Road to financial independence: A Forthright account

A few weeks back, Mr. Rajshekar Roy posted in the facebook group, Asan ideas for wealth. He wanted to know if his nest egg is big enough to quit a corporate job and start private consulting.  Many of us agreed that his fiscal health was sound enough to do so.

Since encountering such people is rare, the curiosity to know more about Mr. Roys journey increased. When I requested him to write an account, he readily agreed.

Regular readers may be aware that a couple of months ago, early retiree Mr. Balaji Swaminathan shared details about his journey towards financial independence in an interview.

Let us now learn from Mr. Roy.


Of late, a number of people have expressed their interest in wanting to know about how I have dealt with my own financial planning. While it will be difficult to put all the thoughts in one article, I will try to outline my overall approach and the related successes and failures.

Let me start by giving an introduction. I was born and brought up in Durgapur, close to Kolkata. I did my BE in Computer Science from Jadavpur university and my MBA from IIM Calcutta. I started working in 1988 after IIMC and have been in the IT industry throughout, except for a brief period of 1 year where I worked as a consultant, again in the IT sector. From 2000 onwards I have held CEO level positions and am now planning to do other things. At present both my children are in college (BITS Hyderabad and BITS Goa) in the 3rd and 1st year respectively. My wife is an Economist and is currently working from home.

I have always felt that our attitude towards money is intimately linked to the value systems that we have in us. Some of the values that are deeply ingrained in me are as follows – I am not in favor of loans unless it is for creating assets, had initial reservations on equity markets, believe in spending based on affordability and understand that money is only a means to do things.

In the beginning of my career and till the time I got married in 1993, most of my savings were in Fixed deposits. In fact, I spent all my accumulated savings for the marriage and associated expenses. That did not matter too much as both my wife and I was working. In the initial period I continued investment in debt products like PPF for both of us. This was also the period when there were a slew of IPO s and I started investing in a few. L & T, Essar, HCL HP and Nucleus were a few stocks that I invested in. The last two were courtesy my being an employee there. Till 1998 when we were in Delhi, I did not give much thought to my financial planning. It was more of – I have a good job and will be able to earn more if needed etc.

We shifted to Chennai in 1998 and changes in my family situation resulted in my being more serious about financial planning. My wife gave up working after our second child was born, my daughter started attending school and we bought our first car (Maruti Zen VX). I had taken a loan of 1.5 lacs to buy the car but paid it back within a year. We had also bought a Timeshare unit from RGBC in 1997 which I managed to pay off in the same period. Though I was earning significantly more, our expenses were high and ability to save rather limited. I continued to invest in PPF and FD s as we wanted to build up an amount for the down-payment of a house.

The year 2000 was one of big change as I got a new job which more than doubled my compensation. Though our expenses also had an upward lift, this enabled us to start saving more rapidly towards the housing goal. The other thing was my getting introduced to a financial planner who sold us the first Mutual Funds – it was Franklin India Blue chip whose NAV was some 9 Rs then. Being from the IT industry I also bought Prudential ICICI Technology Fund, whose NAV due to the recession had come down to 3.27 Rs. The extra cash that we had enabled us to build up the down-payment for our home through FD s. I still remember our HDFC bank manager being quite sad when we liquidated these in 2002 for buying an apartment in Adyar. Side by side our equity portfolio was growing both in direct stocks as well as MFs. We initially bought only Blue chip companies but later on diversified into relatively lesser known companies. As far as MF went, we did not do SIP but bought into certain MF’s depending on our cash flows. By the year 2007 when we shifted to Hyderabad we had built up a significant portfolio in stocks and equity MF. At that point my goal was to have this value at 1 crore, which looked possible in the bull run of 2007.

Our portfolio did briefly exceed the above target, but the crash of 2008 depleted our net worth considerably. As I did not sell in the initial part of the fall, I just had to stay put and hope that there will be future recovery. I was in a stable job where I wanted to spend the next 3-4 years, so I was not really worried about needing money from my investments. In 2009 after the Satyam situation caused further bloodshed in the market, I actually took a contrarian step and started to add to my stocks. I still remember buying ICICI at 263 Rs and several others at great prices. We also started investing through SIP in MF from 2008, which still continues.

The last leg of my investment journey has been to focus on debt. I chose FMP s as the main instrument after trying out MIP s and not liking them much. Till the government changed the rules in this budget FMP was a great product. Most of the ones I had gave me double digit returns annually with hardly any tax liability. Today I have a substantial portfolio of FMP s and am exercising the rollover option as I do not need the money in the next 2 years. Tax Free bonds have been my other investments in the debt area. The main reason for this was to establish a regular income stream when I would not be working in a regular job. I do have a few regular debt funds, but the investment there is not significant. PPF has continued over the years and I do not intend to take money from it in the next 5 years, unless the rules change.

As far as insurance goes I have taken Life insurance early in my career and added more after marriage. Health insurance was always provided by the companies I worked in and last 2 years I have taken a Max Bupa policy.

I have had investment goals, but I have not separate investments for different goals. Children’s education was always funded through my salary and, except for the first car; my next 2 cars were bought outright. I had taken a 15 lacs housing loan but managed to pay it back in 3 years. I do not believe in taking loans for consumption. Our expenses have always been high, but fortunately the income had kept pace with it. Recently my wife and I went to Australia for 2 weeks and this too was funded by savings in the past year.

