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Amidst all the things that are happening inour life on a daily basis, retirement planning often takes a backseat. In most cases, people don’t realisethe importance of planning for their older self until they turn 35 or maybe 40. The key to a safe and relaxed retirement is planning it from as early as possible. Remember, the primary goal is to be able to maintain the same standard of living as it is today. From calculating your finances using a pension plan calculator to finding an investment option that you can stick to, you must do it all.

To help you plan your finances well and make youretirement ready, here are sixgolden rules to abide by. Take a look!

Rule No. 1 – Start Saving Early 

We devote most of our time planning for thenext vacation or the things we need to buy. Retirement is often the last thing on thelist to plan. However, if we go by what finance gurus suggest, starting as early as possible is the best way to build a strong corpus. You can start by setting aside 10% of the salary for investment. Increasing the amount after every salary hike is also a great way to walk the right path. Not following these simple steps can undermine the value of your corpus. 

Rule No. 2 – Diversify Your Portfolio

Diversification is one of the critical elements that playa significant role in keeping your savings unaffected from market fluctuations. Asitacts as one of the most criticaltools that reduce the risk ininvestments, diversification should also be plannedwell. So, the rule of thumb says that the investments should be diversified across asset classes and countries. Opt for different investment options to keep your funds divided and free from any risk. 

Rule No. 3 – Visualize Your Life Post Retirement 

To plan a proper retirement, you must know how much money you will need to fulfilall that you desire to do as a retiree. Whether you are planning to explore the world or thinking of getting associated with a generouscause, you must have a clear idea about your life post-retirement. A pension plan calculator will help you know an estimate of how much money you will need to continue with the same lifestyle while fulfilling the retirement dream.

Rule No. 4 – Plan for Healthcare Costs

When working towards building a strong corpus for your retirement, don’t neglect the healthcare costs that pop up with age. The last thing that you would want to do is to shell money out of the savings that are plannedfor the retirement. Thus, investing in a comprehensive health policy is the right step to take. Both health and finances are equally critical for a comfortable retirement. So, make sure you have a way to pay for medical emergencies – whether through insurance or other funds.

Rule No. 5 – Have a Plan B Ready

It is not always possible that things work out the way we imagine. Hence, it is always better that you have a plan B in place. An alternate source of income like a part-time job will keep the cash flowing, and you won’t have to depend on your family and kids to make ends meet. Old age is the time to have a ball of a time while enjoying the ordinary. Whether you want to spend time with your loved ones or take your passion for travelling a level up, finances should never become a thing to worry. Retirement is all about having time to do things that are meaningful to you – to make it comfortable, have a plan B ready.  

Rule No. 6 – Invest in a Pension Plan

The best bet to have a constant flow of income after retirement is by investing in a pension plan. A carefully chosen pension plan can help you fight inflation – all because of the power of compounding. The investment + gains in your name will take care of lifestyle requirements and increasing healthcare costs while ensuring regular cash flow. 

Final Words

Following these six golden rules when working to build a corpus for your retirement will certainly tilt the odds in your favour. If you are new to the world of savings and planning for future, you can take help from a financial advisor. Insurers like Future Generali not only offer help in terms of managing the finances but also have a pension plan calculator. With the help of this pension plan calculator,you will have a fair idea about how much money you would require post-retirement. Online calculators help you see if you are on the right track to meet your retirement objectives. Follow a step-by-step approach and take things one at a time to build a strong corpus for your retirement. 

The post 6 Golden Rules That Lead to A Comfortable Retirement appeared first on Vipin Khandelwal.

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I chanced upon this book, Factfulness – 10 reasons we’re wrong about the world – and why things are better than you think, because it was on the WhatsApp DP of one of my phone contacts. Then I saw another review on Linkedin about this book.

I had a feeling I should order it and now that I am done reading, I want you to read it too. Why?

Read on.

Do you wear vision glasses?

You remember how it felt to put them up on your nose the very first time. The world appears clearer than ever before. The colours are more visible, the outlines more prominent and the constant haze has now disappeared.

See, that’s what Factfulness by Hans Rosling does to you. It gives you a brand new set of glasses to see the world.

The book argues that how we continue to see the world with outdated data, biases and make incorrect decisions based on that knowledge. The entire world including intellectuals, CEOs, Heads of States and Bureaucrats suffer from this issue.

It is not uncommon to hear theories and opinions about extreme poverty, climate change, diseases, social reform, etc. The book first makes us realise that most of what we know is plain wrong.

