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The 3 Stages Of Retirement Everyone Will Go Through

Financial Planning

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January 24, 2022

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The 3 Stages Of Retirement Everyone Will Go Through

Have you thought about and tried answering these questions?

What will I do after retirement?
Do I have enough money to take care of my retirement?
How will I maintain the same lifestyle once I stop getting regular income?

Retirement is an important aspect of life. With increasing longevity, one cannot stress enough that one has to plan finances for it so that life goes on comfortably.

Read – what to do after retirement

3 Stages of Retirement Everyone Will Go Through

Retirement can be divided into three phases and the financials are a little different for each of the phases. Let us look at the three Stages of Retirement and how we should manage our personal finance for it –

The 3 Stages Of Retirement Click to Tweet

1. Active Retirement Phase

This is the Retirement phase when you have just entered retirement. You have just retired. You had a regular income which has stopped now but you might have got funds in terms of gratuity, superannuation fund, etc. (Is Rs 1 Cr enough to retire?) If you were in a business, you might have cashed out your share. You might have looked forward to retirement so that you have time for yourself, your loved ones, and your interests. This is the time when you can invest time and energy in these aspects of life. You might be starting on or looking for another phase of employment or income stream or a business.

You should ensure that you know how much you need to fund your retirement and how much you have accumulated. You should revisit your investment portfolio and tweak it to match the current financial situation. You might have to reduce some of your aggressive investments and increase allocation in conservative investment options. You will not have employer insurance and ensure there is an arrangement for the same. Check if you have about 6 months of living expenses as cash in hand and cash in the bank which can cover emergencies. Your spending will increase in areas such as medical expenses, hobbies, and travel. It can decrease in areas of commute, taxes, and office wear. If you have not drafted your WILL yet, it is a good time to do so.

Must Read – When you are not ready for retirement?

It is better to go for a medical checkup to assess your health and take the necessary precautions. This will help in not being caught off guard on the health front which can cause the balance in the personal finances.

2. Slow Go Retirement Phase

This is the second phase of retirement wherein you are used to your retired lifestyle. Your children might have got married, settled in different homes and cities. You will find a pattern for your daily life that keeps you comfortable and secure. It is important to keep yourself mentally and physically active. There might be some physical limitations as you are aging.

Your medical expenditure might rise. Expenses like home renovation, tax payments, and financial support for children will reduce.

It will be better if your investment portfolio is more conservative as at this stage in life compared to the earlier stages as your financial losses will have too much of a negative impact to bear or you will take a long time to recover the lost money. Check your will and make changes if necessary at this stage.

Read – Best retirement plans in India

3. Inactive Retirement Phase

In the last stage of retirement, you slow down your activities. You might need support in terms of finances, physical health, or psychological health.

You may not be earning too much at this stage. It is important to manage the funds in a manner that takes care of your basic necessities, your comfort, and your medical expenditure.

There are non-financial aspects of retirement too that one has to prepare for.

Prepare psychologically – You have to prepare yourself to be at home post-retirement. Your life will be less busy. You may not get as many phone calls and emails as you were getting when you were working.

How to keep busy and active – Decide on some hobbies and interests that you want to pursue post-retirement. After retirement, ensure you have some activities so that you can be mentally and physically active and life would be more enjoyable.

Family should be ready – You and your family members should be prepared to spend more time together if you are going to be at home.

Identity – You would have always be know as ‘Director of Operations’ or ‘Professor’. But now it will be different. You should be prepared to lead a life outside your profession.

Retirement is an important phase of life and retirement planning should not be neglected. It is good to be aware of the different stages in retirement and have some plan to manage finances for each stage.

Must share how & what your parents are doing after retirement…

Why Should You Invest Regularly? Benefits of Regular Investing

Investment Planning

Hemant Beniwal

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January 21, 2022

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Why Should You Invest Regularly? Benefits of Regular Investing

To be successful in any facet of life, there is one thing that is most important – discipline. Whether you want to be a successful businessman or a good student, you want to keep yourself fit or you do anything is life, discipline is a must. Investment is no exception to it.

Why Regular Investing is beneficial?

1. Formula of Savings

India is a country of saver and we save almost 30% of our income. This saving is one of the highest in the world. Savings is nothing but a function of “income minus Expenditure”. Mostly we have income which we receive on monthly basis, may it be salary, rent, interest, and even in case of business, we look at monthly revenue. At the same time, expenses are also monthly nature it to be Rent paid, phone, petrol, grocery, etc. all our budgeting is done on monthly basis.

2. How do we Invest

But when it comes to investments, are they monthly in nature? No, they are not. For most investors, investment is either a Financial Year-end exercise or some lump sum investment made on an irrational basis. It is a very sad fact that most investors are not disciplined in their investment approach. The best way to make an investment is to the moment you have saved your money. This solves two purposes,

Why should you invest regularly Click to Tweet

One that your investments get the maximum time and hence the power of compounding working best for you.
The other purpose regular investment solves is that it makes sure that you don’t over-spend. You must of observed that when you go to the mall, many times you buy what is not planned or something which attracts there and we become an impulsive buyers. This happens only when there is an excess balance lying in a bank account and then it becomes very easy for anyone of us to swipe the card and buy. Many times, we buy items which are not necessary for us but just become there is Saved money with us, we tend to over-spend.

Must check – Every Investor Should know The Two Poisons of Investing

3. Power of Compounding

we shall not be speaking anything and let the picture speak THOUSAND words.

Wait a minute, did I say THOUSAND……

So let’s see what Rs.1000/- per month of investing at 12% rate of return p.a. can do to you at a different point in time of your life.

Expense=Income-Savings

4. New Formula of Savings

So change your formula of saving & adopt a new rule “pay yourself first”, pay for your retirement first, pay for future goals first even before paying for current expenses. So now onwards its

Now if you were to start regular investing, you will make such that there is what differentiates between a good investor and a bad investor.

5. Where to invest

Now the point is that where should you invest regularly. you may save regularly in traditional investment options like Bank or post office Recurring deposits but if you have term goals like education funding for your kid or saving for your retirement, the best is to invest regularly in Equity Mutual Funds. This is commonly known as a Systematic Investment Plan (SIP). Equities give the best return in long term and beat inflation comfortably. Traditional investments fail to beat inflation and hence are not recommended for your long-term financial goals.

