Personal Finance: From darkness to light

Diwali is here and we have some really great words of wisdom from many investors and advisors on investment strategy and on behaviour patterns required to be successful in investing and reaching financial goals.

The avalanche of news articles, advertisements along with lower returns from traditional investment avenues that guarantee returns have prompted many to seek out newer products. Many of you are new, first time investors, shifting tentatively from FDs to investments that give market related (not guaranteed) returns.

The most common places for information we go to are news articles, opinion in the finance pages, TV channels. We do get some really great information from here but truly useful information is hidden among a lot of rubbish. Unfortunately much of what is bandied about is exaggerated, inappropriate and I find many getting utterly confused on what to do. More importantly, they make you feel you are missing out and lead you to hara-kiri.

Another person who freely dishes out information is that Bank “Relationship Manager”. I’ve personally never seen so many untruths being spoken as when I hear a Relationship Manager speak about an investment. His/her only relationship is with the money in your account which may have come from a matured FD.

So, what should investors do?

First – take some effort to move from darkness of ignorance of financial instruments towards the light of knowledge

Spend some time learning about various financial instruments, how they work and what you can expect. Such information does not come from the questions on in newspapers or on CNBC asking “Which is the best Fund?”. Neither will it come from WA forwards on investment tips. It requires some time to read relevant books on investments and simple financial primers explaining various instruments.

An investment in knowledge pays the best interest. This learning does not take too much time and only requires some interest and commitment on your part.

Second – seek advice and learn

While I was addressing a large group on personal finance – a group of about 80, only two persons could answer a question of mine on how a mutual fund worked. If you don’t know, it makes sense to seek advice, have someone to guide you and teach you. Your advisor, guide, financial mentor can keep you focused, impart his wisdom. Wisdom is more than just knowledge about financial instruments. As I hinted above – right at the start, your behaviour, your reaction to various events, attitude towards finances can be changed which is the most important factor in attaining financial goals.

While many of you have entered the markets for the first time in this bull run and have had a great experience  in the last four years, it is imperative that you are aware of what you are getting into and enjoy the ride, with the light of knowledge guiding you in your path to financial freedom.

I wish you all a Happy Diwali, healthy and prosperous new year and success in your journey to financial freedom.

असतो मा सद्गमय । तमसो मा ज्योतिर्गमय । मृत्योर्मा अमृतं गमय । 

Are you in control?

Are you in control?

Over the last couple of weeks, I have been inundated with queries from investors on Brexit, Rexit, equity outlook, how investments will be affected, which way the markets will move etc. The happenings and consequent media noise has confused many. Investors like to listen to anyone who “has an air of authority” and thus listen to various, often conflicting statements made by “analysts / experts” on various media. Speaking to many investors, I found that much of their fear and confusion was because they were not in control – had jumped into investments without really knowing what they were doing.

A change in the way you approach your investing will keep you in charge. Ask yourself and answer the below two questions.

Is there a direction to your investing or are you driving around aimlessly with no actual destination in mind?

Many of us just invest “to make money”. There is no clear destination in mind. Only when you have a certain destination in mind, will you take the appropriate route. Without a destination, it will be aimless wandering, allowing yourself to be tossed around with the happenings and market ups and downs.

Right from the time we were conceived, plans were made to get us into some school! Yes, some schools ask parents to register the child for admission on conception!! A great deal of planning and effort is put into getting into the right university course and then a post graduate course. The direction of one’s life is planned very well. Then we land that great job and start earning. This is where planning (financial planning) goes missing and haphazard or random investing starts – to save taxes, to get some returns from insurance and of course to make some money also from real estate, equity etc.

Now suppose, you write down your financial goals which may be varied and many, and work out each investment towards achieving that goal, won’t it provide a great direction to your financial life? You won’t be aimlessly driving around affected by all the noise. You are focused and much more in control of the situation. In many cases one may need an advisor to help in this process, in deciding asset allocation and selection of appropriate products and intelligence is taking help if one needs it. Once appropriate investments have been made keeping the destination in mind, you will be less affected by all the noise around. You are in control when your financial life has a direction.

Do you fully understand what each investment entails?

