Kavitha Menon's Blog

It is a well known fact that expensive products like ULIPs and endowment products can considerably reduce your wealth pool over long durations of time. Let me explain with an example. Take two equity funds with 1 lakh each invested in the same portfolios, one being a regular diversified equity fund having a 2 % expense structure while the other being a ULIP product having a 4 % expense structure. Let's assume that equities deliver a 17 % compounded annual return over a 20 year period. The end value of the regular equity fund will be approx Rs.16 lakhs at the end on term while the ULIP product with the same portfolio will notch a mere Rs.11 lakhs at the end of term. The difference in returns is approximately Rs.5 lakhs. With Annuities or SIPs this difference in wealth will only accentuate disproportionately over time. Typically any product that creates a package for you will be expensive. A ULIP is an investment plus insurance package, a MIP is a debt plus equity package, a capit...

What's your opinion on silver? Since equities don't seem to be doing much why don't we switch to gold and silver?" asked my client of several years. This was coming from a client, who had earned rock solid returns from his investments under our PMS, had an asset allocation plan and had benefited tremendously from regular rebalancing of his portfolio. I didn't have an opinion on silver prices. My only fear was that it was moving up too fast for comfort and as an advisor I am averse to suggesting commodities specially ones that have had a speculative run. It is mandatory for every investment scheme that publishes returns to declare that past returns are no guarantee for future returns. Then why do investors seem to chase those assets that have already had a superb run. Despite years of historical evidence that the best returns are earned when a particular asset class has been badly trashed and at rock bottom, investors seem to care less. There is an enigma about inv...

Kavitha Menon |  kavitha@ppfas.com Like equity, property purchased for investment purposes needs to be evaluated both quantitatively and qualitatively. Of the most common and simple ways of quantitatively evaluating value of a property is by rental yield. Both potential buyers as well sellers can use this tool to decide on the true price of a property.  Here is how you calculate rental yields Net Rental Income = Monthly Rental X12        Less: 1) Rent for the Period Unoccupied        Less: 2) Brokerage Expenses        Less: 3) Maintenance Expenses        Less: 4) Tax payable on rental income        Less: 5) Repairs and Maintenance expenses amortized        Net Rental Yield = Net Rental Income/Current Property Value Needless to say a high rental yield indicates an underva...

Asset bubbles have been around for centuries. Although we humans have grown in leaps and bounds in areas of science and technology, when it comes to stock market behavior our instincts are as primitive as ever. As always the ongoing correction and volatility have started sending blood pressures soaring. Investors want to know, to what level will the market correct? How long will the trend last? , will FII dump stocks like they did in the 2008 meltdown? Unfortunately I don’t have the answers .Neither do the gaggle of fundamental and technical analysts offering you their expert views on various market channels . Corrections are only a mechanism to purge the market of all imperfections and excesses. It is a friend of the value picker and long term investor. Then why do we fear market corrections? 1 ) We are not sure of the real ‘value ‘of the equity we hold . Let take a little example here. Let’s say you and your friend found two beautiful teak wood tables at 'Chor Bazaar' for...

Asset bubbles have been around for centuries. Although we humans have grown in leaps and bounds in areas of science and technology, when it comes to stock market behavior our instincts are as primitive as ever. As always the ongoing correction and volatility have started sending blood pressures soaring. Investors want to know, to what level will the market correct? How long will the trend last? , will FII dump stocks like they did in the 2008 meltdown? Unfortunately I don’t have the answers .Neither do the gaggle of fundamental and technical analysts offering you their expert views on various market channels . Corrections are only a mechanism to purge the market of all imperfections and excesses. It is a friend of the value picker and long term investor. Then why do we fear market corrections? 1 ) We are not sure of the real ‘value ‘of the equity we hold . Let take a little example here. Let’s say you and your friend found two beautiful teak wood tables at 'Chor Bazaar' for...

“9.75% interest rates ” screamed the hoarding outside a prominent bank near the stock exchange . Bank interest rates are now looking attractive and it may be a good time to lock in debt allocations at high rates of interest . However before locking in your hard earned money in 'safe' bank Fds you must consider some facts. Taxes - Bank interest in fully taxable in your hands . Depending on the highest income bracket in which you fall , you may pay upto 30 % taxes on interest income . Effectively this means that a person falling in the 30% tax bracket will earn only 6.8% (9.75% less 30% taxes ) returns after paying taxes Inflation adjusted returns – Let me explain this with a simple example .Say you are able to buy your days requirement of vegetables for Rs.20 today . Assume prices of vegetable go up next year by 10 % while you have invested Rs.20 in a FD earning 8% . We also assume that you fall in the lowest tax bracket of 10 %. In a years time your Rs.20 would...

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 ...