Read – How Mutual Fund Work

6. Learning from Past

To talk specifically, if someone would have invested Rs.10000/- in SENSEX on the first working day of the month from the last 10 years i.e., starting from July 1, 2000, Till June 1st12010, his investment of Rs.12 lacs would have given him Rs.34,53,917, a return of 20.34%p.a.

But if you would have invested the same amount in post office/Bank Recurring Deposit(RD), the same would have given you an Rs. 17,97,161 at 8% p.a.

As someone rightly said, “Journey of Thousand miles starts with a little step”. Make sure that you start your SIP for your long-term financial goals today.

Please let us know: Are you regular when it comes to investments?

Top 10 Reasons Why people avoid Financial Planning – Infographic

Hemant Beniwal

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January 19, 2022

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Top 10 Reasons Why people avoid Financial Planning – Infographic

“What is this planning … planning?? Weddings used to take place when there were no Wedding Planners. Today also we marry our daughters without these so-called money grabbers!!!”

Read –What is Financial Planning?

We as Financial Planners also hear similar tunes when we speak about the Financial Planning concept. And my inference is that people do not appreciate any kind of PLANNING as a matter of fact. Doing a thing in the most scattered way has its own pleasure. People know that we are talking in their favor but they avoid seeing a Financial Planner. They avoid financial discussions and even shun learning for which they have to pay nothing. Why do people avoid Financial Planning? Based on my interaction I am summarizing why people say no to Financial Planning.

10 Reasons Why people avoid Financial Planning

See if you are still in the trap of these excuses or have gone over them:

1. You do not understand Financial Planning:

You still are not aware of the Financial Planning. Although media is over it and web pages are full of it but still, since you had your mind diverted, you are not familiar with it. No issues here as you are “never late” if you have “not arrived”. Spare some quality time and get to know the concept of Financial Planning. Speak to a professional who can clarify your doubts. Try to seek examples where a Financial Planner has changed someone’s life.

2. You do not endorse the concept:

You are well aware about the concept but still think this is not enough. The conviction has not reached the desired levels. Try to address your distrust over the concept. I also advocate that conviction in the concept is the first most requirement. A Financial Planner can convince you but you need to be in sync with him as he will put you on the driving seat as you are the driver and he is simply the maker of that custom-made vehicle, which is called a Financial Plan. Is Financial Planning Important?

3. You think Financial Planning is for Rich people:

Once I was talking to someone who makes Rs 8 Lakh annually working for a telecom company and he said “Hemant, after all the budgeting, expenses & tax planning I save Rs 2500/- a month and this makes Rs 30000 a year. And, if I take your services half of this amount will be your fees, so why will I pay Rs 15000/- to manage Rs 15000/-? What a check mate explanation!! I simply answered that it is your misconception that you can save only Rs 2500/- a month. A Financial Planner is not a guardian of your already earned wealth. He is basically the “Creator” and “Augmenter” of wealth. Your present economic condition has nothing to do in engaging financial planning. Some people say they don’t have money for grocery, utility & school fees, yet they throw away and step over money like they don’t need it.

Financial Planning Infographic

Must Read – Budget your savings

4. You feel you have already done it:

You have already taken a life insurance cover and have a sip. You have bought a bit of Gold every Diwali and have taken a home loan to avoid tax and invest in reality. And you think this is what financial planning means. No friend, this is not financial planning. You are moving here with no goals. You have no end here and you do not know what you are doing is enough or not. If someone is claiming that this is financial planning, he is misleading you. Financial Planning is s comprehensive field covering a lot of aspects.

Why people avoid Financial Planning - Infographic Click to Tweet

5. You believe only making investments is Financial Planning:

You invest a lot. Whatever comes any insurance policy that is launched or any IPO that comes, you eagerly put some money into everything. Financial Planning is not only about investment planning. It deals with other disciplines like risk management, insurance, estate, tax planning, etc which are equally important. You need to take the correct guidance and then place the foot. When someone asks you what you really want out of life, you’re probably not going to say you want an investment that delivers the best returns. Think.

Read – Returns cannot be your Goals

6. You think you are blessed hence you will not require Financial Planning:

Some of you also think that luck is on your way and you do not require planning. Maybe you are counting the inheritance money that you might be getting or your parental business or you are just a happy-go-lucky character who lives in each moment of life. For you, I would just say that you are just enjoying the cherry which is over the cake and forgetting the cake which might turn out to be sour. Hope you do realise this before the cake gets stale to eat while you were too busy with the toppings.

7. You think you can handle it on your own:

You have made your own calculations about your future expenses and have started planning on your own. Your planning can never be comprehensive which will cover all mandatory aspects. What is the use of fighting a war where you have not planned your ammunition? You are not aware of your enemies strengths and even do not know how long this war will continue? Please come into the light and face the reality. You are an expert in your field but not in financial planning or investments.

Must Read – Smart Financial Goals

8. You are a compulsory procrastinator:

You have a habit of being a non-starter. You do not initiate at once. You wait for other to start then you keep on postponing it till the last minute. You also fear of losing so you do not initiate at all, or start when it is an emergency. A lot of people has this strange thing that despite being convinced they make delays. In investment planning we deal with a genie called “Power of Compounding” and this genie can do wonders if you give proper time to him. Time has a value and delays can be very painful. Delay can have a significant impact on your financial life pyramid.

Read – Cost of delaying Financial Decisions

9. You enjoy free lunches only:

You feel that you are made to enjoy the freebies. Nerds make payments and smart ones enjoy nature. You are wrong my friend. Maybe in other fields of life, this might be true but in this field, you need to invest. Here you will find a lot of sharks with honey draped faces to make a prey out of you. Even a single wrong meeting, advice or transaction may ruin you and future of your loved ones. It is best to engage a professional who can advise over the vested interest of product sellers and can synchronize your financial life. For this you need to pay and over a period you will realise it was worth paying.

10. Don’t read this as a TENTH excuse as it is ’n’ – n number of other reason that people keep giving.

These are the top reasons that came to my mind. And I am sure I have missed many – please share with me in the comments.

If you ask me “Who should plan and when to plan?” I’m obviously biased, but the answer is everyone and as soon as possible. Planning for financial goals makes a significant impact on people’s outlook – people feel more confident about their finances if they have a plan.

Here’s How you can achieve Financial Freedom?