This is how in Factfulness, Hans Rosling, the author, puts it.

When you use the GPS in your car, it is important that it is using the right information. You would’nt trust it if it seemed to be navigating you through a different city than the one you were in, because you would know that you would end up in the wrong place. So, how could policy makers and politicians solve global problems if they were operating on the wrong facts? How could business people make sensible decisions for their organisations if their worldview were upside down? And how could each person going about their life know which issues they should be stressed and worried about?

Hans takes it up to himself to put all our misconceptions about the world into perspective and then set them right.

From the word go, he systematically tears apart every assumption that you might have made about the state of the world. You realise how ignorant you are about the world and how this ignorance probably affects your work, relationships and various decisions you make.

He uses telling facts (publicly available), bubble graphs and anecdotes from his own experiences to help us see the current true state of the world and how it has changed over years.

As you cruise through pages till you reach the end, you cannot but feel that the world you are now living in so different than you had known. Yes, not everything is great but they are better with significant improvement over centuries.

Personally, I still wear eye glasses for vision and for over 23 years.

Reading this book felt like getting a new pair of glasses. I can appreciate that the while several things about the world are still bad, overall the world is better now and constantly moving into that direction.

For my readers, who are likely to be a business person or an investor, this book will help you see where the real future growth opportunities lie.

It is a must read. Consider it to be the new glasses for the year 2019 and onwards.

Factfulness – 10 reasons we’re wrong about the world – and why things are better than you think

The post Book Review – Factfulness – See the world afresh in 2019 appeared first on Vipin Khandelwal.

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Were you intrigued by the picture that you just saw above? Well, that is a work of Vaddadi Kartick and he is working on NoctaCam, a camera app for iPhone.

Kartick is based in Bengaluru. He loves photography and understands cameras and apps, much better than many of us. Better than me for sure!

Kartick earned an M.Tech. in Computer Engineering at IIT Bombay. He worked at Google for almost 9 years, on most of the important products, like Google search, Youtube, Gmail, Google Sheets, Google Docs.

I have known Kartick as a very fertile, curious mind with amazing clarity of thought. I believe the same reflects in his work too.

Today, we are going to get Kartick to share about his story and his creation – the NoctaCam iPhone camera app.

All set Kartick!

Kartick: Thanks for having me, and always good to talk to you, Vipin.

Vipin: Great!

Great to have you today here. I know that you have been working on an app. In fact, you left your job at Google and went headlong into becoming an entrepreneur, an app developer. That was quite a leap.

So why did you leave your job? How did this even come to happen? What was driving you?

Kartick: I was interested in photography for a long time, even in college, though I couldn’t afford a camera back then. When I had some money, I bought a point-and-shoot, and over the years learnt to use it to its potential. I was attracted to night photography, and after a while, I found myself being limited by the camera. So I upgraded to a much more powerful camera, and took many more photos, seeing the world through new eyes.

A night landscape can look mesmerizing in a photo, lights glittering like jewels. Light and movement come to life. A solid, heavy hunk of steel, like a train, can look malleable and organic, effortlessly gliding over the tracks like a ballet dancer. A timelapse can show you the moon and stars moving through the sky, in arcs. You see the cosmos in action without even leaving your balcony!

You see things that are there but you couldn’t see before. I tried fun techniques like taking a photo with two copies of myself in it. And light painting, like writing K, the first letter of Kartick, not with ink or paint but with light. Now you’ve moved beyond seeing things that you couldn’t see before to creating what you want, like an artist. Night photography is such great fun.

In the last few years, as phones took over from dedicated cameras, I tried to use phones for night photography, and found that even flagship phones like iPhones couldn’t do a good job at it. I discovered ways to use algorithms to enhance photos, doing in software what the camera couldn’t do. They produced great results, and the whole idea was fascinating, like figuring out a way to get your car to fly into space! Since I know both programming and photography, I could relate to these algorithms, but even then, it was a cumbersome process, and I ended up wishing someone would package them in an easy-to-use mobile app. I would look for apps on both iPhone and Android, buying many, but never quite finding the right one.

I then realised, “Why wait around for someone else to come and do it? I can build this myself!” I deeply care about this, and I’m the right person to do it, since given my passion and skills. I know mobile programming well and know photography, including computational photography. So, I left my job and let this passion consume me.

Vipin: The whole night photography, the way you have described, sounds magical.

So, as you said you decided to build your own app to take care of the shortcomings of other cameras / apps.  The result is the NoctaCam app. Tell me more about NoctaCam? What does it do?

