How to avoid paying home loan interest?

Most of you are paying EMI’s for home loan,One biggest worry of home buyer is home loan interest which will definitely increase cost of buying home ,I am not telling you to stop paying interest to banks,There is no option every one has to pay interest to bank if they are taking home loan as per the agreement

Have you ever thought of a way to get all the principal and interest back when u finishes ur EMI….

Is it possible.Yes

How?

Lets find out…

Invest 10% extra of your Home Loan’s EMI in mutual fund Equity SIP and all your home loan principal and interest will recovered with profit in 20 years.

Example: For Home Loan of 20 Lac for 20 Years with ROI 9.5%( assumed)
EMI will be Rs. 18863/- ( image attached below for ref)

In 20 Years one will pay total towards Home loan will be
Rs. 44,74,320=00

Principal: 20,00,000=00 &
Interest:   24,74,320=00
———————————–
Total –       44,74,320=00

Saving of just 2200/- per month in  addition to ur EMI for 20 Years with a return of 18% CAGR u will get. 51,55,672/-

( SIP in Diversified MF has given avg return 20% plus in Last 20 years from 1995 to 2015)

Sip of 2200*240= 5,28,000

Principal: 20,00,000=00
Interest:   24,74,320=00 &
SIP amt:  05,28,000=00
———————————–
Total –      50,02,320=00

Thus you get back all your principal and interest back…plus earn a cool profit too!!!
Kool na
So start ur SIP now…

18% is the past return of most of the mutual funds , However some people will say its difficult to expect such returns in future, For them  ,I calculated  12% rate of return considering future growth prospects of indian economy

So here goes…

If you avail Home loan of 10 lakhs for 20 years with an interest rate 9.5% your…..

Monthly EMI: Rs. 9,321.31/-
Principal Amt : Rs. 10,00,000/-
Interest Payable : Rs. 12,37,144/-
Total Amt Payable: Rs.22,37,115/-

——————————-
Now to get back your interest you just have to keep aside 0.20% of your home loan amount. per month till the tenure of your home loan.

Start an SIP Till the tenure of your home loan with the amount you are keeping aside. (ie Rs. 2,000/-)

——————————-
💢what will be value of Rs. 2,000 pm @12% if invested through SIP❔

After 20 years➡

Principal Amt: Rs. 4,80,000/-
Value@ 12%: Rs. 20,00,000/-

——————————-
In Home Loan you pay an Interest + Principal of Rs. 22,37,144/- in 20 years.

While in Mutual fund SIP you generate a wealth of Rs. 20,00,000/- which is more than the Interest amount you are paying in next 20 years.

Now stop worrying about home loan interest, Enjoy the dream home by starting small amount of SIP

Happy Investing

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2019-Investment resolutions

Most of the people are already following these resolutions, I am just reiterating these resolutions of last year

Resolutions -on will Do Side

1.   I will write down my financial goals – NOW, IMMEDIATELY.
2. I will convert a big portion of my savings into investments – especially because I am young!
3. I will live a simple, frugal life by choice – but choose my dream career.
4. I will start saving / investing for my retirement – NOW IMMEDIATELY.
5. I will have regular conversations about money, saving and investing with my colleagues, friends, spouse, kids and parents – all people for whom I feel financially responsible.
6. I will not deal in direct equity with my current level of knowledge of equities.
7. I will increase my financial knowledge –
8. I will maintain my income and expenditure details diligently and keep reviewing them.
9. I will maintain proper records of my assets and liabilities, understand the risk of each asset class, and do proper asset allocation.
10. I will protect all those people dependent on me. Will review my term insurance, medical insurance and retirement and make sure it is up to date and adequate, and the nominees are current.

Here are some more resolutions – on the WILL NOT DO side!

1.    I will not buy anything on a credit card unless I can pay it off in full on the due date.
2.    I will not buy any product before I understand the why, when, how of the product.
3.    I will not buy things or services to show off to friends who are also doing the same!
4.    I will not buy a ‘branded’ product unless I can see the Value in what I am buying.
5.    I will not change jobs just to get a higher salary
6.    I will not invest in any financial instrument without increasing my knowledge
7.    I will not buy any asset beyond my means hoping to pay a higher EMI from an increased income.
8.    I will not mix my investments with my insurance IMMATERIAL of how attractive the transaction looks!
9.    I will not marry a person who is financially incompatiable with me.
10.    I will not assume anything in the financial world – will check using present value and future value before taking a decision.
11.    I will not buy a house ‘because it is conventional to do so’. Will buy a house when I am convinced that I am planning to stay in it for more than 10 years at least!