Family Finances

Hemant Beniwal

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January 18, 2022

79

Here’s How you can achieve Financial Freedom?

Freedom is not a word, it’s a feeling.

Freedom is what you feel when there are no doubts, barriers or worries. Freedom is when you feel confident, knowing that you have done everything possible to ensure a secure future for you & your loved ones.

Even if we talk about Financial Freedom it is not only about your assets & investments but lot other things. Financial Freedom is not about having best house in town or the latest model car or a foreign trip every year. But we have seen people leaving their cozy homes, air-conditioned cars and their wealth to attain this freedom. Then what it is…. In simple language, Financial Freedom is about having money/assets which can provide you perpetual income that is sufficient to have a comfortable lifestyle. But actually, financial freedom is more than that – it is having FREEDOM.

Check the below picture – this is your guide to financial freedom.

Must Check- Behavioral Finance

But why aspire to become financially free?

There should be some motivation for you to be financially independent – find that point which motivates you most. Can frustration from job can be a good motivator – couple of month’s back I got a mail from one of the readers?

Guide to Financial Freedom Click to Tweet

I have Rs30 Lakh & all of my money is invested in Bank as Fixed Deposits with 9% interest. Now, I am really got tired and need rest.My age is 25, newly married &I need Rs. 30,000 for my monthly expenses, is it really possible.
I replied “Tired at 25 – not a good sign. Take a 15-day break from your job & have fun. You are the biggest asset of your family – much bigger than Rs 30 Lakh. So understand this & take responsibility. See Rs 30000 is very much possible from your portfolio but the value of Rs 30000 will be sharply reducing by every passing year due to inflation.”

I think such a type of motivation is not having enough fuel to sustain throughout the life. You need a bigger motivation like more time for my family, work of my choice which may pay me less, social work etc. So decide for yourself & make this point the starting point in a long journey.

Journey of your Financial Freedom

First, you need to understand components from the guide.

Income

Let’s start with a thing for which you run the whole day but still, you don’t have much control over. Yes, your salary. Salary depends on a lot of things like your academics, experience, type of sector you are in, your company, your personal skills & blah blah that HR guys talk about.

Do you think that a salary increase will help you in achieving financial freedom or building wealth or even solving your financial problems? Even if your answer is YES, my answer is NO. Most people change their jobs thinking it will make their financial life better but actually, they never realize that their problem is not less pay but something else. Tell me honestly; does getting a decent raise makes them permanently happy? This happiness due to an increase in salary is also a short-lived moment and very soon they get accustomed to it and try to maximize it again. And next year again they would start looking for a job – they don’t try to find out the real problem and that is mismanagement of the funds.

But let me add one more thing, Salary is not the only income that you have. Think…

Check –Most 6 Steps of Financial Planning Process

Expenses

I know most of the readers will skip this paragraph as they know they are doing some wrong things here but would not like to face it.

But the truth is – greater the gap between earning and spending, the faster we will achieve financial freedom. And you can increase this gap by managing expenses.

Whether you make lakh of rupees a month or lakh of rupees in a year, a budget is a first and most important step you can take towards putting your money to work for you instead of being controlled by it and forever falling short of your financial goals.

You can use these budgeting sheets – First & Second.

Assets & Liabilities

“An asset is something that puts money in my pocket. A liability is something that takes money out of my pocket.“ Robert Kiyosaki

This is really all you need to know. If you want to be rich, simply spend your life buying assets. If you want to be poor or middle class, spend your life buying liabilities. Try understanding this difference as this is the causes of most of the financial struggles in the real world.

Ask Yourself – are these things assets or liabilities:

Fixed Deposit
Home
Car
Mutual Fund
Plot

What was your answer for home? Does it fit in the definition of Robert Kiyosaki. I think I need to write a full post on this.

Financial Freedom Tips or Here’s How you can achieve Financial Freedom?

I will pay myself first.
I will Budget Each Month & stick to it.
I will never dip into savings to buy anything superfluous (electronics, games, cars, etc). Cash flow is the only source of my spending.
I will save and invest my yearly bonus.
I will find at least 5 sources of alternative income, including interest income, dividends, rental income, etc.
I will never let money control my life. Instead, money will be my own personal servant named XYZ when I choose to retire.
I will always value time over money and never be penny wise and a pound foolish.
I will never buy a car just to keep up with appearances.
I will not buy a house that is more than me or my family need.
I will not spend money just to spend it.
I will remember how much money was wasted buying unnecessary and unwanted crap.
I will live below – not within – my means.
I will shun all debt
I will stop all impulsive buying (Only make purchases I have planned)
I will postpone my major buying decisions.
And most important I will continually increase my knowledge of personal finance and money management.

Would you like to add or contribute your mantra of financial freedom?

Follow the 50 30 20 Rule to Make Better Financial Life

Family Finances

Hemant Beniwal

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January 17, 2022

6

Follow the 50 30 20 Rule to Make Better Financial Life

Budgeting is not just recording income and expenses. It is a tool that helps you to manage your income & financial life. 50 30 20 rule is really powerful – if used properly, it can be used to allocate financial resources to different financial categories appropriately. A proper budget will take care of the following –

Listing of Income and Expenses
Allocation of Expenses to different categories
Tracking actual allocation of money to target allocation.

Read – Budgeting: The First Step to Financial Success

Many of us start budgeting with earnestness but somewhere along the way, stop it. We find it cumbersome and time-consuming to budget. Some of us are not able to meet the target and get disillusioned and stop it.

Here is a simple way of setting up and managing the budget, which if implemented properly, I am sure we can manage budgeting quite well –

The 50 30 20 rule: The Basics Rule of Budgeting

This rule defines the amount to be allocated to different things in the budget –

50% of your income – Needs

Allocate 50% of your income to your basic necessities – Food, Housing, Utilities, Healthcare, Transport, and Insurance. The amounts spent on each of these can be flexible. For example, if you stay close to your place of work and your children’s school is nearby, your spending on transport will be less. If you are living in a prime area in your city, you might spend higher on rent or EMI for the home loan. The EMI/rent that you pay for housing usually should not exceed 15% of the total amount spent on needs.

30% of your income – Wants

You might have certain hobbies and would want to have a certain lifestyle. You can allocate 30% of your income to entertainment and hobbies. It can include dining out, travel, and other indulgences. Want for some people might be a need for others. For example, some might have photography as a hobby and some might want to pursue it as a career in the future or post-retirement. So such people might spend more on photographic equipment and lessons. In such cases, it is a need not a want. You have to ascertain properly your needs and wants.

