The Most Authentic Guide on Personal Finance and Investments


Words of Wisdom : "The best time to start thinking about your retirement is before your boss does." ~ Anonymous

Key personal finance queries, answered without fear or favour (Part 1)

Property and gold are "mistaken" as truly perfect investments.

People have "blind" faith in highly inefficient insurance policies.

Financial scams happen every day. 

There is "irrational" fear against equity.

Understanding of mutual funds is zilch.

And, I feel really dejected to see people choose bad investments and lose their hard-earned money... regularly. 

So here are my... most Honest, Sincere, Impartial and Genuine answers... to the ten most common personal finance questions.

Ques 1 : I have Rs.2.50 lakhs with me. What is the best investment scheme for 1 to 2 years?

Answer 1 : The time frame is short. As such, investments like property, insurance, PPF, etc. are practically ruled out. These are long term investments. So, exiting within 1-2 years is not permitted (e.g. PPF, etc.) or it could prove too expensive (e.g. property).

Equity and gold are both highly liquid and can be conveniently sold. But, I would surely not recommend them. They are too volatile in the short term. Therefore, chances of losing money are extremely high. It is not good to try your "luck". I am sure you don't want to play lottery with your money. Smart investors treat equity and gold too as a long term investment.

Besides, tax liabilities are very high if gold, property, etc. are sold in the short term.

Even with debt mutual funds, the tax efficiency kicks in only after 3 years of holding period.

Therefore, for all practical purposes, Bank Fixed Deposits would be the most prudent investment if the time frame is 1 to 3 years.

For the financially savvy investors in the higher tax brackets, I recommend the Arbitrage Funds. And if your financial awareness is low, please work on it. You are missing a great fortune due to your ignorance.
personal-finance-queries
Ask. Evaluate. Act. That's the best way to take GOOD care of your money.

Ques 2 : What is difference between buying/selling shares and mutual funds? Is the experience of buying/selling mutual funds the same as shares?

Answer 2 : Investing in shares and mutual funds are a completely different ball game

When you are buying shares, you have to critically evaluate the company, its management, its profitability, its future potential, its share price and more. Plus, you need to closely monitor your investment in shares. Lastly, of course, you need to ascertain the right time to exit.

In mutual funds, all the aforesaid crucial functions are handled by a professional fund manager. And this really is a good thing. Because, these require right qualifications, right expertise and right experience. Most investors are total amateurs. It would foolish to believe that they can consistently beat these professionals. Thus, they should not try to dabble in stocks directly.

When you have to invest in a mutual fund, your job is much simpler. You have to consider mainly two important points... 
... one, does profile of the fund match with your requirements and 
... two, does it have an above-par long term performance track record. 

You don't have to worry about its price (i.e. NAV), you don't have to time your exit, you don't require close monitoring... nothing.

In short, investment in stocks through mutual funds is lot easier than buying them directly... without, of course, any compromise on the returns aspect

Ques 3 : I bought a house for Rs.35 lakhs on loan. Now it's price is Rs.1.20 crores. I put it on rent which is about Rs.25,000. Now I have taken a loan against it and doing a business. I feel such leveraging is good. But still people say debt is bad?

Answer 3 : Leveraging debt is bad, ONLY IF...
... if the returns are lower than the interest costs
... if monthly EMIs strain the day-to-day finances
... if repayment can become a serious threat.

In your case, I presume ...
... it is not your primary residence and hence can always be sold to repay the loan if things go wrong
... your business is generating, or has the potential to generate, more returns than the interest cost
... the rental income + business cash flow is sufficient enough to pay the monthly interest or EMIs.

If yes, leveraging is definitely good.

Don't believe in what people say. My 25+ years of experience in the field finance has taught me that 95% people DO NOT understand money matters. They neither have any inclination to learn things, nor have the confidence to think logically.

Ques 4 : Which is the best credit card?

Answer 4 : First a WARNING - 
Warning A - You must use credit card ONLY as a convenient means of payment. 
Warning B - You must always clear your bills BEFORE the due date.
Warning C - Never, I repeat NEVER, ever carry forward your outstanding amounts.

With this in mind, the most important point to consider is that the card should have ZERO fees for lifetime.

Ques 5 : What percentage (ideally) of ones net worth should be invested in property?

Answer 5 : It depends on the person's specific financial profile. However, for a typical investor in the age bracket of 25 to 55, I would normally recommend a 40:35:20:5 allocation across property-equity-debt-gold.


In Part 2 to this blog post, I will address five more of your daily personal finance problems.

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Ignorance is like a SIGNED BLANK CHEQUE... anyone can MISUSE it.

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