The Mahabharata, Investments and Lord Krishna

The Mahabharata, needless to say, is one of the greatest epics. Though essentially a narrative of a war between the Kauravas and the Pandavas, it is known to offer valuable lessons on life, relationship and success – the good and the bad; the virtuous and the vile.

One of the excerpts of which I clearly remember from Mahabharata is of Draupadi being dragged into the court room by her hair. Draupadi due to no mistake of her own was embarrassed and insulted.

If we look at the situation closely, Shakuni wasn’t the only one to be blamed. To give it a different perspective, the Pandavas were lured.  They did not assess the risk of losing out. Even Dharamraj Yudhisthir could not see the fallacies in the scheme.

The same applies to Investments

Investors are lured by the high returns offered by Ponzi schemes. They are so lost in their dream wins that they do not assess the risks involved in such investments. Even the most risk averse investors get lured seeing quick and easy money making schemes.

When Ponzi schemes are exposed, millions of Rupees are lost of innocent investors. Ponzi schemes are blamed. But my friend, Ponzi schemes exist because people get lured by easy and quick returns. They do not do a background check. They risk everything for nothing.

Risk comes from not knowing what you are doing.

This applies to every financial decision taken by you or financial products bought by you without assessing the requirements, risk appetite, benefits of product, cost of product, opportunity cost, etc.

For example, Buying endowment Insurance policies, crypto-curencies, tip-based trading, tip-based investment in equity, investing in random / top rated mutual fund schemes, investing without Goals, etc.

the great battle of Mahabharata

The Kauravas had the Ruling King, greater Army and most of the greatest warriors on their side. They had Shakuni as their Advisor.

The Pandavas and their Army were comparitively less in strength. They had just returned from Exile. However, this time, they had Lord “Krishna” as their advisor.

Krishna not only helped them to see the truth but also guided them to the right path by overcoming their emotions. He did not participate in the battle but helped the Pandavas to Win. Krishna was NIMIT (a medium) to their Success. This is the true Role of an Advisor, isn’t it?

In your investment journey, you will take many decisions. Some of these may not be beneficial / in your interest. Even with lesser resources you can Win great battles, when you have Krishna by your side.

Happy Janmashtami!

CA Nitesh Buddhadev
CA Mitsu Buddhadev
Nimit Wealth Management

You may reach out to us at info@nimitwealthmanagement.com for any queries, suggestions or feedback.

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A tale of Father’s Advice to Fly High..!

This Fathers Day, I would like to share one of the vivid memories I have of me and my father together. I belong to Gujarat, and one of the most important festivals is Sankrant.

As I was watching my father flying a kite, I said, “Pappa aa manjho patang ne unchi udwa nathi detho”

“Dad, Because of the string the kite is not able to go any further higher”

Hearing this, my father smiled and broke the string. The kite went higher after breaking of the thread and then shortly after that it came flying down to the ground. A bunch of kids came fleeting to catch hold of the kite. Amongst all the pitter patter of kids, my father told me to sit down and said “Beta aa manjo j che je patang ne udwa de che”

“Son, it is because of this String that the kite is able to fly”

He further continued,

“Son, in life we reach a certain level of prosperity and then we feel that there are certain things in our life that are not letting us grow any further like Home, Family, Friendship etc. We feel we want to be free from those strings which we believe are stopping us from going higher. But, remember son. Going higher is easier than staying at the higher level. And friends, family and culture etc are the things that will help us stay stable at the high heights that we have achieved. If we try to break away from those strings our condition will be similar to the kite.”

Today when I am grown up, I believe that this is the best piece of advice I have got in my Life. It equally applies to my profession.

We have life goals (responsibilities) and due to which we have financial goals. In our financial journey, we sometimes feel that some one else is flying higher than us, achieving more than us and we always try to look at others kites than ours..

We all want a maximum return on investments say 20 to 30%. We all invest in Equity for outstanding returns. While the story of Equity seems rosy, we should not forget the Risk involved. When I as a financial advisor ask clients to diversify the portfolio among various asset classes, they fear that the returns of the portfolio will average out to be lesser compared an only equity portfolio. But, as seen above, Going higher is easier than staying at the higher level. 

The strings (perceived as restrictions) of asset allocation will help us to achieve our life goals. Our ultimate aim is not only get a higher corpus but to achieve our financial goals with assurance and safety.

If we break these strings, then we may achieve higher results, higher corpus than expected but it may not be consistent and sometimes, the corpus may wash out completely, and a few of our goals may not be achieved at all. Do we want our loved ones to suffer because we were greedy for a higher Corpus? NEVER!

So, friends, all strings attached, Fly High.

Happy Fathers Day..!