This amount has to be watched keenly as it is easy to go out of the limit as we all want something more always.

Check – Budget for your savings not spending

20% of your income – Financial Goals

20% of your income should be utilized for financial goals. You have to allocate this amount to savings & investments. You will have to take care of your retirement and maintain an emergency fund. You might have loans to pay off. You might have financial commitments and future goals like children’s education or healthcare of spouse and yourself. You need to build an investment kitty that grows over a period of time so that you will have enough finances to take care of your goals and commitments. It is important to contribute to this 20% as early as possible as the longer your money works for you, the more you earn. The 20% is to take care of a secure future.

Note – 50 30 20 rule or 50% Needs 30% Wants 20% Goals is not perfect so take it with a pinch of salt. If you are in the 30s consider 30% Wants 20% Goals but if you in the 40s reverse this, 20% Wants 30% Goals. This image will clarify my point

Read – Is 1 Crore enough for Retirement?

Thumb Rule of Budgeting

The 50 30 20 rule is a good thumb rule to keep your finances in check. It ensures that you do not compromise on the most important things in life and at the same time allows you to indulge in your wants and interests. It also does not have strict rules on spending and gives you some flexibility. It is an easy tool to start financial planning. It helps to list down earning and spending. There is a target that you have to work towards achieving. It brings financial discipline. It helps you to be consistent in your spending and saving over a period of time.

The 50 30 20 rule gives you a broad plan to manage your income and expenses. It helps you form good financial habits. You may not follow it strictly month after month due to emergencies or sudden expenses or life-changing conditions. But overall when you make it work, you feel happy and empowered that you can achieve your financial goals.

Please share if you follow some similar thumb rules like the 50 30 20 rule to improve your financial life.

15 Types of Risk In Investment Everyone Should Know

Investment Planning

Hemant Beniwal

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January 17, 2022

34

15 Types of Risk In Investment Everyone Should Know

When someone asks me “tell me some risk-free investment which can generate good returns” or “low-risk high return mutual funds” – I get confused. Why? Because according to me there is n number of risks in investing & I am not sure which risks he is talking about. Warren Buffett Said “Risks come from not knowing what you are doing” so today let’s risk ourselves to understand different types of risk that are associated with equity & debt investments.

What is Risk?

What comes to your mind when someone says RISK or this investment is risky? Risk for most of the people has only one meaning losing the principal amount. In scientific language “Risk may be taken as downside risk, the difference between the actual return and the expected return (when the actual return is less), or the uncertainty of that return.”

Must Check – 7 Simple Steps To an effective investment strategies for young Investors

Two Most Basic Types of Risks

Investment is related to saving but saving does not mean investment. Investment is about deferring your present consumption for future goals with the expectation of security of amount & getting returns. So there are 2 basic risks in it:

1. Investment Risk

It is about the possibility of losing money. Today you invest Rs 5 lakh in equity & get Rs 4 after 3 years. Investment risk can be measured by Standard Deviation.

2. Inflation Risk

It is losing the purchasing power of money. In 2014 you invest Rs 5 Lakh in debt & get Rs 10 Lakh in 2022. But your Rs 10 Lakh is not able to buy you the item which was available for Rs 4 Lakh in 2014.

Systematic Risk Vs Unsystematic Risk

There is one more way to classify financial risk – is risk will impact the whole economy or a particular company or a sector.

3. Systematic Risk

It is also known as market risk or economic risk or non-diversifiable risk & it impacts the full economy or share market. Let’s say if the interest rate will increases the whole economy will slow down & there is no way to hide from this impact. As such, there is no way to reduce systematic risk other than investing your money in some other country. Beta can be helpful in understanding this.

4. Unsystematic Risk

It affects a small part of the economy or sometimes even a single company. Bad management or low demand in some particular sector will impact a single company or a single sector – such risks can be reduced by diversifying once investments. So this is also called Diversifiable Risk.

15 Types of Risk In Investment Everyone Should Know Click to Tweet

Different types of Risk in Investment

We have divided it into 2 parts – risk in debt & other risks. It is a big investment mistake if someone feels that there is no risk in debt investments – people who have ignored this in past have paid a huge price.

Must Read – ESOP in India

Risk in Debt Investments

5. Credit Risk

It is also called default risk. As the first pic of this article shows that people only look at returns & not risk in it. Let me ask if SBI bank is paying some 9% interest & some NBFC NCD is paying 12.5% – which one you choose. If you think 12.5% NCD will be the right choice – you are ignoring the credit risk. Credit risk is when a company doesn’t have the capacity to pay principal or interest amounts. In past, there is a long list of companies which defaulted like CRB Capital, Escorts, Morpen Labs, etc. Even Bank FDs have credit risk – there is a guarantee only up to Rs 1 lakh. Credit risk is close to zero in Government Bonds.

This is the most common & most important risk in debt – to understand it better read “Why debt will always give negative returns”

Read – You Should Know About Risk and Your Investments

6. Interest Rate Risk

Changes in interest rates will impact the price of bonds. There is a negative relation between the price of bond & interest rates – if the interest rate will increases the price of a bond will go down & vice versa. This risk can be reduced if you hold bonds till maturity. Interest rate risk also affects Bank Fixed Deposit investor – he was having Rs 5 Lakh & he invests at a prevailing rate of 9%. What will happen if the interest rate increase to 10% – he will be losing 1% interest.

7. Reinvestment Risk

Let’s assume that you made an investment in a bond with 9% yearly interest. Interest rate reduced to 7% in 1 year so next year when you received interest & went back to invest it was invested at a lower rate.

8. Liquidity Risk

If you have some bonds that you would like to sell for immediate requirement but there is no buyer or fewer buyers than sellers – you may have to sell your bonds at discount.

9. Country risk

It is also called sovereign risk. As you read in Credit risk “Credit risk is close to zero in Government Bonds” but close to zero doesn’t mean zero. What about the present condition of PIGS – Portugal, Ireland, Greece & Spain. Even in India, there have been instances where fixed deposits issued by govt backed companies deferred maturity payments by issuing additional bonds.

Inflation Risk – as mentioned in starting of the article. Inflation is your biggest enemy.

