What do you want from your investments- When I ask this question, most of the clients’ answers are not only vague but also leading them towards complications. They may answer- I want the best return and for that I can take some risk. But at least my principal should remain intact. Some may quote a certain number as their goal e. g they may say I want 12% return. Unfortunately with these targets, their journey of investments would neither be enjoyable nor getting you anywhere. There will always be apprehension and uncertainty with your investments. – Market is good now and it may go down, should I encash my investments? – The Market is very bad and likely to go down even further. I should have taken out my money a lot earlier. My advisor is useless. According to one study of the Indian mutual fund industry, only 11% SIPs continue beyond 5 years! If one thinks that by doing SIPs for less than 5 years, he/she would build wealth, then he/she should rather work on resetting his/her false notion about wealth building. For building wealth, you need solid 15-20 years and above. For becoming Crorepati, you either need to start with a sizable corpus or need to continue your SIPs for the next 15-20 years and above. In the later case, you will build the corpus even if your SIP amount is not that big. But continuing your investments for such a long time is not easy at all. You need certain stimulating goals. -The goals which are close to your values. – The goals which keep your adrenaline rushing. – The goals which are bigger than your ego. Otherwise, very soon the fatigue may creep in and you will soon find the excuse to pull out your money and stop the game of compounding abruptly. Let’s see what this means- Values- You feel strongly towards your goals if certain higher values are attached to them. For example, if financial freedom is very close to your heart, then you will continue to invest till you achieve your financial freedom. Enthusiasm- Your zest for certain goals will keep you motivated. For example if you love taking your family on a world tour, you will enjoy your investments as much or even better than the actual world tour. Egoless goals- Being multimillionaire may be good for ego but this will not be effective in the field of investments because your impatience may not accept that long wait. But if your goal is to help your kids fulfil their dream education and career or/and give your family a life of financial freedom or/and giving something back to the society, then these goals will take you to such great heights which might have been even beyond your own dream. Manoj Pandey CFP

I was watching a program on YouTube where Oprah Winfrey was talking to Eckhart Tolle ( who wrote the legendary  book “The Power of Now”) about gratitude. Oprah said-when she is upset and worried she turns to her breathing and feels grateful for that. Grateful for breathing? Feeling grateful for something which is so obvious in all of our lives! But that’s how the people with abundance carry the attitude of gratitude so effortlessly. There are so many things to be grateful for around us. The Sunlight, the beauty & stillness of the trees, the vast sky, the gravity, the people around us….. the list is endless. All of us are already abundant with unlimited wealth and power. This acknowledgement of abundance is actually the real abundance. The beauty is that when you start acknowledging this abundance, even the outer wealth starts flowing in your life abundantly. I have no intention of venturing into the field of spirituality and mysticism, but I can clearly see the connection between creating a vast fortune with the feeling of abundance which comes through “Attitude of Gratitude ”. Many clients always complain that they don’t have enough for saving without even trying. Here the problem is not the availability of investable funds but rather the feeling of lack which prevents them from taking action. They see Investments as the sacrifice of present happiness for the sake of future benefits. But if they could transform their attitude and inculcate the feeling of abundance, then they will not complain of insufficiency. Rather, they will invest from the position of abundance and putting aside some funds will not make them feel deficient. The attitude of gratitude is essential for the long term investors. I have seen people who lack it either don’t start their investments or don’t remain committed with long term investments. They withdraw funds without giving their investments sufficient time. This results in suboptimal performance of their portfolio. The investors with the feeling of gratitude always feel abundant. They may have some temporary setbacks in their life but even the tough phases bestow them some additional skills and temperament to deal with any situation. So in that way, these challenges are treasures for them. Wealth creation is a function of time. All one needs is a little discipline to invest regularly and remain patient. Power of compounding will do the rest given sufficient time. Sounds so simple but many investors could not maintain such discipline and long term patience. Therefore it is important to develop the attitude of gratitude because then you are investing not as an act of sacrifice. Rather you are investing because you value your financial freedom now and in the future. Manoj Pandey CFP    