 

CA Nitesh Buddhadev

CA Mitsu Buddhadev

Nimit Wealth Management

You may reach out to us at info@nimitwealthmanagement.com for any queries, suggestions or feedback.

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Pear Tree & Equity Investments – If you give up when it’s winter…

I am investing in equity mutual funds since last 1 year and my returns are negative, may be my mutual fund schemes are not doing good, may be I should go for other top performing scheme or dump the existing schemes or may be equity market as a whole is so risky let me stop investment…

Many investors have these thoughts. If you are one of those who have similar kind of questions or doubts, go ahead and read this blog.

Let me start with a beautiful story as Life’s best lessons are learnt through stories.

There was a man who had four sons. He wanted his sons to learn to not judge things too quickly. So he sent them each on a quest, in turn, to go and look at a Pear tree that was a great distance away.

 

The first son went in the winter, the second in the spring, the third in summer, and the youngest son in the fall. When they had all gone and come back, he called them together to describe what they had seen.

The first son said that the tree was bent and twisted. The second son said it was covered with green buds and full of promise. The third son said it was laden with blossoms that smelled sweet and looked beautiful. The last son disagreed with all of them and said it was ripe and drooping with fruit, full of life and fulfilment.

The man then explained to his sons that they were all right, because they had each seen but one season in the tree’s life. He told them that they cannot judge a tree, or a person, by only one season, and that the essence of who they are can only be measured at the end when all the seasons are up.

 

Similar is the story of Equity Market

Lets assume that there are 4 persons A, B, C, D who have invested in Equity Market at different times.

Now, you decide to invest in Equity Market and speak to these people.

Person A – Equity market is very risky. Your capital may wash out, You should invest only in FD, PPF, etc.

Person B – Equity Market is hyped, the returns are almost same as any other investment instruments.

Person C – Equity Market is very much promising and will give very good returns in the next few months

Person D – Equity is the best asset class one can invest in and it will always outperform all other assets classes.

Now, you would naturally be confused as to which person’s advice to follow. Let me make it simpler. Just like in the story above, all of them are right, because they have each seen but one season in the duration of equity market (assume – sensex for simplicity).

If we look at the Sensex Rolling Returns for last 39 years, it has its own cycle of winter, spring, summer and fall but not necessarily in the same order as the natural seasons.

Your Equity Share or Mutual Fund may not be performing well if you have just started investment a year back as sensex is hovering around 32000 to 36000 since last one year and likely to be in this range due to few state elections due this year and general elections due next year.

So like a Pear tree, Equity Market has to pass through different seasons to give you the desired fruits.

One should not judge that Equity is very risky or its the best just by looking at one season (cycle of returns).

Its always recommended to Invest according to your goals and diversify your investment to different asset class and review & re-balance portfolio periodically.

Read more about importance of investing based on your goals here Are you KYG (Know Your Goal) Compliant..?

Lets see the Sensex Rolling Returns for 5 years period.

 

We note that the Green flags have increased considerably compared to the previous table. Also, at certain periods the red flags turn into yellow / orange.

While there may be many other factors, Patience is the most important fertiliser for getting better fruits from the Equity Market.

Its important to understand that:

  1. Equity markets / Equity Mutual Fund are volatile.
  2. Equity markets / Equity Mutual Fund in the long run may give better returns than other asset classes.
  3. Equity markets / Equity Mutual Fund suitable for long term goals.

So be it a Pear tree, Equity Investment or Life always remember

If you give up when it’s winter, you will miss the promise of your spring, the beauty of your summer, fulfillment of your fall.

Don’t judge a life by one difficult season. Persevere through the difficult patches and better times are sure to come sometime.

 

CA Nitesh Buddhadev

CA Mitsu Buddhadev

NIMIT Wealth Management

You may reach out to us at info@nimitwealthmanagement.com for any queries, suggestions or feedback.

Subscribe to the blog series by entering your email id below. Add info@nimitwealthmanagement.com to your contact list to avoid our updates landing in your spams.

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Akshaya Tritiya – A GOLDen Opportunity for Investment

Everyone of us has seen our parents buy Gold on Akshay Tritiya, and we as the next generation are carrying forward this ritual of buying Gold on Akshay Tritiya as it is auspicious.

All rituals in Indian culture were based on some or the other logic or scientific reason.

Back in the olden days, Gold used to be the best form of savings. It could be used in difficult times of the family, in the wedding of the son/ daughter.

These rituals of buying Gold on auspicious days inculcated habit of savings.

Today, the best form of savings may or may not be Gold. Let’s evaluate the returns from investing in Gold in the past 20 years.