We often invest based on tips received from various fora - whats app groups, SMS and advice from “informed” colleagues, promises of bank relationship managers. While we may know what we have invested in, do we really understand the details and the fact that things may not go as planned or what we buy will not give what is seemingly promised? I find investors investing in equities and other instruments, with not much clue of the possible downside. Worse still, investors get stuck in endowment insurance policies, other products sold by bankers not having any idea of what they will really get and how they fit in to their financial plans.

A little effort to understand what exactly you are investing in, how it fits in to your financial goal will go a long way in keeping you in control. When an advisor, a banker or an insurance guy shows you details of a product, ask questions, plenty of them. Only when you know each and every detail in simple layman’s language, should you invest in a product.

“Know what you own and why you own it” - Peter Lynch. As a start, give yourself answers to the above two questions and you will find you are more focused and in control of your financial life and far less swayed by the noise and the volatility in the markets.

Write to me at maheshmirpuri@yahoo.com

Chart Nifty vs Bank Nifty

Bank stocks have been hammered. See the fall compared to the Nifty

Chart - Nifty vs Bank Nifty

Snapshot: Nifty PE, PB, Dividend yield and the worlds cheapest markets

The Nifty is at 7489 and the Sensex at 24617. 

So, where are we in terms of valuations, when the market has receded from recent highs? Two ratios to evaluate how expensive the market is are the market PE Ratio - (Price-earning ratio) and the P/B Ratio (price-to-book ratio). 

Today, the Nifty PE is 19.99 Nifty PB is 3 and the Nifty Dividend yield is 1.54 . 

Just for perspective, the highs on 8.1.2008 were PE - 28.29, Nifty PB - 6.55 and the  Dividend yield - 0.82

See this pic from:  The worlds cheapest markets 

A snapshot view of the Nifty PE, PB and Dividend yield as on 5.2.16

Do read this - Global stock market valuation ratios

Mutual Funds, online gyan, criticism and more...

Advice on investing is free and fast on online media and the noise is as much as it is on TV and mainstream media. Gyan for the day is common and everyone with their own agenda, viewpoint  gives gyan (some of it very useful). Many statements are made and with real conviction. Yes, we do do require several view-points and many of these statements, make me re-look at my processes for investing

Some of the things I hear often are given below. Decide for yourselves if you agree with these or not.

Don't go by past returns/ performance

These words are sometimes bandied about on twitter and FB by themselves without adding, what is to be done. Shouldnt one check the performance of the fund when selecting? The actions of the fund manager are captured in the returns and investors measure the returns over various periods, the rolling returns, SIP returns to get an idea the scheme's and fund manager's performance. I do check the rolling returns  and the SIP returns over various periods among other things when selecting a fund for myself.

There are other parameters I check, other than past returns and more about that in tweets or in another post. 

Glorification of DIY and vilification of IFA

While I am all for DIY, which will save one in intermediation costs, how many are really ready for DIY investing? I have met a DIY investor with 42, I repeat, 42 funds in his portfolio. When he learnt  that it was sub-optimal, he took help. Intelligence is in taking help if you need it and it is upto to you to choose if you are knowledgeable enough to DIY or need to take the help of an advisor, intermediary. 

Vilification of IFAs

Running down IFAs is a special pastime on online forums. This is mainly done by DIY votaries. It often seems that those engaging in this, grudge the intermediary IFA/ advisor her income.  Someone nicely said in a tweet – You don’t rise by putting the other one down. Leave that to the elevators.

Having conducted a few financial planning workshops over the last couple of years I found that hardly 5% of those attending have invested in mutual funds and know about funds. Many who attend want help and guidance and some are even confused with SEBI's advertising code and the word RISK prominent in the ads. Young and old investors want to understand what it means and how funds work. In such a case, they may come to an IFA / or advisor for help who can handhold them till they learn. 

There is nothing wrong in either going to a registered investment advisor or to a distributor of mutual funds if you need help in investing. Only, do not hesitate to ask her questions. There should be willingness to answer every question asked. 

Do not listen to the "grudge" comments. Advisors do advise on asset allocation, allocation within the asset class and on monitoring and rebalancing. 

If you do believe you can DIY, you should go ahead. You own up the decision making process.

 To SIP or not

A few investors on online forums criticize SIP regularly! Yes, there is more to investing than just regular investing.  Yes, you have to allocate among different asset classes and within an asset class like equity, you have to diversify. You have to monitor. You may have already allocated your funds among real estate, gold and may want to start / increase allocation to equities. I have found personally that SIPs are a good way to do so.