Most important:  Properly stick to all the resolutions!

Wishing you happy new year

If you need any help on following these resolutions , Please fill the attached Financial score sheet send it to my email id – ramcharan.venkat@gmail.com,This is like annual financial health check up similar to annual health check up.

Financial Score

Is the correction good enough to invest?

Markets have been falling steadily over the past two months. The Sensex and the Nifty 50 have lost more than 12% and the broader markets have seen a deeper fall. The astute investor will see this correction as an opportunity to buy on lows, especially after the long bull market of 2014-2017. The more important questions then become, is this a steep enough correction to buy? Are the markets going to fall even more? Well, nobody can time market highs or market lows. But you can still take advantage of corrections without being carried away by these concerns. Here’s how.

Don’t wait for steep corrections

The table below shows the historical corrections since 2008. It is evident that a steep fall like the one during 2008 translated into tremendous returns later. But if we look at the recent years, we have not seen corrections like that. Corrections in the recent years ranged between 7% and 12%. But here’s the good news – even those falls, if used to average efficiently, would have perked up your returns.

*As of Oct 11, 2018

What’s more, markets periodically provide such opportunities. The table below shows the number of months which saw at least an 8%-13% correction in the last 10 years. This re-emphasizes the point that running SIPs will help you make the best out of volatile markets.

Use opportunities systematically

We have spoken enough about the benefits of SIPs. The first and most important benefit is that SIPs bring in a discipline in investing and ensure that you don’t compromise on building wealth. The second key benefit is that it helps you avoid mistiming your investments, since you run SIPs across market cycles.

But for investors who want to actively take advantage of volatile markets, using every correction to add on will help average costs even lower and allow you to accumulate more when markets are cheap. It makes your SIP more effective. The question is, of course, at what point during the correction should you invest? As we’ve said several times, it is not possible to call out highs or lows before they happen.

The best route is to use cut-offs and invest a small amount in addition to your SIP every time the market fall breaches this cut-off. The cut-off can just be a certain fall from the 1 year market high. There are several advantages to this method.

One, you do not leave it up to prediction and guesswork into whether or not the correction will continue; this allows you to actually catch a fall instead of losing the opportunity. Two, it allows you to catch even the shallower corrections as explained above. Three, investing smaller amounts is practical, since you may not have a large enough surplus to invest on a low; typically, investing a large sum on a steep decline is needed to bring costs down. Four, it is not too complicated a strategy to follow or execute.

To empirically test the results of this method, we did the following. Say, you were running a SIP of Rs 10,000 for the last 5 years. By investing every month, you would have anyway bought on few of the falls. You are willing to put aside a certain amount of surplus to invest more during falls. Every time the market falls more than 10% from its 1-year high, you decide to add on a third of your SIP amount, that is, Rs.3000.

*Returns as on Oct 15,2018

In the last 5 years, there were 13 instances where the market fell more than 10%. If you had invested on those dates, you would have invested Rs.6,39,000 against Rs.6,00,00 in your regular SIP. By investing Rs.39,000 extra, you would have gained Rs. 13,047 during the 5 year period. And that is good returns, considering the extra investment amount you put in.

Smart investing vs timing the market

We have, time and again, advised against timing the market. Does this amount to timing the market? In a way, it does. But this method is smarter that waiting for the low that proper market timing would require. And while you are waiting for the low, markets race past you, only for you to spot a low in hindsight.

You could also flip our argument to say that one needs to stop investing at highs – what if you stop investing every time the market moves up a certain cut-off from the low? Stopping SIPs would immediately hurt your goals, since you would be investing lesser – who knows where a rally would stop? The other option is to invest lower at highs. For that, we have the answer and that is the value averaging plan! If you’re an experienced investor, you could use VIP more effectively than an SIP. Or something as simple as rebalancing (moving to your original asset allocation) on an annual basis can help sweep some profits from equity to debt.

What we are telling you here in this article is to invest smartly. By observing these patterns that repeat themselves, we know that markets are going to keep providing you such opportunities. It may not be a 60% fall like in 2008, but a 10%-13% fall is still enough for you to enhance your returns.

Midlife Crisis….

Mr. Vice President lives in a 3 cr. house. His monthly expenses are Rs 70k. It is a good lifestyle. People perceive him as a ‘successful’ person; as a ‘star’ executive.

But in reality he is under severe stress; Typical work related stress. Boss ke saath jam nahi raha. Targets are impossible to meet. The market is bad. Expectations are not realistic. The Board meeting is approaching. Colleagues are getting fired. Will it be his turn now?