In a rather surprise move, RBI in its recent monetary policy on 6th April 2023 has unanimously decided to keep the repo rate unchanged at 6.5%. RBI has been hiking interest rate since May 2022 and so far has increased it by 2.5% since May 2022. So, in a way this is a welcome break. Recently twin bank failures in the US and distress sale of big Swiss bank Credit Suisse has prompted the central banks around the World to take a break in their stance of aggressive rate hikes to stem the inflation. Further, RBI in a pleasant surprise has forecasted the inflation figure to 5.2 % from earlier 5.3% which definitely advocates the case in favour of a pause in interest rates. Though the RBI Governor has clearly indicated that interest rates may go up in near future depending upon inflation trajectory. We have earlier maintained that this is a good time to invest in debt funds because of attractive yields and the possibility of hikes in interest rate is not that great. Investors should have a good exposure in debt funds anyway besides equity and hybrid funds to maintain a judicious mix in their portfolio. So if the exposure of debt is less than it’s time to augment it further. Though the change in the taxation of debt funds is a dampener for debt funds, the importance of debt funds in the portfolio is immense. You can’t not have only an equity oriented portfolio for all your financial goals just because the taxation is favourable in equity funds. Bank fixed deposits are the alternative but many features of debt funds make them slightly better than bank fixed deposits. Manoj Pandey CFP

“Warren Buffet”, Naam to suna hi hoga ! The beauty of his investment process and his life in general is that they are not at all complicated. Look at the following points- 1) He adopts a buy and hold strategy in the midst of high in and out game of the stock market. 2) He is not concerned about what is happening at the macro level. He famously said- “even if the Fed chairman whispers in my ear about the coming monetary policy, my investment decisions will  not change even a bit”. 3) He invests in companies which are into simple business. These companies are easy to understand and they are not much disturbed by technological changes. 4) He has made very clear system of his investment game and don’t compromise. Bill Gates and Warren Buffet are great friends. In fact, Buffett has donated more than 90% of his wealth to the charity run by Bill Gates but never ever invested in Microsoft. 5) He still lives in a modest house that he bought in 1958. These characteristics show apart from other things the system and process, Warren Buffett designed are easy to practice. The law of least efforts is at work. Does this mean Warren Buffet is lethargic? No, but he understood the virtue of not wasting his energy unnecessarily. So how does he use his time? He spends 80% time reading and making notes. By not constantly focusing on market movements, he saves a lot of his time, energy, frustration and misplaced elation. Can we the small investors learn from the system that great Warren Buffet has designed? I definitely think we can. And what Warren Buffet does when the market goes down? No, he is not looking at his portfolio, rather he listens to the poem by Rudyard Kipling- “If you can keep your head when all about you are losing theirs … If you can wait and not be tired by waiting … If you can think — and not make thoughts your aim … If you can trust yourself when all men doubt you … Yours is the Earth and everything that’s in it.” Manoj Pandey CFP

Debt mutual funds will no longer enjoy the long term capital gain benefit of 20% taxation along with indexation benefit. The government made this proposal today in the form of an amendment to the finance bill 2023. With this proposal, capital gain in debt funds bought after 1st April 2023 will be fully taxable even after completing 3 years. So far, debt funds attract capital gain taxation at the concessional rate of 20% along with inflation indexation benefit if they complete 3 years. But with these amendments, even after 3 years, the taxation will be as per the nominal tax bracket of the investors. This rule will be applicable for all the funds where domestic equity holding is less than 35%. Thus, all the debt funds, hybrid debt funds and international equity funds will be affected by this new tax rule. There is no change in the taxation of Equity funds and Hybrid Equity Funds. It is to be noted that in the budget announcement, Insurance saving schemes, where the premium is more than 5 Lakhs per annum, the gain was already declared as taxable. Thus they are now at par with debt funds from a taxation angle. This new ruling may affect the sentiments of debt funds investors for the short term and they might consider bank fixed deposits as a better avenue. Some clients may even be inclined to switch their debt funds’ investments into equity or hybrid equity schemes. We advise investors not to do so in a hurry. Investment portfolio should be based on your financial plan and proper asset allocation and merely the taxation should not be the basis of any drastic changes in the portfolio. Also, debt funds will continue to remain an integral part of clients’ portfolios because of transparency, liquidity, asset allocation convenience, and tax deferment benefits. Further, I am sure fund managers will find a way to deal with the situation. They may for example design a debt fund with 65% debt securities and 35% equity arbitrage opportunities. This combination would work almost similar to debt funds but with lower taxation. The opportunity to enjoy the old tax benefit is available till 31st March, so by investing in debt funds you can avail this opportunity. Manoj Pandey CFP

