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Recently, I went to a friend’s home for dinner and during our discussion, savings/investing related topic cropped up. My friend who is into his late 30s, apprised me that he parks most of his savings into fixed deposits and not in equity or shares. He also shared that while he earlier used to invest in share market, but now has stopped due to unpleasant experiences in the past. Now, while investing in fixed deposit is understandable, I was little surprised that this was coming from a young professional who is working in IT Consultation role. After hearing this, the equity enthusiast in me started briefing him on the pro and cons of being 100% into fixed deposits and avoiding equity exposure all together. This discussion led me to share my views in this write-up.

While I am not at all averse to idea of fixed deposits as investment but investing without considering all the facts in not desirable. And this statement is equally applicable for investing totally in equity. I agree that a reasonable % of funds should be kept in Fixed income securities; however, it should be a rational and thoughtful decision. So, let’s delve little more into this and understand why being invested in Fixed Deposits only is not always a good idea.

Investment scenario has changed significantly in last few years as compared to our parents/grandparents’ days/era when Fixed Deposit/LIC/Govt. Securities etc. were most preferred and the only available options (generally). If you see interest rate scenario around you, in the last few years, interest rates have come down significantly and hovers in the range of 5-7%. This is in India; while in many countries across the globe the environment is more different wherever the interest rates range from 0-5% (and negative also in some jurisdictions). On the other side, inflation which I consider a silent killer of savings and capital; has been hovering in range of 7-8%. If you ask someone buying household items e.g., vegetable/Fruits/Provisional items/School books/Informs, the inflation rate may be quite higher than the rate published in general. It becomes important here to understand the link between these two numbers of Interest and Inflation rates so as see the impact on our saving/capital funds. 

Let me reflect on this with a simple example. A thing which you can buy today for Rs.100 shall be costlier in the next 10 years due to inflation. Let’s assume a normal inflation of 6%, it shall cost Rs.179 in 10 years’ time. Now if the same amount is invested in fixed deposit at a similar rate of 6% subject to tax rate of 30%, it shall become Rs.161 in 10 years. So, the things can be purchased with Rs. 100 today shall require more money to be provided by you. While you may continue to see the value of fixed deposit investments increasing year on year; however, it is bound to be a wealth eroding investment in the long term. On the other hand, investing the same Rs.100 in Equity market and earning a normal return of 12%, shall increase your investment value to Rs.311 and creating significant upside.

Now the question arises, should one completely move out of fixed deposit/debt products? Well, hold on before you move on that road. It is important for each one of us to assess the individual financial situation and consult an investment advisor to plan out the allocation to fixed deposits and other asset classes. Equity investing is one of the important asset classes one should have in personal/family portfolio. Equity returns, primarily reflected by BSE Sensex/NIFY have demonstrated inflation beating return over last many years.

The saving/capital erosion is most significant risk you carry when you decide to allocate 100% of your savings funds into Fixed income securities. It is important to change this, considering the current economic scenario and diversify your investments across different assets class including equity, real estate, gold etc. in addition to fixed income securities. We shall discuss more about these in our coming issues.

We hope you enjoyed reading this and shall appreciate your inputs on the same. You may connect with us at ops@alphasnr.com for inputs and advisery services.

By : Manoj Sharma  

Date - 10th Aug 2022

I remember hearing stories of families having five to seven kids (or may be more) and all eventually settling down on their own. Now, we generally have one or two kids and parents looks worried about their education, marriage, supporting for business/house, etc. I feel this has a lot to do with the significant increase in the cost of education and upbringing in the last few years. Recently I met one of my dear friends and he shared that his daughter is planning to do MBBS, preferably in India else in abroad. The cost he shared was huge by any standards, but I think that’s the time we are in.

All this discussion brings us to a point that we should plan finances for our kids. And the question arises how to do that? Let’s venture into the world of Investing for kids 😊

It is quite natural, that we tend to behave emotionally whenever it’s about our kids. Children are the most beautiful gift to mankind by God, so it is perfectly fine to be emotional towards them. Having a child (or two) is a joyous experience but it also requires planning for various life events; primarily including the following:

1. Upbringing Cost

2. Education Cost (including extra circular activities as well)

3. Professional Degree/Courses

4. Marriage

5. Financial support to start career/Business

All of the above requires significant financial commitment in today’s time. There are two approaches to manage the requirement. First is “attend to when it comes” approach and second is “to plan in advance” approach. Naturally, second approach is more rational except when you have plenty of money and do not need to think over too much which usually is not the case for most of us. 

