Retirment planning - simple tips

Simple tips for money making/saving/planning (you name it)

. Live below you means (cut costs, save more)
. Save consistently
. Invest in a balanced portfolio of low cost index funds.
. Don't try to time the market.
. Ride out the highs and lows and keep saving
. Have a term insurance in place
. Have a health insurance in place
. Have a PPF account (try to max it if possible)

Nothing fancy. Simple and straight.

What do you think?

YES Bank - good potential for growth

I will try to be very brief in this post.

YES Bank

• January 2012 - Price 270
• June 2012 - Price 330
• May 2013 - Price 512

I think this is one stock to be part of core portfolio.

Reason:

• High growth rate
• Very good and experienced management
• CASA grew @ 72% YOY
• NIM 3%

Hindustan Unilever Ltd - HUL - Open offer price @ 600 Rs per share.

Hindustan Unilever Ltd - HUL - Open offer price @ 600 Rs per share.
What should you do?

-----------------------
Disclaimer:
I am not an expert in stock market. Please do you own due diligence.
-----------------------

On 30th April, after the results, the parent arm of HUL announced a buy back via open offer @ 600 Rs per share to gain a max of 75% shareholding.
Currently the stake of the parent company (Unilever) is apprx 52%.
Deal size is close to USD 5.4 Billion.

Why would Unilever want to buy this 23% (approx) stake?

- Probable de-listing in the future?
- High return on investment in the India market via
   - More dividend
   - More royalty

Should you tender your shares in the open offer?
As per me the answer is a definite NO.

- If Unilever wants to de-list, it will/should offer a better price in the future.
- HUL is one of the most expensive stock but if its earnings multiples are 25%-30%, one can expect good share price value.
(What are HUL products?
- Rin, Fair n Lovely, Axe, Kwality, Pears, LifeBuoy, Bru, Kissan, Wheel, Surf, Lux, sunsilk, vim, closeup etc etc etc)
Tell me what you think?
I am keeping my shares close to my chest.

Should you buy more at this level?
Tough call. I would wait and watch.

I don't know financial planning (part 2)

I am going to stretch my part 1 of the same post a little bit more.

Step 1.
If you are a salaried employee, you would have EPF (employee provident fund).
There is an equal amount (subjected to a limit) that the company also pays.
Max out the EPF option if possible (check your salary and expenses).

Step 2.
Keep some money (max 6 months salary) part in savings and part in liquid funds.
This is your emergency fund

Step 3.
FD, NSC, Debt MF are all great tools for fixed income but its a known fact that equities will outperform in the long run.
Do have a proper mix of asset allocation to:
- Equities
- Fixed MF/FD
- Gold (ETF/physical)

Step 4.
Do get the full tax benefit that you can get. Thats also a saving in some form. (PPF,FD,NSC etc)

Step 5.
As your salary increases, the allotment to the above should also increase.

Step 6.
Monitor your portfolio atleast once or twice in a year.

Step 7.
As you get closer to 50, start moving your equity funds to Post office MIS, FD, Debt MF etc.
This is the time to save your money since retirement is closer.

Invest early and reap the benefits of the power of compounding.

Recurring Deposits Explained

What are recurring deposits?
They are similar to fixed deposits and Systematic Investment plans.
An individual will make a fixed investment (monthly) to get a certain rate of Interest.
On maturity, you get the total accumulated corpus with interest earned.

Where can I open it?
Any Bank or in Post office as well.

Whats the advantage?
- Lock higher interest rates for long term
In case some banks are providing high interest rates for a year or 555 days or even 10 years, one can lock these interest rates by opening an RD.

- Small investment monthly installments
If you do not have a lump sum to open a fixed deposit, you can put small monthly installments (e.g. min of 100/500 Rs - varies with banks) and lock the interest

What if you default and not make a payment?
All banks have their own rules and one should check before making the RD.
In some banks there is a grace period of some months while in other there is a penalty.

Tax Savings?
There is no tax savings in RD.
One needs to pay tax on the interest earned.
For minors, the interest needs to be added to the guardians income.

I don't know financial planning - What to do?

Let me list down simple things that everyone must try and do.
Let me list it down as simple financial plan.

- Get a term plan (atleast 5 times your yearly income)
- Have an emergency fund (in some liquid MF)
- Invest in fixed deposits (like FD/NSC etc)
- Create a PPF account for long term plans and invest yearly
- Check your asset allocation and do put some form of gold in your portfolio (physical,MF,ETF)
- Invest in equity MF (use sites like www.valueresearchonline.com, www.morningstar.com etc)
Remember, equity returns will always outperform fixed return schemes
- If you can understand the market, invest in Stocks directly


If you can't understand market and don't want to take the pains to go through sites to look at MF ranks, just but index MF/ETF

Do the above and atleast you are better off than no plan at all.

