Kavitha Menon's Blog

My client was concerned. After five years of systematically investing in equity funds his IRR or annualized return was a mere 7%. He isn't sure if investments in equity mutual funds are right for him anymore. Many investors started off with SIPs in equity under the notion that they are entitled to a 20-25% return on a compounded basis and anything below this is too poor. Despite years of market experience behind us , investors seem to have very unreal expectations from equity investments . Unfortunately many also tend to shy away from equity investments when  such expectations are not met . Equities are the best long term assets to invest in provided you are clear about the time frame of investments, expected returns , portfolio quality and lastly whether your financial situation allows for such long term investments. Being Realistic about the Time frame -  Every analyst or fund manager would tell us that we need to give a minimum 3 to 5 years while investing ...

Financial do's and don'ts before you turn entrepreneur Planning to turn entrepreneur? You have got to be prepared for a period of sporadic to zero income - a world apart from the comfortable space of monthly pay cheques. Financial planning will take care of the crucial transition period in which monthly credits to your bank account will stop. Here are some important dos before taking that long break. 1. Maintain a fund equivalent to the period for which you believe your business will not bring in positive cash flows.  To do this you will have to make a budget and plan expenses on both the personal front as well as for your business. Only then can you define a time frame in which the business will start making enough to meet expenses. Add a margin of a few months' expenses to make it safer. If you are planning a break of say two years, you need to maintain at least two years worth of basic expenses in a liquid fund. A Systematic Withdrawal from this fund that will tak...

Last week, we received a call from a lady who wanted to get financial planning done for her family. She was a smart and educated woman working as a top executive in a well known company, while her husband was running a successful business. One look at their joint income gives one an impression of an upper class well off couple. However our client wanted to meet us because they were in the middle of a financial crisis. The couple spent a very large part of their income paying off debt in the form of personal loans, EMIs and funding of a very expensive lifestyle. There were no savings while loans and EMIs were related to purchase of gadgets and cars and some land that was turning into a white elephant. When in a debt crisis, following suggestions could help. They need to be however implemented with a time bound plan. Restructuring - You can speak to your bank or creditor to restructure the debt such that they can be paid off over a longer duration or at a reduced rate. Banks /credit...

This article is an attempt to simplify the process of retirement planning in three basic steps Step One: Knowing what you will need at retirement and how much to save. The link given below takes you to a retirement calculator and will help calculate your retirement corpus as well as the amount required to be saved by you to achieve this goal. But before going to the calculator you need to be ready with the following. 1. Retirement Age 2. Your current expenses: Remember to remove expenses related to children's education, EMIs and insurance premiums that you may not pay after retirement. 3. Life Expectancy: Generally financial planners take life expectancy upto 85 years. This is an important input from the point of view of calculating the corpus required at retirement. 4. Pre retirement returns - Based on your past experience with investments or with the help of a financial advisor you could arrive at the returns that you will be able to get from investments during y...

When young couples make financial plans, their goals revolve around buying a home, vacations, a car, their child's education and lastly retirement. Almost always retirement is the least prior goal in their plan while the reverse is true for those in their forties. Irrespective of how old you are, retirement is the most important goal to plan for. One of the discretions we make as financial planners is to always put, first emergency fund and then the retirement fund as the most prior goals irrespective of clients own preferences. I am listing a few reasons for doing that - Our life expectancy is rising:  This means that with increased life you need money to last you for that increased lifespan. Our life span has risen from 44 years in the 1940s to 74 years in 2011.That is the average age. Most individuals have a working life of around 30 odd years would have an equivalent number of retirement years. Of course one can work till one dies, but that should happen out of choice, and n...

"Your charges are way too high!" Said my client, when I recommended he get himself a plan made. Every month he would call me to ask about appropriate instruments to put his savings into. As a financial planner I know such advise based on limited information about his financial situation was not only inappropriate but could also be detrimental to his long term wealth. He however was happy that he was earning well, saving regularly and was well versed with investments and hence was ok with the current set up. I would like to compare investor's relationship with their advisors with that of a patient with a chemist and a family doctor. You go to a doctor for advice, take a prescription to the chemist and buy a product. But hey! You need to pay your doctor a fee and plus pay your chemist a margin on the product purchased. Would it not be really smart to simply ask the chemist for a prescription? He is earning a profit from the product isn't he! When it comes to mone...

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...