What does he do?

His EMI alone is Rs 1 lac a month. What does he do if his job gets extinguished after the Board Meeting?

He spends days and nights thinking about his precarious condition. His BP is rising. His sugar levels are competing with his BP. He is feeling sick.

Days go by but there is no improvement in business.

Each day in the office feels like a year. Going to work feels very miserable.

Stress is mounting.

What happens to his children’s education if he loses his job? What will he do if he does not get another job? He is already 40 years of age and the market is looking for young talent. Why should someone hire him.

The new age companies may consider him very expensive and may not be able to meet his salary and position needs. And how can he work at a lower compromised position.

Will he even get a job in the first place. Why would someone younger than him in age want to hire someone older.

As such he has been reading in the media that the job situation is getting worse.

He just cannot think. Everywhere it appears dark and cloudy. His mind is completely paralysed.

Before he dies of a heart attack or commits suicide, he by chance meets a Financial Advisor who clears his clouded mind and gives him new hope and a new lease of life.

The Financial Advisor’s role is beyond offering products. The Financial Advisor’s role is to solve people’s problems.

Mr Vice President is adviced to sell his house for Rs 3 cr. and continue to live in the same house without compromising his lifestyle.

He can invest the Rs 3 cr. in a mutual fund and every month withdraw Rs 80K for the rent ( the same house that costs Rs 3 cr.can be obtained on rent for Rs 80K )

He then can withdraw Rs 70K for living expenses. Thus he can withdraw a total of Rs 1.5 lac per month and live life in the same style without any compromise.

Mr. Financial Advisor tells Mr Vice President that at a 12% Equity returns (which is highly probable) and at 7% inflation(very realistic), he can maintain the same lifestyle for the next 17 years.

When Mr. Vice President realises this, his tension which was bearing heavily on his now ‘turned weak’ shoulders simply vanishes.

His energy returns. Creative juices resume their flow. The smile returns. The BP and Blood Sugar levels begin to fall. His desire to live gets a boost. He clearly gets a new lease of life because of Mr Financial Advisor’s counseling.

His positivity rubs off on his performance and ‘sales’ which was dwindling takes a break and does a U turn.

His positivity seems to be provide the fuel to rekindle and fire the business. The boss is happy. The board meeting goes well. His chances of getting a promotion improves.

But enough is enough for Me Vice President.

The raise, the promotion etc.have lost their magic on him. He no longer experiences the thrill that he once did in the past.

He has got his “calling” and he must follow the his dream.

Mr Vice President now has mustered the courage because he is now sure about his financial well being.

He feels liberated. He feels confident. This is Financial Freedom. It isn’t an elusive concpt any longer. He need not have to wait any longer to experience this freedom. It is already with him. No waiting for tomorrow. No waiting for another day. Now is the time to strike. Now is the time.

Mr Vice President opens his laptop, opens MS Word. Then he opens a new document and writes ‘Resignation’ in the space provided for ‘subject’.

The falling markets and your investments – what to do?

During the last one month you must have noticed that equity markets have been going down. Large cap index is down about 6-8% from their all time highs. Worst hit are small caps (index down 30-35% from all time high) and Midcaps (index down 15-20% from all time high). Some stocks are down by 50-70% from top. You must be wondering why is all this happening, should you sell now and and is it worth at all to invest in equity markets. I understand your concern.

What you are witnessing right now is painful but a pretty normal behavior for the equity markets. They tend to respond to sentiments in the short term and fundamentals in the long term. For no reason, markets can go up and down by 15-20% in a matter of few months. It has happened many times in the past and it will continue to happen in future too. This behavior is not limited to India but seen across world markets.

*A few pointers:-*

Most of the times (say 9 out of 10 times), markets recover from short term corrections within a few months or quarters. The best action is to remain invested and ignore the volatility.

– Sometimes (say 1 out of 10 times), markets will go in deep corrections of 30-50%. This happens once or twice every decade and lasts a few years. It starts with a small correction and the slide continues to the bottom. Everything bleeds. The reason of such fall could be weak economy and future outlook, falling international markets or scams. How to protect this? Well, the honest answer is, we can’t. Almost no one knows for sure that markets will fall so much. At best, it’s a wild guess of a few so called analysts, who shout loud after the incidence. It’s just a matter of being lucky this time with their prediction. We must know that these analysts or predictors are mostly those who got it wrong many times and no one noticed. You may ask – Can I predict it and save your losses? Frankly, my answer is No. At best, I can minimise the impact by proper asset allocation, understanding your needs and monitoring your portfolio regularly. So, the hard truth is that even when markets fall by 30-50%, *the only choice and best course of action is to stay invested, continue your SIPs and wait for markets to recover.* Trying to time the market (selling and hoping to buy at a lower price) never works.

