Personal Finance

Best Ever Personal Finance

Earnings - Expenses = Savings (Wrong)
Earnings - Savings = Expenses (Right).

Some Financial Thumb Rules

#Rule of 72 (Double Your Money)

No. of yrs required to double your money at a given rate, U just divide 72 by interest rate

Eg, at 8% interest, divide 72 by 8 and get 9 money 💰will double in 9 yes.

At 6%, it will be 12 yrs.

#Rule of 114

No. of years required to triple your money at a given rate, U just divide 114 by interest rate.

For example, if you want to know how long it will take to triple your money at 12%, divide 114 by 12 and get 9.5 years

At 6% interest rate, it will take 19yrs.

#100 minus your age rule

This rule is used for asset allocation. Subtract your age from 100 to find out, how much of your portfolio should be allocated to equities

Age 30

Equity : 70%
Debt : 30%

Age 60

Equity : 40%
Debt : 60%

#40℅ EMI Rule

Never go beyond 40℅ of your income into EMIs.

Say if you earn, 50,000 per month. So you should not have EMIs more than 20,000 .

This Rule is generally used by Finance companies to provide loans.
You can use it to manage your finances.

#Rule of 70

Divide 70 by current inflation rate to know how fast the value of your investment will get reduced to half its present value.

Inflation rate of 7% will reduce the value of your money to half in 10 years.

Twenty Commandments for Personal Finance

1) Have an emergency fund of not less than 1 year of your expenses.
2) Insure: Term, medical, personal accident and fire insurance for your house.
3) Don’t use revolving credit on your credit cards.
4)Simplify: have two bank accounts, one credit card and one demat a/c.
5) Write a will.
6) Don’t borrow except for buying a house.
7) Ensure the value of the house purchased from borrowed money is not more than 5 times your annual salary / income.
8) Create a corpus of not less than 30 times your annual expenses before considering retirement.
9) Spend less than you earn.
10) Try to save at least 30% of your salary.
11) Invest regularly.
12) Invest for long term; not less than 10 years, preferably 20 years or more.
13) Never stop your SIPs, especially in bear markets.
14) Never forget that all asset classes would always be cyclical.
15) Equity would provide the best return over long run than all other asset classes.
16) Follow portfolio diversification.
17) Follow asset allocation.
18) Professional advice has its own cost. Have an advisor. The reward is worth the cost.
19) Check and review your portfolio only once a year.
20) More than your knowledge, it’s your behaviour which matters most for success in markets.

 Avoid peer pressure

Waren Buffet avoided peer pressure by not staying in posh locality and large bunglow

Warren Buffet quotes
1. I always knew I was going to be rich. I don't think I ever doubted it for a minute.  
2. I am quite serious when I say that I do not believe there are, on the whole earth besides, so many intensified bores as in these United States. No man can form an adequate idea of the real meaning of the word, without coming here. 
3. I buy expensive suits. They just look cheap on me. 
4. I don't look to jump over 7-foot bars: I look around for 1-foot bars that I can step over. 
5. I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years. 
6. If a business does well, the stock eventually follows. 
7. If past history was all there was to the game, the richest people would be librarians. 
8. In the business world, the rearview mirror is always clearer than the windshield. 
9. It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently. 
10. It's better to hang out with people better than you. Pick out associates whose behavior is better than yours and you'll drift in that direction. 
11. It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price. 
12. Let blockheads read what blockheads wrote. 
13. Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it. 
14. Of the billionaires I have known, money just brings out the basic traits in them. If they were jerks before they had money, they are simply jerks with a billion dollars. 
15. Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years. 
16. Only when the tide goes out do you discover who's been swimming naked.
17. Our favorite holding period is forever.  
18. Price is what you pay. Value is what you get. 
19. Risk comes from not knowing what you're doing. 

20. Risk is a part of God's game, alike for men and nations. 
21. Rule No.1: Never lose money. Rule No.2: Never forget rule No.1. 
22. Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks. 
23. Someone's sitting in the shade today because someone planted a tree a long time ago. 
24. The business schools reward difficult complex behavior more than simple behavior, but simple behavior is more effective. 
25. The investor of today does not profit from yesterday's growth. 
26. The only time to buy these is on a day with no "y" in it. 
27. The smarter the journalists are, the better off society is. For to a degree, people read the press to inform themselves-and the better the teacher, the better the student body. 
28. There seems to be some perverse human characteristic that likes to make easy things difficult. 
29. Time is the friend of the wonderful company, the enemy of the mediocre. 
30. Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take the subway. 
31. We believe that according the name 'investors' to institutions that trade actively is like calling someone who repeatedly engages in one-night stands a 'romantic.' 
32. We enjoy the process far more than the proceeds. 
33. We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful. 
34. When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact
35. When you combine ignorance and leverage, you get some pretty interesting results.  
36. Why not invest your assets in the companies you really like? As Mae West said, "Too much of a good thing can be wonderful". 
37. Wide diversification is only required when investors do not understand what they are doing. 
38. You do things when the opportunities come along. I've had periods in my life when I've had a bundle of ideas come along, and I've had long dry spells. If I get an idea next week, I'll do something. If not, I won't do a damn thing. 
39. You only have to do a very few things right in your life so long as you don't do too many things wrong. 
40. Your premium brand had better be delivering something special, or it's not going to get the business.

