This new year take stock of your life first

From time to time I get people requesting me to help them in Financial planning or to review their existing portfolios. While this is an important exercise by itself, I have always felt that it is a bit analogous to putting the cart before the horse. Finances support your life decisions and activities by allowing you to do the things you want to do in life. They do not, cannot and should not determine how you lead your life. This new year, my suggestion is that you take stock of your life first and then worry about the finances.

So how do you take stock of your life? Well, there can be several ways to do it and I have one which is my favorite. You need to look at a few important dimensions in order to decide how things are going. In each of these dimensions there are some key questions you need to be asking yourself. These questions will differ from one individual to another but I have given some examples that may help you form your questions. So here is how I would take stock of my life in any new year :-

  • My work and profession
    • Is my current work aligned to my overall goals in life?
    • Am I happy with work content, work relationships and benefits?
    • Is my work helping me to create value and is intellectually satisfying?
    • Does it help in letting me lead my life well in terms of work-life balance?
    • Do I really grow every year as a professional and person with it?
    • Is there a case for considering a change in my current work or profession?
  • My family and friends
    • Am I happy with the situation my family is in today?
    • Are all members clear of their goals in life and working towards it?
    • Am I able to influence and add value to their goal achievement?
    • Do I have the financial bandwidth to cater for their goals?
    • Are relationships within my family functional or dysfunctional?
    • Are we able to spend family time in vacations and other activities?
    • Are we able to achieve the difficult balance between space and togetherness?
    • Are all the members clear about important information in family matters?
    • Each year, is there a sense of progress and optimism?
    • If I repeated these above questions for my close friends how will the answers be?
  • My contribution to society
    • Do I have intrinsic value that can be contributed in a positive way to society?
    • Am I doing enough to utilize my value proposition above?
    • Do I contribute to some charities to the extent that I can afford?
    • Am I involved in any community activities in a positive way?
    • Do I donate blood every year and have I predged my organs after my death?
    • Am I a role model to my children for them to become responsible citizens?
    • Do I consciously make an effort to vote in every election?
    • Do I use every public space or utility consciously and leave it in better state?
  • Me as a person
    • Am I taking care of my health today to avoid problems of the future?
    • Do I exercise regularly and is there a need to make changes in that?
    • Do I strike a balance between work productivity and leisure time?
    • Am I able to spend time on the things I really enjoy doing?
    • Do I have a clear vision of the short term and medium term future?
    • Do I have long term goals and am I working towards them?

When you are doing this, do not attempt to rush through. Sit with a cup of coffee or whichever drink you prefer, think deeply through the questions and be brutally honest. Remember the questions have binary answers and if it is not a convincing YES then it has to be a NO. Give yourself 1 mark for every YES and 0 for every NO. In the end see how much have you scored out of 30?

What is a good score in this? Well an overall score of 25 or so will indicate that you are doing great in life and things can hardly be better, 20 will mean that there are several areas you need to improve and less than that will mean you have real issues and need to look at serious changes in 2020 and beyond. While you may want to deal with it yourself and many do have the ability, there is no reason to feel awkward about getting support from your family, friends, boss at work etc to make some important changes.

How can I help in this? Well this is an area where I can add value as an individual and have already done it for some people. I do a program called HELP ( Holistic Engagement for Life Planning ) that looks into life situation, changes envisaged and a way to go for them. It does have a financial planning component to ensure that such life choices can be sustainable. In case you are interested, reach out to me. I hope you understand this is a serious and time consuming exercise and is obviously a paid one 🙂

Wishing all my readers a very happy and prosperous 2020 !!!

Some crystal ball gazing for 2020

Given the lackadaisical performance of our markets in 2019, a lot of people who are connected with it directly or indirectly are hoping for 2020 to be a much better year. Let me try and do some crystal ball gazing to speculate how the year might pan out. 

