A little more than a month ago, stock markets in India and all over the world were at their all time highs. Suddenly, in a matter of few working days markets crashed at a speed that wasn’t seen before, including at the time of financial melt-down and recession of 2008-09. Until the end of first week of this month, I believed, in my life time I’ll never again see 2008-09 kind of crash. No living person then and today so far remembers experiencing any bigger stock market crash of a magnitude of 2008-09. Well, for Indians, it was the only biggest crash people have seen. In USA, something bigger had happened during ‘great depression’ of 1929, when Indian Stock Market was practically non-existent (though BSE is more than century old, there is no data, benchmark whatsoever for those dates). During 2008-09 I was still amateur investor with little money. That situation should have been much better for me, if had not done a bad financial decision just few months before the recession took enti...

Yesterday a student doing some project on Mutual Fund Performance Analysis, reached out to me for sharing my inputs. While replying to her, I felt this is in fact the matter of the title of this article – Efficacy of Performance Analysis. For me, actually this is a frequently faced question or situation, though not in exact words; clients, prospects and DIY investors seeking ‘little help’ (is that ‘DIY’?!) want a hack of choosing winners by looking at past performance. Investment comparison portals kind of make it more attractive and look easy-peasy task by giving “Star” ratings to schemes based on past performance. I am just reproducing my reply letter to her. Dear Sister, The title of your project “ Performance Analysis of selected Mutual Funds as an Investing vehicle for an Individual ” itself,   and hence the set of objectives, is put together inappropriately. Performance analysis should not be the basis (at least primary or main basis) for Mutual Funds being inv...

First, is this a slow down and what are the indicators and signs? 1. GDP has fallen sharply to 5% (against normal 7-8% and ambitious growth rate of 10%+) 2. Automobile sales have sharply dropped 3. Unemployment rate has increased 4. GST collections growth rate (@6.5%) is declining and in some months of de-growth (decline) is seen against expected 10% growth rate. 5. Private sector wages are not increasing 6. Lot of negative news about banking and financial companies 7. Bank credit growth low for long and slowing down below long-term average Ok, there are enough signs but what are the reasons? Actually these signs are reasons for one another; i.e., they are interdependent. Ironically all these bad things started because of good things. I mean the root cause of these bad things are actually the good things that were done few recent years ago. Good policies and actions by RBI and government that disrupted the "business as usual", sown the seeds of slow down...

I was giving a lecture to final year MBA students. I asked them, what are the ways of earning money. Obviously they had lot of answers. But I asked why don't they think of money earning money? They obviously guessed that I was talking about 'investing' and they agreed, yes, that's also a way. Then I asked "between you and your money who will earn more money, say after 10-15 years from now?" Everyone said, they themselves will be earning more than their money, obviously as I guessed. Leave alone students, most people, including parents of many of the students, even with decades of work experience have a situation that they earn more than their money. So, most people 'vouch for the fact' that they are better earners than their money. That's because they worked hard for money and never let their money work hard for them! I can give you many examples. Many bankers working hard for banks save their money in Bank Deposits than buying shares of t...

It is well established that separation of 'Financial Advice' and 'Financial Product Sales' is a great idea to avoid conflict of interest. Mixing both, that means advice from a product seller, may not always be unbiased. Paying fees for advice only, (where adviser gets paid by the client only and won't earn any commission or remuneration for the products he /she recommends) indeed is a great idea logically. Sometimes (rather most of the times!) we humans don't behave logically. I see three types of people: Majority - reactive people,  who need to be chased to do get them buy and renew their Insurance policies or start and keep the SIP going;  Minority - people who get the financial plan and advice by paying fees and then get too busy with their work that it keeps them postponing the implementation of plan / advice for eternity;   Rarity - proactive people who plan and implement meticulously. Financial Advisers add little value to the rare proactiv...