20 Investment *Nuggets* from 20 best *Investors of all time*

* *Howard Marks ::*
Smart Investing doesn't consist of buying *Good* Assets, but of buying Assets *'Well'..*  This is a very, very important Distinction that very, very few people Understand. "

* *Warren Buffett :::* 
"Investors should remember that *Excitement and Expenses* are their Enemies. And if they insist on trying *to 'Time'* their Participation in Equities, they should try to be 'Fearful' when others are Greedy and 'Greedy' only when others are Fearful."

* *John Templeton :::*
"For all long-term Investors, there is only *One Objective* – Maximum total Real Return after Taxes."

* *Benjamin Graham :::*
(Guru Of Buffett)
"It is absurd to think that the general public can ever Make Money out of *'Market Forecasts'..."*

* *George Soros :::*
"If Investing is Entertaining, if you're having Fun, you're probably not Making any Money. *Good Investing is 'Boring'.."*

* *Jack Bogle :::*
"If you have trouble imaging a *20% Loss* in the Stock Market, You *Shouldn't* be in Stocks."

* *Bob Farrell :::*
"The Public buys the most at the *Top* and the least at the Bottom." And, "When all the experts and forecasts *agree* – *'Something Else' is going to happen."*

* *Jeremy Grantham :::*
"By far the biggest problem for professionals in Investing is dealing with Career and Business Risk ::: protecting your own job as an agent. The second curse of Professional Investing is Over-Management caused by the need to be seen to be busy, to be earning your keep. The *individual* is far better-positioned to wait patiently for the 'Right Pitch' while paying no regard to what 'Others' are Doing, which is almost impossible for Professionals."

* *Barton Biggs :::*
"Quantitatively based Solutions and Asset Allocation equations invariably *fail* as they are designed to capture what would have worked in the *'Previous Cycle'* whereas the next one remains a *'Riddle' Wrapped in an Enigma."*

* *Philip Fisher :::*
"The Stock Market is filled with individuals *Who know the 'Price' of Everything, but the 'Value' of Nothing."*

* *Ken Fisher :::*
"You can't develop a Portfolio Strategy around *endless possibilities.* You wouldn't even get out of bed if you considered everything that could possibly happen..... You can use *'History'* as one tool for shaping reasonable Probabilities. Then, you look at the world of economic, sentiment and political drivers to determine what's most likely to happen—While always knowing you can be and will be wrong a lot."

* *Charles Ellis :::*
"The average Long-term experience in investing is never surprising, but the Short-term experience is always Surprising. We now know to focus not on *'Rate of Return'*, but on the *informed Management of Risk"*..

* *Bill Miller :::*
"The Market does reflect the available Information, as the professors tell us. But just as the funhouse Mirrors don't always *accurately reflect* your weight, the Markets don't always accurately 'Reflect' that Information. Usually they are *too Pessimistic* when it's Bad, and *too Optimistic* when it's Good."

* *Thomas Rowe Price Jr :::*
"Every Business is Manmade. It is a result of individuals. It reflects the Personalities and the Business Philosophy of the founders and those who have directed its affairs throughout its existence. If you want to have an Understanding of any Business, it is important to know the *'Background of the People'* who started it and directed its Past and the Hopes and Ambitions of those who are planning its Future."

* *Carl Icahn :::*
"We have bloated Bureaucracies in Corporate America. The root of the problem is the absence of Real Corporate Democracy."

* *Peter Lynch :::*
Investing *Without 'Research'* is like playing Stud Poker and never looking at the Cards."

* *John Neff :::*
"It's not always easy to do what's not popular, but that's where you make your money. Buy Stocks that look bad to less careful investors and hang on until their Real Value is Recognized."

* *Henry Kravis :::*
"If you don't have Integrity, you have Nothing. You can't buy it. Y

ou can have all the Money in the world, but if you are not a Moral and Ethical Person, you really have nothing."

* *Ray Dalio :::*
"An Economy is simply the Sum of the Transactions that make it up. A transaction is a simple thing. Because there are a lot of them, the economy looks more complex than it really is. If instead of looking at it from the top down, we look at it from the transaction up, it is much easier to Understand."