Breaking away from the herd

Breaking away from the herd: A solitary sheep breaking away from the herd accentuated by the disturbed dew on the grass.” – David Hannah (flickr)

Now that I am looking at getting out of the regular corporate grind to do some consultancy on my own, the present situation is this:-

  • Children’s graduation will be completed in a few years. I have provided for their fees based on the inflation levels that BITS has indicated. I do not consider this amount as part of my net worth.
  • I get some rent from my Chennai flat. This amount should suffice to rent a good apartment in another city. Will look at buying RE only if I sell the Chennai flat.
  • Medical insurance is taken care of. With my current resource base and reduced economic value of life, I do not think I need life insurance.
  • Regular expenses will be funded through dividends from stocks, interest from tax free bonds and dividends from MF.
  • For the next 5 years I do not anticipate touching the PPF money and hope not to deplete the Equity portfolio for 10 years.
  • My consultancy will probably generate a fairly good income, but I do not want to depend on it for my day-to-day expenses. This should be for some causes that are dear to me.

I think this has been a long article and hopefully it would have given some ideas to people as to how I went about constructing my financial independence. It has taken a lot of hard work and several twists and turns, but I do think of myself as financially independent today.


Do join me in thanking Mr. Roy for such an honest account of his journey to financial independence.

The New Chinese Dosa: Equity Savings Fund

Human beings hate tax. They will do anything to reduce their tax outgo. Debt mutual fund investors received a jolt when the government erased the tax arbitrage that existed between bank fds/rds and non-equity funds (not just debt!).

Taking advantage of the fact that arbitrage mutual funds are (as of now!) taxed like equity mutual funds, fund houses are launching a new fund category: Equity Savings Funds.

This is sold as a low-risk, tax-free alternative to debt mutual funds.

Here are some examples:

1) JP Morgan India Equity Savings Fund
Under normal circumstances:
Equity 65-5% out of which 55-90% can be arbitrage.
Rest in debt
However the fund manager can decrease equity exposure to below 65% if debt instruments are attractive.

While JP Morgan does not highlight the investment duration, Kotak is promoting its equity savings fund as a tax-free option for 1-year duration

2) Kotak Equity Savings Fund
Direct Equity exposure: 15-25%
Arbitrage + Debt: 5-85%

3) Cafemutual reports that SBI, Birla Sun Life, ICICI Prudential and Reliance have such funds on the pipeline.

Should I invest?

Such funds are being projected as superior to arbitrage funds. Perhaps they maybe superior with respect to the quality of the arbitrage opportunities. However, the exposure to direct equity (recency bias?!), and debt would make the fund much more volatile than liquid-plus funds, and at least as volatile as a debt-oriented balanced funds (of which monthly income plans are the most popular).

Invest in these funds only if you have some cash lying around and do not know what to do with it! But first recognise that to have un-tagged cash lying around could be a sign of poor fiscal health.

Do not invest in these funds or for that matter any debt fund if you have a one-time expense less than or equal to 3 years away. Use bank deposits even if you are in the highest tax-slab.

If you have a staggered expense, use a liquid fund or liquid-plus (ultra short-term) fund.

The idea is to identify and understand the need and then locate a suitable instrument for it.

Remember that tax-free long-term capital gain is only one side of the coin. Never forget to take into account the associated volatility.
There is a pretty good chance that such funds could deliver returns comparable or even lower than post-tax bank deposits.
So when you are have an important goal in mind, why take a chance?

It is for the same reason (volatility) that I recommend bank deposits for those in the 30% slab even if the DDT rate ~28% for the dividend reinvestment option is lower.

Never focus on the return. Always evaluate the associated volatility (and therefore risk wrt your goal). For these funds the associated risk is pretty high for short durations. Never touch any fund which has got even a small amount of direct equity for 5 years or lesser durations.

About the title: A chinese dosa is a dosa stuffed with Chinese food (typically noodles)- an unnecessary culinary marriage.

‘The new chinese dosa’ because, this would not be the first time amc have come up with such unnecessary products – unnecessary for goal-based financial planning that it.

Seems to be reasonably productive move from an ‘asset gathering’ point of view: Cafemutual reports that the Jp Morgan fund collected about 160 Crores during the NFO period. Like I said, human beings hate tax!

Why not stick to plain dosas?      Happy Diwali.


Are You a ‘Lost Investor’?

When I posted a checklist for DIY investors: What it takes to do your own financial planning, Ashal Jauhari had the following to say. I would like to think he gave vent to his frustrations (about time too!):

“Dear Pattu Sir, I’m in DIY mode. Please tell me the BEST Term plan and the BEST Health Plan to purchase. Please suggest should I invest in HDFC Top 200 or not. How about keeping money in FDs under wife’s name? I want to crorepati in next 20Y………………..”

I don’t think, even after this open invitation from you (the above post) many ‘ll try to look into the deeper meaning of your post.



This is the sad reality of wannabe DIY investors. They either want the best solution or want ratification from a group of ‘experts’ for free.

Call it free lunch* and they are bound to get insulted.

  • free now. The ‘expert’ will not be held responsible for post-dated repercussions.

1) If a financial planner or IFA says DIY investing is time-consuming, it is quite understandable. You don’t expect barbers to admit that people can cut their own hair. It is sad to see that even neutrals in the financial services believe this nonsense.

Until a term life insurance, health insurance, goal planning and alignment of investments are in place, DIY investing will take no more than 2 hours a week.

Lost investors  are those who take longer because they are busy seeking tertiary opinions.

Once the basics are in place, there is literally nothing to be done unless you are a direct equity investor. For the mutual fund investor, an annual review in the initial stages (would take about an hour) and a quarterly review after several years is all that one needs.

If that is time consuming, then I am lost for words … parliamentary ones that is.

