Vinod Desai's Blog

A reverse CAGR calculator is used to estimate the final value of an investment, based on

Starting value & Compounded return you’ve been promised – or, are expecting; &Number of years you plan to let the investment grow







Reverse CAGR Calculator

If you already know the final value and would like to know the CAGR you’ve received from the investment, you can use this CAGR CALCULATOR.

The Rule of 72

There’s a straightforward connection between the Reverse CAGR calculator and the rule of 72.

If you know the expected CAGR of an investment product, you can easily know how long the investment would take to double in value.

For example,

If the CAGR of a mutual fund is say 18%, dividing 72 by this number gives 4. So your investment in that mutual fund will double in value in 4 years. If an FD you are planning to book is promising a 6% return, dividing 72 by this number gives you 12. Which means your investment in that FD will double in value in 12 years.

Other types of returns like Absolute, Annual, Average are discussed in detail in the book in Chapter 8, under section ‘Simple Useful Math‘.

Happy Moneyplanting.

Vinod

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The post Reverse CAGR Calculator | Financial Literacy appeared first on The Moneyplanting Program on Employee Financial Wellness | Vinod Desai.

This CAGR Calculator helps you estimate the Compounded Annual Growth Rate of your investment based on

Initial valueFinal value &Number of years







CAGR Calculator



















What is the formula used in the CAGR calculator?

The formula used is as below

[image error]Image source: Investopedia

Examples of CAGR calculator usage



To calculate CAGR returns from an investment

Most investing sites use CAGR for showcasing returns. As an example, say after a 3-year run, your investment of 1,00,000/- in a mutual fund grew to 1,30,000/-

Using the calculator, you can realize that your CAGR return was 9.14%. You can get the 3-year and 5-year returns of mutual funds from this link here.

To calculate how your real estate investment has grown

Say an apartment you purchased in 2008 for 50 Lakhs (50,00,000), is worth 1.6 Crores in 2020. This growth was over a 12 year period.

Using the calculator above, you can see that the CAGR return was 8.29%.

Other Types of Returns Typically Used

There are three basic types of returns you could come across while evaluating investments.

Absolute Return

This is the growth an asset has provided with no relation to time. For example, an investment may have provided you 100% absolute returns, but if that return was only achieved over a period of 20 years, it would still be a poor investment. Therefore, absolute return alone is an incomplete way to judge an investment’s potential.

Annualized Return

This is simply the absolute return over a period of one year. If an investment of Rs. 1000 became Rs. 1150 in one year, your annual return is 15%.

Average Return

An average return is another terrible way to judge investments.

Assume an investment of Rs. 1000 provided you an absolute return of 100% the first year, which means your investment would be worth Rs. 2000. But the following year, it lost 50% of its value, taking the investment’s worth back to Rs. 1000. Technically, you will have received an average return of (100 (-50))/2, which is 25%. Your annualized return, however, is actually zero.

Good luck. And Happy moneyplanting.

Vinod

[ Get posts like these delivered to your inbox. No ads. Ever. ]

Other Things You’ll Find Useful







This beginner’s book on essential finances





[image error]

No guilt tripping.

No complicated math.

Just stuff which will leave you 10 years wiser.

Read the first chapter here.

These quizzes on financial trivia

No sign up, no registration. 10 questions in each.

Quiz on basic investing trivia – Try it here.Quiz on basics of mutual funds – Try it here. Quiz on insurance trivia – Try it here.



Using Scripbox, Fundsindia or other such sites?

They’re not really free. Most just don’t know how much they’re paying. Read here.

Bought a ULIP or an LIC policy recently?

These are things your agent doesn’t want to you know. Here’s the article on ULIP, and here’s the one on LIC.

NPS. Should you invest?

This article will help you decide.

The post CAGR Calculator | Analyze Your Return appeared first on The Moneyplanting Program on Employee Financial Wellness | Vinod Desai.

TL-DR: What are ELSS Funds? How are they different from regular funds? And how does one invest in them? This is a re-do of multiple old posts which were’nt well organized.

What Are ELSS Funds?



You invest in businesses using stocks. An equity mutual fund invests your money into stocks of multiple businesses.

An ELSS, is a special kind of equity mutual funds.

It helps you save taxes. Your investment into it qualifies for deduction under Section 80C. An ELSS fund primarily invest in large-caps and blue chips.Since they’re intended to help you save money for our future, these mutual funds are also called Equity Linked Savings Schemes – ELSS for short.



Is that the only difference?

There’s more.

ELSS funds have a 3 year lock-in

The most common type of equity mutual fund (which goes by the full name of ‘Open-ended equity mutual fund) has no lock-ins. Which means you can invest today, and as long as you are willing to pay an exit load, you can withdraw the next day.

This doesn’t mean you should. The point is that your investment isn’t locked in.

On the other hand, despite technically being an open-ended, an equity mutual fund has a 3 year lock-in. Units you purchase today, will only be available to you 36 months later.

What happens after 3 Year lock-in?



You’ll be able to sell the units which have finished 3 years. There are no restrictions thereafter. It’ll then behave as any other non tax-saving mutual fund.



Is there a difference in the way an ELSS fund invests money?

No. Other than the tax-saving advantages and the three year lock-in, an ELSS fund works like any other diversified equity mutual fund.

Who should invest in ELSS funds?

To invest in them, and not be stressed about the decision, you need to be prepared for all these criteria.

You absolutely don’t need the money you’ve invested over the next 3 years



In the first 3 years, you have no access to your money whatsoever. It’s a complete lock. If you’re investing monthly using an SIP, the units you picked up at the end of your SIP, will move out of lock-in 3 years later. FIFO. Get?



