The Downside of Mutual Funds

I remember the day vividly. It was 2 years ago when I received my first paycheck and despite spending more money in a month than I ever spent in my entire college life, I still had a significant amount of money left in my bank account.

And it was the constant pressure of this very unused and unutilized money lying fruitlessly in my bank account that compelled me to finally ask myself the billion dollar question that every lazy and financially challenged (read: ignorant) person avoids asking himself-

“Where should I invest my savings?”

The choices, like always, were all myriad and unappealing. After all, banks had such low-interest rates, investing in fixed deposits hampered my prized liquidity and PPFs with their 15 years of lock-in period? Don’t even talk about it! What about the stock market? Come on, I was a beginner dude. 

This was until I came across my saviour (Or so I thought) – our very own-Mutual funds! 

No wonder they are so popular.

My money would be managed by professionals with diversified portfolios. I don’t have to care about tracking those complex and cumbersome movements of the stock market.

What else could one ask for? 🙂

But hey, there’s a catch here (like always).

Sorry to break it to you, dear reader. But, the picture isn’t as rosy as you thought it to be. After all, all that glitters is not gold and appearances are more often than not- deceptive.

Don’t believe me?

 “How can the innocent and innately attractive mutual funds have any downsides?” you ask.

Okay, let me tell introduce you to some lesser known facts about mutual funds:

  • Management fees and other expenses-

Well, remember the ads about Mutual Funds you literally know by heart now?

They have large legal and accounting expenses.

They pay salaries.

They mail you your statements every month.

And they have their own profits to make and expenses to cover.

Who do you think pays for them?

Most mutual funds charge fees around 1% to 1.5% annually as a fee for managing the funds, fund managers’ salary, distribution costs etc. In all cases, costs will decrease your overall rate of return. This is one of the most important downsides to using mutual funds and thus, should certainly be evaluated.

  • Excess cash                                                   

Because people occasionally want to withdraw their mutual funds, there must always be funds available – in cash – for payouts. It is great for liquidity, but it also means some of the fund’s money is not earning interest and money sitting around as cash is not working for you and thus is not very advantageous.

  • No guarantee of returns

Although expected returns will be quoted, it is impossible to find a mutual fund with a guaranteed return. This is because all assets carry some degree of risk. However, some mutual funds will carry a higher level of risk than others depending on how well it is diversified.  

  • Too much diversification

Although diversification is one of the keys to successful investing, many mutual fund investors tend to over diversify. Over diversification increases the operating cost of a fund, demands greater due diligence and dilutes the relative advantages of diversification.

  • No Investment Control:

While a mutual fund allows you to select a general type of investment by industry or sector, the fund manager is responsible for choosing the specific investments, and you have no input on this. The fund managers make all of the decisions about which securities to buy and sell and when to do so.

  • Too many variants

To the investor, making a choice among many funds becomes tough when so many variants of the same product are available in the market.  If the funds are similar in objective and performance, investors may find it tough to differentiate the products and make the right choice for their needs.

The bottom line:

There are disadvantages and advantages of investing in each and every investment vehicle. What needs to be considered is whether the advantages outweigh the disadvantages. The probability of a successful portfolio increases dramatically when you do your homework and scrutinize well the downsides and upsides.

Go ahead. Keep learning, saving and investing!

An Investment Structure For Infrastructure

Decoding Investment Infrastructure Trusts and enabling investors to leverage this interesting avenue and play the infrastructure sector.

Before I begin with the core idea behind this post, let me go ahead and unequivocally mention that it is neither strange nor embarrassing to admit that it is difficult to comprehend everything mentioned in our good ole’ business dailies like ET, Business Standard, Mint etc.

Well, I may be wrong about most of my readers (and that’s a wonderful thing) but I often realize the utmost significance of drugs like Saridon because of these dailies.