* *Jesse Livermore :::*
*'Play the Market'* only when all factors are in your favour. No person can play the market all the time and win. There are times when you should be completely *Out Of* the Market, for *Emotional as well as Economic Reasons ...*

~ This is a One Step Closer to achieve  Financial Freedom

Take Control Of Your Salary Before It’s Gone

There are some habits you must build to become the master of your financial fate. Growing your earnings depends on factors that you sometimes can’t really control. Reducing your expenses is, however, largely in your control.
The process of money management and wealth creation is mainly about what you can control. The one thing you need to do to master your money is to build the habit of measuring.

What needs to be measured?

#1: Earnings
Is your salary your only income? Do you have secondary or tertiary sources of income? Your earnings should list every known source of income.
Your earnings information tells you how much you should save and how much you can actually spend.

#2: Expenses
You need to measure exactly where you are spending your money. Be it eating out or paying rent, list your expenses. Analysing your expenses will tell you where your money goes, how much of it goes, when it goes, and why it goes.

How should you measure? – An action plan

#1. Get Tracking – Having an
excel spreadsheet for this helps a lot, but a simple diary or notebook will
also do. Create an earnings page where you list down all your income sources.
The other page will be your expenses page.

#2. Your expense page is the first step to building a good habit – Create an expense page that can be daily or week wise, where you list the following:
It is important that you list your expenses within a couple of days of making them, so that you don’t forget. The more detailed you can get here, the more light you will shed on your financial behaviour. This will include your regular bills and credit card payments.

#3. Check 1 – Are your expenses exceeding your earnings?
Subtract every expense (including your credit card dues) from your earnings. If the result is negative, that is a red flag.
Tools such as your credit card make it easy to overspend by allowing you to defer payments and speed up purchases. If you are in the habit of maxing out your credit card limit every month and struggle with payments, you are probably spending more than you earn.

#4. Check 2 – Are your expenses skewed towards wants rather than
If the answer to the question, “Was it necessary” for most of your expenses was a “No”, then you have a problem. Expenses like eating out too often and splurging on gadgets you don’t really need, lower your wealth in the long run.
It’s critical for you to focus on needs rather than on wants in order to achieve financial freedom faster.

#5. You can use tools too
Your smartphone can help you track your expenses thanks to money tracking apps. Use these to make your money tracking experience smarter. There are apps that can read your SMS and automatically track your expenses for you.

Payoff Debt or Invest elsewhere - dilemma

You worked hard for a year and got some variable pay at the year end.
You have a set of assets and liabilities and some assets still to be created.
Now the classic dilemma starts : Clear the old debts or keep them as it is and Invest this amount in a new asset or investment avenue

The Case to Pay Off Debt First

I hate debt! Debt can be burdensome, taking years to pay off – especially when you’re dealing with credit card debt or student loans. When I reflect on my journey to pay off debt, I still get a bitter taste in my mouth thinking of all those years I made monthly payments towards my credit cards. It took me nearly five years to pay off the $25,000 I owed and several years more to pay off my student loans. Sadly, I know that I am not the only one who has been in this situation of needing to pay off debt as I know many of us have been in this spot, or are still in it, and want to do all we can to pay it off. If you’re like me, you likely attacked the debt with all you had – looking for ways to cut expenses, earn extra money and throw all you had at the debt. In short, it’s a laser like focus that is often needed to pay off debt in order to achieve success.

Ultimately, when you’re struggling with debt, you’re not really “free” financially. You always have someone that you’re obligated to. Whether it be payments towards your Discover it® card or towards student loans you’re held back from doing all or some of the things in life you want because you owe someone money. That being held back, and the potential thousands you can save in interest costs is a great reason to focus on paying off debt first.

The Case to Invest in the Stock Market First

While the journey to pay off debt does generally take years to accomplish, the very same adage is true for investing in the stock market with an eye towards saving for retirement. Unless you wake up some morning swimming in a pool of cash, you’ll likely need years to invest in the stock market to build up a portfolio of any worth. A common argument for those in the “pay-off-debt-first” camp is that they can’t afford to invest. I’ll cede that, to a certain extent, as you need to be throwing as much as you can towards your obligations to make a considerable dent in the debt beast. However, is that reason enough to give up investing in the stock market altogether? I think not. Let’s take a look at the easiest and best option at getting started at investing and saving for retirement – a 401k. I’ve spoken with countless people who were in debt that would not even invest in their 401k planbecause they felt that everything had to go towards the debt. The key here is to not cut off our nose to spite our face. In most 401k plans you’ll likely get a match of some sort. That’s FREE money people, I can’t think of any better form of money! Add to that its ability to lower your taxable income and 401k plans get a double bonus in my book.