You don’t need most of that money over the next 7 years



Equity investments( tax-saving, stocks, mutual funds or otherwise) aren’t like FDs. They aren’t supposed to go up day after day, year after year. Sure they generate better returns than other asset classes, but they take time. During this time, your investment may grow very little, shrink in value or grow a lot. There’s no way to predict a market recession, a correction or a crash.Even economists and financial pundits can’t — case in point, they predicted a recession each year for the last 10 years. So over these five to seven years, you should be comfortable with the idea that your money hasn’t grown, or that it’s even reduced in its value.



You understand equities reasonably well



If not, there’s a likelihood you might be in for much disappointment. They might seem harmless because they’re tax saving investments and quite popular. But they carry the same risks as any other equity investments.







Can you start an SIP into an ELSS fund?

Of course. But there’s an often overlooked catch.

We already know that any units you purchase will be locked in for 36 months. In these 36 months, you have no access to them whatsoever.

Now when you start an SIP, you buy units every month. Each month’s units are locked-in for 36 months.

So August 2020 units will be available to you after August of 2023. The units you picked up in September 2020 will be available to you after September of 2023.

Taking this further, if you are starting a 3-year SIP in an ELSS fund, the units you picked up in the 36th month will free up after a further 36 months. Which technically means, in total, by the time you have access to all your units, it’ll be about 6 years.

Should you sell your investments in them after the 3 year lock-in?

There is no reason to liquidate an ELSS mutual fund, just because it’s out of the 3 year lock-in period. The point being, that selling off or liquidating any of your investments should be based on your goals.

After the 3-year lock-in, nothing about the fund changes fundamentally. The fund manager still runs the fund the same way as he/she did earlier. So if the fund has continued to perform well, you can stay invested and let the money grow.

Equities work best when you stay invested for the long term. And history has proven that the longer you stay invested, the better. To see what happened to 1 Lakh of investment, when it was left untouched for 20 years, despite the stock market witnessing several minor and at least one major crash, see this post here.  

So unless you need the money to fund an immediate goal, stay invested. And if your need is say three years down the line, you are better off moving it to a debt mutual fund or an FD, depending on your appetite for risk. Remember though, that debt mutual funds and debt products like FDs are a good way to protect your money, and not necessarily to grow it. You’ll need to strike a balance, depending on how much of it you can let grow, and how much you need to protect.   This answer applies to any equity mutual fund investments; not just to ELSS funds. Always invest/liquidate based on needs and goals.

Which are the top performing ELSS funds today?

Go here, sort by rating, and to start with pick any ELSS fund which has a 5 or 4 star rating.

Which sites should you use to invest in ELSS funds?

You can use any of the sites on this list here. They provide access to direct plans of mutual funds.

Don’t know what ‘direct plans of mutual funds’ are?

Then read this here.

A lot of the words here are unfamiliar to me. I want to understand this better.

To understand everything about ELSS funds, you’ll need to know the fundamentals of equities and equity investing. And then you’ll need to learn about mutual funds in general.

I understand gathering this knowledge can be tricky. An article here, a Youtube video there. But if you’re keen on building that foundation, pick up a copy of the book you see below. I promise your future self will thank you.

Until the next time, happy moneyplanting.

Vinod

[ Get posts like these delivered to your inbox. No ads. Ever. ]

Other Things You’ll Find Useful







This beginner’s book on essential finances





[image error]

No guilt tripping.

No complicated math.

Just stuff which will leave you 10 years wiser.

Read the first chapter here.

These quizzes on financial trivia

No sign up, no registration. 10 questions in each.

Quiz on basic investing trivia – Try it here.Quiz on basics of mutual funds – Try it here. Quiz on insurance trivia – Try it here.



Using Scripbox, Fundsindia or other such sites?

They’re not really free. Most just don’t know how much they’re paying. Read here.

Bought a ULIP or an LIC policy recently?

These are things your agent doesn’t want to you know. Here’s the article on ULIP, and here’s the one on LIC.

NPS. Should you invest?

This article will help you decide.

The post What Are ELSS Funds? Everything You Need To Know appeared first on The Moneyplanting Program on Employee Financial Wellness | Vinod Desai.

How To Start Investing in Mutual Funds & More | Around 80 odd questions came from about 350 participants of a financial wellness webinar held last week. The questions are being posted here, since the blog is a free resource and will help other readers as well.

How To Start Investing | Mutual Funds & More | Beginner’s Q&A



Answering these questions is never easy

For two, rather uncommon reasons.

One, because investing in financial products is all about the footnotes. And without an understanding of those footnotes, any one-line response can cause harm. And two, because these questions, and about eight million others have already been answered. I wrote my last book for this very reason – so beginners have some place where they can learn everything they need to get started.

No surprise then, that I answered these questions with the same enthusiasm as a child who’s been asked to do redo his last year’s homework.

I’ve clubbed similar questions together. And again, just about every question here has been answered in excruciating detail in the book.

Let’s begin.

How To Start Investing | Mutual Funds & More | Beginner’s Q&A



There’s just so much out there. It’s a bit overwhelming. Where do I even start?

I empathize. I understand how overwhelming the field of finances can be for beginners. Where to start? Who to trust? Where to begin?

I was once where you are now. Every seasoned investor was once where you are now. The field of finance is too noisy and the information is too scattered. And the presence of commissions means that pure, unbiased advise, or education is very hard to come by.

So go here and do your future self an elephant sized favor. Order a copy of the book and read it this weekend. It is everything I wished someone had taught me when I was getting started.

Which platforms should I use for investing in direct mutual funds?



For a list of direct fund platforms in India, refer to this post. If a site isn’t on this list, it most likely does not provide access to direct mutual funds. Sites like Scripbox, fundsindia, upwardly do not provide access to direct funds. Read about such sites here. Demat account providers like Sharekhan, ICICIDirect do not provide access to direct funds. They become the intermediary/middlemen. Zerodha does, but the units are held in de-mat form. This may create problems if you ever decide to not use Zerodha.