During bad times, media will aggravate the situation by highlighting things even more. I bet, they also know nothing about it and just have a good time by getting all the attention of readers and viewers, increased TRPs and ad revenues.

– Investing through mutual funds is safer than investing directly in stocks. While mutual funds have fallen but the damage is huge in individual stocks. While some stocks may never recover, most mutual funds recover from lows to their previous highs and even better due to expert fund management.

– It is very natural for you to feel the pain because of portfolio value going down. I can understand and I feel the pain too. Trust me, I am reviewing everything and doing my best I can.

– The worst thing to do at this time is to panic. It might so happen that after you redeem/book profits/book losses, markets will continue to slide and you will feel you did the right thing. Well, in the short term, yes. But unless you buy at the bottom, you won’t benefit from this exercise because markets will definitely go up with time. And buying low happens only in theory.

– Events like these are lessons for both you and me to learn and improve our future decisions and action, to stick to asset allocation, to take only those risks which we can and to plan things better.

– Goal based planning works best. We must not take risky bets with short term money. If the money that you have invested is for long term, let it stay long term.
We need to work together in thick and thin. We need to discuss being on the same side of the table. These are tough times and we will go through with it together.

Feel free to call me anytime if you wish to discuss on the portfolio and future action plan.

Common mistakes while selecting mutual fund schemes…….

Kiran : Hey Ramesh, You told me mutual fund will give good returns compared to fixed deposits , ppf. But I am incurring losses in my Mutual Fund Investments. How does that happen?

Ramesh: That’s surprising. How did you select the mutual funds?

Kiran : Very Simple. I went to this popular xyz website and saw the list of highly rated mutual funds and   and invested in them. Also, some mutual funds were told by the Relationship manager of bank as they were available at Rs. 10 NAV. So I invested in them.

Ramesh : There you are. I now understand why are you making losses. Your selection process itself is wrong. Let me tell you the 6 mistakes to avoid while selecting a mutual Fund.

Looking at Past returns as the only parameter for selection

Most of us just look at the past returns and invest in the fund. This is like driving the car forward by looking at the rear view mirror. We must research and understand the future potential and not chase past performance. Remember, the mutual funds themselves say “Past Performance may not be sustained in future”

Looking at Star Ratings given by websites.

Valueresearchonline and morning star use relative grading concept,Relative grading is how appraisals done in most of the companies  which uses bell curve concept,Mutual funds star ratings are calculated for a group of funds in particular category, Such group is not uniform,Even composition of  stocks in fund portfolio is different and even funds in the group has identical stocks but weightage given to the stocks will be different

Apart from the relative grading , rating agencies completely ignore investing style of fund manager, One Fund manager(Prashant jain,HDFC AMC) in large cap segment picks only high growth stocks and another fund manger(Naren Sankaran,ICICI Pru AMC) picks low priced value stocks.

Getting trapped in the Rs. 10 NAV

This happens mostly when there are number of NFOs coming up. All of them offer the units at Rs. 10. As a result, investors think that they are getting it very cheap and they will get more units if they invest in NFO.

This is like saying, when you withdraw money from bank, the banker asks you, should I give you Rs. 100 notes or Rs. 10 notes, and you say, please give me Rs. 10 notes as I will get more notes and I will have more money.

In most general cases, going with an established fund could be a better idea than an NFO. In fact, the NAV has no role to play in wealth creation. If the underlying portfolio grows, the NAV will grow. If a Rs. 10 NAV can become Rs. 20, then a Rs. 100 NAV can become Rs. 200 in the same time frame.

 Selecting the fund looking at the monthly dividend “promise”

There are some funds which are (wrongly) promising an unrealistic and unsustainable monthly dividend of say 1% and investors (including senior citizens) are falling for it.

Lets understand that, an equity oriented mutual fund has a “potential” to generate a return of 12-15% in the long term. But such promises of “monthly dividend” will turn sour, the moment market turns around in the short term. Lets not fall prey to such fooling commitments.

 Not following asset allocation.

There are times when a particular asset class does well and other asset classes do poor or average. Investors get tempted to move “ALL” their money in the performing asset class. Lets remember, if bananas become cheap in a particular year, will we only have only bananas in our meal ? Or will we still continue to have a balanced diet.