Behavioral Finance 

5 Shocking Psychology Traps which could ruin your investment

Psychology plays a part in whatever decision we make, including investment in stocks. Sometime our built in psychology is helpful and many a times it is not. When psychology is not helpful we call them psychology traps. Investment in stocks is also guided by few psychology traps which influences us in making bad investment choices and lose money.

Since on most occasion we are not aware of our psychological built up which guides us in taking bad investment decisions, chances are we keep on repeating such mistakes. If we are aware of them the probability of bad investment decisions reduces considerably. Let us look at some of these common psychological traps in which we unknowingly (most of the time) get entrapped.

Psychological Trap No.1: Becoming a Blind Fan

As people love to be in there comfort zone, they get attached to some of their choices of companies in which they have invested. In 1990s, UTI was the biggest mutual fund in India and its products were a rage.  One of its products, ‘Master Share’, when listed, rose to unprecedented levels and many investors made money. Many investors have become the blind fans of the brand UTI.

UTI then came with their next product, ‘Master Gain’, people who were moored into UTI threw caution to the wind, forgetting it is a mutual fund product, invested in droves. When listed, it opened below par and remained so for long. All those investors who were hooked to UTI lost money. Today, UTIMF is one of the ‘also ran’ mutual funds companies.

To avoid this trap, an investor should be flexible and be aware that s/he is not getting attached to stocks/companies and keep on watching its performance dispassionately and know when to withdraw or reduce exposure.

Psychological Trap No.2: Falling in Love with Junk Stocks

Usually people fall in love with their investment decisions and cling to shares, whose market value has declined and immediate chances of recovery are remote, but will not take decisions either to withdraw or reduce their exposures.

They hold on to this belief that their past decisions of these investments were infallible, and the stocks will turn around. Most investors have such shares in their portfolio, which they keep on clinging to despite making losses with no chances of recovery in foreseeable future.

Remedy from this trap lies in taking a detached view while reviewing the portfolio, basing decisions on market reality and avoiding the ego trip.

Psychological Trap No.3: Seeking only for confirmation from Others

Many investors while deciding on a stock, consult fellow investors, and accept such views which approve their own choice and reject the contrary views. Such selective approval often lead to bad decisions, but the investor holds on to it as his/her choice has been confirmed by other investors.
Avoiding such traps will be possible if the investor while seeking approval from other fellow investors should be rationally looking into the background of these investors. Alternately, the investors may take into consideration both supportive and opposing views and then make the decision to invest or not.

Psychological Trap No.4: Copying Mindset 

 On occasions investors take investment decisions, based on performance of relatively successful investors, mostly within the friend circle. They try to follow the investment decisions of such successful investors. When such decisions go wrong they fail to understand why it happened. The reason is simple. People make investment decisions based on their own psychological makeup, investment goals and family/social obligations, which will vary from person to person. No two investors are similar on these counts.

One should, therefore, avoid investment decisions, which are made by blindly following successful investors.

Psychological Trap No.5: Swelled Head

Often people who are qualified in Finance (MBA-Finance and PhD in Finance) have a strong superiority complex (swelled head) about themselves as to their understanding about investment and feel their investment decisions will never go wrong.

The classic example is of Long Term Capital Management Company (LTCM) which went bust in late 1990s, which was founded in 1994 by John W. Meriwether, the former vice-chairman and head of bond trading at Salomon Brothers. Members of LTCM's board of directors included Myron S. Scholes and Robert C. Merton, who shared the 1997 Nobel Memorial Prize in Economic Sciences.

What do we learn from the above?

Human psychology is complex, and it may sometime lead in committing repeated mistakes. It is in the heat of the moment, or when subject to stress or temptation, an investor may fall into one of the above psychological mind traps. The wrong perceptions, self-delusion, frantically trying to avoid realizing losses, desperately seeking the comfort of other victims, shutting out reality and more can all may cost you dearly.

 If we are aware of the nature and impact of these common traps and always try to be honest and realistic about ourselves we will be successful in avoiding these traps. Whenever, we seek advice it should be from competent and knowledgeable people of integrity who will bring us back to reality before it is too late. 
The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Director and Chief Financial Planner of Holistic Investment Planners ( a firm that offers Financial Planning and Wealth Management. He can be reached at 

Group Think-Bandwagon effect

The bandwagon effect is a well documented form of groupthink in behavioral science and has many applications.The general rule is that conduct or beliefs spread among people, as fads and trends clearly do, with "the probability of any individual adopting it increasing with the proportion who have already done so".As more people come to believe in something, others also "hop on the bandwagon" regardless of the underlying evidence.

