Tuesday, February 25, 2020

Get A Kick Without Blowing Your First Salary: Here’s How

“I am thinking of starting an EMI with my first salary for an upcoming apartment. So that, 5 years hence, I will have my own house,” remarked Bhola to his neighbor Mr. Kent, who is a financial advisor.


But, you already have a home, Bhola. What will you do with the new one?” asked Kent. “I will rent it out and earn from it,” said Bhola, with a sense of pride in his voice. 
“NO!" nearly screamed Kent. 
"Don’t be stupid. Unless you intend to stay, do not buy a house. Giving for rent is as good as giving for charity. Otherwise, the house will own you rather than you owning the house!
Kent continued: “If you start an EMI and lose your job in between, how will you manage it? Then, you will have a neither a house nor job. There are other things for you to set right before thinking of buying a house for investment purpose.”
“Like?” wondered Bhola. Kent took a deep breath.
Begin with start paying off your education loans, if any. By the way, you will be getting tax benefit too on the education loan.”
Bhola smiled. “Thankfully, I have very little loans. Dad helped in cleared most of it for me”.
“See, Bhola, I have seen many youths splurging on fancy clothes, restaurants and all kinds of trivia to show off their new found earning potential. My blood boils when I see this. The biggest asset you and the youths who land a job in their early twenties is TIME.”
“If you save just Rs.10000 now for the next 30 years, at 15% you will have Rs.5.63.crores.For the same Rs.10000, even if you delay by 10 years (which a majority of earners do), you will be having just Rs.1.32crores – more than 65% drop!Look at the difference – it’s more than Rs.4.16 crores!Use maximum of your salary now to save and invest.”
Bhola asked “But, where do you start?”
Kent laughed “Not so soon Bhola, first get some basic things in order. Start with a Life Insurance to begin with. "
Life Insurance? But, why? I am not yet married and have no dependents,” a shocked Bhola reacted.
Yes. Life Insurance. Life Insurance is not just to protect your loved ones, but is a part of a complete financial plan. Besides, since the premiums are frozen, it will work out to be very cheap when you buy it early. And, the biggest advantage once your life is covered is that even if there is some material change in future the insurance coverage continues. Next comes Health Insurance.
Flexing his muscles Bhola shot back, “I am fit and very healthy. Do you think I need Health Insurance" ?
Yes, Bhola, you are young, fit and have a very good lifestyle, but what if there is an accident or a hospitalization due to depression or overwork or some other reason? Since you are young and free from any medical complications, the premium will be lower and you will be given comprehensive coverage compared to the one who is 10 years older than you" 
"But, I am covered by my company's Group Mediclaim" interrupted Bhola. 
Your company will be covering you under Group Mediclaim. But, then,, the cover will be generally insufficient and will tend to have lots of limits and exclusions. And, besides, you never know when your company changes its insurance coverage policy.
Normally, there will be a waiting period for certain diseases. All these will have to be covered if you continue with the same insurer for 4 years or so. Besides, of course, there is tax benefit too!”
Next, you never know when you may lose your job or overshoot your expenses towards a function in house, an illness forcing you to quit your job, a friend asking for hand loan, etc. Just like death and taxes, risk is also inevitable. Towards these, you need to create an emergency fund for yourself."

Kent continued.....
“Have about 2-3 months of expenses in emergency fund. But, since you have just started earning, start with a smaller amount and gradually increase this whenever your finances permit. And, use this fund for emergencies only.
“After all this comes the investment part. Ensure that you save at least 20% of your income. In fact, since you will have fewer expenses, you should aim for saving a higher percentage of your income.
“If you have time to do research, regularly keep track of companies, only then consider direct equities, but otherwise, you are better off investing in mutual funds. Indian mutual funds have a good track record of consistently beating the benchmark of Sensex and Nifty. Choose funds wisely and learn where to invest.”
Kent stopped and looked at Bhola, who was jotting down on his Pocket Dairy. 

Oh....
"that looks quite exhaustive to me.....but if you are saying....then it will definitely will be in my benefit. Come lets go ahead. Tell me where to begin" ? Bhola


“As they say, ‘well begun is half done.’”


This article of mine was first published in BankBazar blog
 
https://blog.bankbazaar.com/get-a-kick-without-blowing-your-first-salary-heres-how/



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Thursday, February 13, 2020

DO SMALL CAP FUNDs MAKE SENSE ?

The deluge of Small Caps NFO is sure to make investors look at the Small Caps with lots of curiosity.
Especially with the sluggish return the Small Cap space has generated in the past 2 years.
In fact, the Small Cap has been battered for the past 2 years.


Majority of Wealth Managers opine that Small Cap generate higher alpha in the coming years, especially post the SEBI recategorisation.
Small Cap universe is large and majority of them are NOT covered by analysts.