I’ve already invested in a ULIP or an LIC. How can I exit them?

Every LIC policy and ULIP is different. So a blanket recommendation on when or how to exit is impossible to make. Start first by calling your agent or customer care and asking what would happen if you did exit.

You will be able to decide reasonably well after building up some basic knowledge of finances. But if you’re not planning to do that, consult a financial advisor. You can find a list of fee-only financial advisors here.

Which are the right mutual funds for beginners and those who are risk-averse?

There are multiple stages of risk averseness. It’s not 0 or 1.

Complete risk averseness is typically a symptom of low financial knowledge. If you never care to build that knowledge, you will most likely be risk-averse for life – which is a terrible way to live life in general.

If you are 100% risk averse, stick to investing in FDs of large banks. But if you are specifically interested in equity mutual funds for risk averse investors:

Pick up debt-equity hybrid mutual funds. Pick up index funds or large cap funds.

I could explain more about why these type of funds. But I’ll just end up writing a whole book again.

I know why I need to invest. Can you please tell us how to start investing? Should I start by opening a Demat account?

You don’t need a Demat account to start investing. A Demat and trading account is only needed if you plan to own individual stocks stocks or ETFs. And beginners need neither.

The ‘How’ indeed can be confusing for beginners. With this in mind, I’ve dedicated an entire chapter dedicated in the book called ‘How to invest in just about anything’. It provides clear step-by-step instructions on how to go about investing in various products, or buying the right insurance policies.

How To Start Investing | Mutual Funds & More | Beginner’s Q&A



What is the ideal debt to equity ratio, or the right mix of mutual funds/categories?

There is no such thing as an ideal debt-to-equity ratio, and no such thing as an ideal mix of investments.

Because this depends heavily on a person’s ability to absorb short term risk, and their life’s milestones.

One 23 year old’s needs for money, could be vastly different from another 23 year old. One might be planning to take up PG studies, other could have a lot of dependents, while another could have no liabilities at all. And you could easily find a senior citizens who has a higher risk appetite than a 25 year old.

So there is truly is no ‘ideal’ debt-to-equity ratio, or an ideal mix of mutual funds.

However, even if you are an aggressive investor with a high risk appetite, I would not suggest more than a 60% exposure to equities. Anything more will make you lose sleep, increase stress, and lose sight of things which are more important in life.

How do I select and identify mutual funds?

Firstly, figure out your risk appetite. Decide first between debt and equity. Every category of mutual fund behaves differently.

Once you’ve decided upon a category, sites like Value Research, Moneycontrol, ET, Morningstar rate mutual funds based on a host of parameters.

There’s no doubt that these ratings can’t predict future behavior. But they are a good indicator of the past, and a great place for new investors to start.

How do I monitor my funds and my portfolio?

For monitoring funds, most mutual fund investing sites provide tools and dashboards to for it. None of them are perfect. You’ll simply have to try a few out and eventually, you will find something which works reasonably well for you.

Why do I need life insurance? Should I only buy term insurance for my needs?

Term life insurance is something you should have even before you start investing. It is also the only type of life insurance you need.

Read this post here to understand why it’s so importantThis post on why you should avoid ULIPS and this one on LIC policies which also provide a return.







How To Start Investing | Mutual Funds & More | Beginner’s Q&A



Should I invest in NPS?

You can read this post on NPS.

How can I switch existing mutual fund investments to direct plans?

Typically, you will need to sell your investments in regular plans and re-invest them into direct plans. This opens you up to capital gains tax. So you’ll need to evaluate the costs. 9/10, if you are investing for the long term, you’ll be better off bearing this cost and switching as early as possible.

Some AMCs allow investors to switch from regular to direct without redeeming the units, but you’ll need to evaluate that on a case-by-case basis.

How can I invest in international markets?

You can pick an international fund or an ETF. There are quite a few options now.

What about index investing, ETF investing?

Index funds and ETFs have among the lowest overheads when it comes to passive investing. However, the verdict on whether they perform better than actively managed mutual funds is still out there. You’ll be able to find data to support both arguments depending on which category/period you pick. I’ll write a follow up posts next week which will specifically highlight this ambiguity.

All this apart, if you’re planning to only invest in large cap funds, you should definitely consider investing via a large cap ETF or index fund.

You’ll find ETFs for every asset class including Gold. And how much to invest in each again depends on your personal risk appetite.

[ Get posts like these delivered to your inbox. No ads. Ever. ]

How To Start Investing | Mutual Funds & More | Beginner’s Q&A



Should I buy or rent?

For individuals, buying real estate as an investment never made sense. And I’m not just talking keeping in mind the recent downturn. The only reason real estate seemed so lucrative is because of the large figures involved. You’ll find plenty of articles online which will validate this view. I’ve also written extensively about it in my book.

Your annual return on properties in most metros in India is about 2-3%. Which means even an FD will provide better returns than a real estate investment.

Renting is much cheaper, its more flexible, and comes with lesser overheads.

But a case can be made for real estate if you don’t think of it as an investment asset.

How to learn to invest in stocks?

I do not personally advise anyone to start their investing journey directly with stocks. People act too hastily, and often out of greed, and end up losing money. If you are however determined, start by picking up stocks of bluechips and largecaps across multiple sectors. This reduces your chances of losing money. Picking multi-baggers isn’t a science by any means.

Why is the price of Gold going up?

The price of gold tends to go up in times of financial turmoil. And currently there’s a lot of it. We have trade wars, and a pandemic at the same time. This price behavior is rather typical and has happened several times in the past.