Kartick: NoctaCam lets you take great videos and photos at night. If you want to try out night photography, and you have an iPhone, there’s no better way to get started than NoctaCam. Or if you’ve already tried it a bit but want to take your night photography to your next level.

We’ve tested NoctaCam against many other camera apps, and NoctaCam takes as good or better photos as any of them, using our advanced computational photography algorithms.

NoctaCam is also the easiest camera app you’ve used, easier than even the iPhone camera app. You shouldn’t have to learn confusing technobabble like ISO or shutter speed to take great photos, any more than you have to understand how an internal combustion engine works to drive a car.

We have launched one feature so far, which is a fill light and a key light.

Vipin: Let me interrupt you right there. What are those?

Kartick: If you want to photograph a scene, and the natural light isn’t enough, you need to add artificial light from your camera. Photographers do this in two different ways: key light and fill light. A key light is the primary source of light by which the scene is lit.

A fill light, on the other hand, selectively brightens dark parts of the scene, while still preserving the overall feel of the scene. It lights the subject while preserving the background, so if you want to take a photo of your girlfriend in a park, and you want to capture the overall scene, not just her floating in a vacuum, use a fill light. NoctaCam offers both.

Vipin: So, will I get better pictures at my cousin’s wedding or the friends’ get together, in night or even with low light too?

Kartick: Exactly, NoctaCam is optimised for any kind of low-light photography. This could be night, or maybe you want to capture the mood in a dark cinema theater. Or even selectively brighten dark parts of a daytime scene.

Vipin: Why was the iPhone camera app not sufficient to do it? What’s the difference?

Kartick: You can see for yourself how NoctaCam is able to take better photos for different types of scenes, like an outdoor scene:

… a person:

… and a macro scene:

Vipin: Indeed, those photos look amazing. You mentioned earlier that in addition to taking great photos, NoctaCam is the easiest night camera app to use. As someone who’s not a photographer, this sounds appealing.

Kartick: Yes, as the decades go by, we expect more and more things to be automated, but night photography is still too manual. Most cameras and apps rely on the user to tweak settings if they want great photos and videos at night. Like choosing a frame rate and resolution for a video. But this isn’t the best way to do it.

NoctaCam is smart enough to choose the right settings, and the right ways to process and enhance the photo, taking care of the complex technical decisions. This leaves you free to focus on the creative aspect of photography, bringing your photos to life as you see them, which only you can do. After all, if you’re doing things a machine can do for you, you’re not exploring your potential.

Vipin: I am sure lots of users are willing to try out night photography now using NoctaCam. How can one get to your app? How to download it? Is it paid, free, or a mix?

Kartick: NoctaCam is free to download. Just click on the image below or this link:

If you want to learn more, visit us at NoctaCam.com.

After you’ve used it enough, we ask that you make a nominal contribution to bring more awesome features your way.

Vipin: You’ve talked about the fill light and key light. Do you have more features?

Kartick: Yes, we’re working on a video mode. Here’s a preview:

You can see for yourself how NoctaCam let you take a bright, clear video, unlike the iPhone camera app, which was dark and you couldn’t see much.

Vipin: This looks amazing. Are you building all this by yourself?! Is NoctaCam a one-man show?

Kartick: It started that way, but I then realised that we can do so much more with a small team. For example, we can work harder to make it easier for you to use. So I assembled a small but high-quality team consisting of engineers from IIT and BITS Pilani, and a designer from NID. This gives us the time to work on both implementation and research. We also collaborate with IISc on researching the best computational photography algorithms for our needs.

Vipin: Ok, I will ask you to be a little generous. Give us 3 iPhone native camera app tricks (OR mistakes to avoid) that one can still use to click better photographs or record videos.

Kartick: Sure. First, practice: take tons of photos. Look at them on your computer screen, notice what works, and what doesn’t, and try again. Try different scenes. Try the same scene at different times of the day, and notice the difference the lighting makes. Try it from different vantage points, like crouching and holding the camera close to the ground, and notice what a difference a fresh perspective makes, one different from what we see everyday from where we stand. Try different things, keep exploring, and you’ll find photography to be a rewarding hobby.

Second, if you haven’t tried night photography, give it a shot. The night is full of wonders that are beyond the ability of our eyes to see, but a camera could capture it. And if you don’t have an SLR, don’t let that hold you back. Start with your smartphone. One or two of the right paid apps can make a big difference, for probably a hundred times less than the cost of an SLR!