Small Caps tend to RISE MORE in a rising market and similarly FALL STEEPER in a flat/Bear Market.
Thus, timing the entry/exit in Small Caps is imperative to maximise returns.
And a SIP investment would make sense, unless one is sure of the market trend in near term.




CHECK THE ABOVE IMAGE : 

This the performance report as on yesterday when the Small cap index is still down by 35% from Jan 2018 Peak!!!

Power of Small caps especially when we are addressing the long term goal.

Small is not SMALL when it comes to giving returns....


No compromise on any other funds.


VOLATILE JOURNEY :|
Equities themselves are volatile and Small Caps more so.
The journey could be very very painful. Especially when there is a sell off in Equity Markets, its the Small Caps which not only bear the maximum brunt but also the first to get SOLD off.
Small caps are for investors who prefer HIGH RETURN and dont mind the accompanying HIGH RISK AND HIGH VOLATILITY that comes with the Small Cap space.


IS IT A GOOD TIME TO INVEST IN SMALL CAP NOW:

The data definitely says so.
The Small Cap PE is now at 37.6 (feb 2020) down from the highs of 100 in Jan 2018.

The average discount of Small Cap Index with Large Cap Index is 15 but now its at a unbelievable 34%.
Definitely attractive.

Hence, its not without reason that 2 NFOs on SMALL CAPs have hit the market.
ITI SMALL CAP FUND
IDFC EMERGING BUSINESS FUND

IN fact, IDFC is coming out with an NFO after 10 years.



POSITIVES : 

The good thing is that majority of Small Caps are owned by Domestic investors and FIIs selling would have little or no impact.
Small Caps are typically under-researched, mostly undervalued and underowned thus providing the opportunity for maximum gains.
Hence, the stock picks become the MOST important factor when it comes to Small Caps in particular.



NEGATIVES

1. Small Caps are not only highly volatile, but they also suffer from low volume and less liquidity.



Although, Small Caps tend to be very volatile, they can give your portfolio a much needed 'alpha' adding to the overall returns. The volatility associated with small caps tend to get evened out over a period of time. SIP Investment would be the BEST method to maximize your returns from this Fund.

If you can DIGEST the accompanying High Volatility and ready to see RED in your portfolio for 2-3 years at a stretch, then Small Cap space is for you.


It would be unwise to ignore Small Caps just because they are volatile. Use the SIP route to diminish the Volatility and actually make it your friend to get good returns.
In fact, Small Caps are a must in ANY portfolio and should form anywhere between 5% to 20% depending on each case.

Small Caps gave a return of as high as 60% plus per annum in 2015/2016 but saw deep correction in 2108 and 2019.
in fact, in 2018 & 2019, while Large Caps were UP by 15%, the Mid Caps were DOWN by 15% and SMALL CAPS EVEN WORSE.....DOWN BY 31%.

In fact, it is this particular data that Mutual fund companies are showing investors and telling them Small caps are cheaper now than anytime before.






OUR TAKE : 



We always advocate against TIMING THE MARKET.
But sometimes, it does make sense to make use of anomalies that Equity Market keeps throwing up.
The Small Caps have been butchered for the past 2 years where even top quality companies kept hitting new lows.

We also have always suggested to look at the MUTUAL FUND route towards equity exposure especially when it comes to under-researched SMALL CAP space.
Hence, you can consider going for Small caps as such.


Although 1 year is a very small period....
In 2019, Axis Small gave return of 37% where as HDFC Small Cap gave a NEGATIVE return of 1%.
What this data reveals is that its always makes SENSE to take guidance from an Advisor.

Dont become #paisawiserupeefoolish and lose your hard earned money by investing DIRECTLY without proper guidance.


Do contact your Advisor who will be in a better position to judge your Risk Appetite and invest accordingly.



This amazing data shows how SMALL CAPS HAVE BOUNCED BACK after major falls. 
The BOUNCE has been sharper, larger, and BIGGER. 
So if you are intending to investing in a small cap, and if you do see a fall....just STAY PUT. 

The reversal will happen quicker and it will happen in a BIG way. 



BEFORE INVESTING IN SMALL CAPS (OR EVEN EQUITIES) KNOW THIS......
By nature, we try to avoid pain. But nothing worthwhile is ever achieved without going through pain.
Markets may not give any returns for three years and give 3 year returns in the 4th year.

INVEST IN SMALL FUNDS ONLY IF YOU ARE READY TO SEE NEGATIVE RETURNS FOR AT LEAST 3 YEARS 

Go for small caps but preferably via SIP mode and make sure that the investment is  for pure long long term only.

YOU ARE STRONGLY ENCOURAGED TO TAKE THE GUIDANCE OF A COMPETENT FINANCIAL ADVISOR WHO WILL BE IN A BETTER POSITION TO GUIDE YOU ON THE FUNDS/ASSETS TO INVEST.

Regards,
Srikanth Matrubai,
Author "DON'T RETIRE RICH"



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