The important point here is how to plan for all these events or future financial requirements. And a solution to this riddle is Goal based financial planning. Goal based planning helps you to assess the funds requirement at different stages of life. Let’s understand this with an example. Let's assume that you plan for the higher studies for your kids, 15 years from now, and the current cost of which is around Rs. 10 Lacs. Assuming an inflation rate of 7.00%, you shall require Rs. 27.60 lacs in 15 years from now, almost 3 times of today’s cost.

While life is unpredictable, one needs to plan and look for stability. A systematic investment plan of investing regularly (albeit small amount) shall help you to build a large corpus for your child’s future. One may not have a large amount to invest immediately; so it is advisable to start with a small amount on a regular basis. Investments in equity have been generating inflation beating returns and are expected to do so in future; so SIP is an ideal investment for building corpus for your child.

I am sure with this approach you shall be better prepared to fulfil your children’s (Or your) dreams. 

I am sharing few general questions which one may have regarding corpus building:

1. I wish to send kids to overseas for education and payments would be made in foreign currency. Is it a good idea to invest in International Funds?

Response – In investing, our focus should be on quality of Investment. So look for good investment options and if domestic funds can generate better returns, then opt for domestic funds. Alternatively, a better option shall be to invest in funds having both domestic and international exposure.

2. Is “recurring deposit/fixed deposit” a good idea to build corpus for kids?

Response: If funds requirement is after 10 -15 years, it’s advisable to invest the money in equity funds instead of fixed deposits. However, as we reach near to funds requirement (tentatively within 3 years), it shall be a good idea to withdraw funds from equity fund and move to conservative fund as equities by nature are move volatile from short-term point of view.

3. Is education loan advisable?

Response: Education loans are comparatively cheaper in India so one may opt for mix of family funds and loan to fund high-cost education for professional course. 

I hope you enjoyed reading this article. You may connect with us at ops@alphasnr.com for financial planning and Investment advice. 

Manoj Sharma

30th Sep 2022

Category: Personal Finance and Wealth Management

A question that I generally come across is whether Investment should be held for the long term or short duration. One tends to naturally ask, does investment horizon matters? If one should try to time the market or be in the market for long for maximum benefit? This article is focused on providing our views on such questions. But, before we delve into this subject, I would like to take you through the following two narratives covering an interview of Amazon Founder, Jeff Bezos in 2011 and a recent study on Mutual Fund Investors' returns by Axis Mutual Funds:

Let’s have a look at 2011 interview of Amazon’s Founder, Jeff Bezos, in which he said the following: 

“If everything you do needs to work on a three-year time horizon, then you’re competing against a lot of people. But if you’re willing to invest on a seven-year time horizon, you’re now competing against a fraction of those people, because very few companies are willing to do that. Just by lengthening the time horizon, you can engage in endeavours that you could never otherwise pursue. At Amazon we like things to work in five to seven years. We’re willing to plant seeds, let them grow and we’re very stubborn. We say we’re stubborn on vision and flexible on details. In some cases, things are inevitable. Ebooks had to happen. Infrastructure web services had to happen. You can do these things with conviction if you are long-term-oriented and patient”

In a recent survey by Axis Mutual Fund, they found that Investors earned significantly lower returns than both “point to point returns” as well as systematic investment plans (SIPs) returns generated by funds. Looks surprising, isn’t it? Let’s look at the underperformance:

On studying mutual fund returns over the past 20 years between 2003 to 2022 Axis Mutual Fund found startling differences between Fund and Investors’ returns. As per the study, actively managed equity funds gave 19.1% returns, SIP generated a return of 15.2% while investors earned only 13.8%. Hybrid Funds returned 12.5%, SIP generated 10.1% but investors earned around 7.4%. And the story was not different even in Debt Funds.   

Investments - Long Term or Short Term

A question that I generally come across is whether Investment should be held for the long term or short duration. One tends to naturally ask, does investment horizon matters? If one should try to time the market or be in the market for long for maximum benefit? This article is focused on providing our views on such questions. But, before we delve into this subject, I would like to take you through the following two narratives covering an interview of Amazon Founder, Jeff Bezos in 2011 and a recent study on Mutual Fund Investors' returns by Axis Mutual Funds:

Let’s have a look at 2011 interview of Amazon’s Founder, Jeff Bezos, in which he said the following: 

