Sometimes we hear from Investors complaining that their portfolio has delivered lesser return than the funds which some other advisor is suggesting. Yesterday I got one such call from an investor. He complained that his portfolio delivered only 11% compounding over a period of 10 years, whereas the funds which one bank RM was suggesting have delivered 14% compounding return. I think he is not alone in having such a predicament. Investors have to realise that their overall portfolio which consists of properly diversified investment avenues will always underperform the best performing funds of the day. It’s very easy for any advisor to take out funds that have delivered top notch returns and show this little googling as his/her advisory calibre. But will this result in long lasting outperformance? Very unlikely! Important thing is to design the portfolio in such a way that it should meet your financial goals without giving you any sleepless nights. So in that sense you have to focus on a return that is commensurate with your risk and financial goals profile. Blindly focusing on chasing the best performers on the basis of recent past returns will most likely backfire. In a properly diversified portfolio, some funds are periodically bound to underperform and that should not only be accepted but welcomed. If the chosen funds are fundamentally good then periodic underperformance is a sign that your portfolio is well diversified and covers all spaces. On the other hand, obsession that all the funds should compete for best possible return in every time frame is not the best way of managing money. In my opinion, the role of the advisors is to discover the inner world of the investors ( their financial goals, risk profile, disciplined saving and right asset allocation) rather than chasing ever-changing places of so-called best performing funds. Manoj Pandey CFP

The other day, I got a call from one of my clients. She had earlier planned for SIPs. But she told me that her bank manager was telling her to avoid investing in funds with high NAV (Net Asset Value). Bank manager further advised her to wait for 2-3 months and then invest because as he said by then the NAV of those funds would come down. I could understand the investment related misconceptions among the common investors (though they need to know at least few important basics of investments). But coming from a bank manager who is supposed to guide the people in investment matters, was surely shocking. I don’t know whether this person was genuinely making such remarks or deliberately misleading the gullible investors. Both these situations are worrisome. How can people fulfil their important financial goals and achieve financial freedom with such questionable advisors? Here in this forum, we are constantly educating about the right basics of investments. Let me reiterate few points here again- 1) Funds’ NAV has no role to play in the performance of the funds-Any fund starting today naturally would have an NAV  of Rs 10. Does this have the advantage over similar fund with NAV say Rs 1000? Absolutely not ! The return of the funds depend upon the fund management, risk management, stock selection, investment style, expense ratio etc. So the selection of the funds should be on the basis of these factors. There is no role of the NAV in the performance of the funds. 2) NFO (New Fund Offer) should be avoided- NFOs are trying to exploit the same misconception that old funds with high NAV are pricey and new funds with NAV Rs 10 are bargain. The fact is that in almost all cases, it’s better to invest in old funds with proven track records and known investment style rather than investing in NFOs. 3) Stopping SIPs is self-defeating- The purpose of SIP is disciplined saving through regular and automatic investments. SIPs act wonderfully well because it not only puts some portion of your income away in savings but it also takes away the pain of taking investment decisions again and again. Further, through SIP, you discount the market volatility. In fact market fluctuations work like a friend for SIP investors. But to be effective, SIPs should be run for a very long period. In fact I say it with total responsibility that SIPs should never ever be stopped. Even after retirement, there should be some room for savings through SIP. Stopping SIPs in order to time the market is one of the worst things you can do to your portfolio. Serious wealth is difficult to generate by trying to time the market. Don’t try it, you can’t do it, nobody can. Understanding a few basics and maintaining simplicity of disciplined investments will take you toward a robust portfolio. Arming yourself with these basics and maintaining discipline will let the power of compounding to work magically and takes your portfolio towards creating financial freedom for you. Manoj Pandey CFP

