A helping hand from numbers leads to objective opinions and confident decisions!!!

  Slightly more than 3 years ago, I did something unconventional – I bought into a very high deductible health insurance plan for our family. The deductible was INR 5 Lacs. Essentially, I was on my own for this much money – EVERY YEAR, in case I or any of my family members needed any hospital care. The upshot for this big risk I took: -           I paid a very meagre premium for a policy with no sub limits – especially no daily “room rent” limit which renders Sum Insured of normal “ground up” policies mostly useless to the full extent -           The Sum insured I got was quite high for the premium paid – just under INR INR 5,000/- for a Sum Insured of INR 20 Lacs Why did I go for such a high deductible health insurance policy and took such a seemingly big risk? Because the numbers I did brought out a very different picture and I made my decision to be self insured for first INR 5 Lacs a...

After what seems a really long time, I went on a long vacation to a quaint sea side town with wife, son and my parents in tow. While doing the bookings, I always try to scrimp on paying for a hotel room. However, during my last vacation at Goa, I did realize that if chosen well, some hotels / resorts can be worth the money they charge. Location, space, good upkeep of the property and quality of ancillary services (like F&B service) can justify the asking price of some properties. But still, how much should you be paying for your stay, say on per day basis for a room? We all know that the range is vast, and we need to cap it, as the higher we go, our net worth is getting the hit, while the pleasure derived from the stay experience may not be as high as the price. The rule of thumb I have devised to decide my daily room rent budget when travelling is linked to my primary residence market value, or an amount designated for buying my primary home as I do not own any residential p...

Here I checked how a portfolio of active mutual funds fared against passive index fund – for 1 year horizon. But such short horizon analysis is not a very good way to make long term investment decisions. Going to 10 year horizon now. Selection criteria remains same as earlier. Just reproducing here for ready reference: -           All Large cap funds, excluding index or ETF for April 2002 – March 2012 -           Minimum / maximum AUM: None whatsoever. We don’t want to be biased towards small or large funds -           Top 5 funds, basis only one criterion – “Returns” shortlisted. We are keeping it simple!!! No complex risk parameters like Sharpe ratio, Treynor ratio etc -           Funds allocated in equal proportion to all 5 funds. No bias again!!! -        ...

Assume you have decided to put money in equity mutual funds. This begets another question: be a DIYer or go through a professional (RIA, distributor whatever)? Any choice one makes, this will lead to another dilemma – how do you or the professional choose that killer fund (manager) which will deliver the significant excess ROI over your “safe” fixed income investments. Once could have taken in easy and gone for Index funds. But these never come into picture for most people. High decibel marketing for active funds keeps index funds in the shadows. Circling back to question of utmost importance – how to shortlist, say 5 “best” equity funds to deploy the capital? One will, as most people do look to the best free advisor in the world – google for answers. This will lead you to some mutual fund rating websites. Apply some easily understandable filters and one will have shortlist of “best” performing funds. But some with higher analytical bent of mind will go further – they will look for...

Assume I land up with a large corpus of money from some source. And I am tinkering with an idea to put a decent part of it in equity index funds. Just that I am getting jitters given the risk, even though I am sure of staying invested for good 10 years to come. How do I go about this? With the current yield to maturity (YTM) of low risk overnight mutual funds hovering around 5% ish, I would dump the conventional wisdom of doing it gradually (SIP’ing it as they say) and deploy nearly 48% of the “large corpus” immediately. Yes, you heard it right – ASAP, at one go, market levels not withstanding. Sounds crazy, no? On the face of it maybe, but the numbers I did have a different take, and I would tend to go with the numbers. Read on if you too want to check out the story numbers tell in this case. Equity investing is “risky”, I get it, so does everybody else. But what does the word “risky” stand for in simple terms? While there are various definitions of “risky” when talking money a...

Here I looked at how to get a rough idea of valuing property for own use. I had a doubt whether the oft cited thumb rules make sense or they have long lost their relevance. After making life a bit complex by bringing in host of numbers, I did realize that if you are buying for your use, and with the “popular” capital structure of 25% down payment and rest on "loan", the thumb rule of buying property at maximum 15times is mostly in sync.   Now we look at the rental scenario – you are buying property to rent out and make an income stream. Before we move on, to state it bluntly – I am biased towards “Not being a landlord”, ‘cause it’s too much work for the money to be made going by rental yield in Indian cities. But then, that’s my opinion and still no harm in checking what the numbers say. My opinion may also change!!! That said, for rental property to be a “value buy”, my guess is the costing should be way less than self-occupied property. Why? For starters, when you occup...

  I read a very nice blog on bear market recovery here . While you can check out the blog in detail as every word written is good piece of wisdom, here is the gist: -           If you just refer to nominal returns, you will be looking at a distorted picture. To get an idea of real (pun intended) situation, look at inflation adjusted returns -           For example, if one sees in nominal ROI terms, total length of worst bear market, the dotcom bust was 5 years***. This period includes markets downward leg, to the recovery time to breakeven status -           However, once you bring inflation into picture, the same period stretches to 13 years***. That’s more than double the time for breakeven in nominal ROI terms That said, it is very rare for people to start thinking in real terms. It simply is “out to sight”. For me, the true realization...