“If everything you do needs to work on a three-year time horizon, then you’re competing against a lot of people. But if you’re willing to invest on a seven-year time horizon, you’re now competing against a fraction of those people, because very few companies are willing to do that. Just by lengthening the time horizon, you can engage in endeavours that you could never otherwise pursue. At Amazon we like things to work in five to seven years. We’re willing to plant seeds, let them grow and we’re very stubborn. We say we’re stubborn on vision and flexible on details. In some cases, things are inevitable. Ebooks had to happen. Infrastructure web services had to happen. You can do these things with conviction if you are long-term-oriented and patient”

In a recent survey by Axis Mutual Fund, they found that Investors earned significantly lower returns than both “point to point returns” as well as systematic investment plans (SIPs) returns generated by funds. Looks surprising, isn’t it? Let’s look at the underperformance:

On studying mutual fund returns over the past 20 years between 2003 to 2022 Axis Mutual Fund found startling differences between Fund and Investors’ returns. As per the study, actively managed equity funds gave 19.1% returns, SIP generated a return of 15.2% while investors earned only 13.8%. Hybrid Funds returned 12.5%, SIP generated 10.1% but inv

estors earned around 7.4%. And the story was not different even in Debt Funds. 

The obvious reason stated is “Investors behaviors” where investors get influenced by short-term market movement and take sub-optimal decisions to either liquidate an investment or stop their SIPs which hurt their returns.

Reading the above two different narratives; one thing becomes clear, there is no substitute for long-term planning, whether it is business or investments. Mutual Funds are supposed to create wealth (or provide a regular flow of income); however, one needs to patiently invest over a long period of time. Many investors unfortunately lack the patience to be with the investment for long and want to move out at the slightest hint of any turbulence in the market. 

Axis study stated that “it is clear that excessive and frequent churning dents investor returns (in line with findings from earlier years)”. Further, stopping long-term SIPs in response to short-term market corrections defeats the very purpose of SIP, causing lasting harm to the portfolio as investors do not benefit from compounding.

It is a good idea to consider mutual fund investment as a good quality batsman. Every good quality batsman has a certain style of batting and would be able to accumulate lots of runs, if he continues to play for long. This batsman shall go through some good and some poor performances in his career span; however, on average, the record would be impressive. Virat Kohliwent through a lean patch for almost two years before he hit back in the T20 world cup 2022. Similarly, a good mutual fund also goes through some ups and downs, often due to factors beyond the control of the fund manager. An investor would benefit if one stayed invested in the funds for a longer period.

We strongly feel and as reasoned above, investors should remain invested for a long period of time, especially in equity and balance funds.

Let’s take this journey of wealth creation together where we shall guide you at every step and nurture your investments.

We hope you enjoyed reading this article. You may connect with us at ops@alphasnr.com for Financial Planning, Investment Advisory and Mutual Fund Investments.

Manoj Sharma

2nd Dec 202

As 2022 comes to an end, we are pleased to share the a list of 10 nice books we read during the year and found an interesting read. The list contains books not only from finance and investment fields but from different domains. All books can be taken as a reading suggestion :)

1.Ikigai @ Hector Garcia and Francesc Miralles – The year could not have started on a better note than reading this superb book. “Ikigai” is a Japanese word that means “reason for being”. The book revolves around Ogimi, a rural town on the north end of the Island “Okinawa” in Japan. It has the most centenarians in the world. People live long there with a very low level of aging ailments. This is fascinating, especially considering the current lifestyle of metro cities, where stress-related ailment quite early in life is gradually becoming the norm rather than the exception. So, what is the secret of their longevity? We suggest you go ahead and read to find your own Ikigai.

2.Sketch of Wisdom @Vishal Khandelwal – Vishal has been a remarkable writer and thinker. His blogs have been the source of some nice reading. This book is partly a summary of various blogs and partly from his reading of great humans who ever lived on this earth. Every chapter is complete and can be read separately from others. Wonderful compilation.

3.Scoop @ Kuldeep Nayar –This book covers many instances of India’s political history starting from 30th January 1948, the day of the assassination of Mahatma Gandhi till 1999’s Bus diplomacy. The book extensively covers the incidents leading to the partition of India. The power struggle in Congress, post-Nehru’s death which still continues is covered in a very detailed manner. Kamraj’s control and his loosening grip, the fight of old stalwarts with Indira Gandhi, and her supremacy in Congress are reflected in a flowing manner. Lal Bahadur Shastri’s leadership period till his death in Russia is covered in equally detailed manner. Kuldeep Nayar’s connections with many politicians had led to his sharing of some inside stories which otherwise would not have come out.