Note: these are exaggerated figures. I take much less time than this. I get extremely irritated when people tell me that I am able to manage my finances on my own because I have time. Wrong!

I am able to write a blog, because I manage to make the time. DIY investing takes so little time that I don’t event account for it. It is part of normal routine like eating and sleeping.

2) DIY investing requires neither intelligence nor analytical skills
All it requires is a maturity to focus on personal needs – one at a time.  Sure, DIY investors pick up a bit of jargon and a bit of math down the line. This is incidental and not a requirement.

Lost investors are those who over-analyze a problem 

Example: ‘Where do I invest my emergency fund?’!

3) DIY investors need not, rather should not, be personal finance enthusiasts.

This is utter nonsenses and often the root of all evil. All a DIY investor need to do is to take one step at a time. Identify one action item and work on it.

See more about this: Personal Finance Essential for Young Earners.

You don’t need to read books like inedible investor, rich step-mother, poor step-mother. You don’t need to read newspapers, TV, blogs, join forums etc. etc.

All this activity will only distract you from your goal: taking meaningful action

Lost investors are those who do not recognise the importance between knowledge and information.

4) I completely agree when someone from financial services says, most investors need hand-holding. These are the investors who get confused about product selection (among other things).

Thanks to the friendly neighbourhood insurance agent and the banks relationship manager, investors are wary of seeking professional help.
Therefore, unfortunately for the IFA or financial planner, the investor needs hand-holding to seek professional help – they don’t know which hand to hold and when!

I can definitely afford to say that ‘I don’t trust anyone with my money’ provided I can trust myself with my money.

Lost investors are those who neither trust themselves nor professionals to get the job done.

Longleat Maze

Rolling Returns Calculator: Fund A vs. Fund B

Use this rolling returns calculator to compare the consistency in performance of one mutual fund with another. When you have shortlisted two funds and are not sure which one to choose, this tool along with the Fund A vs. Fund B Risk and Return Analyzer can be used to choose one fund.

For those who hold multiple funds in then same category, both these tools can be used to consolidate their portfolio.

This tool was suggested by certified financial planner Basavaraj Tonagatti, who runs

Here a few screenshots obtained for a comparison between ICICI Focussed Blue Chip and Franklin India Blue Chip

Input Sheet

Rolling returns fund a vs fund b inputs

Analysis Sheet

Rolling returns fund a vs fund b analysis


Normalized NAV movement


Rolling returns fund a vs fund b NAV movement


Rolling Returns

Rolling returns fund a vs fund b


This is the 5 year rolling returns. In this case, the better performer is obvious. In general, a fund which has higher long-term rolling returns (more frequent) is better.

Download the fund A vs fund B rolling returns calculator

Chennai Investor Meet Updates

Details of the investor meet planned at Chennai:

 Date: 1st Nov. 2014

Venue: CPR Convention Centre, Alwarpet, Chennai

Agenda: (click to enlarge)



My talk will cover  tenets of financial planning, goal-based investing, mutual fund analysis, basic of portfolio management etc.

The event will be partly sponsored by: Sundaram Mutual Fund

Registration Fee: Rs. 500 per participant. 

Please Confirm your Registration: 

I have sent an email yesterday to those who have registered earlier.  Request them to confirm their participation asap. This will help us make suitable preparations.

If  you would like to register now send me an email right away or use this contact form

Note that  it has to be a confirmed participation since we will have to freeze other arrangements.

The event is jointly organised by Srinivasan Sundararaman of  MoneyKare, Wealth Managers, and myself.

MF Utility: Online Platform for Direct Mutual Fund Investors

MF Utility, the web-based transaction portal through which direct mutual fund investors can invest in mutual funds offered by 26 (as of now) fund houses, is now online.  It is not yet  operational, however basic details of how it can be used are available and more information is likely to be added soon.

An extract from the MF Utility for Investors page:

MF Utility (MFU) is an innovative initiative from the Mutual Fund Industry which offers convenience and empowers the investors of Mutual Fund schemes. MFU facilitates the investors with a Common Account Number (CAN) which enables them to transact in multiple schemes of various Mutual Funds participating in MFU through a single transaction and consolidated payment.

MFU provides a 24×7 universal online access across Mutual Funds to investors to access NAV and Scheme related information and content. Through MFU, investors will be able to have a consolidated view of their holdings and transactions at industry level. MFU will also provide value added services like Common Account Statement (CAS), Alerts, Triggers, Reminders etc., to investors.


Thus, one will have to apply for a common account number once it is operational and hopefully this should enable us to map the existing holdings onto the portal for consolidation.

With a single account and a one-time KYC process, the investor will have access to the schemes of  26  (out of 42) fund houses from the same platform.

Hopefully, this should help existing direct mutual fund investors and encourage more investors to choose the direct route.

Here is a partial screenshot of the participating AMCs page




Link to the MF Utility page:


How to Buy a Term Life Insurance Policy

Buying a term life insurance policy based on an insurers claim settlement ratio (CSR) is a meaningless exercise. All it does is offer psychological comfort to the buyer who refuses to understand that each death, and therefore each claim settlement is unique. When a nominee applies for a claim, the insurers CSR is irrelevant.

That said, when a young earner wants to know, ‘which policy should I  buy?”, or ‘how to choose a term policy?’, we typically say, ‘choose an insurer you are comfortable with, just be honest while applying’.

Unfortunately, I find that this is not of much use, as the person still needs a simple way to define a comfort zone and short-list insurers inside the zone. The honesty part is of course always relevant!

Therefore, in this post, much as I do not like it, I would like to propose a simple way, based on the CSR, to short-list insurers for purchasing a term plan.

The whole process should take you no more than 15-30 minutes.