For the past 12 days, France has been burning. Surprisingly the issue is seemingly an innocuous one. The French Govt has increased the retirement age from 62 Years to 64 Years in order to control the burgeoning pension bills. France spends almost 15% of its budget on pensions and has one of the best pension systems in the world for pensioners. For the majority of French people the increase in the retirement age is non-negotiable as they pride in their family and work life balance. But the issue here is not about France. My discussion is about the correct retirement age if there is any! For most of the Govt servants in India, the craving is generally to increase the retirement age. I remember a few years back, when the Govt of MP had increased the retirement age of Govt employees from 60 to 62 years, there was joy in my uncle’s family. So the reaction of the French people seems odd to us who are opposing the increase in retirement age. But then the situation is quite different there. When financial planners develop a financial plan for a client, one of the big talking points is the retirement age. Many people working in highly stressed private companies complain about burnouts and want to retire as early as possible so much so that some people express the desire to retire at 45 itself. Some, however want to continue beyond 60 and possibly till 70 and beyond. In India, 60 is considered the retirement age and most people have the mindset to retire at this age. But we need to be mindful of the fact that this retirement age was set around 100 years ago, when the life expectancy was not even 60 years. Now with better medical facilities, one can easily expect to live till 85 and above. Which means if you are retiring at the age of 60, then you have to support yourself and your spouse for roughly 25 years without fresh income. This is a very long period for a pension fund to last. Further the bad news is that, more than 90% people in India don’t make any provision for their pension fund. So, one can imagine the plight of the people especially in the era where family financial support is shrinking and Govt is not providing any financial support unlike in France and other western countries. So, the moral of the story is to do your retirement planning immediately even if retirement looks far away. Also, make yourself physically fit so that you can prolong your retirement if need be which is most likely for most. Physical and mental fitness will also help you in reducing your medical bills.  Let the French people fight it out with their Govt, we need to make the plan ourselves in order to enjoy a self-reliant and dignified retirement. Manoj Pandey CFP

For over more than 23 years of my profession in the field of investments, I have observed that most people fail to continue their investments for the long term. They start their investments and SIPs with full of energy but after a while their enthusiasm goes for a toss. Then, something or the other would pop up and they would stop their investments. Maybe they would book some property, maybe they simply got fed up with regularly maintaining their savings or simply got frightened by the market volatility which is bound to repeat regularly. On the other hand there are other types of minority investors who continue their investments regularly for a long period of time without breaking their discipline. They are the ones who really reap the benefit of compounding. They build serious wealth and fulfils their most important financial goals like retirement planning, children higher education, building wealth etc. So, what’s the difference?  I didn’t know the answer myself till I read a fascinating book “Atomic Habits” by James Clear. In this book the author has described that most habits are outcome oriented and despite a great deal of motivation, they simply fall aside in a short span of time. But on the other hand, if the habits are designed and nurtured as your identity, then they are likely to stick. For example, if you say that “I want to go to a gym to get my six pack abs”, then the chances are that you may summon your motivation for a few days and then it will evaporate. But if you say that having good fitness is my identity and this is what I am proud of, then the chances are that going to the gym would stay. Similarly, I could conclude that people who couldn’t continue their  investment are those who focus on the outcome. What is the return I will get? Is it better than a bank return? Is there a better avenue? Should I be able to get the desired corpus? Why should I sacrifice my current pleasure of life? etc etc. They may also invoke their continued beliefs- I am not good at understanding investments, so why should I carry on with investments? Market is so risky, even my friends have discontinued their investments, why should I? These established beliefs get in the way and ultimately they put an end to their investments. Successful Investors however make investments their identity. They do focus on goals but don’t get obsessed with them. Rather, they pride themselves as smart investors who are aware about their income, expenses, savings and investments. They keep active interest in financial matters, compound interest, economy etc. This knowledge may or may not benefit their investments immediately but they start trusting themselves as aware investors. They even see themselves as capable investors who could actively advise their friends and family members. And once they identify themselves as aware investors, they continue to live up to their own reputation and show to the world their calibre as quality investors. Moral of the story– If we work towards establishing our identity as good investors, then the return on investments, big corpus and achievement of financial goals etc will take care of themselves. Who is a better exponent of this theory than the great Warren Buffet himself! Manoj Pandey CFP