Third, learn to use fill light. If you’ve taken photos with the flash and it turned out to be too bright, and it lost the feel of the scene, the ambience, try a fill light. A good rule of thumb with the flash is to use it so subtly that viewers don’t even know you’ve used it; they just get a better photo.

Vipin: Thanks for the tips. What are your plans for 2018? If I am downloading NoctaCam app, what kind of things can I expect?

Kartick: We’ve launched one feature — a fill flash — and we’re working on many more, like a video mode, long exposure and so on. All these will launch in 2018, roughly one feature every quarter.

We keep exploring techniques and styles of photography. For example, I recently came up with an algorithm to take better black-and-white photos at night with better quality than just taking a photo and applying a filter. We found that it didn’t work particularly well, so we’ve deprioritised this feature. We keep experimenting this way, trying out a lot of things, to bring you only the best features. We invest our time so that you don’t waste yours.

Vipin: This sounds great. As you keep trying out these features, how are you validating that these are indeed useful.

Kartick: That’s a great question.

First, we validate the results of each of these internally. Our team consists of people from diverse backgrounds like engineering, UX design, marketing and even architecture, which helps us evaluate a proposed feature from different perspectives.

Next, we’re working a small but great set of photographers to understand what kind of photos they take, what apps they use, what problems they face, what they would like, and so on. With this process, we’ll be able to deliver great features that are useful to many people, whether professional photographers, enthusiasts, or anyone who wants better photos.

Vipin: Ah! So, we can expect a constant supply of delight! Tell me, how can my reader get in touch with you?

Kartick: There’s a unique opportunity for you, the reader of this blog: If you’re a photographer or an enthusiast, you can partner with us as we build NoctaCam and help shape it to fit your needs. We’ll talk to you, understand what kind of photos you take, what apps you use, what problems you face, consult with you on what features we should build, and so on.

This is different from most products, which are usually offered on a “take it or leave it” basis. That is, use it if you want, or not, but there’s limited potential for you to shape the product. We’re different. Email me at kart@jupitersupplystation.com. I’d love to hear from you.

Kartick, what you are doing is awesome. Just for the fact that you have decided to be on your own, build something useful and ship it to the world, you have a lot of respect from me.

I wish you all the best. May be we will get you again sometime to talk more about the progress of the app.

So, guys this was Kartick and he is making ruckus with the NoctaCam iPhone camera app. It helps you do better night photography and brings out pictures and videos that an iPhone can’t.

Don’t believe me or him. Download the app and try it out yourself. Tell your friends, family, colleagues about it.

You must share feedback with him and help him create a really big ruckus.

The post “I am making night photography better with NoctaCam app” says Vaddadi Kartick appeared first on Vipin Khandelwal.

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You believe active investing is overdone. That fund managers are overrated. They use ill-structured index benchmarks to show alpha where none exists. In the garb of this false alpha, they rip investors off with the exorbitant fees. For you, index funds and ETFs are the God’s gift to investors and his Avatar is none other than John Bogle, Founder of Vanguard.

Fair enough! I only have good news for you. An investing opportunity which is not so popular with investors yet and that’s why it deserves the space here today. Heard of Nifty Next 50 index?

I am sure you are aware of the Nifty 50 index, one of the most tracked market indices. Nifty 50 comprises of some of the largest, most liquid bluechips in the entire stock market. The selection to this index is subject to various criteria. One of the key criteria is the free float market capitalisation or the number of shares publicly available to buy and sell (and not locked in with promoters, etc.).

Then there is another index, which again you might not have heard but can relate to. It is the Nifty 100 index. Same criteria as Nifty 50 but applied to the top 100 companies.

Now, what if you take away the Nifty 50 from Nifty 100?

You are left with 50 stocks and an index called the Nifty Next 50, also known as the Junior Nifty.

Think of it as group of companies that are not the largest but large enough. They are not there yet but getting there. Some or many of these will go to become a part of the Nifty 50 at some point in time.

The Nifty Next 50 is a sweet spot for investors.

This is a motley group of companies across sectors, most of them fairly large along with a sprinkling of mid cap companies.

In contrast, Nifty 50 is all large cap, in fact it comprises of the Giant companies in the economy.

Not just that, Nifty Next 50 as a portfolio structure is quite different from Nifty 50.

Here are a few facts for you to understand this better.

Source: NSE white paper; Sector weightage as of May 2017.

In terms of sectoral composition, Nifty Next 50 is a highly diversified index.

As mentioned before, it is a mix of fairly large, large and not so large companies. The size of the largest company as per the above cited white paper from NSE is about Rs. 32,000 crores. This is quite likely to be the smallest company in Nifty 50.