(Photo courtesy : Economic Times) 

If the same amount was invested in Sensex

And, if the same amount was invested in Equity Fund (say for illustrative purposes, Franklin India Bluechip)

From the above, it’s very clear that the best form of savings today is ‘Investing’ in ‘Equity’.

So, this AKSHAY TRITIYA, Invest in Equity..!

Still if you believe that you want to buy Gold, you may prefer to invest in Gold Bonds instead of Physical Gold. The Sovereign Gold Bonds issued by RBI are linked to the price of Gold and offer an additional 2.5% interest to investors. SGB have tenure of 8 years with an exit option from 5th year, Investors can also exit by selling on stock exchange.

The final decision of what to do with your hard earned Money is Only Yours.

Be Wise! Happy Investing..!

 

CA Mitsu Nitesh Buddhadev

CA Nitesh Buddhadev

NIMIT Wealth Management

For feedback or suggestions, you may reach out to us at info@nimitwealthmanagement.com

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Busted! 7 Personal Finance Myths That Have No Truth to Them

“Humans live through their myths and only endure their realities..”

WHAT IS MYTH..?
A traditional story, especially one concerning the early history of a people or explaining a natural or social phenomenon, and typically involving supernatural beings or events (This is what Dictionary speaks)
In short MYTH means a widely held but false Belief or Idea..
 
Many MYTHS prevail in society and the topic of “Personal Finance” is no exception.
Below are a few MYTHS on Personal Finance and the REALITY..

 

Myth 1 :
Financial Planning or investment planning means less spending i.e. becoming miser and hence less enjoying our life.
Reality :
Following a financial plan or investment plan means making guilt free spending and hence enjoying our life more.
[ When we first make necessary investments and then spend… then that is called ‘guilt free spending’.]

 

Myth 2 :
Paying premium for term insurance (a life insurance policy where if nothing happens to policy holder, nominee gets nothing) is a wasteful spending.
Reality :
If we live up to the age of 65 years, then Investment [MF, Shares etc] will take care of our family’s financial future. And if not, then TERM PLAN will.
Insurance is not an investment product; it is a protection instrument.
Buying a Term Insurance is like buying a Fire Extinguisher.
1. You wish that you will Never have to use it.
2. You don’t ask for a refund when it expires.
3. If need be it will save you and your family in time of difficulty.

 

Myth 3 :
There are many investment products available in the market – some are good and some are bad. We should always invest in good products.
Reality :
An investment product can never be good or bad, it can only be suitable or not.
Some investment products can be suitable for short-term goals, but not for long term. The opposite is also true – a product which is perfectly suitable for long term goals, can be a horrible choice for short term goals.
Hence we must always look for ‘suitability match’ when deciding on a product.
Myth 4 :
Like shares, fixed deposit, property or gold – mutual fund is also an asset class.
Reality :
Mutual fund is not a separate asset class as such. It is actually a ‘well-managed container’ which can contain different asset classes in it.
There are mutual funds which only invests into certificates of deposit. Then there are funds which are known as real estate fund or gold fund. And of course there are equity funds as well and mix of Equity and debt i.e Balanced Fund.
So, mutual fund gives you the facility to invest into different asset classes through it.

 

Myth 5 :
If I want to secure my retirement, I should invest in a Retirement Plan or Pension Scheme. Similarly if I want to secure my child’s future, I should invest in a Child Plan.
Reality :
While investing for a goal, name of the goal is never important. Instead nature of the goal is important – like after how many years the goal is due etc. This is because –  mathematics only understand numbers, not names.
Never go for attractively named investment products. Instead always go for simple, generic, all-purpose products and tag it or link it to a goal by yourself.
Packaged investment products are often found costly, illiquid and restrictive..

 

Myth 6 :
If I come to know of someone who has earned good return by investing in a particular product – my job becomes easier. I should simply invest in that product.
Reality :
Unfortunately it is not that simple. Many things (in regards to finance) of the other person may not be same as yours. Such as – financial background, current assets and liabilities, dependents and their age, income – expense, nature of job / business, liquidity needs, insurance and so on. It is almost impossible that your situation will be exactly same as of the other person.
Investment should always be made keeping every aspects in mind. It should never be made in isolation or adhoc. Personal finance is after all – ‘personal’.

 

Myth 7 :
I have made investments as required. Taken adequate insurance also. I have done my part. Now I am feeling happy and relaxed.
Reality :
Congratulations for whatever you have done so far! But sorry to say – that is not enough. If your answers to all the below 3 questions are not ‘Yes’, then you have reasons to worry:
1) Have you kept all your policy documents, statements, certificates – physical or digital – systematically  in one place so that your spouse or children can find those quickly without your help?
2) Have you kept right holding patterns in all your investments, made nominations or prepared a Will?
3) Are you reviewing your investments and insurance at regular interval..?