To begin with, it is important to understand that the global situation is really facing a lot of headwinds in economic terms and the cutrrent events unfolding are unlikely to change this any time soon. A lot of the global growth depends on countries such as US, China, Japan etc and the current context in this is not reassuring at all. In US, the impending impeachment of Trump is likely to cause a lot of friction and instability, the US-China trade talks are at best a patchwork, demand situation in any of these countries is also a cause for worry. The US stock markets however, are doing quite well compared to many others and this has caused money to flow into them. This really is a double whammy – countries such as India suffer from the negative situation in the US in terms of sentiment and also get impacted adversely as there is less FII money available. On top of these issues such as buying oil from Iran, the situation in Kashmir has caused a certain amount of cooling off between India and US which affects exports considerably.

For India though, the domestic situation is a far greater concern as compared to the international one. The implicit assumption last year was that a victory of the BJP led NDA will act as a tonic for the beleaguered markets and things would go well from there on. In practice the aggressive posturing by the BJP on a variety of issues, their inability to form the government in Maharashtra, loss in Jharkhand, continuing slide of the economy in terms of the IIP and GDP numbers have managed to create an uncertain situation and as we all know the markets do not like uncertainty. BJP presented 2 budgets in 2019 and both lacked direction and were completely unimaginative as far as growth was concerned. Yes, the current Finance minister did try and correct this by taking some measures when the market slide was unabated, and this has helped in recovery of the headline indices. In my opinion though this was too little and definitely too late.

Some of you may ask as to whether I am being unduly negative when the markets are at their life time highs. The point is the NIFTY and Sensex numbers are due to money being pumped into a few companies. The broader markets have remained pretty much where they were earlier and stocks like Yes Bank been beaten down so badly on price is an indication of lack of investor confidence. I see two real issues connected to each other in a very direct way. Firstly consumer confidence is at the lowest for a long time now and secondly this has resulted in consumption not picking up. A direct result is the earning growth of companies is muted and companies are reluctant to invest, even when they now have some unexpected extra money due to the cortprate tax cuts. Finally for all those who are saying that our indices should cause a cheer or two, look at the following data point. In 12 years from 2008 to 2020 January, NIFTY has gone from 6000 to 12000 levels. That is an annual return of 6 % and your money in a bank FD would have earned as much, definitely a lot more in instruments such as PPF.

All right, enough of the doom and gloom then, let us look forward. In terms of politics, though the BJP is well entrenched in the centre, they are losing the states and an united opposition poses a significant challenge in these elections. This may well cause the BJP to adopt more populist measures at the cost of fiscal prudence and this will have long term negative effects for the economy. In the short run though measures such as income tax cuts, reversal or reduction of LTCG taxes, lowered petrol prices will definitely help boost consumer confidence and hopefully also help in kickstarting the consumption demand. I see this happening in the second quarter of 2020 and the markets may well anticipate this and start rising in the early part of 2020 post the budget. If the cycle of events play out as expected and corporate earning growth is a reality finally, the market growth will also be sustained. I think this is possible if things are handled well from here on.

So finally for the predictions then – I think Nifty will be in the range of 12000 to 12500 till the budget and may well scale 13000 by June or so. From then the paths can be both choppy and uncertain – there is a possibility of reaching 14000 by December if all goes well but a more likely figure will be 13600 or so. However, if things go wrong it is quite easy to see Nifty back in the sub 13000 range, may be even lower than 12500. I think the first scenario will hold and am hoping for it too 🙂

What will be the impact on the investments and what should be the choices in 2020? Let me try and do a post on this tomorrow.

My personal finance audit of 2019

First things first – I got a number of messages yesterday on my post and all of them expressed happiness that I had started wiriting posts for the blog once more. Even though I am normally not someone to worry about either boquets or brickbats, it was nice to read such messages. As I said, I wanted to do a post on my personal finance audit for the year 2019. The year may have been listless in terms of the investment scenario in the country but on a personal level it was enriching in many ways.

