Kavitha Menon's Blog

Money may only be a resource for achieving your life's financial goals, but an important resource it is. Inflation reduces your money's worth, making you poorer slowly but surely. With food prices once again making newspaper headlines, beating inflation is on the agenda of every citizen .Let me help you with some tried and tested tips to beat this monster. 1. Know your expenses: Generally I advise clients to break expenses into critical, important and discretionary. While spending on the former two are necessary, the discretionary expenses can be cut. So while groceries and electricity bills are critical expenses, the yearly family holiday is important while the bigger expensive car is a discretionary expense that can be avoided or postponed.  For planned expenses make a budget. Easier said than done, but a budget makes a big difference to savings during times of inflation. It will help you allocate money to the right expenses. Take an example of food expenses .How often

Kavitha Menon | Being a part of the Wealth Management Team, "Long term" is a word generously sprinkled in all our conversations with clients. Unfortunately more often than not client's perception of what 'long term' means is different from ours. We have heard various versions of the same, none of which does justice to this wonderful concept that adds the power of compounding to your equity portfolio and can create a substantial pool of wealth for self and progeny. Many investors complain about lost opportunities because they are long term investors, while many proudly produce fabulous returns using the same strategy. Let's see when long term isn't what it is made out to be. "I only buy and never ever sell" – Long term investing, hardly means that you keep a company forever irrespective of fundamentals. Even long term investors SELL and it is not because they are trying to time the markets but it is because they believe that the price of the

Kavitha Menon |  Disability, partial or complete, due to accident or illness, makes it impossible for a person to continue earning as he or she did before the unfortunate accident or illness. In financial planning lingo, both death and disability mean loss of income. This loss of income needs to be covered using insurance. While most do have life cover, we cannot be completely assured of our families' financial safety without a complete disability cover. How much disability cover do we need? A cover equivalent to life cover is needed. The product should give a lumpsum amount, equivalent to sum assured, should one be unable to work productively in case of a physical or mental disability. Surprisingly there seems to be a huge lacuna in the product offerings from insurance companies in this space. Not only is there a lacuna there is also a lot of confusion on what such a product would offer. Disability insurance is not the same as accident cover. An accident cover protects again

Schemes that invest a part or whole of their corpus ,either directly or through overseas investments funds ,in securities of companies listed abroad are called international funds. There are many variants within International Funds. At the most basic level there are schemes with over 65% in Indian equities. These are classified as equity schemes and taxed accordingly, while those with less than 65% in Indian equities are classified as non-equity and hence taxed on the same lines as debt schemes. Further more schemes in this space can be either direct equity schemes or FOF (Fund of Funds). FOFs are typically more expensive structures than regular funds as the investor pays fees/expenses to both the FOF manager as well as to the schemes that form part of the portfolio. Many schemes are also sector specific. They may invest in only commodity or bullion funds that invest in overseas markets. Thus a AIG World Gold or DSP World Gold fund invests your money in schemes floated by their parents

A Depository Receipt is a type of negotiable (transferable) financial security that is traded on a local stock exchange but represents a security, usually in the form of equity, that is issued by a foreign publicly listed company.( Source: www.investopedia.com ). An I DR (Indian Depository Receipt) is issued by a foreign company raising funds from the Indian market. IDRs are rupee-denominated and created by a domestic depository against the underlying equity shares of a foreign company. Sounds complicated? Let’s explain with a live example from our markets. Very recently Standard Chartered Bank which is a foreign company listed in the UK issued its first IDR in India. Effectively it purchased its own shares listed in UK ,deposited the same with a custodian -The Bank of New York Mellon ,on behalf of a Indian depository which is Standard Chartered Bank, Mumbai and against every 1/10 Standard Chartered share issued 1 IDR to Indian investors . Thus the Indian investor does not direc

Its getting pretty hot out here ! . You would agree that our stock markets have caught the fancy of the entire globe . Every fund worth its name wants to increase allocations to our country. The results are showing, with equity valuations going into expensive territory. For value investors, these are difficult times. What does one do with funds allocated towards equities in such times ?. While parking money in debt investments is never a bad idea , another option is to look for value in equities other than in India . We are speaking about international equity investments. Post the 2008 correction, the current rally hasn’t been uniform across international markets . India has infact been one of the best performers in the ongoing rally while markets like China are still far away from the peak levels of 2007. Both developed and emerging markets would have a range of stocks that could be available at much better valuations than their Indian counterparts. For example - just like