But long term returns of Gold don’t match up. If you do decide to invest in Gold, you’ll also need to know when to sell it off.

Are there courses for beginners on how to start investing?

Most courses in India are hosted by middlemen who promote a specific product or a service. So impartial, unbiased courses are very hard to come by.

But there are some simple ways to check if a financial program is being unbiased and impartial. You can read my article on medium here.

I’ve founded an initiative called the The Moneyplanting Program with this very need in mind. More about the course here, and course reviews are here.

I enjoy teaching, and I used to conduct full day weekend programs. These are now being moved online thanks to Covid. You can get alerts on online and future weekend workshops by subscribing here.

Can you review my investments or provide financial advise? I’m willing to pay a fee.

Sadly, no. I am not a financial advisor and have no intentions of ever becoming one. It’s a lot of work, and it takes time away from teaching and writing — two activities which I enjoy much more.

If you do think you could use a a financial advisor, I’d suggest you only hire fee-only financial advisors. You’ll find a full list of such advisors here.

[ Get posts like these delivered to your inbox. No ads. Ever. ]

How To Start Investing | Mutual Funds & More | Beginner’s Q&A



If we need to save for the rainy day, i.e the emergency fund, where do you think we should save this? Cash, Bank, FD or Mutual Funds.

You can chose FDs, liquid funds or overnight funds. Bear in mind that since this is a rainy day fund, the goal should be to keep it safe and protected. There’s little sense in chasing returns here.

You mentioned platforms like scripbox, fundsindia take away a lot of our money via commissions. So by what means do we invest in MF?

You should use platforms which provide access to direct plans of mutual funds. There’s a little bit of info here on direct mutual funds, but it isn’t complete. Book has the rest. Because you’ll also need to know how to pick/choose the right mutual fund.

A full of direct fund platforms in India is available here.

If we have 1L, instead of investing all the amount in one place, should we not invest in multiple places. i.e FD, House, MF, Stocks, Gold. If yes, how much percentage would you suggest in each medium.

You are right. It makes no sense to invest the entire 1L in a single place. No investor has just one type of asset class in their portfolio. How you split across these assets will again depend on your goals and risk appetite.

There’s unfortunately no way to comment on the percentage without undertaking a through conversation. But there is an entire section in the book on goal planning and asset allocation.

That it for now. Happy Moneyplanting.

Vinod

[ Get posts like these delivered to your inbox. No ads. Ever. ]

Other Things You’ll Find Useful







This beginner’s book on essential finances





[image error]

No guilt tripping.

No complicated math.

Just stuff which will leave you 10 years wiser.

Read the first chapter here.

These quizzes on financial trivia

No sign up, no registration. 10 questions in each.

Quiz on basic investing trivia – Try it here.Quiz on basics of mutual funds – Try it here. Quiz on insurance trivia – Try it here.



Using Scripbox, Fundsindia or other such sites?

They’re not really free. Most just don’t know how much they’re paying. Read here.

Bought a ULIP or an LIC policy recently?

These are things your agent doesn’t want to you know. Here’s the article on ULIP, and here’s the one on LIC.

NPS. Should you invest?

This article will help you decide.

The post How To Start Investing | Mutual Funds & More | Beginner’s Q&A appeared first on The Moneyplanting Program on Employee Financial Wellness | Vinod Desai.

Some 80 odd questions came from about 350 participants of a corporate webinar held last week. Those questions are being posted here, since the blog is a free resource and will help other readers as well.

Answering these questions is never easy

For two, rather obscure reasons.

One, because investing in financial products is all about the footnotes. And without an understanding of those footnotes, any one-line response can cause harm. And two, because these questions, and about eighteen thousand others, have already been answered. I wrote my last book for this very reason – so beginners have some place where they can learn everything they need to get started.

No surprise then, that I answered these questions with the same enthusiasm as a child who’s been asked to do redo his last year’s homework.

I’ve clubbed similar questions together. And again, just about every question here has been answered in excruciating detail in the book.

Let’s begin.

There’s just so much out there. It’s a bit overwhelming. Where do I even start?

I empathize. I understand how overwhelming the field of finances can be for beginners. Where to start? Who to trust? Where to begin?

I was once where you are now. Every starter was once where you are now. The field of finance is too noisy and the information is too scattered. And the presence of commissions means that pure, unbiased advise, or education is very hard to come by.

So go here and do your future self an elephant sized favor. Order a copy of the book and read it this weekend. I promise that like most of my other readers, you too will be amazed at how much one tiny book has managed to teach you.

Which platforms should I use for investing in direct mutual funds?



For a list of direct fund platforms in India, refer to this post. If a site isn’t on this list, it most likely does not provide access to direct mutual funds. Sites like Scripbox, fundsindia, upwardly do not provide access to direct funds. Read about such sites here. Demat account providers like Sharekhan, ICICIDirect do not provide access to direct funds. They become the intermediary/middlemen. Zerodha does, but the units are held in de-mat form. This may create problems if you ever decide to not use Zerodha.







I’ve already invested in a ULIP or an LIC. How can I exit them?

Every LIC policy and ULIP is different. So a blanket recommendation on when or how to exit is impossible to make. Start first by calling your agent or customer care and asking what would happen if you did exit.

You will be able to decide reasonably well after building up some basic knowledge of finances. But if you’re not planning to do that, consult a financial advisor. You can find a list of fee-only financial advisors here.

Which are the right mutual funds for beginners and those who are risk-averse?

There are multiple stages of risk averseness. It’s not 0 or 1.

Complete risk averseness is typically a symptom of low financial knowledge. If you never care to build that knowledge, you will most likely be risk-averse for life – which is a terrible way to live life in general.