What do you think?

PPF - Little more details

Since my last post was on PPF, I think this detail may be of a lot of help for folks looking to invest via PPF.

As per PPF laws
Interest in your PPF account is calculated on the lowest balance between the close of the fifth day and the last day of every month and is credited to the account at the end of each financial year i.e., on 31st March. So if you invest by the 5th of the month, you will be eligible to interest for the full month in which you are investing

What this means is that if you invest by the 5th of a month, you will get full interest for the month.

If you have a lumpsum and if you invest it before 5th April, you will get the interest for the full year.

Thoughts?

Some folks even mention of doing a partial withdrawal a portion from the PPF every year from the 7th year onwards and reinvest it back. This way they don't put new cash.

I will however not advice this because I think one should look PPF for a long term savings (for retirement or child investment)

PPF vs NSC

Lots of people look at both NSC and PPF as tax saving instruments.

However, it can also be look at investments for long term goals (retirement, child education).

Lets compare them both:

PPF gives you returns of 8.8% tax free with a lock in for 15 years.

NSC has two variants:

5 years @ 8.6%

10 years @ 8.9%

So, with NSC you do have the option to choose a lower term if you don't want to lock in your funds for 15 years.

However, the game changer is the tax component.

NSC returns is taxable.

PPF returns is not.

Please note this does not imply that one creates as many PPF accounts as possible.

You can create PPF accounts for your kids as well...but as per PPF norms one will not get interest for more than 1L deposit (including sum of all PPF accounts). However I know folks who may claim otherwise.

PPF returns are not fixed. They are governed by Govt and it can change it yearly.

NSC returns are fixed for now and once you make an NSC you can rest assured of the interest rate.

What will you choose?

Obviously there are many more choices like FD, MF  but lets keep that comparison for a different post.

This post is more for comparing NSC and PPF.

What will you choose?

Ir-respective I will always advice a person to open a PPF and look at it from a long term perspective.

Mutual funds to look at for Investing

I think its easy to research on MF these days.

Go to valueresearchonline.com
OR
http://www.morningstar.in/funds.aspx
OR
http://www.mutualfundindia.com/

Let me list down some funds that have performed well in the past

Please note: Past performance has no relevance to the future (but used for ratings etc)

ICICI Prudential focussed blue chip
SBI Magnum emerging fund (very good returns - part of small and mid cap fund)
HDFC Top 200 (has been a reliable performer - but there are funds with better returns)
ICIC Prudential Discovery
ICIC Prudential Dynamic
DSPBR Top 200

Sector specific:
Reliance Pharma
Reliance Banking
SBI Magnum FMCG fund

Balanced: (Any one of the below)
HDFC Balanced Fund
ICICI Balanced
HDFC Prudence


What do you think?

Rule for budgeting and planning?

Is there a rule for budgeting and planning?

I have followed and tweaked the 50-30-20 Rule as follows:

50% of your take home income for essential expenses (home loan, car loan, education, groceries etc)
30% of your take home income should be kept aside for investments (savings + retirements + investments)
20% of take home for lifestyle expenses (credit cards, mobile expenses, gym, movies etc)

If you have an additional source of income or bonuses etc, try and put them in the investment bucket.

e.g
Take home 1L per month

Keep
50K for essential expenses
30K for investments
20K for lifestyle expenses

Makes sense?

Planning funds for your children

Do the below make sense for children's future planning?

Mutual funds:
If we can get a MF which gives

- 10% return annually, then by investing 7750 per month, we can get a crore in 25 years.
- 12% return annually, then by investing 5625 per month, we can get a crore in 25 years
- 15% return annually, then by investing 3450 per month, we can get a crore in 25 years.


PPF:
Make a PPF account for your child.
It gives 8.7% yearly.
Lock in period of 15 years
Max - 1L
Parent will not get tax benefit if he/she already has a PPF in their name (max of 1L tax benefit - all accounts summed up together)

What are your thoughts on the same?

Recurring Deposit - Planning for retirement

Did you know that recurring deposits can be a good investment option for retirement?
Many banks have deposit rates ranging from 8-9.5%

If one invests
17k per month in an RD giving 8.5% - in 20 years the person would have a crore
50k per month in an RD giving 8.5% - in 10 years the person would have close to a crore

Use the crorepati calculator at
http://wealth.moneycontrol.com/jtcrorepati.php
for the same.

This is a safe investment option and obviously one needs to check on tax on the same.

Just one of the options if people want to consider.

What do you think?

Edited 30th March 2015:
Added another article on generating a monthly pension using RDs