Couldn’t it all be simpler? Don’t you direly wish that some of the significant concepts can be understood without taking a Saridon?.We hear you and have already acted upon it. As a first, Fintuned has already picked up a novel concept that has been doing media rounds frequently now. Our attempt is to pick up complex concepts (at least by our judgement) and try to decode them in the simplest manner possible. So, any guesses on what’s on the table today!

Well, it is literally raining infrastructure investment trusts (InvITs) in India!

  • The IRB InvIT’s INR 4,600 crore initial public offering (IPO) was oversubscribed 8.5 times recently.
  • The Sterlite Power GridBSE -1.06 % Ventures-sponsored India Grid IPO of INR 2,250 crore was oversubscribed 1.17 times.
  • Anil Ambani-led Reliance Infrastructure has filed revised papers with SEBI for its proposed InvIT Fund IPO!

So let us try to decrypt this exasperating farrago of distortions today (Don’t worry, there’s no copyright. I googled. ;))

Continue reading “An Investment Structure For Infrastructure”

5 Simple Lifestyle Changes To Save Money

Broke again?

Last days of the month and you can hardly make ends meet?

Desperately waiting for a message which reads “Rs. 30,000 credited to your account XXXXXX4545?”

Too embarrassed to confess your inability to pay the beer bill at that happening pub?

Too old to ask your parents for help and too young to save any money?

Trust me; one is NEVER too young to save money.

Whether you earn Rs. 20,000/- or Rs. 2, 00,000 (I already envy you), it is important to start saving starting from your first salary. Fortunately, you don’t have to skip dinner or start living in a pigeonhole for that. A few lifestyle changes and tada – your moment of pride and happiness as your bank balance mounts up steadily. (You can even send me a ‘gurudakshina’ from it! ;)).

  1. Note down all your expenses

Write down all of your expenditures and analyze it. I guarantee you’ll find something that either you didn’t know you were spending money on, or you felt was unnecessary. If you don’t want to keep an excel on your computer, consider an app that will automatically track expenses for you (MoneyView, Walnut, Quick Expense Manager are the popular options), or write them down in a notebook.

  1. Grocery shop on a full stomach.    

Mrs. Sharma, who spent 5 years expending Rs. 50,000 a year to cover her family needs and managed to cut her grocery bill from Rs. 8,000 to Rs. 5,000, recently shared her top tricks for reducing your grocery expenses. “Don’t go grocery shopping when you are hungry! You will end up spending way too much on things you will regret buying and feel guilty about eating ’’, she said. Bad deal, eh?

Try eating a healthy snack before heading to the store so your cravings for packaged foods aren’t out of control. Your budget — and waistline — will thank you. 😀

  1. Take pleasure in simple living

Do you really need to upgrade your iPhone 6 to iPhone 7? Does your old, reliable i10 (or Dhanno for that matter) deserve to be replaced with that overpriced sedan? Can you ever love that dazzling FOSSIL as much as your Dad’s Titan watches? Is it worth buying Steve Madden on impulse and regretting later? (Okay, I admit I have done it.)

Some expenses aren’t just worth it. Remember, your Fossil will always have an Armani to compete with and every Audi will humiliate your Honda city.  Simple living and high thinking is still the best way to live. (Remember, the Rs. 2, 00,000 category too is an audience. ;))

  1. Go homemade.

Exploring new places is fun, trying out different cuisines is important and loitering around on weekends binge eating desserts while celebrating your freedom is heavenly. After all, what else are we earning for?

But if you are eating out 5 days of the week, you and your health are in serious trouble. Learn to make at least basic Dals and Sabzis. Also, most hotels (even Dhabas) are So, you can afford that ‘London Dairy Belgium Chocolate’ you always crave for from your savings in service charges, service tax, VAT and tip alone.

  1. Walk, walk, walk

If your office is at a walking distance from your place (Lucky you!!), please walk to it. Don’t take the cab. You’ll also end up saving the money you spend on that fancy gym (which you never go to) and stay healthy. Make it a habit of taking the stairs instead of the escalator. Too clichéd I know. But it works. Also, be social and form a carpool. Less pollution and more money- ‘Man me laddu foota’? 😀 😀

Remember, emergencies are like uninvited guests. You never know which one knocks at your dinner.