The biggest advantage of investing in FMPs is the tax benefit. One can pay long term capital gains at 10 % or choose to pay 20 % after claiming indexation benefit. This year thanks to high inflation, the Cost index used to calculate capital gains will be at least 7% to 8 % higher. If that is the case then by taking the option of 20 % tax with indexation benefit, you may end up having almost all your capital gains tax free. FD interest on the other hand is taxable at the marginal rate of tax applicable to you. For working of tax benefit refer to articile on the following link https://www.ppfas.com/pdf-docs/research/week-reports/2008/wr090808.pdf The only real disadvantage with respect to this instrument is liquidity. You can break a bank fixed deposit if there is need for funds. The bank may pay you a lower rate of interest or charge you a nominal penalty, but you still get your money back in a day or two. FMPs on the other hand have zero liquidity. As per Sebi's order last year FMP

We wish we had seen it coming. The rally after the fall. If we did we could have made a ton of money with the markets having more than doubled since its lows of 2008. At the time of the huge correction the investing community was divided into three: 1 .The Cynics - These guys had resources to invest and take advantage of cheap valuations. They however believed that the market could see further downside and there was no recovery in a long long time. They probably had lost money already with existing investments and were unwilling to commit more. 2.The broke bunnies - These were investors who lost a great deal of their wealth in the stock correction, had no cash in hand or other assets that they could liquidate to buy stocks at the huge discounts they were available at. 3. The gold hunters - They were people with the cash and recognized deep value in the markets. They jumped in to take advantage of falling prices. The great Indian stock sale was too good to be true and our hunters lapped

Our Prospective client was a confident man. He was confident and optimistic. He had walked in to our office to inquire about our Portfolio Management Scheme and wanted to know the returns given by us in the last three months. He said that he would compare the same with the returns given by his existing PMS Manager and then decide whether to stay put, or switch to our scheme. After comparing, he happily informed me that his current scheme has performed far better in the last three months and he would not switch right now.The client was not a prospect after all .Out of curiosity I wanted to know for how long had he been invested in the scheme and what were his returns. You may think that he was joking, but our man was dead pan serious. He had invested over three years back and in the ensuing three years his fund manager had given him only his capital back! He was sitting on a 50 % loss till three months ago and it was only due to 'restructuring' of the portfolio that his fund ma

Every person on a 9 to 5 naukri dreams of being an entrepreneur . There is so much more glamor in being you own boss , of working flexi hours and making all the money that you believe you deserve. Sadly very few will make the transition from employee to employer.Responsibilities and fear of losing the comforts one is so accustomed to , do not permit the vast majority of aspiring entrepreneurs to take that big leap . What if there was a way by which you could keep your job and yet create wealth like an entrepreneur does ? . It is surprisingly simple . Read on.. Robert Kiyoski in his book Rich Dad Poor Dad tells us the secret of growing rich . Rule one in his book is about understanding assets and liability and building assets . An asset is something that brings in money into your pocket while a liability is anything that takes it out. The Rich acquire assets while the middle class acquire liabilities, but assume they are assets . By buying assets the Rich make money

Decisions by the central bank of our country effects us directly as investors as well as borrowers of money. It is important to know what RBI action on various fronts does to your financial situation. To aid its primary goals of controlling inflation, the RBI uses several measures. Let's understand what each of these measures are and how they impact you. REPO and Reverse REPO - Banks are in the business of borrowing and lending and often need very short term funds to meet their liquidity requirements. Let's take an example of a bank that needs to borrow money for day. Our bank may be holding on to securities that don't mature in a day. Instead of selling securities in the market it can instead sell the same to the RBI, get funds to meet its short term requirement and then buy the same securities back from the RBI. This is called the REPO - short for repurchase agreement and the bank pays to RBI a rate of interest for the funds used. The REPO rate is thus the very short term

Very gleefully my client, a salaried individual said , 'I want to have a net worth of 50 crores in the next ten years , that's why I am here to see you '. I couldn't help think that he was in the wrong place , cause what he needed was to consult a magician who could take those crores out of his hat or something like that . My optimist client was sobered and his expectation of wealth ( thankfully ) toned down after I told him what he will need to save to achieve his goal . Creating wealth is both easy and difficult . Easy because we have many investment options, experts who can guide you and technology that makes money management simple . Yet it is the very same reasons that make investing tough . Today there are a slew of product offerings from insurance , mutual fund and other financial services companies to choose from . There are all kinds of advisers vying with each other for your mind space and technology is adding to information clutter like never before . Step On