The tendency to follow the actions or beliefs of others can occur because individuals directly prefer to conform, or because individuals derive information from others. Both explanations have been used for evidence of conformity in psychological experiments. For example, social pressure has been used to explain Asch's conformity experiments, and information has been used to explain Sherif's autokinetic experiment.

In layman’s term the bandwagon effect refers to people doing certain things because other people are doing them, regardless of their own beliefs, which they may ignore or override. The perceived "popularity" of an object or person may have an effect on how it is viewed on a whole. For instance, once a product becomes popular, more people tend to "get on the bandwagon" and buy it, too. The bandwagon effect explains why there are fashion trends.

When individuals make rational choices based on the information they receive from others, economists have proposed that information cascades can quickly form in which people decide to ignore their personal information signals and follow the behavior of others. Cascades explain why behavior is fragile—people understand that they are based on very limited information. As a result, fads form easily but are also easily dislodged. Such informational effects have been used to explain political bandwagons.

Behavioral finance 

 “Behavioral finance attempts to explain and increase understanding of the reasoning patterns of investors, including the emotional processes involved and the degree to which they influence the decision-making process. Essentially, behavioral finance attempts to explain the what, why, and how of finance and investing, from a human perspective.” 

·         Behavioral finance investigates the cognitive biases (misorganization of information) and the emotional aspects of the decision-making processes of novice and expert investors.
      Central to behavioral finance is prospect theory, which holds that: investors are more concerned with losses than by gains, assigning more significance to avoiding loss than to achieving gain (loss aversion); individuals are concerned more with changes in wealth than adjustments in levels of wealth; and, people overweight small probabilities and underweight middle range probabilities.
       Another important behavioral finance concept is bounded rationality, which assumes that human rationality has limitations, especially under conditions of substantial risk and uncertainty. 

             Behavioral finance is interdisciplinary, as illustrated by the chart below.

The following are the important topics in behavioral finance:
In summary, behavioral finance adds elements of human irrationality to the standard finance foundation concepts of Modern Portfolio Theory and Efficient Markets Hypothesis.

Things to know about your Home loan

Mortgage Loan/Home loan is one of the important ingredients in your financial planning and wealth building because :

1.A home loan is generally the cheapest debt you can access. So it should form a part of your wealth-building plans because you pay a low interest rate over many years to buy an appreciating asset.

2.The tax breaks on home interest repayment and principle repayment if any , make the home loan much more attractive

3.Down the track your lender might allow you to refinance the loan/ top-up on it to put other higher-interest debts under the low-cost mortgage.

Loan to Value Ratio
RBI allowed a loan-to-value ratio (LTV) of up to 90% for home loans of Rs.30 lakh or less. Earlier, 90% LTV was allowed only for loans up to Rs.20 lakh.)

Various Charges

There are as many as 13 different charges, though not all of them apply to every case, explains Sukanya Kumar of

1) Application Fee: Covers the preliminary expenses of a bank for conducting verification. Rs 1,000-Rs 5,000.

2) Processing Fee: Covers the cost of the credit appraisal. Fee depends on borrower's profile, income and the type of loan. Rs 10,000-1% of loan.

3) Administrative fee: Some lenders split the processing fee into two parts. The one charged after the loan is sanctioned is called admin istration fee.

4) Technical evaluation Fee: For high-value properties, two valuations are done, and the lower of the two is considered for sanctioning a loan. Some PSU lenders charge a fee for doing this evaluation.

5) Legal fee: Most lenders engage firms to scrutinise borrowers' legal documents. Generally, banks include this cost in the processing fee, but some PSU lenders charge it separately.

6) Franking fee on sale agreement: In some states, there is a stamp duty payable on the property agreement with the builder/seller. 0.1% of cost-Rs 20,000.

7) Franking fee on loan agreement: Some states, Maharashtra and Karnataka, for instance, levy a fee on the loan amount. 0.1-0.2% of loan.

8) Notary fee: If you are an NRI, then your KYC and the POA (power of attorney) needs to be notarised by the Indian embassy or a local notary available abroad.

9) Intimation of registration fee: Intimation to the subregistrar's office is a new process. Followed only in Maharashtra. Rs 1,300.

10) Indemnity cost: The borrower needs to indemnify the lender for certain risks, for instance, if the builder faces a delay in receiving an approval or the property tax is yet to be paid fully by the seller, or some other.

11) Adjudication fee: To start the process for a 
home loan application, if you are the POA-holder of an NRI, the notarised POA needs to be adjudicated here in India before submission to the lender.

12) Fire insurance fee: Most lenders who are into bankassurance insist on this.