If you are 100% risk averse, stick to investing in FDs of large banks. But if you are specifically interested in equity mutual funds for risk averse investors:

Pick up debt-equity hybrid mutual funds. Pick up index funds or large cap funds.

I could explain more about why these type of funds. But I’ll just end up writing a whole book again.

I know why I need to invest. Can you please tell us how to start investing? Should I start by opening a Demat account?

You don’t need a Demat account to start your investing journey.

The how indeed can be confusing for beginners. With this in mind, I’ve dedicated an entire chapter dedicated in the book called ‘How to invest in just about anything’. It provides clear step-by-step instructions on how to go about investing in various products.

What is the ideal debt to equity ratio, or the right mix of mutual funds/categories?

There is no such thing as an ideal debt-to-equity ratio, and no such thing as an ideal mix of investments.

One 23 year old’s needs for money, could be vastly different from another 23 year old. One might be planning to take up PG studies, other could have a lot of dependents, while another could have no liabilities at all. It’s even easy to find senior citizens who have higher risk appetite than 30 year olds.

So there is truly is no ‘ideal’ debt-to-equity ratio, or an ideal mix of mutual funds.

However, even if you are an aggressive investor with a high risk appetite, I would not suggest more than a 60% exposure to equities. Anything more will make you lose sleep, increase stress, and lose sight of things which are more important in life.

How do I select and identify mutual funds?

Firstly, figure out your risk appetite. Decide first between debt and equity. Every category of mutual fund behaves differently.

Once you’ve decided upon a category, sites like Value Research, Moneycontrol, ET, Morningstar rate mutual funds based on a host of parameters.

There’s no doubt that these ratings can’t predict future behavior. But they are a good indicator of the past, and a great place for new investors to start.

How do I monitor my funds and my portfolio?

For monitoring funds, most mutual fund investing sites provide tools and dashboards to for it. None of them are perfect. You’ll simply have to try a few out and eventually, you will find something which works reasonably well for you.

Why do I need life insurance? Should I only buy term insurance for my needs?

Term life insurance is something you should have even before you start investing. It is also the only type of life insurance you need.

Read this post here to understand why it’s so importantThis post on why you should avoid ULIPS and this one on LIC policies which also provide a return.







Should I invest in NPS?

You can read this post on NPS.

How can I switch existing mutual fund investments to direct plans?

Typically, you will need to sell your investments in regular plans and re-invest them into direct plans. This opens you up to capital gains tax. So you’ll need to evaluate the costs. 9/10, if you are investing for the long term, you’ll be better off bearing this cost and switching as early as possible.

Some AMCs allow investors to switch from regular to direct without redeeming the units, but you’ll need to evaluate that on a case-by-case basis.

How can I invest in international markets?

You can pick an international fund or an ETF. There are quite a few options now.

What about index investing, ETF investing?

Index funds and ETFs have among the lowest overheads when it comes to passive investing. However, the verdict on whether they perform better than actively managed mutual funds is still out there. You’ll be able to find data to support both arguments depending on which category/period you pick.

You’ll find ETFs for every asset class including Gold. And how much to invest in each again depends on your personal risk appetite.

Should I buy or rent?

Renting is much cheaper now, its more flexible, and comes with lesser overheads. Your annual return on properties in most metros in India is only about 2-3%. Which means even an FD will provides better returns than a real estate investment.

How to learn to invest in stocks?

I do not personally advise anyone to start their investing journey directly with stocks. People act too hastily, and often out of greed, and end up losing money. If you are however determined, start by picking up stocks of bluechips and largecaps across multiple sectors. This reduces your chances of losing money. Picking multi-baggers isn’t a science by any means.

Why is the price of Gold going up?

The price of gold tends to go up in times of financial turmoil. And currently there’s a lot of it. We have trade wars, and a pandemic at the same time. This price behavior is rather typical and has happened several times in the past.

But long term returns of Gold don’t match up. If you do decide to invest in Gold, you’ll also need to know when to sell it off.

About books and courses for beginners

Most courses in India are hosted by middlemen who promote a specific product or a service. So impartial, unbiased courses are very hard to come by. You can read about The Moneyplanting Program here. Course reviews are here.

I love to teach, so I used to occassionally conduct full day weekend programs. These will be soon moved online. You can get alerts on future weekend workshops by subscribing here.

I recommend reading my book. It gives complete beginners a 10 year headstart on their knowledge of finances.

Can you review my investments? I’m willing to pay a fee.

I am not a financial advisor, nor do I intend to become one. It’s a lot of work, and it takes time away from my teaching and writing — two activities which I enjoy much more.

If you do think you could use a a financial advisor, I’d suggest you only hire fee-only financial advisors. You’ll find a full list of such advisors here.

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That’s it. Hope you have a great week.

Vinod

Are you a blogger or a book reviewer?



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We’re giving away copies of the book in exchange for an honest review

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The post About 80 Participant Questions | Answered appeared first on The Moneyplanting Program on Employee Financial Wellness | Vinod Desai.

Skinny: Before buying an LIC policy, here are some critical, mind-bending facts which you need to know. In a way this is also everything that your agent doesn’t want you to know.

The golden rule to not mix insurance and investment is now an old one. You’ll always be better off buying a pure term policy for life insurance, and investing the rest into mutual funds(equity or debt – depending on your goals).

This post isn’t about the low overall effectiveness of such an LIC policy, but about your hard earned wealth which ends up working for your LIC agent.

This is not a review of term life insurance policies, but of ‘whole life plans, ‘pension plans’, ‘endowment plans’ etc. These are typically advertised as tax-saving life insurance products which also provide a return.

WHAT’S THE FUSS ABOUT?



Sales commissions. The fuss is about sales commissions in an LIC policy.

Buying an LIC policy rewards your angent handsomely. He/she basically receive a percentage of your payments as income. Not just once, but for as long as you are making your payments. Which basically means you become your agent’s source of income.