For those who have read my posts earlier in the blog, my current life situation is broadly known so I am not repeating it here, only talking about the changes in 2019. For new readers, you will have to make an effort and read some of my older posts. Let me start with how life was for our family in 2019 and then I will come to the personal finance part. Through the year, I was engaged with mentoring of B school aspirants and found it to be a very worthwhile calling. I mentored 57 people for last year admissions, 25 people for CAT 2019 and am currently mentoring another 25 for next year admission season. It is something that lets me have some active income and , more importantly, lets me do things at my own pace and engage in things I love. I have a lot of time to watch movies, sports, attend cultural performances, travel in India and outside etc.While I am not dependent on this income, it is nice to have and allows me to travel with less worries. Travel is something my wife is also fond of and this year we had a fair bit of it – we went to Phuket in March, Turkey in May and Eastern Europe in July. Apart from this we also visited Corbett National Park in October and Baroda ( Champaner, Statue of Unity) in December. Our daughter Rinki is currently in Hyderabad and this is a great source of Joy to both me and my wife. Our son Ronju is working in Bangalore and the good thing is we are able to meet up every 2 months or so.

With the children being on their own, as far as financial issues go, a lot of our expenses in 2019 centred around travel. Overall expenses were in the range of 15 lacs, out of which more than 7 lacs was travel related. We also bought some consumer durables such as a Washing machine and Android TV in the year. From this perspective, 2019 may not be a very representative year as we are unlikely to have 3 trips outside India every year. On the other hand, we are probably going to be active travellers for the next 5 years or so, therefore it will make sense to budget for a fair bit of travel till 2025 or so. The true worth of financial independence is the ability to indulge a bit on the things you love to do, without having to worry about the financial repurcussions constantly. The cash outflow of 15 lacs, while quite high from the budget and unexpected for me, was also fortunately possible to meet from my cash inflows of the year.

Let us look at the inflows for the year then :-

  • Rental income from my Chennai apartment was 4 lacs
  • Loan repayment by someone for the year was 3 lacs
  • Interest from tax free bonds and InvIt were to the tune of 3.25 lacs
  • Dividends from my stock portfolio and MF portfolio amounted to 2.75 lacs
  • Capital gains from FMP redemption and share buy back was 2 lacs

As you will see from the above I was able to deal with my cash inflow needs quite well in 2019, despite the overall expenses being rather on the higher end. Thankfully, this is also with some amount to spare as I have not considered the following:-

  • Interest from the PPF account of both me and my wife.
  • Return from my Debt fund portfolio
  • My active income through B school mentoring

So from a cash flow perspective, I did rather well in 2019. The situation completely changes though when we come to investments. Through the year, debt returns were rather muted, even some FMP redemptions suffered from this. Equity as an asset class had a very turbulent year and I am more down than up in this, all things considered. As such I need to revise my expectations of return from both these asset classes going forward. Fortunately, I do not have any big financial goal coming up, save travel and as a result, can take a few years of lower return. What should be the return expectations from the two asset classes now? I am reasonably confident that good quality Debt fund returns will still be in the range of 7 % and it will be safe to take equity as 10 %. 

How does 2020 look then? I am hoping that the markets will do better and thankful that I do not have to liquidate my equity portfolio at times like these. Other than that, it will be more of the same as in 2019. In summary 2019 was a rather poor year as far as investments go but we were able to do quite well, thanks to the way our finances are arranged currently. There are however, some changes we will need to do in these, I will be writing another post on this soon.

2019 has been a listless year for personal finance

From time to time I get a lot of requests from my faithful readers on writing more posts and unfortunately in this year i could not really bring myself to do so. One part of the reason was that a lot of things were keeping me busy but the more important reason was the listless nature of the markets and the general situation in the personal finance space, where conventional wisdom was turned on its head.