13) Documentation fee: For getting the loan agreement signed, getting the ECS mandate activated and a few other formalities, some lenders charge this fee. Rs 500-Rs 2,000.

Refinancing Home loan or simply put balance transfer to new bank

Refinancing a home loan is taking a new loan to pay out your current mortgage. There are many common reasons why homeowners should refinance:
  1. interest rate (most popular)
  2. Option of lowering tenure if one has monthly surplus
  3. Increase the loan tenure to reduce EMI payments
  4. Shift from floating rate to fixed rate, or vice-versa

    Example : Mr. Sharma has a Rs 40 lakh home loan at 11.25 per cent interest rate and he has made payments for the last 3 years for a 15-year tenure. Should he think about refinancing his home loan?
    • His current EMI = Rs 46,094
    • Outstanding principal = Rs 36,34,030
    • Outstanding interest payment = Rs 30,37,655
    Refinancing after three years
    If Mr. Sharma refinances his loan at 10.50 per cent interest rate for the remaining 12 years:
    • New EMI = Rs 44,486
    • Total interest payments = Rs 27,71,902
    • Potential savings = Rs 8,62,128
    So the factors governing the EMI payments are loan amount, interest rate of the loan and tenure of the loan. These are also the three factors which affect the refinancing decision.
    1. Loan amount: EMI payments are a combination of principal repayment and interest paid on the principal amount. So while one opts for the refinancing, it is the outstanding principal that is being transferred. One has to revisit the amortization schedule of the loan to assess the outstanding loan amount and interest paid till now.
    2. Interest rate: Interest rate is the governing factor in defining the EMI payments. It is important to analyze the beneficial interest rate before refinancing. Generally, it is advisable to continue with the existing loan unless there is difference of at least 0.75-1.00 per cent between the current interest rate and refinancing rate. If there is drop in interest rates is expected in near future, it is advisable to refinance your high fixed rate loans. If you expect rise in interest rates, it is advisable to go for fixed rate refinancing.
    3. Loan tenure: Loan tenure is inversely proportional to the EMI payments. Higher the loan tenure, lesser the EMIs, and lesser the tenure, the higher the EMIs. Similarly, the total interest paid is directly proportional to the tenure. The higher the tenure, the higher the total interest paid. So if one has an increase in salary, but does not have a substantial amount to go for prepayment, refinancing the home loan at lesser tenure is advisable.
    Always remember that refinancing your home loan comes at a charge, which differs from bank to bank. Make sure that the profit you make by opting for refinancing is higher compared to the fee and charges you pay. In most of the cases, it is profitable.

    Get the best from your Home Loan
    With an exclusive offer when you transfer your Home Loan to Axis Bank.
    Click to receive a call
    Transfer your Home Loan to Axis Bank using our Balance Transfer facility and enjoy additional finance with a Top-up Loan.
    Key Features:
    Special rate of interest: 9.65%*
    100% top-up# also available at the Home Loan rate of interest
    Loans up to 30 years of tenure
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    How to be a wise Credit Card user

    Interest Free Period on Credit Card

    The ‘interest-free period’ is a very commonly misunderstood concept when it comes to credit cards. Contrary to popular belief, an interest-free period DOES exist! You just need a few pointers. Here’s some help:

    The Actual Period
    The 44 (or 55) days begin at the start of your statement period and end when your payment for that purchase is due. In total, this interest-free period is made up of the monthly statement period plus the time you get to pay your statement balance.

    When To Start
    Get a longer interest-free period by making purchases at the start of your statement period.
    How To Keep It Going
    Always pay your closing balance in full by the due date to avoid interest charges and retain your interest-free period in the next statement cycle. If you choose to rotate the balance by paying minimum due amount, you may not get interest free period on further payments
    Person Specific
    Each person’s statement cycle is different. Check yours to see when your month begins.

     Impact on credit Score (CIBIL Score)

    A Credit Card can affect your Credit Score. Read this and use it wisely to positively impact your Credit Score. Paying only the minimum due, maxing out your credit limit, skipping payment due to a dispute and multiple rejected applications affect your Credit Score negatively. 

    Minimum payment only
    Paying your bill regularly is a good thing, but paying only the minimum due is not. It casts doubts about your financial stability.

    Maxing out your Credit limit
    It’s ideal not to use more than 60% of your credit limit. If you max out your credit, it’s taken as a sign that you rely too much on credit.

    Skipping payment due to a dispute
    If there’s a dispute regarding some charges, don’t skip paying the bill. It spells double trouble! Once the dispute is settled, the Credit Card issuer will reverse the disputed amount to your account.

    Rejected Applications
    If your Credit Card application gets rejected for whatever reason, especially more than once, it will damage your Credit Score. So, make sure you provide the correct information to avoid rejection.