A few lifestyle changes and you will never be broke again!

Cheers!

Red Pill or Blue Pill – The Dawn of Financial Matrix in India

This post has been contributed by Vidit Dugar from Fintuned Team.

We live in times where Automation & Artificial intelligence have become buzz words and to be honest, these concepts come out to be super exciting. Taking the risk of making it a little too melodramatic, whenever I hear these words, moves like Robocop, IRobot, Matrix series etc., quickly flash through my head and then I end up using my time [you can call it wasting if you wish ;)] in watching some adrenaline pumping snippets from these movies on Youtube. However, this article is not about my day-dreaming trips and therefore, let’s leave it at bay 🙂

Recently the International Advisory Board (IAB) suggested SEBI to study fee based model for robo-advisories in the investment sector bringing the recent automation of the financial advisory sector into limelight. The marriage of automation and finance is an interesting move in the Indian financial ecosystem and while countries like US and UK have moved at light speed in this domain, the recent move suggests India is ready.

If the words robo-advisory model make you imagine Skynet taking over the world or think of a robot like Baymax (From Big Hero 6) framing your investment plans, then you are mistaken because Jetsons age is not here yet.

Continue reading “Red Pill or Blue Pill – The Dawn of Financial Matrix in India”

Building Reserves v/s Debt Reduction – A Choice Worth Examining

This post has been contributed by Subhashini Attalani with editorial assistance from Team Fintuned.

Before you begin reading this article, let me tell you that this is not one of those traditional personal money management article(s) that you have been consuming. Yet, this article will afford you some amazing insights that will not only help you manage your money smarter but be super helpful when you make the decision about a crucial aspect regarding your business and that’s the debt appearing in your books.

Slide1

Thomas Fuller once remarked, “Debt is the worst poverty.” And, don’t we strive to minimize/end poverty? But should we always try minimizing debt when we have extra cash? That is an interesting question to address and let us try doing that in this post. Continue reading “Building Reserves v/s Debt Reduction – A Choice Worth Examining”

Please Relax, It is Just Tax

Even though we have said it umpteen number of times, we would keep saying it.

tax7

Yes! WHY SO SERIOUS.

It is that time of the year when everyone is a “little worried” about filing IT returns and paying tax as the date closes in. Well, Fintuned would like to help there. So, here is a quick 5 slide on how we can help. 

Cheers,

Mihir

Crowdsourcing Content

When we started Fintuned, we always had a vision to make Fintuned a portal that not only distributes financial wisdom but also becomes a venue where everyone can share their financial stories/wisdom/ideas/tools and any other thing I missed out on 🙂

Do you know why? Because:

we believe that best learning stems from healthy experiences

we believe that best learning stems from diverse ideas

we believe that best learning stems from sharing stories

Basically, we believe that the best way to know is to seek answers in stories that are all around you! Think about your life and your learning and you will realize that we aren’t wrong.

So, to get this into effect, we are doing something that will add immense value to Fintuned’s patrons.

We are inviting everyone of you to share your stories/wisdom/ideas/tools with every single one of Fintuned’s patrons and if you wish, we will keep it anonymous. You can rendezvous with us in more ways than one:

Email: fintuned.net@gmail.com ; Facebook; Twitter

Albert Einstein

Cheers,

Mihir

Keep More Than One But Forget None

This article has been contributed by our guest contributor Anchal Beriwal and edited by Fintuned team. The article is a good read for people in the age group 25-50.

Confused with the title of the article?

Well, today I came across a Business Insider post that mentioned the thinking differences that exist between rich (could be read as successful in today’s parlance :P) and average people. While I am not completely vocal about the way the article/piece was positioned, there was a line that has remained with me, which said:

“Rich people make money out of other people’s money while the average people think that one needs money to make money”. Again, I don’t support the statement as such and it is absolutely subjective but the part that you can use money even when you don’t have it reminds me of something.”

