Most of the jobs are created by them. Their media share is much less than the market share that the small guys have!

I hope I kept is simple. My wealth creation has some formula. One of them is to do the following four:

· Invest in a good portfolio (mutual fund or unit linked insurance with a small recurring charge)

· Select a good fund manager (I mean fund house)

· Do an SIP

· Think long term – I mean 10+ years

If you do all four, I daresay you can look at Warren Buffet and say, “Sir I listened to your rule number 1. I have not made losses.” That is great!

is where you can mail me!

Inflation? Counter it! Tips to reduce your cost of living!

July 25, 2008

How to reduce your cost of living

The basic needs of man are food, clothing, shelter and circus (entertainment?). However, most of us have today graduated from needs to wants and luxuries.

However, when the headline inflation numbers hit 11.9% there is a serious worry about people not being able to meet even their basic needs – and that is a worry.

While shopping at a discount store instead of the mall generally takes care of the clothing issue, and living in a small apartment instead of a huge house, if you can live in a less fashionable area – like Vikhroli instead of Powai, can address your housing situation. Rising world food prices can lead to some significant challenges in the food department!

Everything from rising transportation costs to the development of biofuels, push up the cost of food and put a pinch on consumers’ wallets.

While reducing your eating to one meal a day is good for yogi’s and is a good way to cut down costs, that is not what I am suggesting. Instead, I am suggesting something much simpler.

1. Eat at Home
Eating out is expensive. Apart from food even coffee made at home is inexpensive. And you get the added benefits of nutrition, hygiene, etc. Small numbers do add up – if you are spending Rs. 200 a day eating out, and it costs you Rs. 50 to eat at home – you save Rs. 150 a day. A systematic investment plan of Rs. 150 a day done for 30 years can give you returns in excess of 5 CRORES! Toast butter, vegetable sandwich, Tea, coffee, curd rice, salads – are really simple to make 🙂

2. Know what you are buying
You need a plan for almost anything you do! Shopping is not very different – if you stumble around the grocery store and fill your cart with everything that catches your eye, chances are you will spend a lot more money that you needed to spend. Plan your meals for the week ahead, and make careful note of what you need to buy. Once the list is made, purchase only the items on the list, and avoid impulse buys.

3. Buy what you need and then put on Blinders!

Stores are designed to make you go through a long walk to get to the most basic items you need. ON the way you will pick up a lot of things that you do not need, and in quantities that you do not need. Though there is no research in Indian conditions, clearly people do not use all the things that they buy – refuse to be bullied into buying! Most necessities and basic cooking items are found along the outside perimeter of the store, start there and work your way around the edge of the store.

4. Shop on a full stomach

On a hungry stomach you are likely to pick up a lot of things that look like food! You might also pick up a lot of food – which is perhaps un-necessary. On a full stomach on the other hand, you will most likely
be tense and pick up unnecessary stuff.
6. Do you really need bottled water?

A water filter works far cheaper, compared to bottled water in terms of costs.

7. Shop sans the Kids
Hungry, tired, cranky kids increase the amount of time it takes to get your shopping done. Kids can really bug you into buying things which are bad for your health and for your purse – leave the kids at home / crèche / school before you venture out shopping.

8. Buy in Bulk
Bulk buying can save you a significant amount of money. Pay attention to the prices and pick up the family size package if the per-unit cost is lower and you have a place to store it. However, you need to realize that bulk buying has a dark side too! If you are not a big user of any particular product, and storage is an issue be careful of bulk buying – the Indian weather does require refrigerators for most products.
9. Use Store Reward Cards
If the store that you visit most frequently has a reward card, sign up. In some cases, stores raise their prices when they offer reward cards, and without the card your bill will certainly be higher. If the reward card offers other benefits, such as a preferred (or free) parking, some free schemes, etc. be sure to maximize your benefits before they expire.
10. Buy Local products
Whenever I step into a big branded store, they do try to push “American grapes” – I fell for it once, and realized only on billing that it was Rs. 400 a kg! The Indian variety is normally available for Rs. 40. Locally grown or produced food is often available at a cheaper price because you don’t pay for long transportation costs. In the place I live I also see farmers coming and holding an exhibition / sale of seasonal vegetables and fruits – common to see a mango mela or a fruit and vegetable exhibition. You cannot do your weekly purchase here but you get a good price indication.

11. Choose unbranded goods!

There is a huge, huge cost difference between a branded product and an unbranded one. Even in case of “expensive” items like dry-fruits if you buy it from a wholesale-retail shop you will find a 20% price difference. Some branded foods like cornflakes, hold your breath – are more expensive than dry fruits on a per kilogram basis J. If you thought potatoes were selling at Rs. 12 a kg., you are correct, but when it gets converted to branded chips, it becomes a little expensive – about Rs. 300 a kg!

12. Men are bad shoppers?
It is not so much a gender issue – but men do not have much patience and that shows while shopping. So if you are a man, realize that shops know and understand this. So things are arranged in such a way that when you are in a hurry you will find the most expensive items. So look in the corners, look at levels lower (and higher) than just at the eye level. To find less expensive items, look down. Also, looking around your brand-name food can find you a cheaper generic alternative.

13. Avoid Checkout Temptations

Normally you have some high priced crackers, chocolates, shaving blades – and the cheaper alternatives are just a little further away, so walk a few steps. Picking up things at the check-out counter surely spoils your health – like the chocolate that you eat on the way to the car! Most of the times it also spoils your wealth.

14. Compare Prices and Stores
I personally do not compare prices and stores but my wife has a doctorate in this! She knows which shop is good to buy vegetables, which shop for branded goods, and which shop for unbranded goods. And she plans her shopping accordingly.

15. Sales offers
n Indian conditions September to December are what we call “Festive season” when most of the buying happens. Surprisingly, Hindus, Muslims and Christians have some festivals for which they buy new clothes in this period. So shop keepers do a pre-festive sale in July-August and a post-festive offer in January. Use these sales to build your wardrobe – you can get good deals.
16. Shop less frequently
The lesser the number of trips you make to the shop, the lesser the things you will end up buying! So if you are making more trips to the store, it is time you reduced the trips.

17. Pay In Cash

When you buy your day-to-day requirements with your credit card, and do not pay off in full, you pay interest. Apart from this, when you see cash go out of your hand, you tend to be more careful about how much you spend. So paying by cash is a good option.

18. Check Your Bill
You should check all the statements which have a financial implication – whether it is your credit card statement, you mutual fund statement, your bank statement, your insurance statement or even your bill at the Store where you buy. Scanners are fine, but sometimes there could be a mistake. There could be one item scanned twice. Sometimes the prices are not changed – maybe carelessly but you MUST see the bill before you pay. Or go home, check and then scream if things are wrong.

19. Buy leather goods in monsoon and umbrellas in Winter!

During the non-season prices of goods are lesser. If you are in a monsoon area check out for sale of leather goods. There must be one going on somewhere near your office / house. Be alert to such offers. If you are buying things for your kids this is more true. So be awake.

Keep watching this space, i will keep adding points here….