One good thing that has come out of the CSR hype is that the insurers (incl LIC) have also fallen for it! Some make it a point to flaunt their CSR. This might be a good development from the (future) customers point of view. If the CSR drops, insurers have begun to realise that it could impact image and therefore sales.

Deconstructing IRDA’s Death Claim Settlement Table

First, let us touch upon aspects from IRDA’s death claim settlement table, obscured by the claim settlement ratio.

Let me start with an analogy between an insurer and a teacher evaluating answer scripts. As the teacher starts evaluating scripts, he/she gets a sense of what the average mark of the class would be. When a student scores little or no marks in the first few questions, the teacher realizes that the total mark would be much lower the class average. Therefore, the tendency would be to be a bit generous in the next few questions so that the total is bolstered a bit.

On the other hand, if the first few questions are well written, the tendency would be to scrutinize, the whole paper(!) a bit closer. This is normal human tendency and even a teacher with no pressure from the administration is likely to do this.

Why won’t an insurer who receives a big-ticket claim  scrutinize it tougher? After all, there is much more at stake.

The point is, LIC or private players, no one is likely to offer term cover claim settlement on a platter. Of course, there is a due process clearly mandated by IRDA.

The following is a screenshot from the  IRDA annual report 2010-11 (click to enlarge).


Trouble is, what a claimant considers a delay and what is legally allowed, are two different durations!

There is a crude way to point out that higher the claim amount, higher the scrutiny, resulting possibly in a repudiation or delay.

The claim settlement table published by IRDA has the total benefit amount along with the number of claims intimated, pending and repudiated.

This is a screenshot from the individual death claims table of the 2012-13 annual report. The entries have been merged with the column headings to aid reading.


The benefit amount per claim when compared over time can shed some light on the ‘average’ claim amount handled by the insurer. Of course, this ratio is not a sound way to make any solid inferences. Let us however run with it and see where it takes us. Before you pan me in the comments section, remember that I acknowledged this!


The claim amount (Lakhs) intimated per policy was 0.73 was LIC in 2006-07 and 1.58 for privates.

In 2012-13, this increased by 36% for LIC and nearly 33% for privates. It must be kept in mind that the number of private players increased by about 50% in this period.

Thus, there is a significant increase in the claim amount per policy handled by LIC.

Even more  striking is the 78% increase in the benefit amount per repudiated claim (1.08 to 1.92) . How would you interpret that?

For the privates,  the benefit amount per repudiated claim  has increased by a whopping 95% (2.08 to 4.05) .

For LIC, the claim amount repudiated per claim can only increase from now (their e-term policy is only one reason). For the privates, I think it should come down in the future or at least not increase so dramatically.

One could argue that the new insurers would have processed early claims and hence would have scrutinized stringently. However, let us  read too much into this.

Simply because it is clear enough (even without this data) that the privates are likely to scrutinize claims tougher than LIC.

This can also be seen by

1) comparing benefit amount per claim paid with benefit amount per claim intimated. These are comparable for LIC. For the privates, the benefit amount per claim paid is always lower than the benefit amount per claim intimated.

2) Privates have more claims pending at the end of the year than the start of the year (not shown). The converse is observed for LIC.

The number of pending claims at the start of the year decreased from 9574 in 2006-07 claims to 8856 claims in 2012-13 for LIC. While it nearly doubled for the privates, primarily because the number of such life insurers have increased.

Notice that the  amount per claim pending at the start of the year has doubled for privates, from 2006-07 to 2012-13,  even though the denominator (number of claims) has nearly doubled (from 1894 to 3467 in 2012-13).

When the denominator doubles, the ratio can double only if the numerator (benefit amount) quadruples!

This implies that the privates are handling  much higher claim amounts than LIC (not much of a finding!). One could argue that this is the reason, their CSR is lower.

Even if you don’t wish to make much of these ratios, I hope that you agree with my contention that if the claim amount is big (as in a term insurance policy), LIC too would scrutinise it carefully. Simply because such an amount would be higher the average claim amounts they process.

Claim settlement ratio

Claim settlement ratio ignores the

1) nature of the policy. LIC typically has a higher number of small ticket claims.
2) the time it takes to settle. It can take up to six months or even more to settle a claim. As long as a claim is settled within the FY, it will be counted for computing CSR. From a nominees point of view, that is a ‘delay’.

Consider this:
In 2012-13
LIC settled 7.33 lakh claims out of 7.51 lakh claims. A claim settlement ratio of 97.7%
The privates settled 1.13 lakh claims out of 1.27 lakh claims. A claim settlement ratio of 88.6% (incidentally a significant improvement from 72.7% in 2006-07 despite a 50% increase in number of private pl.ayers)

Now, if the privates had a CSR equal to that of LIC, they should have settled 1.24 Lakh claims (instead of the actual 1.13 Lakh claims).
This is less than 10% off. This is approximately the difference between the CSR’s, but when you look at it this way, I think it does not appear so bad!

If you are worried about this, then you should have enough money (including possible loading if any) to afford an LIC policy (offline or online).

If you don’t, why bother?!

I suggest you pick a private life insurer who has been around for at least 10 years (with no plans to leave – check recent news reports) with a CSR close to, or above the total private average.

Even better, if the insurer has a CSR history consistently higher than the current private average.

It will take you less than 30 minutes to access the IRDA reports, locate the “Individual death claims” table and scan the necessary numbers.

Once you can short-list 2-3 insurers, compare the price for a policy (without loading, but inclusive of service tax) using the premium calculator available at their websites.

Choose the cheaper among the two.