Similarly, your fund selection has to be in line with your risk profile, goals and asset allocation. Some people will see that Gold is giving only 5% return and Debt is giving only 8% return whereas small cap has given 20% returns, and they will move all their money to small cap. As a result they run a high risk of incurring losses in the short to medium term.

Kiran : Wow . I never thought about all this in detail. I thought mutual fund selection is a very simple process.

Ramesh: Well, I would say, it is simple for someone who gives lot of time and does the in-depth research. But people who don’t have so much time and expertise, should always go for a professional advisor who can help them. The fees would be far lower than the losses we could incur by making these mistakes.

Kiran : Ohh yes , that’s why I keep hearing, “Mutual Funds Sahi Hai, Par Advisor Zaruri Hai”

Happy Investing

Most problems are trapped in past performances

  • We invest in FDs because our parents did. What we dont realise is the fact that interest rates have climbed down and better options have come up. We still live in the past because change is pain.

 

  • We still believe that buying house is a good option. This probably was a good option at one point in time when the rent law ensured that people rather keep their houses empty than giving it on rent because the law encouraged tenants not to vacate. Therefore people struggled through life and made their dream home.  Today the law has changed and best of homes are being rented out at 2% yield.  Moreover standardization of houses means we have a large supply of quality homes to choose from.

 

  •  Jobs are safer than business: This was the held belief as we grew up. Those were the times of job security. This no longer holds true. Today jobs may be high paying but jobs are vulnerable. Retirement age remains 60 only on paper. Otherwise 50 our less is the retirement age. With more than 10 best years vanished how does one live through a long retirement without entrepreneurial thinking.

 

  • Saving is the only way of good living. This  probably true in the past but one needs to now observe using new lens of investing and compounding which not only ensures you have more wealth but also consumption a virtue. While self medication or do it yourself was  the investing norm back then during the FD and fixed income era, it no longer holds good today.  A FINANCIAL ADVISOR brings solutions not only for wealth creation but also for good living and optimum spending. Spending helps you to live well but also keeps the economy healthy

 

  • We grew up believing that medicine and engineering were default careers.While engineering has nearly dried up with vacant seats  year after year other creative options have sprung up. Film making, animation, design, sports which were perhaps looked down upon in the past have become better choices.

 

  • Back then we looked down upon those who couldn’t make it to the science stream and chose commerce and arts but now tables have turned upside down and how. Science which the ‘in demand’ steam has completely lost out too commerce and science. Still there are parents who cannot rise above the tried and tested formula of Engineering+M.B.A+Job.

 

  • Getting educated abroad was the gold standard. US and the western world was the gold standard. There are many who still believe so and blow up crores of rupees on their children’s education abroad even though job opportunities there have  shrunk and in all likelihood  these children will be back home hunting for a job which will award no additional premium for foreign education. If education is  the objective then find out about distance learning. And if experience is what one is seeking for then select an exchange program which makes you spend time with a family in a foreign land. That way you not only get rich learning of cultures and learn the tricks of adapting and adopting but also it comes at a pittance compared with University education. Traveling and holidays too is a better option than doing  the same in the garb of education.

 

  •  Gold was the preferred ornament for women in India. Which girl even has gold in her mind these days.

 

  • A car was meant for transportation. Today it is a symbol of reputation. I know of people owning Mercedes and happy to use Uber Go.

 

  • Marriages were conducted by parents to  fulfil their responsibilities. The groom and his ilk demanded the hell out off the girl’s parents. The power equation was tilted in favour of the groom and his family.  With working and educated girls this equation is no longer tilted.  Children no longer seek huge ceremonies and functions preferring small cost effective gatherings.  Marriages of the future may become a very private affair

 

  • Financial Planning and professional advice was not seen as vital because people at large lived from hand to mouth and energy opportunity of saving was grabbed instantaneously. With less wealth and simple fixed income products, people followed the do it yourself approach. However today income and wealth levels have shot up and a lack of professional advice can cause massive wealth leakage. Hence financial intermediation has truly turned into a necessity.

 

  • Our parents encouraged us to become doctors and engineers; to follow the safe path. Today parents have a lot more money,  lesser children and there are indeed more opportunities. Shouldn’t parents encourage their children to take more risk instead of behaving as their parents did.

This can go on and on in every area.All that is needed is  some serious introspection.

What clearly emerges from all this  is  the fact that past  performance is definitely no formula to forecast our future.

We need to observe and reinvent ourselves throughout our life.