As per our own workings at Unovest, out of 500 companies 85 companies make up for 70% of the market capitalisation. Next 20% is with about 200+ companies. The rest 10% with the others. You get the perspective.     

Even the average weightage to a stock in the Nifty Next 50 index is less than 5% with an average weightage of the Top 10 holdings at about 3%.

For investors who believe in the passive style, Nifty Next 50 offers the best possible opportunity, without the fund manager risk and exorbitant expenses.

How can you invest in Nifty Next 50?

You can invest through an index fund or an exchange traded fund (ETF). The investment objective of such funds is to replicate the index to the maximum extent possible, that is to invest in the same stocks, in the same ratio as the index holds.

Please note the job of an index fund is not to outperform the underlying index. They just copy it and make periodic adjustments to mirror the index.

Read more: Active vs Passive Investing – a primer

Here are a few options to invest in the Nifty Next 50. 

Source: Fund factsheets for Nov 2017 for direct plans

SBI and UTI are others with ETF offerings based on the Nifty Next 50 index.

Tracking error is the margin of underperformance of an index fund from the actual index. There are 2 big reasons for error or gapOne is the expenses of the index fund. The other reason is that the index fund doesn’t invest 100% of its money in tracking the index. It maintains some of its holdings in cash to deal with short term requirements.

For reference, the lower the tracking error the better it is.

You are not really spoilt for choice but there are quite a few to pick and choose. Amongst the choices, Reliance ETF Junior Bees stands out with a lowest expense ratio and lowest tracking error.

Note: To buy an ETF, you need a demat account.

How do the Nifty Next 50 index funds compare to actively managed funds?

Good question and an obvious one too.

Frankly, given the way markets are running up and resultant gains to the investors in active funds, this is probably a bad time to even talk about an index / passively managed fund, but I took a chance. It has turned out to be a discovery.

As for performance, a comparison would make sense right?

With the multi cap fund varieties of the same fund house?

Let’s do it.

First off, ICICI Pru Next 50 Index Fund vs ICICI Pru Value Discovery Fund

Up next is Reliance ETF Junior Bees vs Reliance Equity Opportunities Fund.

Source: Unovest; Regular plans data is used for longer period comparison.  

The numbers say it all, I guess.

What’s your view? Where would you invest your money? An actively managed multi cap fund or the Nifty Next 50 index fund / ETF. I look forward to your views.

Note: None of the above is investment advice. I do not hold any of the funds mentioned in this post.

The post Nifty Next 50 – Is this Gold for passive investors? appeared first on Vipin Khandelwal.

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HDFC MF launched its brand new HDFC Housing Opportunities Fund last week. The opportunities fund only represents the opportunity for the fund house, not for you. Here are the reasons you should stay away from this NFO.

Now, it wasn’t long ago that SEBI issued guidelines about rationalising the number and types of schemes that mutual fund houses have loaded themselves with confusing the retail investor to no end.

Some loopholes (such as closed ended funds excluded from the purview) still existed but I thought that things would change for the better. I was so wrong!

The first attempts to kill the spirit of these guidelines are already happening. The loophole that is being exploited is the closed ended funds to which the guidelines don’t apply.

Can you beat that?

Which fund houses are doing it?

Not difficult to guess. Rattle out all the popular names – HDFC, Aditya Birla and ICICI. They are experts at this manipulation and they prove it once again.

Anyways, here I am talking about the fund from HDFC Housing Opportunities Fund – Series 1

So, I wasn’t too sure about covering the new HDFC Housing Opportunities Fund until I received a message from an investor asking how can he subscribe.

What on earth inspires the need for a new thematic fund?

If you are to believe what HDFC MF says, it is the wave of “Housing for all” and the push by the government that will propel this theme.

By the way, they don’t plan to invest in only “housing” companies but all the allied sectors and companies – retail, banking, cement, electricity, etc. etc.

The sector break up of the funds investments could look something like this.

Guess what?

This is the actual break up of top 10 sectors of none other than the HDFC Infrastructure Fund – another thematic fund from HDFC MF but focused on the infra theme. Just to rejig your memory – this infra fund was launched in Feb 2008.

The difference with the new HDFC Housing Opportunities Fund is that it is a closed ended fund. That is where the loophole was exploited. If you subscribe now, you can forget your money for 1140 days, that is a little more than 3 years.