Must Read – Long Term and Short Term Investments

Other Investment Risks

10. Exchange Rate Risk

If you invest in debt or equity of some other country you will face exchange rate risk. If some of your US investments earn 10% in one year in dollar terms but the same year dollar loses 2% in comparison to rupee – your actual return will be 8%. NRIs are heavily impacted by this risk & they should make financial decisions after considering it.

11. Timing Risk

I don’t think I need to explain it but only one suggestion – don’t take this risk.

12. Volatility Risk

equity prices keep fluctuating on day to day basis. This can be measured by standard deviation.

13. Political Risk or government risk or regulator risk

What will happen if you have invested in a particular sector & government comes out with an adverse policy. This risk can be clearly seen in the sugar or oil & gas sector.

14. Valuation Risk

You may find a great company with great future prospects but if the present valuation is too high you will not make money. Infosys was good company in 2000 & great company in 2005 but its price of 2005 peak was less than 2000.

15. Business Risk & Technology Risk

A couple of years back pagers & typewriters were an important part of once life but these products are no more there. The same happened with Audiotapes & floppies – what would have happened to these companies.

Some Extra Bonus

16. Execution risk

The time between when you see your price and when the trade actually goes to the market.

Must Check – Alternative Investment Funds In India

17. Concentration Risk

When you invest in a single company (I know a person who invested all his long-term savings in Satyam), single fund, or single asset management company you are actually taking a huge risk.

18. Information Risk

This is again a very important risk to understand. You take your financial decisions based on some information – this information is provided either by the manufacturer of financial products or agents/distributors/advisors or media. What will happen if this critical information is wrong or not complete? If you think this only happens at the time of buying insurance – you are absolutely wrong. This can happen in any financial product including mutual fund (you see advertisement of 100% return in a year – these are point to point returns & completely misguiding), taking a loan (interest rate shown 9% but actually it is 16% – it is a game of Flat rate & Reducing rate) or even simple products like tax-free infrastructure bonds.

Someone rightly said “If you torture numbers enough, they will confess to almost anything” – read an extract from Economic Times about IDFC Infrastructure Bond advertisement:

“It is a plain-vanilla infrastructure bond issue that offers tax relief and a modest return to investors. However, the advertisement for IDFC bond offer has investment experts questioning some claims. Most of them claim the advertisement is “grossly confusing”, “misinforming the investors” and “total misrepresentation of facts”.

The bone of contention is IDFC’s claim that the issue offers tax-adjusted yield of 17.85% to investors. Sure, as always, there is an asterisk, and a qualification that the yield is tax adjusted for investors in the highest tax slab. The trouble, some experts say, they can’t verify the claim even after exhausting all financial formulas available in the spreadsheet.”

*(yes this star) – Do you know what this star is called? Asterisk or Aster-RISK – Aster means Star & Risk means anything or everything that is written in this article. If you find this star somewhere try to find hidden things in footnotes.

There are few other types of risk that impact you directly or indirectly – institutional risk, operational risk, event & company risk, geopolitical risk, sociopolitical risk, counter-party risk, reputation risk, commodity risk, management risk, principal & opportunity risk, prepayment risk, call risk, legal risk and I am sure I have missed lot others….

Oh, so many risks & you thought only equities are risky. Now from the next time when you say Risk-Free Investment – first clarify which risk you are referring to.

6 Myths About IPO : Should I Invest in LIC IPO and Other IPOs

Hemant Beniwal

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January 7, 2022

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6 Myths About IPO : Should I Invest in LIC IPO and Other IPOs

The year 2021 was phenomenal for stock market investors in many ways. The benchmark indices skyrocketed. Most sectoral and thematic indices were also raging as the economic recovery was well within sight. The retail participation also saw remarkable growth – Mutual Fund folios, Demat accounts, and retail inflows all jumped exponentially.

Must Read – What is Equity?

The companies waiting for a bull run to float their public issues could not have a better opportunity. IPOs were literally raining in 2021. Every time it felt like it is enough, the primary markets and listing gains surprised us all. Many records shattered in 2021.

The largest-ever IPO by PayTM at ₹18,300 crores. A record broken after 11 years when Coal India garnered ₹15,200 crores in 2010.
Total funds raised crossed the mythical ceiling of 1 lakh crore at ₹1.18 lakh crores. 72.5% higher than the last record of ₹68,827 crores set in 2017.
IPO oversubscription stood at an average of 63x.
62 companies hit the market and were listed in 2021. If you count all IPOS listed in 2021, the number goes to 65.

The stock market on steroids presents an excellent environment for promoters to raise capital from the public.

But are the sky-high valuations justifiable from an investors’ point of view?

Should you invest in the mega IPO of LIC?

What about the IPOs of Delhivery, Droom, MobiKwik, Oyo, Pharmeasy, Ixigo, BYJU’S, and Foxconn India’s unit Bharat FIH Ltd lined up for 2022?

The headlines are screaming:

Average 29% listing gain. 44 out of 62 IPOs closed higher on listing than their issue price.
India is at the cusp of the multi-year bull run. Sensex to cross 75,000 in 2022.
Domestic retail investors are driving the rally. FPIs do not matter.
THIS TIME IT IS DIFFERENT.

If you base your investment decisions solely on such headlines, then certainly, go ahead and invest in the IPOs of LIC and other companies. Plenty of articles, talk shows, and investment gurus will nudge, nay push, you to ‘invest’ in these IPOs for listing gains.

But there is more to IPOs than just listing gains and quick bucks. Let us unravel some myths before you go all in.

6 Myths about IPO everyone Should know before investing in LIC IPO

Myth 1: More Data Means Better Information

When a well-known and trusted brand like the LIC comes for a public listing, the information about its operations, profitability, and market leadership is blasted from all corners. The media buildup – sponsored (in case of fishy IPOs) or organic (like in case of LIC) – can make it hard to ignore the company or its IPO.

This frenzy can confuse an investor and an IPO application seems to be the sure shot golden ticket to riches. Before investing in new IPOs just recall the frenzy created by the Reliance Power IPO in late 2007 and early 2008. It was the biggest ever IPO to date with the highest number of subscriptions. Yet the day it was listed the Indian stock markets crashed. The same thing repeated with PayTM in November 2021, albeit it was not a total disaster like Reliance Power.