You probably guessed it right? It absolutely reminds me of credit cards 🙂

I am sure John Biggins might have fallen short of cash and therefore, thought of this idea and invented credit cards. In India, credit cards have always been an adverse money leverage option for people. However, as more options are available and with an increase awareness regarding the use of plastic money, Indians have begun using plastic money proactively. Probably, it is right if I say that we are aping the west in our spending culture as well. Truth be told, credit cards do have some indispensable benefits. For example, fulfilling immediate liquidity requirements and building positive credibility are a few of the positives.

But why am I harping on the benefits of credit cards? No, I do not represent any credit card company nor intend to be with one. This is because as we get accustomed to using credit cards, it is all the more important that we use it smartly.

Most of the banks provide privileges and schemes on applying for their credit cards resulting in a wide array of options to decide from.  For example

Love cash > go for cards that give cash backs

Love free stuff > go for those that offer freebies

If I may credit cards also come in different flavors. There are the superfluous travel credit cards that offer credit services on travel, hotel stays and conveyance and then there are awesome cards that provide credit facilities on meals in food joints and restaurants. Therefore, it is good to have more than one credit card, if you can manage them well.

In case you skipped that last sentence, read it again. To be absolutely specific and repetitive (not annoying :P), keep more than one credit card, if you can manage them well, which means payment of bills, maintaining limits etc.

*Do not screw your credit score

As a corollary to the last section, let me mention about something to take extra care of i.e. your credit score (am sure you know all about it). In case you are not aware,  RBI has entrusted CIBIL, Equifax and Experian to maintain the credit scores. CIBIL or the Credit Information Bureau (India) Limited being the oldest is more popular. These organizations collect and maintain records of every person regarding his loan and credit card transactions. These records are then used to prepare Credit Information Report (CIR) and credit scores and provided to banks and financial institutions to evaluate the credibility of a person.  Read more about it here.

#Quick tip: Simply owning more than one credit card does not affect your credit score in any way. The credit score depends on two things and they are payment of credit card bills and usage patterns.

As such, coming back to the point of having more than one credit card, it increases your overall credit limit. Owing to division of usage over more than one card it results in low usage per card. The lower the percentage of outstanding debt, the better the credit score.

Better offers, better credit scores, higher discipline etc. are some of the amazing benefits that ensue when you keep more than one credit card. So, what are you waiting for? Go ahead and experience it for yourself 🙂

Cheers

It Is A 2-Minute Read. But, It Is Important

CAGR Meme

Does this ever happen to you? It is problem so common that every 1 out of 5 people experience it (Swear, we didn’t make it up :P)

Jokes aside, it is actually confusing more often than not to understand whether the returns delivered by your investment are good, bad or average. The problem gets acute when your investment has been for a period that is more than one year because you are unaware of how much your investment made year-over-year.

So, what’s the solution?

CAGR or Compounded Annual Growth Rate

While you are obviously aware of acronyms like bff, OMG, ROFL, LMAO and so on, let us quickly decode an absolutely essential acronym that would serve you well for the rest of your life. Yes, CAGR.

To be absolutely precise, CAGR is the best measure when you have to measure the growth of your investment or for that matter, any trend, when the time period is more than one year i.e. multiple periods.

So, how is CAGR calculated? It is a simple formula

[(End value – Start value)/Start value] ^(1/(End date – Start date)) -1 ] x 100

Well, it may look a little complex but to be honest, it is absolutely simple. So simple that, my 10 year old cousin just loves solving for CAGR. Want to see? Let us take numbers from the above meme

[(100000-50000)/50000]*(1/3)-1]*100

Quick tip: The reason I took 3 is because the investment stayed for 3 years (periods).

To clear dino’s confusion therefore, the above investment earned 25.99% per year on a compounding basis which when compared to any instrument is pretty awesome. 

See, it is that easy! 2 minutes over and we are happy you got through till the end 🙂

Cheers,