- You want stuff
- Stuff is expensive
- You’ll get old and won’t have pension (unlike previous generations)
Ask why someone is giving you financial advice
If a life insurance agent is offering advice, their motivation is usually their commission. Taking advice from a financial advisor who gets a flat fee is probably better.
LIC is a scam
LIC combines life insurance and investment. You do need life insurace and you should invest money, but you should keep both of those things separate.
|Insurance Plan||Sum assured||Annual premium|
|HDFC term life (online)||50 lakh assured||Premium 5,000|
|LIC Jeevan Anand||50 lakh assured||Premium 24,000|
LIC takes the surplus premium and invests somewhere, but the rate of returns is pretty terrible compared to other financial instruments.
First home? Yes, usually a good idea if you’re staying in the same place for at least 5 years. 7-10 ideal.
Usually long term appreciation for property is 10-15%. Maybe short term you might get lucky and double or triple, but this is rare.
|Home price||Sold in 7 years for||EMI cost||Gain/Loss||Recurring Deposit|
|40 lakh||80 lakh||35 lakh||45 lakh||47 lakh|
|40 lakh||1.2 crore||35 lakh||85 lakh||47 lakh|
Second home? No, probably a bad idea. Recurring deposit usually makes you more money.
30 year return is 10-11%, Equity is 15%. Having maybe 5-10% of total assets in gold is okay. In India this tends to be much higher as a lot of people like gold. Safety from government.
If you have a full time job, you won’t have the time or knowledge to manage a stock portfolio as well as professional brokers in Dalal street. It’s smarter to buy a managed basket of stocks using mutual funds.
Equity means stocks. Equity tends to beat every other asset class long term (even if you started right before something like the 2008 stock market crash). Last 10 year average returns: 16-17%. Next 10 maybe 12% as returns have fallen.
|Large cap||Mid cap||Small cap|
|Least volatile||Moderately volative||Most volatile|
Indian companies are not very well regulated, so small cap is risky. Mid to large cap is a better bet.
Thumb rule: (100 - your age)% in Equity, rest in debt.
No volatility, expected returns are 7-9%. As you get older, move your assets from equity to debt so you have less volatility - a market crash can be a larger issue for you when you are older. Government debt v/s. Company debt
SIPs ensure that you beat market fluctuation and is a more sensible investment methodology than trying to time the market.
Direct v/s. Regular
Broker takes a cut in Regular mutual funds. Broker takes ~1% out of 1.25-3% expense ratio in the mutual fund. Direct funds don’t have the broker cut and expense ratio is lower.
Growth v/s. Dividend
Growth mutual funds reinvest your earnings back into the fund. Dividends pay out earnings to your bank account. Dividentds are taxed at a higher rate than capital gains, so unless you are relying on the income growth is preferable.
Company stock options
Some companies will give stocks as part of compensation. If you are holding these, you’re betting that your company’s stock will do better than any other type of investment. Safer idea is to sell and put money into mutual funds. You get an indexation benefit (better tax rate) if you hold foreign stocks for 3 years, so hold for at least that long.
Restricted Stock Unit
- Part of company compensation
- Granted on joining and/or every rewards cycle based on performance
- Vests over 5 years
Employee Stock Purchase Plan
- Option to purchase company stock
- At Microsoft, you can use up to 15% of your salary each month to buy MS Stock at 10% less than market rate. You should do this, it’s a no-brainer.
Make a will
Write it and give it to trusted person. Better to get it written up by lawyer and get it registered (2k-5k cost)
Mutual Fund Recommendations
From Binu Raj
- Franklin India focused Equity fund - multicap
- Motilal oswal multicap 35 fund - multicap
- PPFAS Long term equity fund - multicap w/30% global equity
- Motilal oswal focused 25 fund - largecap
- Mirae Asset Hybrid Equity fund - balanced fund (equity oriented, with 15-30% debt)
- Mirae asset emerging bluechip fund - midcap
- Franklin Prima fund - midcap
US/Global equity (to protect against Rupee depreciation)
- ICICI Pru US bluechip - US largecaps
- Motilal Oswal Nasdaq 100 - US stocks