Check 2010 Post – IPO Mania

Myth 2: Public Excitement Means Better Prospects

Sometimes a well-liked brand or company can still be a bad investment. What would you say about the State Bank of India? SBI is India’s largest bank by the number of customers, accounts, loans, balance sheet, branches, ATMs – take any parameter for that matter. But by market capitalization, HDFC Bank is India’s top lender at ₹8.2 lakh crores. The SBI, which is thrice the size of HDFC Bank in most respects, has a market valuation that is just half of its private rival at ₹4.1 lakh crores!

Even after the current bull run, among the top 100 companies in India, only 7 are PSUs directly, and 5 indirectly (including SBI Life, SBI Cards, and IDBI, Axis & IndusInd Banks – having a major/significant shareholder as another PSU/Government). If you leave out SBI, there is NO other PSU bank in the top 100 companies, out of 12 listed PSU banks! This tells something about the management by the government.

6 Myths About IPO : Should I Invest in LIC IPO and Other IPOs Click to Tweet

Myth 3: IPO Always Give Higher Returns

Not necessarily. Newly listed companies do not have a proven track record of performance and therefore are categorized as high-risk investments. Historical data points that almost all wealth is cornered by the sellers in an IPO and none by the buyers.

Warren Buffett has said, “It’s almost a mathematical impossibility to imagine that, out of the thousands of things for sale on a given day, the most attractively priced is the one being sold by a knowledgeable seller (company insiders) to a less-knowledgeable buyer (investors)”.

Benjamin Graham, the guru of Warren Buffet, said, “Intelligent investors should conclude that IPO stands for Initial public offering. More accurately it is also a shorthand for – It’s Probably Overpriced, or Imaginary Profits Only, or even Insiders Private Opportunity”.

Ask yourself this: When would you be willing to sell your house/gold? When you can fetch the maximum price for it or when it is “fairly” priced?

Must Check- How you benefit from long term orientation in Life and in Investing

Myth 4: A Company Going Public Is Financially Stable

The stability of a company depends on many factors. Stability on books cannot ensure if it will continue to grow, remain/become profitable, remain stable, or even solvent, after listing.

Many factors are beyond management control. Any black-swan event – like COIVD-19 – can disrupt all their plans and put the future of the company in jeopardy. We are not saying the LIC is or can become unstable. But are we only talking about the LIC IPO? Certainly no. For example, BYJU’s is being called out for its questionable sales practices and service and might face regulatory action in the future.

Myth 5: All Retail Investors Get Allotment

The only priority accorded to retail investors is the 35% quota. In the case of the LIC IPO, policyholders might also get a special quota to participate in the IPO.

But if the above table is anything to go by, then on average 23.2 retail investors applied for 1 share. It means only one out of 24 investors will get an allotment. If the IPO is oversubscribed many times over, then a lottery system is used to allocate lots to retail investors. The pro-rata allotment is no longer applied, but the one-lot-to-each investor is followed.

Myth 6: I can Participate in Company’s Future Growth

Before they go public, most companies receive some rounds of private investments. The VCs got the first access to the pie while it was affordable. Most IPOs are a mechanism for promoters and VCs to offload their stake on retail investors when the momentum is already tapering.

If you assume that the trajectory of the share price after an IPO will always be upwards, then you are in for a rude shock. Many companies never, or rarely, cross their issue price. PayTM is one example. However, its history is too short, but the most recent and well-known. Similarly, once Coal India slipped below its listing price in Late 2019, it has never recovered!

Read – 5 Things You Should Know About Risk and Your Investments

Why Avoid All IPOs? or Should I invest In LIC IPO

The frenzy, cheerleading, blitz, and euphoria that follows a bull run and leads the IPO run, can deafen and blind you. As a responsible investor, you must filter noise and keep a cool head. Do not get seduced by the ‘hotness’ of the stock and heed the advice of the father of value investing.

Benjamin Graham, in his famous book The Intelligent Investor, states, “An elementary requirement for the intelligent investor is an ability to resist the blandishments of salesmen offering new common stock issues during bull markets. Some of these issues may prove excellent buys – a few years later when nobody wants them.”

He goes on to prophesize, “Somewhere in the middle of a bull market, the first new issues make their appearance. These are priced not unattractively and some large profits are made by the buyers of the early issues.

As the market continues to rise, this brand of financing goes more frequent; the quality of the companies steadily poorer; the prices asked verge on the exorbitant.

One fairly dependable sign of the approaching end of a bull swing is the fact that new issues of small and nondescript companies are offered at prices somewhat higher than the current level for many mediums sized companies with long market history.”

Investing is one of the most lonesome professions, and by following the herd you may end up in a ditch or the belly of a predator. IPOs can be luring but so are the predators from the animal kingdom who lure their prey. Lurers can employ active or passive luring strategies. They can turn on or off their deceptive signals (sponsored media blitz) or lure only when environmental conditions are appropriate (a bull run).

As most of the retail investors in India are new to equity investing, it is not hard to deceive them. As most of the IPOs come during a sustained bull run, it is most likely there is nothing left on the table for retail investors to benefit from.

If the investors are not alert and mindful, then they can fall prey to such predators.

If you are still convinced that the LIC IPO, or any other IPO, should be part of your portfolio to meet specific goals, then you can always buy them on listing. Alternatively, you can invest in Mutual funds that are anchor investors in that IPO and diversify your risks.

The entire article can be summed up in just one phrase commonly used in Contract Laws – Caveat Emptor or Buyer Beware.

On a lighter note full form of IPO is – It’s Probably Overpriced. 😜

Please share your views or experience of investing in IPOs.

7 Simple Steps To an effective investment strategies for young Investors

Hemant Beniwal

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January 6, 2022

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7 Simple Steps To an effective investment strategies for young Investors

Best Investment Strategies For Young Investors Tips You Will Read This Year

According to Facebook Insight, 49% of the people who visit this site are between 25 to 34 years. So we thought of writing Investment Strategies for young people & here it is. You may be unmarried or recently married or maybe on the verge of starting a family. You might be new to professional life or settling in your career. Also, you may or may not have bought a house. If you are in these parameters go on to read….

Read- Investment Questions

1. Generic Solutions

At the seed stage of life, if you inculcate the right strategy in handling finances, you will lead a very comfortable life. You should list down their financial goals and make a financial plan. Construction of a house without a blueprint is dangerous; so one must plan before you really act. One can take the help of professional Financial Planners to give them the right direction. Make sure that all financial products should be taken on NEED-based analysis and one should clearly avoid products that offer a mixture of needs life investment with insurance etc. We have tried to provide a road map on financial management but they are generic in their approach. The actual decision should be based on their situation.