The choice of the index of the fund is pretty lame. It is India Housing and Allied Businesses Index created and maintained by IISL, known for the Nifty series of indices. You can read about it on this link on HDFC MF’s site. The Nifty 500 was a better choice for a diversified portfolio like this.

So, why HDFC Housing Opportunities Fund or series of funds?

Let’s invert and seek an answer from a different point of view – HDFC MF’s.

I guess the thinking in HDFC MF went something like this.

  • The theme is a killer idea. Everyone wants to buy a house and if we tell an investor that the fund intends to make money from that idea itself, few will say no.
  • The lure of the low Rs. 10 NAV of an NFO is difficult to beat specially to new investors in smaller towns.
  • The market is approaching tight valuations, there is enough new interest in the market and it is the right time to lock in fresh investment money from retail investors.
  • (And the big one.) We have to merge several similar schemes, might as well launch a new fund that does not get covered by the SEBI guidelines and move the money from other funds there. Voila! Kill two birds with one stone!

You see HDFC MF is looking at it purely from business reasons and retail investors are falling for it for all the wrong ones.

The opportunities fund only represents the opportunity for the fund house, not for you.

You have great funds available with an existing track record that you can give your money to. A good business will be invested by any investor / fund. We don’t need a new fund to do that for us.

Stay away from HDFC Housing Opportunities Fund – NFO. 

What’s your take? Are you investing or not? Do share with me here.

The post HDFC Housing Opportunities Fund – The manipulation begins appeared first on Vipin Khandelwal.

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Behavioural Alpha

Someone on Twitter mentioned that index funds create alpha. I don’t know how is that possible but what is certainly possible is that you can create investment alpha with your own behaviour.

It is a known fact that the returns of an investment instruments (say mutual fund) and the actual return of an investor vary significantly.

Why is that?

Find out in this note on behavioural alpha.

Investment Journey of Rs. 10000 with various debt funds

Quora is an interesting place and sometimes the questions asked there are too. I was asked to answer one such about a choice of debt funds. The question was about a choice between a GILT fund and a Dynamic Bond Fund with an investment period of 3 to 5 years.

I liked the question and answered it. Then I thought “why not share with you the findings with you as well, with more examples.”

And so this note happened. It will take you through the journey of investment with various debt funds and also refresh your understanding of this investment.

Read the entire piece now and tell me which journey will you prefer.   

The best way to create a non profit organisation

The new iPhone is here and several people continue to believe that owning an iPhone is what is going to make them truly happy.

I believe giving, not owning, is what makes us truly happy.

It is quite likely that you contribute monetarily to a social cause, a charity and or may be volunteer with one. It gives us a huge sense of fulfilment too.

Now it is quietly likely that you have a cause in mind, a unique initiative, that you want to work for. And you may be considering creating an institution around the same so as to bring together a larger community pushing forward the common mission.

I have one in mind and I want to create an institution too. The first thought that comes to mind is to create a Trust. Well, I recently came to know through my friend, that Trust is the only mechanism. There are other possibilities too.

Heard of a Section 8 Company?


Know here about all the possibilities of creating a non profit organisation that you have in mind.  

As always keep sharing your thoughts and feedback.

Wish you a good weekend.

The post Behavioural alpha, Debt funds and Trust appeared first on Vipin Khandelwal.

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You should stay invested for the long term” is the most common statement you hear as an investor.

But I doubt anyone really understands what is long term actually, specially with regards to equity investments.

Is it 1 year? When the long term capital gains tax becomes zero.

Is it 3 years? Because your tax saving mutual fund locks you in for this period.

Or is it 5 years? Which is the minimum premium paying term for most ULIPs and they can be surrendered without any cost.

There is no clear answer yet. It appears that actually no one has any idea about long term and long term investing.

Over the last few weeks, two charts caught my attention.

One published by Association of Mutual Funds in India, the Mutual Fund industry lobby group, as a part of its monthly update on the industry. This is what it says.

As you notice, only 37% of the investments stay for more than 2 years. In other words, 73% 63% of equity investments are sold before completing 2 years.  

In a market where most investors still enter with the thought of ‘day trading’ in stocks, this looks like a substantially positive indicator.

But when you see it in comparative context it tells a different story. In 2015, a similar report based on data by AMFI stated that equity investments that stayed for over 2 years was 50%. 

This means as investors we don’t care about long term. Basically, more investors are saying good bye to long term investing.

The other is from a news piece from LiveMint, the business newspaper, about persistency ratios of Top 4 life insurance companies. Persistency means the policy is still active and the buyer is paying a premium.