To be fair 2019 begun rather promisingly as it was felt the Indian economy was close to turning the corner and there were great visions of the markets really taking off should the BJP led NDA won the general elections. As we now know, the first of these happened but not the second one. The markets welcomed the emphatic BJP/NDA win but were very soon shocked with what the new Finance minister Nirmala Sitharaman brought to the table in her first budget. It belied all expectations and started a free fall of the markets that was completely unexpected. This was aided by other bad news on the NPA and Banking front, defaults in the Debt fund space, international headwinds in the form of US China trade issues and, most importantly, the quarter by quarter poor IIP and GDP data. Towards the end of the year, even political and social stability had taken a real hit with BJP unable to form the government in Maharashtra despite a win and losing Jharkhand badly, along with the nationwide CAA protests.

Some of you might be asking as to if I am being unduly critical of the situation given that Sensex and Nifty are at their lifetime highs now. In order to understand the situation fully, look at the following :-

  • How have your SIP investments in Equity MF been performing over the last few years? The growth in the markets have been muted over the past few years and this has put serious strain on the financial plans of most people, for the long term goals. Most people and planners assume an overall annual return of 12 % over 15 years or so and that is nowhere near happening.
  • Due to defaults by companies on loans etc, Debt products have also come under serious strain. In several cases the FMP payouts were not done properly and reduced rates have not been expectedly beneficial to Debt funds too. 
  • Though the headline NIFTY numbers look good but that is due to a few companies doing well in terms of their prices. Look at a stock like Yes Bank and you will get a far truer reflection of the market risks involved today in investing. 
  • The real problem is of course in the mid cap and small cap space where many stocks have been beaten out of shape and will take a long time to recover, some will not recover at all. Most investors who had bet on these categories of MF for their long term goals will really need to rejig their plans now and look at other options.
  • In summary, both equity and debt asset classes are in a not so promising space, the economic indicators are hardly buzzing, the interim measures taken by the government such as corporate tax cuts also have not worked exactly as the investors had hoped they would.

So as 2019 draws to a close, what are the lessons investors can draw from it? It will, of course, depend on which stage of life you are, but some generic conclusions for such stages can be arrived it. A snapshot of possible strategies is given below :-

  • If you are in your twenties and starting off then do not worry too much about the present context, you have time on your side. However, keep your debt portfolio going with PF and possibly PPF or SSY.
  • For people in their thirties a clear action will be to look at their SIP portfolios and do a thorough review. Weed out the medium term non performers and focus more on large cap and diversified funds. Pure mid cap and small cap funds are best avoided unless they have high pedigree and are showing good trends in NAV. If your goals are due in the next 5-7 years you must create an alternate source for it.
  • For people in their forties look at increasing your SIP allocation in order to align with your retirement goals. The SIP returns have been far lower than planned for, so you need to invest more to make up for it. Some of your goals will be on you soon so you must have alternate plans, not redeem your SIPs especially those of mid cap and small cap funds. Have a solid debt allocation so that you can fall back on it as needed.
  • For people in their fifties, do not increase your SIP allocation even if your returns are lower than expected. You need to invest in Debt so as to give more time to your equity investments. Create a fund that will take care of your expenses 5 years after retirement and hopefully help your equity based SIPs to recover.
  • For people in their sixties, return from Debt investments is a major issue. Put as much money you can in SCSS and VVY schemes, use your PPF intelligently and once again let your equity grow as much as you can let it.

As an individual who has attained Financial independence, I am not immune to the market performance, if anything I am more affected by it. In the next post, which I plan to write tomorrow, I will explain my personal situation as envisaged by a recent audit that I carried out.

Wishing all my readers and their families a very happy and prosperous 2020.

Has your MF investment worked out?

To begin with, my apologies to all my readers, many of who have enquired of me as to why I was not writing in my blog, for my long absence from the blog. It was caused by a random occurrence of several factors – a couple of trips abroad, some mentoring work for B school students, my son’s starting of his professional career, my parents visiting Hyderabad etc. Let us see whether I am able to keep up this new resolution !!

Let me take up something which a lot of people have been asking me for much of this year. Has it been beneficial to invest in Equity MF over the years? Many people had started the MF investments through SIP, being lured or convinced by agents or advisors, thinking that an annualized return of 12-15 % on an average was a given. Yes, it was understood that equity as an asset class will be having the ups and downs, but over the long run it was kind of given to undestand your money will double every 6 years. A lot of financial planning for most people have been based on this premise over the last 10 years and it is a good time to take stock of how things have panned out.