    Mutual funds in India

    Mutual Fund Product offerings are regulated by SEBI

    The Securities and Exchange Board of India (Sebi) has introduced detailed guidelines for determining the place of a mutual fund on its riskometer tool. The new system introduces a fresh category of 'very high' risk. It replaces the old model based simply on a scheme's category without adequately considering its actual portfolio. The circular goes into effect on 1st Jan 2021. Mutual Funds have to update the riskometer on a monthly basis on their websites and the AMFI website, within 10 days from the end of the month. In case of a change in riskometer position, they have to send out communications to investors. Mutual Funds also have to publish a history of riskometer changes every year.

    Under the new riskometer, there are six categories of risk, going from low to very high. Debt schemes with lower rated credit or higher maturity papers will be determined as more risky. For equity schemes higher risk weights will be given to small and mid cap stocks (meaning a riskier place on the riskometer tool). The new Sebi circular also introduces a liquidity parameter for both equity and debt schemes, assigning higher weights to schemes investing in relatively illiquid securities. "Many key changes have been introduced. Now investors will be able to distinguish between the risk of funds within a category. The monthly publishing also makes it a dynamic tool. An additional risk category called very high has also been introduced. All these changes are welcome," said Swarup Mohanty, CEO, Mirae Asset Mutual Fund.

    Sebi issued a mutual fund circular to change the NAV rules. From January 1,2021, investors will get the purchase NAV of the day when investor's money reach AMC. "It has been decided that in respect of purchase of units of mutual fund schemes (except liquid and overnight schemes), closing NAV of the day shall be applicable on which the funds are available for utilization irrespective of the size and time of receipt of such application," said the Sebi circular.

    SIP. Does it Fit all

    ETF Vs Index funds


    In the year 2020, market regulator SEBI issued guidelines to make multi-cap funds more true-to-label by enforcing minimum exposure to large, mid and small-cap stocks. While a few AMCs (asset management companies) adjusted their multi-cap funds as per the mandate, several converted their existing multi-cap funds to flexi-cap schemes so that they could continue with their large cap-heavy portfolio allocations. As of end-April 2021, the market had around 25 flexi-cap funds with Rs 1,59,480 crores of AUM, and 12 multi-cap funds with Rs 19,846 crore in AUM.


    New fund offers in both, multi and flexi-cap schemes, have continued to hit the market as AMCs try to ensure their presence in both categories. With both fund categories designed to invest across large, mid and small-cap funds, differentiating between multi and flexi-cap schemes can seem like a confusing task for retail investors.

    Is it only a difference of the degree to which each invests across market capitalization? How large can this difference be? And what can be the possible impact on risk and return?

    The capitalisation spectrum 

    The mid and small-cap segments in the capital market offer a larger universe of less-discovered stocks to choose from. This means two things: 1) fund managers have greater scope to use bottom-up strategies to identify potential winners and, 2) these segments of stocks can face liquidity issues as they may not be frequently traded.

    Another important aspect is the ‘beta’ of mid and small-caps. Mid and small-caps can be disproportionately impacted by market movements, which means they are usually more volatile than large cap stocks. Because of these characteristics, investing in mid and small caps is considered a relatively high risk-high reward venture, requiring a long-term mind set.

    The difference between multi-cap and flexi-cap funds

    The key difference between multi and flexi-cap funds is of the degree to which they are exposed to mid and small-caps. More importantly, this difference can become quite large depending on market conditions. Flexi-cap funds can dial down their exposure to mid or small caps right down to zero, if the fund manager deems it necessary; however, in the case of multi-cap funds, this exposure can never go below 25 percent each for mid and small-cap stocks.

    To understand this better, let’s look at the SEBI mandated difference as well as the actual current portfolio allocation of multi and flexi-cap funds.

    Current Market Cap Allocation in Multi and Flexi-cap Funds

    The allocation chart clearly shows that, on average, flexi-cap schemes are currently maintaining a large-cap heavy allocation, while multi-cap funds are focusing on small cap stocks to generate alpha.

    Deciding suitability

    In our view, both fund categories have a clear mandate, and will adopt distinct strategies to cater to investors with different risk profiles and return expectations.

    The multi-cap category offers fund managers the scope to showcase their stock-picking skills and the potential to create alpha. The mandatory exposure across capitalisation does, however, pose a risk – the fund manager has limited scope to reduce exposure to any segment of market cap that is expected to do poorly at any point in time. The onus of managing the liquidity challenges that come with investing in small-cap stocks is on the AMC and its risk management frameworks.