With the continuous changing investment landscape, It becomes quite confusing for the common investors as to how to choose various investment avenues. Sometimes equity performs, sometimes debt and sometimes international funds or gold funds take the lead. Even within equity, there are funds with different market caps and styles which find the flavour from time to time. So, what is the solution? Should we always remain on our toes and keep shuffling the portfolio? No, that is neither practical nor recommended at all. Chasing trail returns of the funds is a sure shot recipe of mediocre performance. So, what should we do? The answer lies in going back to answer the basic questions as to why you have been investing in first place. Yes, answering “why” will take care of every “How” to design the portfolio. Here are few important why questions worth asking for- Why am I investing?- I am investing because I value my financial freedom. Why should/shouldn’t I try to maximise investment return?- Uncontrolled speed is prone to risk. My values don’t allow me to risk my family’s financial interests. Judiciousness protects. Why you need not follow others while designing your portfolio. Not even the investment masters?- I know my situation, I know my values hence I will design my own portfolio not imitate others. Why you need (or don’t need) an investment advisor?- I love my primary job and want to devote my energy to that job instead of learning the intricacies of investments. Moreover my advisor should be the one who keeps my motivation for investments high. Why are you/your advisor choosing certain funds and avoiding others?- I value sound fundamentals and consistency in performance rather than blindly chasing big returns. These are some of the sample answers. I invite you to design your answers and they will act like your guiding light to design your portfolio. Answering “why” largely answers most of what and how questions. Your portfolio gets more systematic and your savings more disciplined. Then, you don’t need to keep looking for market clues and tips and investment decisions become less cumbersome. All this results in your enjoyable and stress-free journey towards financial freedom. Manoj Pandey CFP  

SIPs are probably the most effective tool in the hands of small investors to fulfil their financial dreams. They are affordable, easy to implement and take away the pain of making investment decisions again and again. But despite all these obvious benefits, the number of SIP holders is not very high. I estimate that not even 1% of India’s population is investing in SIPs. Even, those who do, the SIP amount for most of them is very small. Furthermore, even these investors don’t continue their SIPs long enough to realise the full benefit of the compounding power. Astonishingly, out of total SIP investors only 11% people continue their SIPs beyond 5 years. Which means remaining 89% would not able to generate good wealth through SIPs. Why people don’t take the full benefit of SIPs despite having the potential to do so. After all, SIP is the proven wealth creator around the world even for people who have started very small but continued it for long period of time. The reason is that the benefit of SIP accrues after a long time. Many people get impatient as they keep on investing without seeing the benefits for considerable time. On top of that, the market’s imminent downfall makes them wary of the SIP benefit. They suspect that what they have been told is an exaggerated story and the reality is different. Here, I think investors not only need proper hand holding but they also must see some immediate benefits which would keep their motivation high. Here are some immediate benefits of SIPs which will help you stick with the game of compounding as your small savings turn into magical wealth- 1) Take the SIPs not just for long term goals but for some short term relishes as well- For example, along with long term goals say retirement planning or children higher education planning, take the SIP for short term goals say vacation planning also. Your short term goal will keep you excited because we generally prefer low hanging fruits more than the longshots. But you must make a contract with yourself that vacation planning will get along with long term goals but on a standalone basis. 2) Set the SIP day in your calendar as wealth creation day-Set a day of the month preferably the first of the month as the SIP or investment day. You can even plan some innovative celebration on this day. Even rituals like Pooja etc work wonders to strengthen our commitments besides getting the blessings of the almighty. 3) Choose the right advisor who would keep motivating you- It’s very difficult to find an investor who has made big without associating with any investment service provider. Long term investments need continuous service, advice and reinforcement. You need a buddy whom you can freely discuss your goals, fears and progress towards your goals. Finding and continuing with an ethical advisor is probably the first step towards financial freedom. 4) Investment is not a taboo, discuss with your friends- What’s wrong in discussing your investments and financial goals with people you trust like your spouse, relatives and friends? Money matters are common issues for nearly all the people so discussing investment would be quite interesting as well. 5) Choose the investment system which is easy to operate- The best way to develop good habits is to make them easy to operate. Similarly, to avoid bad habits, make them difficult to continue. Making investment is a good habit and breaking long term investment is a bad habit. So make a contract with your advisor so that making investments should be very easy to implement. For example, you simply send a message to your advisor and he/she completes the investments immediately. Whereas any redemption should need proper explanation. The convenience of making investments and little inconvenience of withdrawal makes your investment disciplined and let the compounding work uninterruptedly. Manoj Pandey CFP