As I have been dealing with equity for nearly a quarter of a century now, I probably have a lot of knowledge and experience to speak somewhat definiteively of this. In January 2008, Nifty scaled 6000 for the first time before the now famous crash of that year. Even if we assume that Nifty will reach 12000 in January 2020 ( a fairly tall order some may say, though I am hopeful), it would have only doubled in 12 years. This is a return of only 6 % as opposed to the 12 % that most investors have been sold into. Even if you looked at a supposedly stodgy product such as PPF, you would have earned nearly 8 %. More importantly, if you had planned some goal for 15 years in 2010, you are now probably faced with the prospect of being way short of your goal. This is fine if you have 20 plus years of your career left but for people in their 40’s and 50’s this is a fairly tough situation. People who are interested in financial independence and looking at doing different things will now need to re-evaluate their options.

Does this mean that the MF investment has been wrong? Not at all – equity as an asset class is really the only sensible way to beat inflation in a country like India and MF is a good vehicle for this. Also, though Nifty returns are only 6 % annually, most of us invested in well managed active funds and these returns are somewhat better, though nowhere near the 12-15 % that were touted without any real sense. With the changes in MF categories by SEBI, it may also make more sense to stick to funds that invest in the top 150 or 200 companies, unless you have a lot of time on your hands. Finally, do not put all your eggs in one basket, invest in fixed income products and other instruments that can serve as a hedge and provide you stable returns even if unglamorous.

The above is all very fine for people starting now but what of people who have been investing for long and have now not got enough in their kitty for their goals? They will definitely need to work out different strategies – I will take up one case study from a person who wanted some advice from me recently.

Bottom line – MF investments are good for your financial life but you need to do these by being more aware of it as compared to before. The old method of deciding on a SIP amount and letting it be in the auto mode will not work any more.

Earning money through value – A personal perspective

What with one thing or the other, I have been totally irregular with my blog this year and have been almost absent for the last two months or so. Part of it is due to my busy schedule in a variety of things and the rest is linked to my life situation. There are however, several ideas I have which can be converted into significant and meaningful blog posts and let me try and do it more often from now on.

In the last post I had written about how money actually comes to you or anyone from other people and you need to provide value in order to earn money. That blog post had a very good readership and several readers commented on it. Let me try and expand this more on the current post. I will take my own example and this should help readers get into my thought process. Some of this was not evident to me as I went through life but experience leads to knowledge and wisdom, so I have a very clear perspective on how things transpired for me in life as I went along.

For people who know about me I an from a middle class family based out of Durgapur in West Bengal. My father worked in SAIL and we had a fairly comfortable existence with a family of 5 , though not a luxurious one. Education was always a priority and I was a good student completing my schooling from St. Xavier’s school, going on to get a BE degree in Computer Science & Engineering from Jadavpur university, ending up with an MBA from IIM Calcutta. Like most people, I was creating some intrinsic value through all this education in the hope that there will be companies who will give me jobs based on their needs of such value. I did have 7 such jobs when I graduated from my Engineering but decided not to take up any as I had got admission into IIMC. On my graduation from IIMC I received 2 job offers from HCL and Wipro, deciding to join the former.

Over the next two decades, life was a roller coaster ride on both the personal and the professional front and I lived through it enjoying it immensely. On the personal front getting married to my wife Lipi, births of my two children and their growing up, moving from Delhi to Chennai and now Hyderabad, travel and vacations all made life enriching. On the professional front progress was hectic as I was part of management in just 4 years and progressed swiftly to top management cadre in another 4 years time. My first CEO role was in 12 years time and I worked for another 15 years in similar Executive positions. The knowledge, skills and expertise I was able to gain through my initial education and later on through my experience and performance in the various job roles helped me in securing these positions and earn a certain amount of money.