    Investors who are happy with a fixed allocation as their optimum exposure across capitalisation, and have a relatively high risk appetite can consider multi-cap funds. These investors would also need to have a longer investment horizon to allow for the fund’s strategies to bear fruit.

    The flexi-cap category does not have any fixed minimum allocation across market capitalisation, making the fund manager’s conviction and skill at judging the right allocation important. The fund manager evaluates the growth potential of different companies, regardless of their market cap and invests in them. Flexi-cap managers can track when a particular market segment has become unattractive, and change the allocation to an alternative market segment that has performed well recently.

     Investors who prefer flexible exposure across market capitalisation can thus consider flexi-cap funds. However, they should evaluate whether the fund is managed dynamically according to the prevalent opportunities in the market, and has delivered consistent performance that can meet their investment goals.

    You have worked for money and accumulated a sum, now let the money work for you 

    While the prospect of further rate cuts by the RBI are boosting sentiments in the stock and bond markets, it is also making traditional fixed income investors nervous. Sooner or later banks and other institutions will bring down the rates on offer, signalling an end to near double-digit rates you are enjoying on various deposits at present. But there are ways to side step the rate cuts and continue enjoying higher returns for some more time.

    Lend to corporates

    While bank fixed deposits and recurring deposits would be the obvious choice for many, those with a slightly higher risk appetite and looking for a higher yield may opt for any of the corporate fixed deposits or debentures available. Experts reckon investors can lock in to current high yields before rates on these instruments also start going down. Vivek Rege, MD, VR Wealth Advisers, says, "In the midst of falling interest rates, you may not get such opportunities for a while." For instance, investors can get anywhere between a 50-200 bps (0.5%-2%) higher yield on the range of company FDs, compared to traditional bank fixed deposits. Fixed deposits from non-bankingfinance companies (NBFCs) are offering 9.5% to 11% for three year tenure under the non-cumulative interest payout option (See chart). Certain manufacturing companies are offering slightly higher coupon rates, in the region of 12% on three-year fixed deposits. The interest earned on these company deposits is taxable at the rate applicable to your income tax slab.

    If corporate FDs are not your cup of tea, you may consider putting your money in non-convertible debentures. Although there are hardly any fresh issues in the market currently, you can purchase any of the existing instruments listed on the stock exchange. Make sure toinvest only in those instruments which are not maturing within the next one or two years. Since rates are expected to fall quite a bit in the coming year, opting for a NCD which will mature only 12-18 months from now will expose you to reinvestment risk, where you will be forced to park the maturity proceeds at a lower rate. For instance, Shriram Transport Finance NY bonds offering a coupon rate of 11.25% under the cumulative payout option has a residual maturity of 1.52 years. The yield-to-maturity (YTM) on these bonds is 10.6%. On the other hand, the Shriram Transport Finance NU bonds with same coupon have a residual maturity of 2.55 years. They are currently offering a YTM of 10.72%.

    A big benefit of opting for NCDs is the possibility of capital appreciation in these instruments as the rates fall. This offers you a chance to sell them at a profit, instead of holding on to them till maturity. Raghvendra Nath, MD, Ladderup Wealth Managment, says, "With bond yields likely to come off by 1-1.5% in the coming months, investors could fetch decent capital gains on their NCD holdings." Besides, NCDs are a tax-efficient option as these are eligible for long term capital gains after one year. This means your gains will be taxed at a lower rate of 10% instead of at the rate corresponding to your income tax slab. However, the interest curearned on these NCDs will be taxable as per the tax slab of the investor. Keep in mind though that these NCDs are not easily tradeable despite being listed on the exchanges. As Nath says, "Liquidity can become a constraint for retail investors in NCDs." The trading volumes in some cases are very low, which makes it difficult for the buyer or seller to enter or exit at the desired price point. So you may end up buying at a higher price and selling at a much lower price than what you were looking for.
    Credit quality is crucial
    In both cases, investors must give due importance to the credit quality of the issuer. While your bank fixed deposits offer the highest degree of safety, company FDs and NCDs carry a much higher degree of risk as these are unsecured instruments. Invest only if you are convinced that the issuing company's financials are strong. Rege cautions, "Do not get swayed by the higher yield. Ensure the company's business model and financials are on a strong footing." This can be gauged from the credit rating assigned to the paper by the rating agency. 'AAA' or similar rated papers offer highest degree of safety, but fetch lower return. 'AA' and lower rated papers come with attractive coupon rates, but imply a higher degree of risk.

    Investors need to be careful especially when dealing with some lesser known names in the manufacturing space. Nath reiterates, "You may take a call on lower quality paper provided you are dealing with marquee names in the manufacturing space, which boast of sustainable business."
     By Sanket Dhanorkar, ET Bureau | 9 Feb, 2015,