This is how the persistency ratio sizes up.

In this case, we are referring to the investment based insurance products such as endowment, money back and ULIPs.

Typically an insurance policy is taken for 15 to 20 year period.

As you can see post the 3rd year, not many people are interested in staying with the investment, which they bought for the long term. Post the 5th year, the number worsens. In Financial Year 2016, only 36% stayed put with their insurance investments.

So much for long term investing.

Long term investing! Really?

With insurance it is pretty clear that the sales is messy with banks working overtime to complete targets of transferring money from investor’s pocket to the insurance company and their own via the “premium” trick.

As policy holders realise the issue and the trick played out on them, they are quick to head to the exit.

As an investor the only thing you can do to save yourself is to ignore your banker’s investment advice.

What is the mutual fund investor doing? He looks at star ratings and rankings to first make an investment and then dumping it for another. The rating is an easy, understandable and no nonsense indicator. Plus it focuses on the most important thing for the investor – returns. Nothing else matters.

The investor sells the fund which is not performing currently (hence low rating or ranking) to buy a mutual fund which is performing (hence high star rating or ranking).

The problem is that ratings and rankings change every quarter.

To which the investor says, “See, this became a 4 star fund and then a 3 star fund but I waited for 3 quarters. I waited for 1 year before making the change. Am I not patient?”

I have no answer. All that I can say is “Good luck!”

The post Is long term investing dying? 63% investments sold in less than 2 years appeared first on Vipin Khandelwal.

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Welcome to the second Funny Mutual Fund Show.

Bappa wished us goodbye yesterday and today Funnybone is back up and she is doling out humour and wisdom for all of us mortal investors.

Go ahead and give yourself some respite from the stress of your investments.

(Imagine some opening music for effect)

Me: Funnybone, I think, you didn’t answer my question from last time.

Funnybone: You don’t have any work except asking these stupid questions.

Anyways, which one?

Me: (little hurt!) What is Edelweiss MF’s speciality?

Funnybone: Ah! you so hell bent on this one. (pause)

So far, Edelweiss did have a speciality. Now it has lost it.

Me: Oh really! What?

Funnybone: Close to 100% of AUM at Edelweiss was in just 2 arbitrage schemes. Calling itself an arbitrage fund would have served it better.

In fact, calling it a mutual fund would have been an insult to it. (winks at me!)

Ah! but now it has lost the claim.

Me: (surprised!) But how?

Funnybone: (with a frustrated look) You are good for nothing.

It merged an entire fund house (JP Morgan) into itself. So, Edelweiss is now like just any other fund house.


Me: Oh! But you know it also announced something brave. Following DSP Blackrock’s announcement, it will now use Total Return Index (TRI) benchmark for performance comparison of its funds.

By the way, what’s this sudden rush to Total Return Index (TRI benchmark)?

Funnybone: What do you expect the ‘run out of ideas marketing managers’ to do. There is nothing unique in the funds they have.

This is the new way to get investors attention and get the AUM gravy train to keep moving.

Me: Hey! But isn’t it a good thing? Investors will get to see a true picture of performance and see if fund manager is actually doing the job.

Funnybone: (almost scolding) Who made you an advisor?

Investors don’t look at even the current benchmark returns, what will they do with the TRI? They are happy entering when the fund is doing well and hopping from one to the other with the same criteria.

Now, I am afraid when you talk Total Returns to the investor, she is going to think that she will get something extra.

Worse, she could think she was not getting the TOTAL thing before and has been shortchanged all this long.

(pointing a finger at me) Be ready for trouble!

(my head spins) 

Me: You have gone crazy funnybone. Investors are much smarter now.

Funnybone: Yeah right!

That’s why the smart investor buys New Fund Offers.

And also doesn’t hesitate to have 30 different mutual fund schemes in the portfolio.

Me: Hmmm…  You see change is happening. There is news that SEBI is going to push AMCs to reduce the number of schemes, merge similar schemes, thus help the investor make better choices.

Funnybone: What! Are you reading a newspaper from 2010?  (laughs madly)

Funnybone can’t stop laughing!

So we will have to end this show now!

We will be back soon.

Till then take care.

(Imagine some closing music for effect)

Link to the previous Funny Mutual Fund Show

The humour is in good spirit. No offence!

Do share your feedback and suggestions with me about the funny mutual fund show.

The post The Funny Mutual Fund Show – Sept 2017 appeared first on Vipin Khandelwal.