A sales commission might sound fair. Without commissions no one would have an incentive to sell anything after all. The problem though is two fold.

The size of these commissions. The fact that this is your money, working for someone else, without your notice.







WHAT PERCENTAGE IS PAID AS COMMISSIONS IN AN LIC POLICY?



The first year

Anything between 25 to 35% of you’ve paid will be paid to your agent as commission.

As an example:

If you were to pay a premium of 30,000/- per year, anything from 7500/- to 10,000/- would go straight to your agent.If you were to pay a premium of 1,00,000/- per year, anything from 25,000/- to 35000/- would go to your agent.



For every year after



Your agent could receive anything from 5 to 10% as commission. He/she receives it as long as you are paying premiums – which could easily span decades.



Then there bonus commissions in LIC policies

Some policies also provide agents with an additional ‘bonus commission’ of 40% in the first year.

[Source: JoinLICIndia]

Do agents disclose LIC policy commissions to their clients?

Nope. If they did, no one would willingly buy a policy from them.

Buying

HOW SEVERE IS THE PROBLEM OF AN AGENT MISSELLING AN LIC POLICY?

Pretty severe. Returns and benefits are often glorified and have no correlation to actuals. Even well educated individuals fall prey to this mis-selling since most folks lack a necessary understanding of finances. In reality, most LIC policies barely provide a return of 2-3%, with perhaps a tiny handful providing 5-6%.

So yes, the problem is rather severe.

1. LIC encourages its agents to ‘convert their contacts into cash’

I’ve come across several cases where the misselling was done by a person’s relative, colleague, a neighbor, and at times even a sibling. Folks often find it hard to say no to them, on account of having a personal connection.

2. So rampant, that Harvard Business School did a study on it

The problem is so rampant, that Harvard Business School even did a 4-year study on it, and concluded that rampant mis-selling occurs in the Indian insurance space – and that agents often recommend insurance products which bring them more commissions, rather than what’s good for their clients.

I’ve written extensively about these commissions in my last post on ULIPS – which are also products which should be completely avoided.

3. So rampant, that it’s made some agents ridiculously rich

This is the snapshot of an article which made rounds in 2013. A couple of LIC agents were making more in commissions, than even the chairman of LIC.

[image error]



4. So rampant, that its easy to find articles like these



[image error]

This article is from Moneylife – another portal which genuinely cares about investor’s interests.

How to exit if you’ve already invested in a LIC policy?

Unfortunately, Every LIC policy and ULIP is different. So a blanket recommendation on when or how to exit is impossible to make. Start first by calling your agent or customer care and asking what would happen if you did exit.

It’s highly likely that you may still not get transparent, honest answers. There are now reports of agents telling their clients that they cannot even withdraw their matured policies and the proceeds will need to be invested into another policy. That is a level of mis-selling that is shocking to hear. But, not surprising.

I’d suggest building up some basic knowledge of investing, so you can take a decision. If you think you’re not up for it, you can consult a fee-only financial advisor.

Conclusion: Should you invest in an LIC policy?

As an investor, you should avoid buying an LIC policy which provide a mix of both insurance and investment. Such policies are sold by several other entities as well. They can all be comfortably avoided.

Most LIC agents will refuse to sell you a pure term insurance policy if you don’t buy any of their whole-life or endowment policies. This is because commissions they get in pure term policies are significantly low. But the fact is that the only type of life insurance cover you need, is a term life insurance.

[ Get posts like these delivered to your inbox. No ads. Ever. ]

Good luck.

Vinod

The post Buying an LIC Policy | What You Should Know | 2020 appeared first on The Moneyplanting Program on Employee Financial Wellness | Vinod Desai.

Skinny: If you, or someone you care about are planning to invest in an LIC policy, here are some critical, mind-bending facts which you need to know. In a way this is also everything that your agent doesn’t want you to know.

The golden rule to not mix insurance and investment is now an old one. You’ll always be better off buying a pure term policy for life insurance, and investing the rest into mutual funds(equity or debt – depending on your goals).

This post isn’t about the low overall effectiveness of such an LIC policy, but about your hard earned wealth which ends up working for your LIC agent.

This is not a review of term life insurance policies, but of ‘whole life plans, ‘pension plans’, ‘endowment plans’ etc. These are typically advertised as tax-saving life insurance products which also provide a return.








WHAT’S THE FUSS ABOUT?



Sales commissions. The fuss is about sales commissions in an LIC policy.

Every time an agent manages to convince you to buy a policy, they get rewarded handsomely. They basically receive a percentage of your payments as income. Not just once, but for as long as you are making your payments. Which basically means you become your agent’s source of income.

A sales commission might sound fair. Without commissions no one would have an incentive to sell anything after all. The problem though is two fold.

The size of these commissions. The fact that this is your money, working for someone else, without your notice.







WHAT PERCENTAGE IS PAID AS COMMISSIONS IN AN LIC POLICY?



The first year

Anything between 25 to 35% of you’ve paid will be paid to your agent as commission.

As an example:

If you were to pay a premium of 30,000/- per year, anything from 7500/- to 10,000/- would go straight to your agent.If you were to pay a premium of 1,00,000/- per year, anything from 25,000/- to 35000/- would go to your agent.



For every year after



Your agent could receive anything from 5 to 10% as commission. He/she receives it as long as you are paying premiums – which could easily span decades.



Then there bonus commissions in LIC policies

Some policies also provide agents with an additional ‘bonus commission’ of 40% in the first year.

[Source: JoinLICIndia]

Do agents disclose LIC policy commissions to their clients?

Nope. If they did, no one would willingly buy a policy from them.

HOW SEVERE IS THE PROBLEM OF AN AGENT MISSELLING AN LIC POLICY?