4.Wisdom of the New Millennium @Sri Sri Ravi Shankar –This book is a summary of Sri Sri’s speech and views.  Some of the topics such as Karma and Reincarnation, Death and Beyond are amazingly covered. If you have inclination for spirituality and learning life, this book is for you.

5.The Snowball, Warren Buffett @ Alice Schroeder - This is the Biography of Warren Buffet. While he doesn’t need any introduction to the world but for many people like us, this book is a super compilation of how he lived his life, and what challenges he faced in life to become Warren buffet. While the world knows him as an investor and money-making machine, the book has touched upon his various personal aspects. His habits, fears, and how he handled the death of loved ones including his wife. Book has extensively covered his life including childhood tricks, his passion to become a millionaire from a very young age.

Indeed a super book.

6.Ready Study Go! @ Khurshed Batliwala & Dinesh Ghodke – This book, written primarily for youngsters who are in midst of their studies or exams or getting into the next phase of life of job, entrepreneurship, etc., is equally nice for everyone to read and learn from.  Bawa and Dinesh both have put their lifelong learning into this wonderful compilation. Book introduces the secrets of life by sharing seven levels of our existence (Body, Breath, Mind, Memory, Intellect, Ego, and Self). A wholesome book to say the least.

7.Thus spoke Chanakya @ Radhakrishnan Pillai – This is one of the phenomenal books containing so much wisdom that if followed in the true sense, can turn around one’s life completely. This is based on Chanakya, one of the best minds India or humanity has ever seen.  We are sure most of the lessons shall help one to grow and live a happy life on a personal as well as professional front.

8.How to stop worrying and Start Living @ Dale Carnegie – Warren Buffet has appreciated a lot of him. Life is not easy and comes with many challenges, ups & downs and one needs to navigate through these events to live a happy life. Dale shares various strategies, and real-life examples to guide you through this book to live a happy and satisfactory life. Must read.

9.The education of value Investor @ Guy Spier – This is one of the most remarkable books I have ever read. The humility shown by Guy Spier is praiseworthy. His meeting with Mohnish and Lunch with Warren Buffet are superb life-changing events. His thoughts on changing cities to settle down in peaceful locations and sending thank you notes on regular basis without any expectation in return are amazing.

Overall, a wonderful book.

10.Security Analysis@ Benjamin Graham & David L. Dodd – If one has to pick the favorite literature of value investors and a masterpiece on investing, We feel this shall be the preferred choice of most. Written in 1940, the wisdom shared in this book especially outlining the difference between Investing and speculation, the margin of safety, and value vs price are timeless.

We hope you shall like above books and pick up few to read in coming year :)

We would like to end this post with a quote from Carl Sagan highlighting the depts of reading:

"One glance at a book and you hear the voice of another person, perhaps someone dead for 1,000 years. To read is to voyage through time." – Carl Sagan

We are entering that time of year when you may get messages from HR to submit your tax saving proof for claiming a tax deduction. What if you are yet to make any tax-saving investments? The flip side is that delaying a few things beyond a reasonable time and later doing it in a hurry may leave you with less time to make optimal choices. 

One should do Tax Planning well in time. If you are yet to do so, it is high time to review and make your investment now. While there are multiple avenues to save taxes under Section 80C of the Income Tax Act, Equity linked saving scheme (ELSS) is one such good option. ELSS is a mutual fund category that primarily invests in equity-related instruments. ELSS funds have a three-year lock-in period, which is one of the lowest compared to other tax-saving tools such as PPF, Tax saver FDs, to name a few.

ELSS has the following advantages:

1. First and foremost, it helps to  save tax. So, if you are in a 30% Tax slab, an investment of Rs.1.50 Lac  (Maximum amount) can save you Rs.45,000 (plus surcharge & cess)
2. As the scheme predominantly invests in equity, investments over a long period generate capital  growth. 
3. Profit from the sale of ELSS fund units is considered as long-term capital tax and is exempt up to Rs.1 Lac and taxable at 10% after that.
4. You can stagger your investment  via SIP mode, so there is no hassle to invest in one go.

How to Invest in ELSS:

One can invest in ELSS funds through the Lumpsum mode or the systematic investment plan (SIP) mode. While there are a number of tax-saving funds that can be reviewed and selected, we suggest you carefully choose or connect with us for advice.

Equity-linked savings schemes can be one of the better options to help build wealth while also saving you taxes.

We suggest reviewing your tax saving documents to see if you need investment to claim total tax deductions. And if so, initiate it now instead of delaying it to the last few days :)

We hope you enjoyed reading this article. 

Connect with us at ops @ alphasnr.com for Tax saving investments.

6th Jan 2023