No one can dispute that the best way to live life is to live every moment. Rather than dwelling in the thoughts about past & future, live in the now and you will realize that dealing with the challenges of life is not that difficult. But when we do financial planning, we think about future goals. Also, we occasionally refer to our past to understand our beliefs about investments and finances. Does this mean that financial planning is not compatible with “live in the now?” It may seem so if you only see the surface. However, if you look a little deeper, you will realize that planning for the future or even referring to the past to understand the present behaviour is not out of sync with living in the now. When you are attentively planning for the future, you are so much focused in the now that your entire attention is towards the task in hand. In such a situation, you are trying to see the future through your present and doing that makes you live in that particular moment. For example when you are planning for retirement, you are focussing on your life after retirement. You may think about the monthly income you require after retirement, the things you want to do, how much you need to save to reach that goal etc, you may also get ready for the situation that if you fall short of your goal, what are the back up plans. If you plan all these things, you are perfectly honouring the present moment because everything is happening in the now. On the other hand, if you only worry about your retirement without taking any action or planning then you are letting the present pass you by. Many people only worry about their retirement or other financial goals whereas some may be lamenting why they have not started investment earlier. Both these melodies are unconscious activities because you are losing the “now” through worry and regret. Your financial planning and subsequent implementation of that planning, could actually be an important portal to live in the now. Financial planning would then be like your “Zen” that not only addresses your financial goals but also opens the gate of awakening consciousness. Manoj Pandey CFP

Investment decisions could be stressful. More so if you have to keep making them on a continuous basis. I observe many investors who start enthusiastically and back their ongoing investment decisions to a certain fundamental plank- ” I study the Indian economy, world economy, geopolitical situations etc hence I have a good idea about how the market functions” they may claim. But very soon their enthusiasm converts into fatigue and slowly they find it hard and hard to do the continuous calculations of investment decisions. Making investment is a habit and like every habit it prospers when it lodges into your subconscious mind. Then you don’t have to scratch your head again and again in order to make investment calls. And when you set up such a system of investments, you end up doing good investments regularly and reap the massive advantage of compounding later. Here are few automation strategies to maximise your  investment advantages- Automation in investments- I consider the facility of SIP through auto debit a boon for small investors. This small yet very significant invention has created countless crorepatis. I remember the days of writing 12 cheques every year for SIPs in early 2000. It was an arduous task and continuation of this was taxing for investors and advisors alike. Now with the auto debit facility, developing the discipline of investments has become so much easier and effective. If you have not taken SIPs so far then I should consider this a great failure on the part of advisors like me who could not articulate its benefit effectively. Auto debit SIPs are one of the best forms of automation. Do it immediately to benefit this wonderful wealth creation system. Automation in fund selection- With more than 10,000 funds already and many more keep coming up, selection of funds seems like a herculean task. Here your advisor would do the automation task for you. She/he will take the representative funds of different categories and design a well-diversified portfolio for you. One more way is to select the index funds which takes away all the biases in fund selection. Automation in asset allocation- Taking asset allocation decisions in advance proves to be very potent in financial planning. If you design the future road map of asset allocation for your financial goals, then decision making becomes relatively easy. In the absence of a game plan, asset allocation decisions get difficult & complicated because prevailing market conditions and ongoing media noises impact your decisions. Non-automation in expenses-While the automation works to make your behaviour easy, we need to make our non-essential expenses a little more difficult. The idea should be to create an additional level of complexity so that these outlays find the going more and more difficult. One of the most effective ways is to use “Cash” in cases of superfluous spending. The arduousness of taking out cash and then feeling the “Pain of Payment” will make these expenses more judicious. Manoj Pandey CFP        