Apply immediately. Do not ask anyone else for an opinion.

Calculating the insurance amount required

Should have appeared first in a ‘how to’ post!

For Young earners: Insurance Calculator For the Young

For the family man: Insurance + Child Planner

For the meticulous planner: Comprehensive Insurance Calculator

Backtesting a three stock portfolio: L&T, ITC, Axis Bank

R. Balakrishnan is a person of great renown in the banking and financial services space.  He helped set up CRISIL and  the Malaysian credit bureau, was head of equity research at DSP Merrill Lynch, executive vice president of Edelweiss,  to name just a few. He is now an organic farmer, writes a blog and has a column at MoneyLife. More details about him can found at his farm website.

In an article titled, Investing in a concentrated ETF, he referred to the formation of an ETF with the stocks held by the Specified Undertaking of the Unit Trust of India (Suuti) such as ITC, Axis Bank and L&T.  More on the ETF here.

He considered an ETF in which one unit would comprise of one share of ITC, Axis Bank and L&T, as an option for those who wanted to get into direct equity but did not have the time and effort to do so.

The SUUTI ETF will have more shares as these three shares only constitute 31% of the portfolio.

In this post, I present the backtesting results of such a three stock portfolio (not necessarily an ETF) from Jan 2000.

Step 1

Use the Moneycontrol historical stock price downloader and get the stock prices of the three shares adjusted for dividends and splits.

Step 2

Get a list of common dates using a combination of Excels INDEX and MATCH functions.



The normalised movement of share prices. The y-axis is in log scale to show the evolution in the early stages clearly. L&T and ITC have moved up 15 times, while Axis bank, 75 times.  ITCs movement is not well correlated to the other two shares.

Step 3

Use the mutual fund account statement generator to obtain the monthly dates of purchase (SIP date: 3rd)

Step 4

We assume one share of the three stocks is purchased each month.  The SIP states on 3rd Jan 2000 and ends on 7th Oct 2014.

So on 7th Oct. the investor would hold 177 shares of each company.

total investment: 1.47 L

portfolio value: 3.87 L

CAGR: 20.92%

Brokerage charges, demat account charges have been neglected.  If that bothers you too much, reduce the above return by say, about 1%.



Comparison with Franklin India Blue Chip

What if the investor had chosen a diversified large cap fund instead?

total investment: 1.47 L

portfolio value: 3.01 L

CAGR:  15.92%

Normalized movement of FIBCFs NAV and the total price of the three stocks.



Notice how volatile the 3-stock portfolio is compared to the fund NAV.

The standard deviation in monthly returns for the 3-stock portfolio is 39%. A good 30% larger than the corresponding number for FIBCF.

That is the trade-off when it comes to direct equity vs. mutual fund investing.

Higher returns (potential) but higher volatility (guaranteed!) in direct equity.

While Mr. Balakrishan’s idea is certainly a sound one (with the caveat that the past performance means nothing!), should an investor use direct equity to create wealth or mutual funds?

Unfortunately, direct equity is seen by many as a route to create wealth quickly. Unfortunate because for most people the direct equity route is like walking the tightrope over a chasm that separates an investor from financial freedom.

The alternative is a wider plank laid out over the chasm . Walking the plank (!) would take longer but it is significantly safer.

Perhaps the tightrope would get thicker down the line, with experience.  Perhaps not.

Now that is one risk that I am not willing to take. Simply because I don’t have to.

Minimalist Portfolio Ideas for Young Earners

Investing for long-term goals is governed by the following tenets.
1) Beat inflation either by investing more and/or with adequate exposure to volatile but productive assets. Preferably ‘and’, not ‘or’.
2) Understand the importance of containing volatility and that trying to maximise returns by being more aggressive is like trying to run a marathon like Usain Bolt.
3) Knowing how to contain volatility.
a) never ignoring debt. Not more than 50-60% equity exposure is needed for any long-term goal.
b) having the maturity to diversify the folio among productive asset classes and within each asset class
c) having the maturity to periodically shift gains from a performing asset class to a meek if not underperforming asset class. Also known as rebalancing.

I am convinced that investors, especially the young earners, must keep things as simple as possible and avoid portfolio clutter like the plague.

For most people, the best way to diversify a portfolio within an asset class is by not trying!  If they don’t know what they are doing, this is what happens:

Sunday DIY - Floppy Disk Pen Holder - 5/5
Here are a few long-term (15 Y plus) portfolio ideas that are minimalist in nature. All of them are likely to produce a real-return to the disciplined and un-wavering investor.

Be warned that, none of them will work

  • if you expect anything more than 12% CAGR (I prefer 10%) from the equity or equity-oriented component.
  • if you jump up and down each time other funds do better than yours.
  • if you think having more mid and small-cap funds will fetch you more returns because your goal is far away.

Minimalist Portfolio 1

  • Single Large Cap mutual fund (60%) + PPF (40% only!)

Core and satellite principle be damned.  Solid large caps will be relatively less volatile. Size of the fund does not matter as large caps are liquid stocks.

Minimalist Portfolio 2

  • Single Equity-oriented balanced mutual fund

My favourite for the following reasons
1) Tax-free debt component.
2) Automatic rebalancing
3) Fund return = portfolio return. Goal tracking is the easiest.
4) Most liquid portfolio of them all.
5) The equity component could be diversified too

Minimalist Portfolio 3(a)

  • Single Large and Mid-cap fund (60%) +PPF (40% only!)

For those worried souls who long for mid-caps. Some have a touch of small-caps too!

Fund size could be an issue. Larger the fund, the more large cap it becomes in nature.