 

Compiled and Edited by
CA Nitesh Buddhadev – NB
Nimit Wealth Management
nitesh@nimitwealthmanagement.com
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You can still Save LTCG on equity by effective Planning Explained in detail with example

Since the time the FM has announced 10% Long Term Capital Gains (LTCG) without indexation benefit on Equity investments, there is continuous debate and discussion on the same.

You must have read multiple articles on how the LTCG will be determined, the rules, grandfathering provision and so on.

Here we show you how to use these rules to get maximum benefit out of the same.

Let’s assume that you invested Rs 6 lakhs in equity investments as on 31.01.2017. You require this amount for your Goals in 2024.

(Rs in lakhs)

Year Date of Investment Investment amount Date of Sale Market Value* Capital Gains Action Remarks
2024 31-01-2017 6.00 06-04-2024 13.26 7.26 Book profit and withdraw amount Assuming that the highest value of this investment was Rs 6.50 lakhs as on January 31, 2018.
Pay tax on [Rs 13.26-Rs 6.50] i.e. 10% of Rs 6.76 lakhs plus 4% surcharge i.e. Rs 70,347

* Assumed 12% return                                                                                        

 

You may plan your investments as illustrated below and save tax amounting to approx. Rs 65,000 [94% of your original tax liability]

(Rs in lakhs)

Year Date of Investment Investment amount Date of Sale Market Value* Capital Gains Action Remarks
2018 31-01-2017 6.00 After Jan 31, 2018 but before Mar 31, 2018 6.72 0.72 Book profit and re-invest amount again No tax as Budget comes into effect only on April 01, 2018
2019 31-03-2018 6.72 01-04-2019 7.53 0.81 Book profit and re-invest amount again No tax as LTCG is below 1 lakh
2020 01-04-2019 7.53 02-04-2020 8.43$ 0.90 Book profit and re-invest amount again No tax as LTCG is below 1 lakh
2021 02-04-2020 8.00$ 03-04-2021 8.96# 0.96 Book partial profit and re-invest amount again such that gain does not exceed 1 lakh No tax as LTCG is below 1 lakh
0.43$ 0.48  – Carry forward investment
2022 02-04-2020 0.48 0.54  – Book partial profit and re-invest amount again such that gain does not exceed 1 lakh Carry forward investment
03-04-2021 0.96# 1.08  – Carry forward investment
8.00# 04-04-2022 8.96## 0.96 No tax as LTCG is below 1 lakh
2023 02-04-2020 0.54 0.60  – Book partial profit and re-invest amount again such that gain does not exceed 1 lakh Carry forward
03-04-2021 1.08 1.20  – Carry forward
04-04-2022 0.96## 1.08  – Carry forward
8.00## 05-04-2023 8.96 0.96 No tax as LTCG is below 1 lakh
2024 02-04-2020 0.60 0.68 0.07 Book profit and withdraw amount Pay 10% tax on 0.42 lakhs plus 4% surcharge i.e. Rs 4,380
03-04-2021 1.20 1.35 0.14
04-04-2022 1.08 1.20 0.13
05-04-2023 8.96 06-04-2024 10.04 1.08

*(Assumed 12% return                                                                                           

$ Out of amount invested as on 02-04-2020 of Rs 8.43 lakhs. Book profit on investment of Rs 8 lakhs and carry forward investment of Rs 0.43 lakhs

# Out of amount invested as on 03-04-2021 of Rs 8.96 lakhs. Book profit on investment of Rs 8 lakhs and carry forward investment of Rs 0.96 lakhs

## Out of amount invested as on 04-04-2022 of Rs 8.96 lakhs. Book profit on investment of Rs 8 lakhs and carry forward investment of Rs 0.96 lakhs

 

Simply, by churning your portfolio at the appropriate time returns can be maximised and tax can be minimised. This would require in-depth research and analysis.

This is one of the simplest examples and yet so complicated.

There are many such ways to minimize your tax liability viz. investments through Systematic Investment Plan (SIP), Systematic Transfer Plan (STP) and Systematic Withdrawal Plan (SWP).

Paying 10% tax on asset generating 12% to 15% return is better than paying 20% (or 30%) tax on asset generating 6% to 7% return.

Always remember Compounding is the 8th wonder of the World and this 10% LTCG will be non-event in a few days. Believe in India’s long term Growth Story.

Planning is integral to achieving your Goals. Plan your finances and taxes to be in a WIN – WIN situation.

 

Regards,

Nitesh Buddhadev

Originally posted on Feb 02, 2018 on our Facebook page

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