Pretty severe. Returns and benefits are often glorified and have no correlation to actuals. Even well educated individuals fall prey to this mis-selling since most folks lack a necessary understanding of finances. In reality, most LIC policies barely provide a return of 2-3%, with perhaps a tiny handful providing 5-6%.

So yes, the problem is rather severe.

1. LIC encourages its agents to ‘convert their contacts into cash’

I’ve come across several cases where the misselling was done by a person’s relative, colleague, a neighbor, and at times even a sibling. Folks often find it hard to say no to them, on account of having a personal connection.

2. So rampant, that Harvard Business School did a study on it

The problem is so rampant, that Harvard Business School even did a 4-year study on it, and concluded that rampant mis-selling occurs in the Indian insurance space – and that agents often recommend insurance products which bring them more commissions, rather than what’s good for their clients.

I’ve written extensively about these commissions in my last post on ULIPS – which are also products which should be completely avoided.

3. So rampant, that it’s made some agents ridiculously rich

This is the snapshot of an article which made rounds in 2013. A couple of LIC agents were making more in commissions, than even the chairman of LIC.

[image error]



4. So rampant, that its easy to find articles like these



[image error]

This article is from Moneylife – another portal which genuinely cares about investor’s interests.

Conclusion: Should you invest in an LIC policy?

As an investor, you should avoid LIC policies which provide a mix of both insurance and investment. Such policies are sold by several other entities as well. They can all be comfortably avoided.

Most LIC agents will refuse to sell you a pure term insurance policy if you don’t buy any of their whole-life or endowment policies. This is because commissions they get in pure term policies are significantly low. But the fact is that the only type of life insurance cover you need, is a term life insurance.

[ Get posts like these delivered to your inbox. No ads. Ever. ]

Good luck.

Vinod

Better Your Future. Learn How To Invest Well



[image error]

This beginner’s book teaches everything you need to get started

Buy A Copy

Confused About Which Tax Regime To Pick?



[image error]

Choosing the right tax regime can help you take more home each month.

Click Here







Test Your Knowledge Of Investing Trivia



[image error]

Improve your knowledge of finances – mutual funds, insurance and more

Start

The post What You Should Know Before Buying an LIC Policy | 2020 appeared first on The Moneyplanting Program on Employee Financial Wellness | Vinod Desai.

This fivefold path to wealth can also be referred to as the ‘The-often-ignored-because-it-sounds-too-boring’ path to wealth.

The beginners in the field of investing often expect, and even find assurance in an investing strategy that’s complicated. So they try their hand at stock picking, trading, day-trading, futures, timing the market, and a million other things.

Most however fail to develop a clear long term strategy which provides good returns. In the process, they not only multiply stress, but most often, fare far worse.

Investing is one of those unusual fields where higher effort does not translate to higher results.

The path to wealth, and the rules for gaining a faster financial independence have never changed since the beginning of capitalization. These simple rules are however always ignored — because they’re far too simple and boring.

Fivefold path to wealth









RULE 1



SPEND (FAR)LESS THAN YOU EARN









Your expenditures have a way of catching up with your income — better clothes, better phones, bigger TV, bigger car, bigger house, loans.Most folks will be stuck in this cycle of upgrades, until they realize its too late. Building wealth is as much about saving money, as it is about growing money. In other words, keep your liabilities low.











RULE 2



INVEST THE DIFFERENCE EVERY MONTH









Don’t let the money you’ve saved lie idle in a savings account. Learn the basics of investing, so you know how to invest so some of it so it grows, and so some of it stays protected.











RULE 3



CREATE A PORTFOLIO OF DIVERSE REPUTABLE BUSINESSES









Investing in diverse reputable businesses is the hassle-free way to beat inflation. You could invest in such busineses using index funds, direct plans of diversified mutual funds, or you could acquire stocks on your own.











RULE 4



BE PATIENT









Businesses need time to grow. And so does your investment in them. Even investments in simple products like FDs and PPFs needs time for compounding to work. Your returns across these products will vary, but what’s common to both is the need for time. So be patient.The greed to grow money better than the rest will cause you to take risky decisions, which often ends up making things worse.











RULE 5



STAY INSURED

Insurance protects your wealth by ensuring you don’t withdraw from your investments to meet the fallout of an unfortunate incident. So whether it’s life, health or auto, always ensure you’re adequately insured.

These five rules summarize the collective wisdom of decades or even a century of investing research. Study after study has shown, that this strategy works.

The fivefold path to wealth only works when:

Like the eightfold path of Buddhism, this fivefold path to wealth works only when all the rules are followed together. You can’t cherry pick or drop one or two. Because a lot happens when these rules work together.

For example:

The combination of Rule 2 and Rule 3 helps you take advantage of cost averaging in equities — which, as an investing strategy works better than choosing to only invest in market lows.The combination of Rule 4 and Rule 3 allows you to ride out noise and day-to-day market volatility.

Learn the fundamentals you need to start your fivefold path to wealth

Index funds, diversified mutual funds, direct plans, cost averaging — if words like these sound like gobbledygook to you, pick this book up. It gives complete beginners a 10-year head start on their knowledge of finances.

Do a good deed today

It’s likely that you have a family member who will soon start to earn a salary. Make them aware of this path so they can start early. They might spend their first few years blowing up their salaries on shiny new things. But being aware of these rules will help them come to senses far earlier than their peers.

[ Get posts like these delivered to your inbox. No ads. Ever. ]

I’ll be writing three stories next.

The story of a very unassuming individual who followed this path, and built the kind of wealth which shocked the investing world. A primate which picked stocks and managed to beat the returns provided by most fund managers.A study which spans more than one and a half centuries, and validates what’s written here.