2. Insurance for young people

You should opt for Term Insurance only, for at least 15 times your annual income. For example, if the income is 5 lacs a year, the sum assured should be Rs.75 lacs. Term insurance for such an amount may cost around Rs. 10-12000/- depending upon his age, health, and habits. He should avoid any other kind of Life Insurance or Unit linked insurance plan. If there are no depended no need of a term plan also. Accidental and Mediclaim Policy if not provided by the employer should be taken separately.

Investment Strategies for Young People Click to Tweet

3. Property Investment

One should look for property investment only if one is going to stay in such a house for at least the next 10 years. There is really no hurry to take an immediate decision.

4. Emergency Corpus

The person at such age at times live on credit and by the end of the month, many of them are short of cash. One should start putting some amount in Short Term Funds to create an Emergency corpus of at least 6 months expenses. Avoid 100% reliance on credit cards. Develop the habit of using cash or debit cards. In movie Shuarya, K K Menon says “agar jindagi udhar pe chal rahi hoti hai to sachai door ho jati hai”. So reality check is very important.

Check – Health Insurance for Diabetics – All You Want To Know

5. Financial Investment

You should open a PPF (Public Provident Fund) account as soon as you get into the job even if you are investing through EPF (Employee Provident Fund). We are not suggesting to young investors that they should put the maximum amount. But one should open the PPF account and just put a little bit so that at least the account completes its lock-in period as soon as possible.

Also one must start SIP (systematic Investment Plan) in Diversified Equity Funds. This should be at least 10% of your monthly income.

6. Start Saving for Retirement

You should not think that he/she is too young to start thinking of retirement. We just want to say that even a very small contribution towards retirement corpus at this stage would become a huge amount at the time of retirement as you have the POWER OF TIME in hand. At later stage, time cannot be compensated by investing a huge amount also. SIPs in Diversified Equity Funds are the best option for such planning.

7. Loans for young people

Loans like Education loans or Home loans are good but in case one takes a loan for buying an expensive Car or exotic holidays that is the wrong approach. Also, the use of credit cards should only be to substitute handling of cash and ease of payment and strictly it should not be used as a tool to get a loan.

Mistakes young investors should avoid

1. Investment-Linked Insurance (ULIP)

2. Spending on WANTS/DESIRES rather than only needs

3. Investing in Liabilities and not Assets

4. Making a Portfolio similar to your parents

5. Not giving importance to financial literacy

6. Being a conservative investor at this stage of life

Feel free to add your views on the above-mentioned points.

Cost of Higher Education in India – Infographic & Calculator

Hemant Beniwal

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January 4, 2022

26

Cost of Higher Education in India – Infographic & Calculator

What is the Cost of Higher Education in India?

Looking at the new developments in the educations sector it’s really tough to gaze at the future of education cost. Private universities like Jindal & Ashok pr even for that matter Manipal provides quality education but at cost. If we are just talking with the perspective of inflations – let’s assume it’s the same 10% going forward:

If the cost of engineering education in India in some premier institute cost today 10 Lakh – The education cost in India after 15 years would be 40 to 50 Lakh.
If medical education costs today Rs 25 lakh in private college – you can safely assume you have to build 1 crore corpus in 15 years.

Must Check – Education Cost – Are You Ready

India is one of the fastest developing countries in the world. Not only India’s rich heritage and culture but lately education have also attracted aspirants from all over the world. Moreover, due to the rich history of education, India has a reputation for innovation and growth, which can contribute greatly to your personal and professional life. With thousands of institutions providing specialized to choose from, you are sure to find the right university and /or college for the education. Below are the most crucial factors that affect the cost of studying in India:

Tuition Fee: The first and foremost factor that one needs to consider before enrolling in Indian universities is that the annual cost of education along with living, which can be around Rs 350000 on average.

Accommodation: A number of Indian Universities provide accommodation for international students or Indian students within their campus. However, in case the university or college you have chosen for pursuing your studies does not provide this facility, you can easily find personal accommodation.

The students have various options such as a private hostel or rent a single/double room and/or get a flat/apartment on rent. In fact, there are numerous benefits of opting for private accommodation. When it comes to expenses you can easily find a comfortable stay for a month within Rs 10000, which is annually Rs 120000.

Must Check – Health insurance for diabetics – All You Want To Know

Other Expenses:

Eating out: Rs 1500 to Rs 4500 per week
Utility: Rs 200 to Rs 500 per week
Transportation( Public): Rs 50 to Rs 100 per week
Transportation( Private): Rs 500 to Rs 1000 per week
Leisure Activities: Rs 500 to Rs 1000 per week

You can buy a BMW or spend on your child. That might sound cruel because parenting a child is way more challenging and satisfying than buying a depreciating asset like a car. As your child grows, nature and the amount you spend on her changes dramatically.

Primary education:

In Government schools, education is free for children aged 6 to 14 yrs old, and Private schools charge Rs 1200-2000 per month (on the lower end). Parents end up spending approx Rs 192000 to give their children a good primary education for 8 years

Secondary Higher Education:

Secondary education covers children aged 12 to 18, providing secondary education to children in a government school for 6 years now cost approx Rs 30600 whereas the same education in a private school cost approx Rs.396000. If the Kid is studying in a boarding, then the parents spend approx Rs 1800000 for the next 6 years.169% has been the rise in inflation in primary and secondary education from 2005 to 2011, according to a survey by Assocham.

Cost of Higher Education in India – Infographic & Calculator Click to Tweet

Graduation and Post Graduation education cost in India

Govt College cost around Rs 5-6 lakhs
Private College will cost around Rs 8-10 lakhs
Abroad will cost around Rs 1 crore.

Cost of Medical education in India

Govt College cost around Rs 5-10 lakhs
Private College cost around Rs 18-20 lakhs
Abroad cost around Rs 1 Crore

Cost of Commerce & Arts education in India

Govt College cost around Rs 2000-15000
Private College cost Rs 2.5-5 lakhs
Abroad will cost Rs 50 lakhs

Must Read – A Complete Guide to How Should You Plan for your Child Future Plan

Cost of engineering education in India

Engineering is still the most sought out stream of education in India & why not that’s a high-paying & satisfying job. US silicon valley is filled with Indian engineers.

