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

No, this blog is not about how a SIP  running for long periods (10 years?) lets one weather the market cycles and average your buying cost. Enough has been said about it and that remains. By the way, there’s no standard definition of “LONG PERIOD” as such. It’s left open to investing entity!!! This blog is more towards accumulating capital, as (HIGH) returns really matter only when they are earned on reasonable amount of capital. Even extraordinarily high returns on piddling capital (savings) don’t amount to much in absolute numbers. And it takes time to build up capital if you are doing it gradually, even after taking impact of compounding. Let the numbers come to our help. But first, we need to establish some benchmark to evaluate how long should one run a SIP, alongwith a projected rate of return. Here’s a simple benchmark for SIP duration – my investment should double at the end of SIP period for a particular rate of return. I will consider that duration as “LONG TERM”. ...

Long ago, here  I posted how I would go about investing a sizable amount in equity index funds. I assumed in this blog that for next 5 years, equity markets will enter their worst phase and deliver poor returns – in fact negative returns of 10% annualized for next 5 years. Such a bad phase would result in equity fund corpus down by nearly 41% in absolute terms. Have the equity markets done that bad historically? Not at all. The worst case 5 year equity markets performance, basis Nifty 500 Index TRI has been in covid times @ minus 1.4% annualized for March 2015 – March 2020 period. Essentially, our assumption of minus 10% annualized ROI for 5 years was way too bad than actual worse case seen. Let us redo the numbers basis some realistic data: -           Actual worst case 5 year CAGR seen:   Minus 1.4% -           Assuming things can go even worse than this sometime in future, we c...

Most popular, or shall I say most sold way of redeeming from equity funds in deaccumulation phase (retirement?) is the monthly “Systematic Withdrawal Plan (SWP)” way, like monthly SIP is for investing and building the corpus. Key benefit of monthly SWP: It’s like getting a pension on a particular day. There is sort of continuity in getting regular income in the bank. Plus there is a forced limit on your spending as you get to spend only that amount which you get in your bank savings a/c from the SWP. Key cons of monthly SWP: In the short horizon of few months or even a year, equity market’s can yo – yo. Sometimes, A LOT . Here we saw that there is 22% chance of losing a large part of your capital with investing horizon of an year. In fact, here  we have seen that there have been instances of equity markets delivering losses even on a 5 year horizon basis. If I had to work out withdrawal strategy for myself which will be funding my regular expenses sans a salary, I would foll...

  One of the biggest advantages of listed equity investing, either through mutual fund route or buying stocks directly - can be done in small ticket size. Is it? Or is this flexibility resulting in sub optimal investor net worth growth? In good many equity mutual funds, one can start dabbling in stocks for just INR 500 a month. And mostly it remains at such piddling amounts. Ok, maybe i am exaggerating. Say this goes by 20 times and monthly investment rises to INR 10k per month in due course. Rarely equity investment amount would be pegged to monthly earning capacity and exceptionally to overall savings (net worth?). No surprises by the end of the investment period, equity investing did not make much difference to overall net worth as return on total wealth did not go up by much as compared to fixed rate investments. A quick example: Say you have INR 25 Lacs to invest for 20 years. Assuming equity investment delivers 12% while fixed rate investment delivers 6% annualized ROI....

“Capacity” comes from availability of surplus funds. This part can be dealt objectively and rather quickly as we are dealing with facts as they exist. “Willingness” can be defined as going ahead and deploying a sizable part of available surplus funds into so called “risky” investments such as equity mutual funds. Herein comes subjectivity as one must take decisions results of which will only show up in distant future. Let’s first hit the surplus funds (capacity) part. Say you are a government employee with an assured pension. On your retirement, you get a lump sum amount of INR 1 Crore and an assured pension of INR 1 Lac per month. Let’s say hypothetically your monthly expenses will be very well covered by the pension amount. Academically speaking, you have the “capacity” to go for risky investments to the tune of your surplus capital which here is the lump sum amount of INR 1 Crore. Realistically speaking, if you cannot bring yourself to invest sizeable amount of this corpus - s...

If you are a DIY (Do It Yourself) oriented person, even one buck is a cost too much. Better to shun any kind of professional involvement and learn the tricks of the trade yourself. And taking this DIY thing to extreme – why bother with the mutual fund route – buy direct stocks through a discount broker and you will be further reducing your cost of investment!!! But WHAT IF you are not sure whether you can be a DIY investor or not? Have a look at my opinion here   and here . These two blogs should give you a broad framework to assess whether you can roll on your own. Now, WHAT IF you decide you can’t be and/or don’t want to be a DIYer and want some professional help.  Or let me put it in a different way – you want to start off your investment journey with some assistance initially, and then evaluate if you can go the DIY way. In such a situation, cost will be a consideration as any kind of intermediation will involve charges, be it through in built commissions or through fe...

“Market Linked Investment Returns Work On Probability Not Guarantee”   Simple strategy to have probability of winning on your side - follow the “Forget It” Plan, which is: choose an equity index fund, keep deploying money in the same as per chosen frequency. Of course, deploy decent amount of capital if you want to accumulate sizeable corpus at the end of your investing horizon. And before you start off, decide your horizon (investing + holding period) and the exit strategy too!!!   And then there’s  what I term “The Active Plan”. This is for those who want to generate “better” returns than just tracking the indexes. Let’s call it “The Index Plus” approach. Alternatives for “Index Plus” approach which I can think of:   o    Invest in some stocks directly rather than going through the mutual fund route. If one get’s the right pick, deploys sizeable amount and is able to hold the same till the stock price runs it’s course, returns can be akin to w...