When I studied compound interests for the first time in my class VI, little did I know that this is going to be my future profession. Teaching compounding interest that is or even more precise, teaching the practical aspect of compound interest. I did my graduation in Science and then MBA and studied a number of subjects but what I still remember is this subject of my class VI. Compound interest is a miraculous thing and not giving attention is a great folly of human kind. I probably would not have paid much heed to this fascinating thing had I not entered the investment field. But as I am in this line, I feel my job is to teach others to use the immense practical benefit of this superpower. How can one use the power of compounding- Suppose, Mr Hardwork started investing Rs 5000 per month in an equity fund ever since he started his job at the age of 22. By the time he turns 60, his corpus would become Rs 2.30 Crores assuming this fund generates a return of 10% per annum. Now, let’s safely assume that as Mr Hardwork climbs the corporate ladder, his income would increase. Accordingly, he should increase his investments. So, let’s assume that Mr Hardwork increases his investment by 10% per annum. Then by the time he retired at 60,his corpus would become a staggering Rs 8.16 Crores. It gets further interesting as Mr Hardwork married Ms Soft spoken at the age of 25. Now both plough in their savings to the wonder of compounding. Ms Softspoken also started with an SIP of Rs 5000 per month and kept increasing her investments @10% per annum. When the couple retires, they would have a jumbo corpus of Rs 14.29 Crores. Let’s make it even more interesting- After a few years of living together and analysing the pattern of their expenditure, they found that they can increase their savings by Rs 5000 per month more. So by the age of 30, they have started putting back the additional savings into SIP. Their corpus at 60 now swelled to Rs 17.60 Crores. Now look at the other side of the compounding effect. After 38 years, the corpus value Rs 17.60 Crores is equivalent to only Rs 2.76 Crores of today. That’s the negative side of the compounding effect as inflation eats the value of money by as much as 84%. But the corpus of Rs 2.76 Crores today is certainly not a bad amount either. Manoj Pandey CFP

Writing down our worst possible fears for the tasks we are undertaking can help us tremendously. Once we articulate our worst possible fears and anxieties, it becomes relatively easier to deal with any situation. In most of the cases, one would find that the real risk is much lower than the perceived risk. Doing this exercise for our investment portfolio can also prepare us for future and will not catch us off guard- Fear #1 How much it can fall- Markets have plummeted by as much as 50-60% in the past. There is no reason it could not happen again in the future. Simply assuming that what had happened in 1992, 2000,2008, 2020 etc can’t get repeated again in 2023 or in future is a folly. Let’s prepare yourselves mentally for any such eventuality. Can you deal with such a situation? How much investment are you willing to put in such risk? What will be the impact in your life, psychologically? How would it impact your financial goals? Fear #2 What if you make a conservative portfolio and it underperforms compare to the market- Making a conservative portfolio carries the risk of underperformance. What will be your reaction if it underperforms? What will be its impact on you psychologically? Also by not taking requisite risk, are you not running the prospect of not able to meet your financial goals? Which trade-off is better for you? Fear#3 What if your portfolio underperforms the market despite taking similar risk- There may be a possibility that your chosen funds have underperformed the market, sometimes quite significantly. Look at your funds- Maybe you have selected the funds based on past return and now it’s their turn to perform below the mean return. Would you prefer to wait for them to outperform? If they are not outrightly bad funds, they are likely to outperform sooner or later. But the question is 1) Are you willing to wait that uncertainty knowing your wait could be much longer 2) Will you absorb this volatility compared to the market or better off investing in funds that track the market i.e. index funds ? But, setting your worst fear is only one side of the coin without considering the cost of inaction. So, here are the likely cost of not taking action on investments- 1) Cost of not benefitting the compounding benefit- Despite so much market volatility, the market has delivered 17% compounding return in the last 40 years. Is this not a great loss if you keep the money in the bank or spend it all. 2) Cost of not achieving your financial goals- How will you handle your financial goals like retirement, children’s’ education, going to exotic vacations, buying your dream home etc without investing in high return avenues? 3) Cost of inflation- Keeping money in the bank is not even covering the inflation. Moreover bank return is highly taxable. Have you considered the silent yet heavy cost of inflation and taxation? 4) Cost of delaying your investments- Every year’s delay costs almost 5 years of your retirement corpus. Can you afford this delay? The chances are that you may like to do investments with- 1) 50% Equity portfolio 2) 10% Gold Portfolio 3) 40% Debt portfolio Further, you may like to invest in- 1) Mostly in index funds including international index funds. This will relieve your worry of underperformance compared to the market. 2) Funds with demonstrable track record of maintaining higher return than the index. 3) You may like to focus on low PE funds ( also called value funds) with excellent fund management skills and processes. 4) Almost zero risk debt funds like high AAA bond funds and G Sec funds 5) Gold ETFs Writing down your investment related worries and the cost of inaction may greatly help you select the portfolio construct that is suitable for you. This little exercise may make it a pretty hassle free investment experience for you. Disclaimer- Above mentioned asset allocation is just for illustration purpose. It is not an investment advice. Your portfolio depends on your unique situations and financial goals. Manoj Pandey CFP