The normal cost of engineering is Rs 1.25 lakh per year or Rs 5 Lakh for the 4-year course. But if we talk about premier colleges like IIT or BITS Pilani – parents should be ready to pay anywhere between 10 to 15 lakh.

For Post Graduation – Again similar amount should be considered.

Becoming a doctor after completing Medical education is still an uncacheable dream for students & their parents. The biggest reason is seats are very limited in government colleges & competition is very high.

Fees are very reasonable in government colleges & 5 years courses can be completed with less than 10 Lakh Rs. But in Private college Rs, 50 Lakh is standard for the same cost.

If someone is interested in PG – he should be prepared to pay another Rs 30 Lakh in a private institute.

We have created an infographic so that you get a complete picture visually. As they say, A picture is worth a thousand words.

Hope this infographic helped you in understanding that “All is not well” in case of raising kids.

Financing of Higher Education – Calculator

Download this Education cost calculator from here

Note: Monthly numbers may not be perfect – two reasons:

With time your income will increase & you can increase your savings. So someone can start with Rs 2000 saving but it can be Rs 10000 after 10-15 years.
In the above example, one goal is at the age of 15 & another at 26. So once the first goal is achieved, parents can think of diverting that amount for other goals.

If you have any practical experience regarding the cost of education in India – please add that in the comment section; it may help other readers.

Do You Need a Financial Planner? 7 key Reasons To Hire A Financial Planner

Hemant Beniwal

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January 4, 2022

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Do You Need a Financial Planner? 7 key Reasons To Hire A Financial Planner

Financial planning is a comprehensive task that requires time and effort on a regular basis. It also involves being up-to-date with market and economic information, taxation-related updates, and knowledge of finance. A financial planner who has the right credentials can add value to your financial life in different ways –

Organizing your finances
Making appropriate budgeting decisions
Managing investments, insurance, and taxation
Retirement Planning and Estate planning

Read – Everyone Should Know What is Financial Planning?

Reasons To Hire A Financial Planner In India

Let us look at some reasons to consider hiring the services of financial advisors in India–

1) One size does not fit all

Personal finance advice is oversimplified many times. A certain piece of advice or financial action may not be the best for everyone as each of us has our own goals, aspirations, and challenges. Moreover, events like COVID-19 have increased volatility in markets and resulted in investment portfolios losing value. At the same time, there is an excessive amount of information that is hard to ignore. We might make knee-jerk reactions to the information and the changes in the value of our investment portfolio. This can lead to less attractive results. A financial planner can manage our money with the right perspective.

Do You Need a Financial Planner? 7 key Reasons To Hire A Financial Planner Click to Tweet

2) Receipt of a significant amount of money

When we get a bonus, an inheritance, or a monetary prize, it is best to plan how to use it to build wealth or add to our income. We will be tempted to splurge it to have a great experience or acquire a luxury item. But financial planners can help decide how much to splurge, how much to invest, options to invest, etc. which will be beneficial in the long run.

3) Retirement is nearing

An important question in our minds is – How much money should I save for retirement?

A good financial advisor will list down the short-term and long-term goals and prioritize them as per practical considerations. They will calculate the amount required for retirement realistically and then set up a realistic financial plan to achieve it.

4) Wrong financial moves are expensive

We learn from our mistakes. But we need not make all the mistakes to learn from them. It will be a costly affair. When we are young, we have time and income sources to tide over money mistakes. But when we are older and have more financial responsibilities, we must avoid financial mistakes. When we are nearing retirement, we have a lesser amount of time to earn income. Many times, the potential for an increase in income is also less in that stage of life. We have to protect our capital and also make our money earn money for us. A professional financial advisor will perform many tasks –

Read – Why it is simpler to succeed with a Financial Plan

Manage taxation such that tax outgo is minimized
Build a diversified investment portfolio
Manage financial risks
Understand financial products and changing rules and regulations related to personal finance

Watch This Video Reasons To Hire A Financial Advisor In India

5) A big life change needs financial planning

Times change. You get married, you quit your job, or your child wants to study abroad. These are significant life events that impact our financial life. We have to plan our finances so that there are no shocks. Yes! There can be unexpected changes in our life or the economy. But a flexible plan with a clear course of action will put us in charge of our financial life.

Naveen lost his job due to the COVID-19 pandemic. But his Personal financial planner had set up an emergency fund and also taken a comprehensive family floater insurance plan that covered him and his family. The financial planner also made systematic changes to the financial plan considering the severance pay package and volatile markets. So though Naveen is affected financially, but the negative impact has been cushioned with these measures.

6) You have financial dependents

Loved ones who are dependent on you financially will face a financial crisis in case of untoward events like disability, loss of income, or your death. Financial planners ensure that your financial plan includes –

Family’s financial well-being
Optimized finances for various goals for various family members like aged parents or a child with special needs
Adequate Insurance (Life and Health)
Estate Planning

Also, check – The Importance of Financial planning in your life.

7) To Keep Emotions Aside

We are quite emotional when it comes to our money. We unknowingly follow certain financial biases while managing our money. A financial advisor will be able to take financial decisions based on hard facts and prioritizing our best financial interests.

Bonus – They are professionals

Competent financial advisors are qualified. They will know how to handle financial problems and crises. Financial planning is more than just investing in a few products. It is like a test match in cricket wherein you have to be patient and manage finances for the long run. You have to play your innings such that short-term volatility, unfriendly economic conditions, and good phases are handled to build your corpus. It is better to work with a professional who can manage your wealth under different circumstances and variables in the best manner possible.

You may think that there might be some phases when you may not need the services of a financial planner. For example, when you are in deep debt, you can take steps to get out of it rather than spend on a financial planner. If you have just started working and are earning a standard income, you can take steps to do some basic savings and investments and then make use of professional advice. If you have already retired and had your finances in place, you may want to maintain the status quo. If you are an expert in managing money and have the time and inclination to do it, you could postpone the decision of hiring a financial planner. (even in these cases a professional can add value)

A Personal financial planner will help you navigate through your personal finance journey. Be sure to select someone who has the right qualifications and experience, and is suited to handle your unique circumstances.

Hope We Have Covered the major thing about Reasons To Hire A Financial Planner In India. If you have a question regarding you can add them to the comments section