After 27 years of corporate life, I realized that doing what I did for 15 years at CXO level was taking its toll on me. I was still pretty good at what I did but I did not enjoy it any more. I also wanted to add value to more people rather than restricting myself to just one company as the CEO etc. I also wanted more time to myself for pursuing the many interests that I had. While I had always been able to maintain a very decent work-life balance, when one gets to 50 there is a clear feeling of time passing by rather quickly. I therefore quit the regular corporate grind and started a Management Consultancy practice where I worked with SME companies in the IT/ITES areas to help them formulate and implement growth strategies. Here again my corporate experience as CXO provided the value that such companies were looking at and they were prepared to pay for it. This mode also gave me enough time to follow my interests and passions.

Over the years I had been very interested in personal finance, stock markets and investments in general. This helped me in organizing my finances in such a manner that I was truly financially independent. In real terms it means I do not really need an active income to maintain my lifestyle but can fund it from whatever assets I currently have. As I wanted to share my experiences and knowledge with others, I started this blog in 2015 and it has been a pretty successful one. A lot of people saw value in it and reached out to me for helping them with their financial planning. Though I do not do this professionally I am happy to do it for people who approach me.

Training on a variety of topics including high end management area has been a long standing interest of mine. I developed a framework on Strategy planning and Execution courtesy my being CXO of so many companies and currently offer workshops in these to companies for bringing about change in the way their management people think and act. There has also been an abiding interest in Education over the years, B school education being at the center stage of it. I have been mentoring people for B school admissions informally for the last 5 years and have started to do it formally this year. Food, travel, sports and performing arts are the other interests i have.

So if I am looking to earn money out of all my knowledge, skills, expertise and interests how can I do it in tangible terms? Look out for the next post as this one has got rather long. I promise the wait this time will be a much shorter one.

Building an equity MF portfolio in new FY

Much as I would like to write regularly for the blog, of late I find it difficult to get the time to do so. In the last 3 months I have been rather busy mentoring B school aspirants and very recently went on a vacation to Phuket for a week. The blog remains close to my heart though and in this new FY I will make a renewed attempt to be regular in writing.

I get a lot of reader queries on how to create an ideal long term portfolio of equity MF schemes. There have been several posts written on this and you can search the blog to read those up. However, fund performances and the market dynamics keep changing, so it will make sense to revisit that now. With the new SEBI classification of MF categories it is easier to build a portfolio now. You can have a set of choices in each category and then select one from each to get your 4-5 funds. I have given a choice of a few funds in different categories below and any selection of these will result in creation of a robust, long term portfolio of equity MF. These are all well known funds that have been recommended by several analysts and I have done my own fact finding about these too, so I can suggest them with complete confidence.

Here are the MF scheme suggestions in the different categories :-

  • Large cap funds
    • HDFC Top 100
    • ABSL Front Line Equity
    • ICICI Blue Chip
  • Multi cap funds
    • Franklin India Equity
    • Mirae Asset India Equity
    • Kotak Standard Multi cap
  • Mid cap funds
    • Franklin Prima fund
    • DSP Mid cap fund
  • Small cap funds
    • DSP small cap fund
    • HDFC small cap
  • ELSS funds
    • Axis Long term equity
    • Franklin India Tax shield

If you want you can add an international fund to this mix but that is only required for sophisticated investors. Most of you can simply select funds from the categories here and build a portfolio where you can invest for the long term. Some pointers for this :-

  • If your risk appetite is low and you are disagreeable to market volatility then you may want to stick to only large cap and multi cap category, with a small investment in mid caps. Avoid small cap funds in this case.
  • If you believe in the India growth story and are looking at the long term for your portfolio then have a mix of all categories with sufficient allocation to mid cap and small cap funds.
  • If you are well off and looking at this portfolio to have high growth with tolerable risks then put most money in mid cap and small cap funds. There will be a lot of volatility but over the next 15-20 years you will be able to get good benefits.

What about the likely returns from these fund categories and where should we invest for fixed income then? I will cover these in other posts, hopefully soon !!