I personally consider SIP as a great way to invest in equity mutual funds, but I know what to expect and what I should not:

Using SIP as a tool:

1. I do not have to bother timing the market

2. One cant get rich quick with an SIP, BUT ONE WILL BUILD WEALTH slowly SIP by SIP.  As one spends more time in the market, one will see the effect of compounding.

3. Doesn't mean that if I use SIP, I cant do a lumpsum when I choose to. I use both.

4. SIPs work over the long term 

5. I will not stop SIPs when the market is down.

Critics of SIPs dont provide an alternative, simple method for professionals who start with small amounts to save every month for whom I consider automation of the process, the best. 

  

All those reading must make their own choice regarding all the above since personal finance is "personal".

Disclaimer: I have been conducting investor awareness workshops and have been approached by many of those attending, for help. Therefore, I have registered with AMFI and became an IFA recently to advise those asking for help. 

India - a gigantic success or colossal failure - reply of an NRI

Nilesh Shah, MD, Kotak Mahindra Mutual Fund, put out a great series of tweets giving the answer of an NRI to the Question - India - a gigantic success or colossal failure?

These had to be compiled and shared.

Your Money 2016 - The "forget it way" to managing your money

 A great series of articles in the Mint should serve as a guide to all those who wish to take charge of their financial lives.

Most of us work hard for money but falter when it comes to putting that money to good use and making money work for us. Many of us plan our lives wonderfully till we get  a great job and live off that income without working to create wealth. The links given here can be a very useful guide in personal financial management.

Tips are given in each of the links below on how to start and progress - step by step

Do read and save these links which I tweeted earlier.

Behavioral Finance: What Good Is It, Anyway?

Primers: Nifty Fifty and other videos on the markets from the BL

Bears and Bulls



Exchange Traded Funds




Know your customer



Market Cap




Nifty Fifty




Algo Trading



Hedge Funds

Services available at the eFiling website of the IT Department

The following online services are available at the e-filing website of the Income Tax Department for returns filed electronically (Logon to www.incometaxindiaefiling.gov.in with your user id and password)

NEW: The IT Departhment has introduced OTP verfication for returns that have been e-filed and there is no need for  tax payers/filers to send their ITR V to Bangalore for validating and verifying the returns.  Read the process here. 

If one is reporting a taxable income of less than Rs. 5 lakhs, one can easily generate the Electronic Verfication Code at the mobile number registered in your account at the E Filing website

If your income is > Rs. 5 Lakhs or there is a refund, the best way would be to link your Aadhaar to your PAN through the EFiling website and request for the Electronic Verfication Code which will be sent to the mobile number registered with Aadhaar authorities.

 Read the details here 

The other services offered at the efiling website are given below. These were received as a mailer and it is very simple to use this site to do your own filing.

History of e-filed returns You can view all your e-filed returns by Acknowledgement number, along with all status details like receipt of ITRV, processing status, etc. To view E-Filing history, log on to e-filing –> My Account –> My Returns ⁄ Form.

View Status of Demand ⁄ Refund The status ⁄ outcome of the processing of your return as refund ⁄ demand along with reasons of refund failure, if any can be viewed at My Account–> Refund ⁄ Demand Status. The refund issued can also be tracked athttps://tin.tin.nsdl.com/oltas/refundstatuslogin.html

Details of Outstanding Tax Demand Details of outstanding tax demand is available at 'E-file' tab –> Response to outstanding demand. A response can be submitted for Agreeing ⁄ Disagreeing to each of the demands along with details at 'E-file' tab –> Response to outstanding demand.

View Form 26 AS Statement The annual consolidated credit statement, which is provided to the assessee having details of Tax Deducted at Source (TDS), Tax Collected at Source (TCS), Advance Tax ⁄ Self-Assessment Tax ⁄ Refund paid during that year. You can also view your tax payment details in Form 26AS at My Account –> View Form 26AS ( Tax Credit)

Request for Re-issue of Order u/s 143(1) and 154 If the Income Tax Return has been processed at CPC, then an online Request for resend of the Orders u/s 143(1) and 154, can be raised on the e-filing website at My Account –> Request for intimation u/s 143(1) and 154.