Have a good weekend.

Vinod

The post Summary of 100 Years of Wisdom – The Fivefold Path to Wealth appeared first on The Moneyplanting Program on Employee Financial Wellness | Vinod Desai.

This fivefold path to wealth can also be referred to as the ‘The-often-ignored-because-it-sounds-too-boring’ path to wealth.

The beginners in the field of investing often expect, and even find assurance in an investing strategy that’s complicated. So they try their hand at stock picking, trading, day-trading, futures, timing the market, and a million other things.

Most however fail to develop a clear long term strategy which provides good returns. In the process, they not only multiply stress, but most often, fare far worse.

Investing is one of those unusual fields where higher effort does not translate to higher results.

The path to wealth, and the rules for gaining a faster financial independence have never changed since the beginning of capitalization. These simple rules are however always ignored — because they’re far too simple and boring.

Fivefold path to wealth









RULE 1



SPEND (FAR)LESS THAN YOU EARN









Your expenditures have a way of catching up with your income — better clothes, better phones, bigger TV, bigger car, bigger house, loans.Most folks will be stuck in this cycle of upgrades, until they realize its too late. Building wealth is as much about saving money, as it is about growing money. In other words, keep your liabilities low.











RULE 2



INVEST THE DIFFERENCE EVERY MONTH









Don’t let the money you’ve saved lie idle in a savings account. Learn the basics of investing, so you know how to invest so some of it so it grows, and so some of it stays protected.











RULE 3



CREATE A PORTFOLIO OF DIVERSE REPUTABLE BUSINESSES









Investing in diverse reputable businesses is the hassle-free way to beat inflation. You could invest in such busineses using index funds, direct plans of diversified mutual funds, or you could acquire stocks on your own.











RULE 4



BE PATIENT









Businesses need time to grow. And so does your investment in them. Even investments in simple products like FDs and PPFs needs time for compounding to work. Your returns across these products will vary, but what’s common to both is the need for time. So be patient.The greed to grow money better than the rest will cause you to take risky decisions, which often ends up making things worse.











RULE 5



STAY INSURED

Insurance protects your wealth by ensuring you don’t withdraw from your investments to meet the fallout of an unfortunate incident. So whether it’s life, health or auto, always ensure you’re adequately insured.

These five rules summarize the collective wisdom of decades or even a century of investing research. Study after study has shown, that this strategy works.

The fivefold path to wealth only works when:

Like the eightfold path of Buddhism, this fivefold path to wealth works only when all the rules are followed together. You can’t cherry pick or drop one or two. Because a lot happens when these rules work together.

For example:

The combination of Rule 2 and Rule 3 helps you take advantage of cost averaging in equities — which, as an investing strategy works better than choosing to only invest in market lows.The combination of Rule 4 and Rule 3 allows you to ride out noise and day-to-day market volatility.

Learn the fundamentals you need to start your fivefold path to wealth

Index funds, diversified mutual funds, direct plans, cost averaging — if words like these sound like gobbledygook to you, pick this book up. It gives complete beginners a 10-year head start on their knowledge of finances.

Do a good deed today

It’s likely that you have a family member who will soon start to earn a salary. Make them aware of this path so they can start early. They might spend their first few years blowing up their salaries on shiny new things. But being aware of these rules will help them come to senses far earlier than their peers.

[ Get posts like these delivered to your inbox. No ads. Ever. ]

I’ll be writing three stories next.

The story of a very unassuming individual who followed this path, and built the kind of wealth which shocked the investing world. A primate which picked stocks and managed to beat the returns provided by most fund managers.A study which spans more than one and a half centuries, and validates what’s written here.

Have a good weekend.

Vinod

The post The Fivefold Path to Wealth appeared first on The Moneyplanting Program on Employee Financial Wellness | Vinod Desai.

What’s the fuss about?

My publisher is keen on giving away a couple dozen copies of my book. So, here’s your chance to score one.

Nothing comes for free. So what’s the catch?

I always warn my readers of anything which is free — whether it’s free mutual fund platforms, or a financial advisor who works for nothing.

So, that’s fair. There is a catch yeah.

But it’ll cost you nothing. Zero.

All that’s expected in return, is that you write the book an honest review once you’re done reading. Good, great, terrible — doesn’t matter. A simple, honest review that’ll help others find the book. And once those folks read the book, you’ll get additional good vibes and karma your way — because you would’ve played a part in their journey of financial literacy.

Sounds OK. How does one qualify?

Just submit the details in the form below and that is it. There are no restrictions. Submitting the details in the form will also sign you up for future alerts on giveaways and posts. But fret not. Every mail comes with a way to unsub.

Who picks the winners?

My publishing team will do that. I just pass the entries along.

Is there a way to improve the chances of winning?

Yeah. They clearly want the word about the book to spread as much as possible. So I’m guessing they’ll be more inclined to pick you, if you’re a blogger, a book reviewer or a micro-influencer of sorts. So if you are one, don’t forget to leave your handle’s address in the form. (Even if you have 500 followers on Instagram, I’d count you as a social media rockstar/micro-influencer. Because even in my hay day, I had a maximum of 11 followers. 11. My uncles and aunts mostly.)

When does the giveaway end?

The plan is to give away books every month. This giveaway will close end of August. And winners will be picked in the first week of September. A new giveaway will be opened for September. It’s hard to believe we’re talking about Sep 2020 already. What a year 2020 has been.

Enter Giveaway





[image error]





Name *Email Address *Website *Enter Giveaway

And that’s it. Happy Moneyplanting.

Have a good mask-wearing, socially-distancing, often-hand-sanitizing weekend.

Vinod Desai

The post We’re giving away free copies of the book appeared first on The Moneyplanting Program on Employee Financial Wellness | Vinod Desai.