When on 24th March, the Govt announced a change in tax rules in debt funds and made their capital gains fully taxable, mood was gloomy among investors. Many Investors have been planning to shift their SIPs in debt funds and move towards equity or hybrid funds. Some have already done so. But, is this the right move? Should investments be done only on the basis  of taxation? I am of the firm view that debt funds are the integral part of the portfolio and must remain so even after somewhat adverse taxation on them. Here is my take in favour of continuation of investments in debt funds- 1) Long term wealth creation requires right asset allocation- Totally equity oriented portfolios are prone to deep fluctuations. We have seen the downfall of up to 60% in the stock market. Every now and then, the stock market goes down quite heavily. If your portfolio is only of equity funds, then such downfalls not only disturb any impending liquidity requirement, they create psychological havoc among most of the investors. The same investors who felt their risk profile is aggressive, become over sensitive to such downfalls. Having debt in the portfolio limits such downfall and in such a situation, investors could look up to the debt portion of the portfolio for liquidity needs. 2) Having debt puts you in pole position to capitalise the downfall in equities-When equity market goes down big and it does quite regularly, your debt component may play the most important role. See, the best way to benefit from the downfall is to invest in such times. So if you have a reasonable debt fund balance, you can switch some amount in equities just when it is the most profitable to do so. But if you don’t have debt balance or little balance, then such desirable action would not be possible. 3) Debt is a good hedge to equities- You may know that generally the equity market moves inversely to interest rates in the economy. So, in the era of higher interest rates, equities more often than not perform poorly. But higher interest rates benefit the debt investments because you buy securities that fetch higher interest. Thus, in such times, debt provides some momentum to your portfolio till the economy comes back to a lower interest rate regime. 4) Debt funds cannot be fully replaced with hybrid funds- Many advisors may argue that investors should opt for hybrid funds with at least 35% equity exposure as they have better taxation benefit than debt funds. But in my opinion hybrid funds cannot replace debt funds completely. You may want a certain section of the portfolio which is immune to any market fluctuations. Hybrid equity funds though may not experience similar downfall as equity funds, they still are subject to fluctuations to the extent of their equity allocation. Debt funds must be the essential part of most of the portfolios. Don’t stop investing in debt funds if your financial planning demands exposure in them. Right asset allocation should not be sacrificed at the altar of taxation only. Manoj Pandey CFP  

Investment is not at all a rocket science. For someone who wants to build a great portfolio, live a life of financial freedom and achieve her/his financial goals, SIPs are the most wonderful instruments. A humble SIP started early can create a huge portfolio figure a few years later. That’s how the magic of compounding works. Yet most of the people who want to start the SIPs don’t take action and their delay ultimately causes a substantially reduced portfolio sum. But the problem is that most of us are blind to our own habits. When we say that we earn quite OK but don’t know where all the money goes leaving nothing to save, we are in a way admitting our lack of awareness. For these investors, an approach called pointing and calling could be very useful to create that awareness and do the right thing i.e. committing for SIPs. This is how this approach works- Write down the income and major category of expenses on a sheet of paper. So you may write- My income is Rs 1 Lakhs I spend Rs 15 K on rent I spend Rs 10 K on ration, vegetables and milk I spend Rs 10 K on dining and entertainment I spend 20 K on my car EMI and fuel I spend Rs 10 K on shopping. I spend Rs 15 K on various bill payments. I don’t know where the remaining amount goes. Then you may write- I am committed to saving because financial freedom is utmost important for me. I value my freedom at any cost so come what may, I must save at least 20% every month. I can not wait till the end of the month for saving because somehow money slips, therefore I am committing to save first and adjust my expenses with the remaining amount. Saying it out loud will inculcate the habit of saving. When you do this pointing and calling, you create awareness towards that habit. Also, since you have added the element of your values, you will most likely try your best to do it and soon enough you will develop this healthy habit of saving regularly. Manoj Pandey CFP