Minimalist Portfolio 3(b)

  • Single Large Cap mutual fund (60%) + PPF (40% only!)


  • Single Large and Mid-cap fund (60%) +PPF (40% only!)

The fund in this case has exposure to international stocks.

Robust diversification. Solid long-term returns but with the short-term impression of being a laggard (diversification requires maturity)


Down the line, a debt mutual fund can be added to the above portfolio to aid rebalancing.  Initially, one-way rebalancing, that is shifting excess equity allocation (say 5% or more) to PPF is more than enough.

If you are starting to invest for all your long-term goals at the same time, a unified minimalist folio will do the trick. If there is a gap of a few years between the investment for each goals, you can construct separate minimalist portfolios for ease of tracking and rebalancing. A unified folio could also work, but tracking the corpus of each goal can be a pain.

Individual minimalist folios allow independent risk management. A 25 year goal is not the same as a 15 year goal. I would prefer to rebalance more often for a 15 year goal.

That is it. Don’t chase after that hot mid/small/micro cap fund.

Keep it simple.

Avoid portfolio clutter like the plague

Consider a minimalist portfolio:

MakerBot Replicator - 3D-printed - Wacom Stylus stand v03

Herd Instinct: ICICI Pru Focused Blue Chip vs. ICICI Pru Top 100

In this post, let us compare two large cap funds from the  same fund house. One a consistent performer with a terrific track record and the other a young superstar. The results will hopefully show how herd instincts among investors (and perhaps amcs  and therefore(?) intermediaries too?) can obscure good funds from the same fund house.

The results shown below are derived with:

Let us now list the salient features of both funds (Sources: VR online, thefundoo, fund SIDs, monthly reports)

ICICI Pru Focused Blue Chip Equity

Category: Large Cap

Benchmark: CNX Nifty

Inception Date: 23rd May 2008

AUM: 5879.7 Crores  (30th June 2014)

Investment Objective: To generate long-term capital appreciation and  income distribution to unit holders from a  portfolio that is invested in equity and equity  related securities of about 20 companies  belonging to the large cap domain and the  balance in debt securities and money market  instruments. The Fund Manager will always  select stocks for investment from among top 200 stocks in terms of market capitalization on  the National Stock Exchange of India Ltd.

If the total assets under management under this  scheme goes above Rs. 1,000 crores the Fund  Manager reserves the right to increase the  number of companies to more than 20.

Indicative asset allocation: 

Equity: 70% or more. Rest in debt or money market instruments


Large cap: 88.5%

Mid-cap: 8.9%

Small-cap: 0.6%

Cash: 2%

Dominant Sectors:

Finance: 33.47%

Energy: 12.99%

IT: 13.79%

FMCG: 14.9%

ICICI Pru Top 100

Category: Large Cap

Benchmark: CNX Nifty

Inception Date: 9th July 1998

AUM: 666.56 Crores  (30th June 2014)

Investment Objective: To generate long-term capital appreciation  from a portfolio that is invested  predominantly in equity and equity related securities

(broader the mandate, the less verbose the objective!)

Indicative asset allocation: 

Equity: 95% or more.  Rest in debt or money market instruments


Large cap: 79%

Mid-cap: 12.3%

Small-cap: 3.3%

Cash: 5.4%

Dominant Sectors:

Finance: 27.6%

Energy: 25.6%

IT: 15%

Portfolio overlap: Out of the 80% folio listed at VR online, there is an overlap of 52%. Which is significant.

Obtained with: Mutual Fund Portfolio Comparison Tool

Impression: There is reasonable similarity between the two funds (at the moment!). ICICI Top 100 is a bit more diversified than Focused Blue Chip equity.

ICICI Pru Focused Blue Chip Equity vs. Nifty

ICICI Focused Blue Chip Return

The data and graph speak for themselves. Needless to say that the fund has done excellently well when compared with the Nifty

Ulcer index is a measure of downside protection and investor stress.

ICICI Focused Blue Chip Risk


Since Focused Blue Chips ulcer index is lower than that of Nifty, investors would have been sitting pretty with this fund.

Created with Mutal Fund Risk and Return Analyzer

Read more: Mutual Fund analysis with the Ulcer index

ICICI Pru Top 100  vs. Nifty

ICICI Pru Top 100 Return

Top 100 has a longer history of consistent outperformance.

ICICI Pru Top 100 Risk

Again pretty decent when compared with the Nifty. However, not as much as Focused Blue Chip.

Created with Mutal Fund Risk and Return Analyzer


ICICI Pru Focused Blue Chip Equity vs. ICICI Pru Top 100

ICICI Mutual Funds Risk

This Ulcer index comparison confirms that Focused Bluechip has better downside risk than Top 100. However,

ICICI Mutual Funds Return


A score of more than 50% means focused blue chip has done better than top 100. Created with  Fund A vs. Fund B Risk and Return Analyzer

While there is not much difference in terms of returns, Top 100 has  had better overall risk-adjusted performance than focussed blue chip for the last four years.

Is this because  of its large AUM? 

In Aug. 2009, Focused Blue Chip had 20 stocks in its folio (as per its original mandate) with an AUM of ~ 740 Crores and an annual churn ratio of 1.18 times.

In Aug. 2014, it has 50 stocks. It has to, because its AUM is now ~ 5879 Crores. Its churn ratio has dropped to 0.57 times.  Read more about the impact of size on churn ratio here:  Mutual Fund Size vs.  Performance: a case study

My answer would be, yes.

ICICI Top 100 has a current AUM of ~ 666 Crores.  Lower than what focused blue chip had 5 years ago?

The reason I wrote up this analysis is to pose the question why is this so?