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It will not be a surprise to note that you own one of the old age insurance policies such as Endowment, Money Back, ULIP, Whole life and Pension Plans. You may have paid a regular premium or just paid a single premium at the time of purchase.

All of these insurance policies are investment based insurance products since they have an investment component along with a risk protection component or the insurance.

Unfortunately, several of these insurance policies were mis sold to unsuspecting buyers and they are now leaving their policy in between. They are either making them paid up or going for outright surrender, which invites taxation. 

Let’s be clear that the amount received on death of the insured person is completely tax-free under Section 10 (10D). It is only in case of surrender that there is a taxation aspect – taxation of the surrender value of the receipts from the insurance policy.

Several individuals have regarded an investment-based insurance policy as a capital asset and hence, treat only the gains as taxable. Some have also gone as far to index the cost (the investment part of the premium paid) of the policy and hence calculate and pay taxes on this indexed gain.

In good common sense, this seems to be the fair thing to do. But unfortunately, as per the current tax laws, this treatment does not work with insurance policy payouts.

The IT Act of 1961 defines what is a capital asset and the exemptions applicable.

In my interpretation, an insurance policy is not a capital asset. The premium that you pay is for coverage of risk.

When you pay premium on an insurance policy, you have a guarantee to receive the sum assured or the embedded value in the policy, in an eventuality of death. This benefit can far exceed the value of the premiums you have paid.

Unlike an investment in mutual funds, fixed deposits or Postal Schemes, the insurance premium is not a capital contribution.

Due to this reason, the gains made on insurance policy are not to be treated as capital gains. Also, the capital gains rate (long term or short term) as also indexation is not available on insurance policies.

This understanding is important to ensure that you treat your payouts correctly from the point of view of taxation.

Along with the least sum assured (times of premium) as well as the date of buying the policy, the capital asset treatment will help you determine the correct tax that you need to pay on your surrender value of your policy. 

Rest, buyer beware!

If you are faced with a similar dilemma with your insurance policy, you may want to download my premium eGUIDE on Surrender Value Taxation here. It contains details about various insurance polices, if taxable or not and how you should calculate your own tax (or no tax).

Check out the details and buy from here.

The post Taxation: Is an insurance policy a capital asset? appeared first on Vipin Khandelwal.

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It is a known fact that past performance continues to be the single biggest criteria for investors to choose funds for their portfolio. Performance is difficult to ignore.

Well, let’s make an effort to go beyond performance and dive a little deeper with a few funds.

3 funds that probably appear in your portfolio are:

  1. DSP Blackrock Micro Cap Fund
  2. ICICI Pru Value Discovery Fund
  3. Franklin India High Growth Companies Fund

As I said, as an investor, you are not interested in the history or other facts about the fund. As long as it performs, it is great.

Over the last few years, the above 3 funds have been favourites of the investor. This is proved by the huge amount of investment money that they have managed to attract.

However, there is more to a fund than meets the eye (the performance). Let’s dig into the real stories.

#1 DSP Blackrock Micro Cap Fund

As the name suggests has been recently in the news for NOT accepting any more investments. The bull run has got a lot of small stocks to top their valuation and any further money invested in such stocks will not result in adequate risk adjusted returns. There is quite a chance that money invested now can lose capital too, partially or fully.

It is quite a unique fund with a focused investment objective. But that’s not all.

Click here to read a complete note and other facts on this fund on Unovest.

#2 ICICI Prudential Value Discovery Fund

This is a fund I have mentioned several times in my earlier posts. Very few investors are aware about its history. Even the popular media conveniently ignores what it stood for and how it has changed over the years.

The biggest learning that you need to have is you need to tone down your expectations with this fund. It will happen only when you know the whole story.

Click here to read a complete note on ICICI Pru Value Discovery on Unovest.

#3 Franklin India High Growth Companies Fund

This is yet another common fund in an investor’s portfolio. Though it has found its place only the last few years. The

High Growth fund is a flexicap/multicap fund from the Franklin Templeton stable.  How is it different from the other 2 multicap funds from FT – Franklin India Flexi cap and Franklin India Prima Plus.

Is it likely to sustain the enormous performance it had in 2014-15? Yes, no, maybe!

Click here to read the complete note on Franklin India High Growth Companies Fund on Unovest.

By the way, it is one of the few funds that while being open ended also has an exit load of 1% if you redeem before 2 years of purchase.

Between you and me: Do leave your comments. What new did you come to know?

Are there any other funds you would want me to cover?

The post 3 funds, 3 stories – Here’s what you don’t know appeared first on Vipin Khandelwal.

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