Refund Re-issue request If the Income Tax Return has been processed and refund determined has failed to reach the taxpayer, then an online Request for refund re-issue along with the required information can be raised at My Account –> Refund Reissue request.

File Rectification You can file a rectification application u/s 154 for e-filed Income Tax Return processed at CPC. To file a rectification go to My account –> Rectification request.

Submit Grievances and Know Status of Grievance You can register your grievances related to CPC at Helpdesk –> Submit Grievance with respect to ITRV, Processing, Rectification, Refund or Communication, and check the status and view the resolution online.

FAQ The FAQ document related to services is available for easy reference . Go to Help tab –> FAQs.

Contact Us For queries and further information on e-filing and CPC, please contact:  E-filing Call Centre : 1800-4250-0025 (Toll Free) CPC Call Centre: 1800-425-2229 / 1800-103-4455 (Toll free) or 080-22546500

How many stocks should one have in his portfolio - a great twitter conversation

Do see this great twitter conversation on how many stocks should be there in a portfolio

A message from LIC to policy holders warning of bogus calls

The below is a reproduction of a message sent by LIC to policy-holders on what should be done if you get s suspicious phone call regarding your LIC policy. A few people I know have received calls asking for information regarding a "bonus" on insurance to be received.

Issued in public Interest

Dear Policyholder,

We have been receiving certain complaints where our policyholders received phone calls promising undue amounts/Bonuses to them. Caller normally poses as if he is calling from LIC office or IRDA office.

Before disclosing any information you are requested to check the genuineness of the call. It can be checked through your regular agent. You can also call on IVRS number 1251 or send an e-mail at co_crm_fb@licindia.com.

In case ,it is known that you had received a fake or spurious call please file an FIR with the police and lodge complaint at TRAI regulated phone number ‘1909’ with your mobile /landline on which spurious call was received within 3 days of receipt of such call. Please send a copy of complaint to LIC also.

Assuring you of our best services always.

Executive Director (CRM)

LIC of India

Budget 2015: Exemptions available to individual tax payers

Budget 2015: Exemptions available to individual tax payers

I have compiled a summary of exemptions now available for tax payers in this table and hope it is useful.These are based on my understanding and for informative purposes. For filing your returns, please take the assistance of your tax consultant.

Section	Amount in Rs.	Details
80CCC	150000.00	PPF, EPF, Mutual Fund ELSS, Insurance Premium, NSC, Senior Citizen Savings Scheme, 5 yr. PO and Bank Deposits, NPS contributions, any notified pension scheme, Deposits in Sukanya Samriddhi Yojana for girl child, Repayment of home loan; tuition fees of children. In addition to this deduction of 150000.00 there is further deduction allowed now u/s 80CCD….see below
80CCD	Additional 50000.00	Contribution towards a notified pension scheme subject to 10% of salary + 50000.00. Total deduction under 80CCC and 80CCD should not be > 200000.00 That is you can use 150000.00 deduction in the above 80CCC schemes and additional amount in a pension scheme notified by the Government
80CCG	25000.00	50% of investment subject to a maximum of Rs. 25000 in ESS of Mutual Fund or in equity(earlier called RGESS )
80D	25000.00 (30000.00 for senior citizens) + 5000.00	Payment towards mediclaim premium. In addition Rs. 5000.00 additional deduction allowed for amount paid towards preventive health check-ups
80DD	75000.00	Deduction for medical expenses on a dependant who has 40% disability. If disability is 80%, an amount of Rs 125000.00 is deductible
80DDB	40000.00	Deduction allowed towards treatment of a critical ailment. The amount is 60000.00 for a senior citizen (60 yrs.) and Rs 80000.00 for a senior citizen above 80 yrs.
80G		50% of donation paid to a charitable trust can be deducted from income
80GGC		Any amount paid to an electoral trust of political party
80GG	24000.00	Rent paid on accommodation –  upto a maximum of 25000.00 p.a or 25% of income provided one does have any other HRA or own a residence
24B	200000.00	The interest component of home loans is allowed as deduction under Section 24 B for up to Rs. 2 lakh in case of a self-occupied house. Was earlier 150000.00
80E		Deduction allowed for interest paid towards education loan for higher studies. Maximum period of deduction is 8 years or till loan is repaid