In terms of performance, that is bare returns, there is not much difference between the two funds.  In fact, Top 100 has a longer track record of consistency.

So why has this been pushed to the background?  Who is responsible for this?

The AMC? The distributors? The investors?  My guess is everyone.

The only difference between the two funds:

Focused blue chip began operations at the start of the 2008 financial crisis.  Therefore, I think  it appeared as a saviour to many  since the established funds  (incl. top 100) were struggling to cope with the crash.

While existing mutual fund investors flocked to focused blue chip equity, new investors saw it as a safe bet. One person said, ‘the fund would never fail’.

It is heartening that MorningStar analysts have given a ‘silver’ rating  to Top 100 and a  ‘neutral’ rating to focused blue chip, while VR online rates them both as 5* funds.

Silver: Fund with advantages that outweigh the disadvantages across the five pillars and with sufficient level of analyst conviction to warrant a positive rating.

Neutral: Fund that isn’t likely to deliver standout returns but also isn’t likely to significantly underperform, according to the analysts.

Now a few definitions for your perusal. Hopefully, they would clarify the first word in the title of the post.

Herd Behaviour

A group of animals fleeing from a predator shows the nature of herd behavior. In 1971, in the oft cited article “Geometry For The Selfish Herd,” evolutionary biologist W. D. Hamilton asserted that each individual group member reduces the danger to itself by moving as close as possible to the center of the fleeing group. Thus the herd appears as a unit in moving together, but its function emerges from the uncoordinated behavior of self-serving individuals.   (wikipedia)

Herd Instinct

A mentality characterized by a lack of individual decision-making or thoughtfulness, causing people to think and act in the same way as the majority of those around them. In finance, a herd instinct would relate to instances in which individuals gravitate to the same or similar investments, based almost solely on the fact that many others are investing in those stocks. The fear of regret of missing out on a good investment is often a driving force behind herd instinct. (investopedia)

Information cascade

This occurs when a person observes the actions of others and then—despite possible contradictions in his/her own private information signals—engages in the same acts. A cascade develops, then, when people “abandon their own information in favor of inferences based on earlier people’s actions” (wikipedia).

Moral of the story:  Never buy a fund because it is popular or even if a professional recommends it.  Focus on your own portfolio. Do your own research. Ignore star ratings.

Note:  Do not sell or stop investing in focused blue chip because of this post. Evaluate  your needs and make informed choices.  You know where to find the  necessary tools ;)


Many years ago, my wife and I took an evening stroll around a temple tank. The moon was full and beautiful. We stopped to stare at it for a few minutes and took some pictures.  Before we stopped to look at the moon, no one around us cared about it in the busy street. When they saw two people looking at something, they became curious and joined in. Soon there was a chain reaction! I am pretty sure behavioral scientists have a word for this phenomenon.  Do share, if you know what it is.

Part II: Here is why you should ignore mutual fund star ratings

In the first part on why you should ignore mutual fund star ratings, I had stressed on the importance of focusing on our portfolio health and performance of the fund with its benchmarks.

In this post I would like to add a couple more reasons to strengthen the argument.

Let us assume that an investor named Tom has chosen to ignore my thoughts on this matter and decided to invest as per fund star ratings.

Which star ratings should he choose?

Value Research, Morning Star, Money Control, thefundoo, or others?

Not all star ratings are created equal. Each one differs in methodology. Even if the difference are small, the results can vary by a wide margin.

Take the case of ICICI Prudential Top 100 Fund, an excellent large-cap fund (analysis in a forthcoming post) with a consistent track record since 1998. It is managed by one of the best portfolio managers in the country: Sankaren Naren

Value Research rating: 5*

Morning Star: 4*

thefundoo: 3*

Moneycontrol: 4* (Crisil rating 2 in large cap category)

ICRA Online Rankings: 3*

Which rating system should Tom choose and why?

To answer this, the follow options present itself to Tom:

  • Read the methodology of each system. Assuming that he understands each of them, choose one that he is ‘comfortable with’!
  • Use what everyone is using.  But how the hell will Tom know that in the first place?!
  • Pick one rating portal, write to them and find out which Tom should use?! Objective answers guaranteed!
  • Look at the website. If it looks impressive and easy to use, Tom can assume that the rankings are solid too!

As long as Tom wears horse blinders and sticks to one rating portal everything seems fine. The moment he compares ratings offered by different portals,  he realizes (hopefully) that the guidelines for calling a fund as 5* or 3* are purely arbitrary. The guidelines are consistent and based on solid math, no doubt, but they are arbitrary nonetheless.

I say this because the criterion used each rating agency can differ. One fund portals risk-free rate could be different from another. The duration chosen to grade funds can vary.  The way in which each metic is calculated can vary.

This is the primary reason why investors should avoid star ratings. Instead of these arbitrary guidelines, why not use some personalized, and therefore absolute ones likes our (reasonable) return expectation, net portfolio returns, position of the fund in the portfolio and  consistency of performance wrt benchmark?

I would like to recommend the following simple way to evaluate a fund wrt its benchmark to the Toms of this world.

 Sab star ratings chodo. Use the Mutual Fund Risk  Return analyzer instead!

It compares the funds performance with that of its index for 1,2,3….8 year durations with 19 risk and return metrics and offers a simple score out of 100% for each year.  A ‘good fund” is one which has consistently recorded a high score.

The user is free to set the risk-free rate and the minium acceptable return.  It is open source so you can add or remove metrics as you please (removing is easier than adding though!).

It is an absolute measure of outperformance (or the lack thereof) in the sense that only funds benchmark is compared with the fund. You have about 35 equity benchmarks to choose from.