Few days ago I’ve posted a short article titled “ Lifeand Health Insurance – The Right Way to Look At ” . You may also relate this to the post “ Use,Abuse and Misuse of  Life Insurance ” This one may be considered a continuation and slight detailing about Life Insurance, with extension to Personal Accident Insurance. With the above articles you know, you should buy Term Life Insurance. While buying the term insurance most policies offer riders. Riders are ‘Add-ons’ that can be bought along with base cover. Riders offered may differ one to other insurer and plan. Most common are ‘Accidental Death Benefit’, ‘Accidental Disability’ and ‘Critical Illness’. Before I elaborate on the riders, let me describe amount the optimum cover for base life cover. There are methods of calculating the exact amount of Life Cover you need – The Income Replacement Method and Human Life Value (HLV). These methods may be a bit complicated for layman. For simplicity, you may use thumb-rule met...

An argument I have to frequently counter about insurance is based on “Cost-Benefit” analysis. Well, no person would mention their argument to in that exact phrase but they mean that. That means they argue, compared to the claim (sum insured) amount I may get and the premium I am being charged for that is far lesser. So why should not I take that insurance / feature, though it costs slightly more. This argument is faced in situations like buying an add-on / rider with the main policy, buying for longer tenure / term, too much (features) for too less (price / premium). My advice is understand and anchor on to what you NEED. Consider the options available. For illustration, say, following for offer: P-1 [Primary Offer], a product (policy) that just satisfies your needs with reasonable pricing and there are competing products.  A-1 [First alternative / competing product]: charges slightly more and offers some add-on’s which are not needed / not so much useful to you.  ...

During my discussion about Term life Insurance, I am asked frequently, why not take it for very long term to cover the older ages also, say till age 75. It is obvious, why people think like that. And because most people think like that, it becomes opportunity for the Insurance Industry! Nowadays few companies have started offering term insurance policies that never expire…means life time (Age 100) cover!!! People think the probability of death is high during older ages than younger age and hence if they cover themselves during those ages, their nominees (children) will get benefited! It’s like passing on the inheritance / estate to next generation!! I would say this thought process is both misuse and abuse of Insurance. Insurance is appropriate neither for passing on wealth (misuse) nor getting insurance cover when you don’t need it (abuse). Firstly, an insurance (any kind of insurance) is always your B-Plan (Back-up Plan). There is a room for B-Plan only when you have A-Plan (Act...

There was a time, during my early years of my previous engineering career, I used to get phone calls to sell me Health Insurance. I used to ask the caller, do their health cover covers OPD (Out Patient Department) expenses (i.e. expenses incurred on consultation charges etc on visiting clinic / doctor for minor sicknesses), diagnostics, Pharmacy bills etc (the regular medical expenses, in short). Those days most of the health insurance plans did not cover these regular medical expenses, unless followed by minimum period of hospitalization. So, I used to argue and deny buying health insurance saying there is no point in buying a cover that hardly covers more likely expenses but only less likely (rare) things like diseases and accidents requiring hospitalization. Later after few years, out of personal interest and as part of my personal finance learning endeavour, I attended some professional training on Insurance. I got to learn many new things and it changed my perspective about Ins...

Firstly, an insurance (any kind of insurance) is always your B-Plan (Back-up Plan). There is a room for B-Plan only when you have A-Plan (Actual / Primary Plan). B-Plan is for use when A-Plan for some reason doesn’t work or fails. So, obviously there can’t be B-Plan if there is no A-Plan in first place or if the A-Plan is successfully executed. Let me elaborate to tell what I mean. You have so many financial goals and responsibilities towards your family – Funding your Children’s  education & career, Getting your daughter married, Owning a house for your family, Ensuring post retirement income for spouse (& yourself) etc. The A-Plan to achieve these goals is work, earn and save & invest.  So, if you work for several long years or till your retirement, you are going to work / execute A-Plan. But, what if fate doesn’t allow that and some accident hits to leave you dead or disabled? Your future income will no more be available to the family. Then what about those...