Few practical tips which should definitely help you save and invest more- 1) Fix a day of the month as the investment day- For example you may choose the 10th of every month as your SIP day. Mark this day in your calendar as the investment day. Subsequently the 10th of the month will be designated in your system as an investment day and you will try to make this day continuously greater in terms of investments. 2) Fix a day of the month as no expense day- On this day, say no to each and every expense. The idea is not just to save some bucks but to have a small victory over instant temptations. These small victories create a huge sense of satisfaction and take you towards creating a judicious balance between savings and expenditures. 3) Create an atmosphere of investments- Have some time when all the family including children are discussing savings and investments. By explaining to kids the miracles of compounding, you will not only set the tone for achieving important financial goals but also prepare them as responsible investors in future. 4) Surround with people who are positive towards savings and investments- Talk to friends who take interest in investments and savings. There may also be people who ridicule the idea of investments through a distorted logic that enjoy and splurge in the now and don’t worry about the future. Such people who have a negative mindset for investment may pollute your thinking as well. So beware of them. 5) Find attractive reasons to invest- Investment is wonderful because it provides you financial freedom. But you may have some immediate fascinating reasons to invest as well. For example you may set a vacation plan and start investing for that goal. When you find a beautiful reason to develop a certain habit, it likely stays forever. 6) Change your language of investment- When you say ” I have to invest because otherwise I will not be able to meet the future expenses”, you categorise investment as burdensome. You may change it into ” I am getting into investment because this will provide me with my dream family vacation and beautiful feeling of financial freedom”. What you say to yourself is a very important ritual and makes a huge difference to your actions. 7) Have a trusted advisor- As we discussed in point number 4, surroundings have a very significant impact on you. So besides doing all the things mentioned there, choose a trusted investment advisor who would have a very positive influence on you. He/she will not only assist in your portfolio management, but even more importantly, he/she will have a great effect on your savings and overall investment discipline. Good advisor not only help you achieve your financial goals but also make the whole journey so much more beautiful and enjoyable. Manoj Pandey CFP

I cannot afford to invest now! This is the common refrain of many people who think of investment in linear terms. But I firmly believe that each and every one of us can be an investor. Let’s see how to become a successful investor even if you are not investing huge money- 1) You don’t need a big amount for being an investor- I cannot emphasise this point enough because the act of investment is wrongly and conspiratorially associated with a big amount.  Oh I have very little savings so I will have to wait till my savings improve, they say. But why can that little savings not be invested? First of all, one should get rid of the notion that you need a big amount to start investments. Let the godsend blessing of the power of compounding to work by supplying what it wants the most- “Time”. 2) It is not about investment per se- Being an investor does not mean that you must invest money, come what may!  Being free of loans which are sucking your blood are more important. So if you are in a loan trap, the first thing you need is to formulate the strategy to get rid of your loans first. Once you have successfully cleared your loans in a time bound manner, there will be no looking back for you in the field of investments too. 3) Investment is not the sacrifice of present happiness- Investment should be viewed as education. When you are in school and college taking education, let’s see which mindset would be more effective? – I need to study now because otherwise I will not get a good job. Or – I love studying because it is so liberating. I am willing to work hard because this will provide me with such an effective tool that I will enjoy my lifelong freedom and wisdom. Similarly, making an investment is so satisfying that this feeling can beat any immediate discomfort. Besides, it guarantees your future independence. 4) It’s a vote for your liberated identity- Investment is not just about making money though conventionally we have this mindset. Doing investment is a vote for your liberated identity which is not bound by the quantum of money. By investing, you are in effect demonstrating that you can live your life without being the pawn of your expenses. You are then working out your money challenges not out of frustration but from the attitude of strength and courage. 5) Tracking money strengthens your awareness- Most of the people don’t like budgeting, including myself. But what I like is being aware of money movement. Tracking every rupee that comes into your life and that goes out is literally like breathing in and breathing out. Being aware is so liberating that once you have tasted this, you would love it. Tracking your every rupee can provide a similar powerful meditative experience and freedom from useless thoughts. 6) Sometime spending is more important than saving- Effective budgeting is not cost cutting. It is about prioritising the areas where spending needs to pump in and areas where excess spending needs to cut down. For example, you may find that you are not spending enough on health, education or vacation. So you may ensure that you spend enough in these areas because then it would not be spending, it will be a precious investment for happiness, liberation and peace. 7) Don’t let money matters scare you- Last but not the least, don’t let money matters scare you. We are living in the age where there is constant pressure by various authorities and institutions who keep scaring us to toe their line through penalties and fines. I am not for one advocating to violate rules but despite all the precautions, you may end up at the receiving end. In such a situation, fight with all your legal rights against any such act but don’t let such penalties or fines disturb your peace of mind. At the end of the day, you are the master of money not the other way around. Manoj Pandey CFP