Busting some myths about Financial Planning Kavitha Menon kavitha@ppfas.com While most of us would agree that a financial plan is a good thing, there are many mental blocks that prevent you from making one for self and family. These blocks are a result of many myths around financial planning. Let's deal with these myths to make the decision of making a plan easier. Myth 1: Financial Planning is about investments - Life stage planning, insurance tax planning and estate planning are important building blocks of a good Financial Plan. Buying investments products is just one step of many. Myth 2: Its expensive - Financial planning helps with a life time of money management. Although the initial costs for professional services looks high, amortize it over your life time and you will realize that these services are in fact cheap. I must add that there is no concept of free financial planning. If someone is offering you that, then you will pay with buying the wrong products. The costs of

HUF or Hindu Undivided Family is defined under the Hindu Law as a family that consists of all persons lineally descended from a common ancestor, including wives and unmarried daughters. It is a separate entity in the eyes of law. It can own assets and generate income from rent, profession and business. All income that arises on the investment of the HUF's funds and utilization of its assets is separately assessed and taxed. As the name suggests only Hindus governed by the Hindu law can create such an entity. Though Jain and Sikh families are not governed by the Hindu law; they can still be treated as a HUF. Unfortunately persons of other religion such as Muslims, Christians or Parsis do not have such a facility . The oldest male member of the Family is the Karta while other male members are called co-parceners. The female members are simply called members. It is the Karta whose name the HUF carries and it is he who signs documents on behalf of the HUF entity. For Example if there i

Kavitha Menon If one dies intestate i.e. without a will, then ones assets are devolved as per the applicable personal law. The legal heirs need to apply to court and go through very lengthy documentation. Based on the laws of succession that are diverse and complicated, the property will be divided between legal heirs. Children, spouse and relatives can also stake claim to the property and in the case of large stakes lengthy legal battles ensue. It's a common belief that appointing second holders or nominees in various assets will ensure that the property passes to such second holders/nominees. In the eyes of the law, a nominee (including a nominee appointed in insurance policies) is a trustee and he need not necessarily be a beneficiary to a will. He or she is merely a caretaker and the right to the property passes by will or if there is no will, under the personal law of the deceased. Such nominee will be legally bound to transfer the nominated property to the beneficiary of the

Regret buying that expensive insurance policy? . There is hope of getting back back your money if you act soon enough . Often investors end up buying insurance products from hard selling agents without being sure of product payoffs . After you purchase the product you may realize that the insurance cover is inadequate , or that a large part of your premium has gone towards advisor fee , or that the policy document contains certain exclusions or conditions that you had not been informed of earlier. Fortunately there is an option to take an exit from these products . We are referring here to the 15 day FREE – LOOK in period that the IRDA has made mandatory for all life insurance products. The Free Look in Period a period starting from the date of receipt of policy document ,in which the insurance company agrees to pay back your premiums without charging the investor any mortality charges . Up to the end of this period, you are free to re-think and reverse your insurance purchase decision

Real Estate investments with EMIs – Tread with Care Kavitha Menon kavitha@ppfas.com Akash works with a IT company and has a great salary package. He made his first investment in property using an EMI in early 2003. The property value had doubled by 2005 and he decided that property was the best investment to make. Since his salary too had doubled in the same time, he decided that the extra savings can go into another property by using, you guessed it, EMIs. Then the third one happened in 2007 and one more in 2008. Using a heady mix of personal loans, loans on existing properties and regular mortgage loan our friend had accumulated several crores of property .There was just one problem . He had practically 80 % of his salary going towards various loan payments. The liquidity crunch was severe. 2008 came in with recession and salary cuts in its wake. That's when the alarm bells started ringing. Real Estate investments unlike others have peculiar features 1. They involve large outlays

You probably have seen the advertisements. Its all over the place with many insurance companies offering a guarantee on the highest NAV of their ULIP scheme. ULIP funds invest in market listed securities which can be both equity and debt related. Since these schemes are long term in nature, investors invariably choose 100% equity allocations. Such investors had taken a huge beating during the crash of 2008 and have seen significant erosion in their investment values. This volatility had put off potential as well existing investors from committing more funds into these schemes. Now “Assured Highest NAV” schemes have been projected as the ultimate solution to market risk. You are guaranteed the highest Nav during a certain period, or fund value whichever is higher at the end of term. What sold to investors is the idea that the fund will be invested completely in equities and the highest returns from such an equity portfolio will be made available to them. This is not the truth. First let