Both the long-term and short-term performance is taken into account unlike most star ratings.

Here is how ICICI Top 100 fared



It is a terrific fund. It has beat its benchmark on an absolute and risk adjusted basis consistently for the past 8 years. This is more important than the number of stars  someone gives a fund.

Of course, this information is relevant to the investor only if he/she understands how to build a minimalist portfolio (coming soon!): one in which each fund has a specific role.

Not all funds rated 5* by the same agency are created equal.



Would you invest in this fund, rated 5* by VRonline? It is also benchmarked to the Nifty.

Use the data provided by the fund ratings portals and not the ratings themselves.  Carpe Diem.

Here is why you should ignore mutual fund star ratings

‘Should I choose only five star rated mutual funds?’, ‘Should I switch funds each time my funds rating is downgraded?’. These are extremely common questions among mutual fund investors.  In this post, let us discuss how star fund ratings are irrelevant to the goal-based investor.

Any action, buy, sell, hold, switch etc. should be based on observations with respect to meaningful reference point.

Understanding this is key to successful investing, be it in stocks or mutual funds of fixed deposits.

There is nothing wrong with star ratings. They are based on solid math and forms the core of all quantitative mutual fund analysis.

However, it is important to recognise that we are investors and not analysts. An analyst has no choice but to relatively grade mutual funds and award them stars.


Only the listless investor would worry about the relative performance of his/her holding wrt to all the funds in that category.

Any investor should first have a clear idea of how much to expect from a particular fund category (and not from the fund). The expectation should be reasonable. They must understand what a standard deviation is and how much returns can typically deviate from the expected value for a given time period.

See this for more details: How to select mutual fund categories suitable for your financial goals?

For example, no fund can satisfy an investor who wants 25% annual returns.  A good 80% of funds in each category can satisfy investors if they only want average 10% return over the long-term – the recommended long-term return expectation from equity.

See: Understanding the nature of stock market returns

and  How important is mutual fund selection?

As long the as the CAGR of the holdings (not the recent CAGR of fund) is higher than the expectation, there is absolutely no reason to change funds.

Even if the CAGR of the holdings drop below expectations, one will need to qualitatively analyze the state of the market, the stance of the fund manager, when the money is needed, and then, and only then, take appropriate actions.

If the fund has a good track record, the fund manager has not changed, the content of its portfolio not deviated too much wrt its investment mandate, nine times out of ten, there is no need to immediately change the fund even if it returns lower than expectations, if the goal is far away (my HDFC Equity holdings CAGR was 4% last November. Today it is 32%. It is tagged to my retirement goal).

It may so happen that a fund which was returning 5% more than our expectation suddenly dropped to only 2% more. In such case, the consistency of the funds performance with respect to its benchmark should be evaluated.


Multi-index rolling returns analyzer  to evaluate consistency of performance.

Mutual Fund Risk and Return analyser – to understand the importance of risk adjusted return. You can consider abandoning the star ratings and use this instead :)

As long the fund is out-performing the benchmark over 3 years or so, I see no reason to change the fund.

Therefore, a funds star rating is not relevant at all to the goal-based investor.  Even those who mindlessly chase after returns, ‘just like that’, have a goal (of some sort!). So star ratings won’t help them either. That nothing would them help, is another matter altogether!

Bottom line:  Learn about risk-adjusted return, how to evaluate consistency in funds performance or seek professional help … and pray that the professional does not rely on star ratings!!! Sadly too many of them do.

Retirement Corpus Tracker

Track the monthly growth of your retirement corpus with this Excel sheet.  This is a combination of the low-stress retirement calculator and the visual SIP tracker.

On popular demand, I have now included the possibility to track the growth of real estate (or any other) investment.

The user will have to first use the retirement calculator. The inputs of this sheet are used for tracking the corpus each month.

The monthly investment made in

  1. equity (stocks or mf)
  2. taxable debt
  3. tax-free debt
  4. any other instrument

should be entered by the user along with the total actual value of the instrument.  

The progress of the each instrument can be tracked in the same sheet. The total investment can also be graphically tracked.

How to use

  • This is meant only for disciplined investors.
  • Use it once a month, preferably the month end.
  • Enter the investments and value of the instruments and track them.
  • Even if the instrument grows at exactly the same rate at which you expect it, there will be a small difference between the actual and expected value. This can be safely ignored.
  • An experimental feature, how long would my corpus last? has been included.  Please let me know if this gives meaningful numbers.

Screenshot of the input sheet (click to enlarge)


Screenshot of the corpus growth graph


Have used some dummy numbers to generate this. Your graph with real numbers will look way better!

Download the retirement corpus tracker 

Have included some dummy data. Please delete before use.

Retire early to lower your retirement corpus!

The sooner you retire, lower the retirement corpus necessary for financial freedom!*
* terms and conditions apply!
Let us consider this counterintuitive aspect of retirement calculators in this post,  which stems from Sudhindra Aithal’s comment on this topic in response to the low-stress retirement calculator.


Used for illustrative purposes only. No copyright infringement intended.

Let us consider a 30 year old, Dagwood Bumstead who wishes to plan for retirement. For those who may not know, Dagwood is the husband of Blondie – a long running comic strip!

He wants to decide the age at which he could retire.  Since there are (too) many parameters in a retirement calculator, Dagwood wishes to keep the following inputs fixed:

  1. Inflation before and after retirement: 8.5%
  2. Life Expectancy: 90
  3. Return expected on retirement corpus: 9% A real return of 0.46% (not 0.5%!!)
  •  If Dagwood wishes to retire at 65 (25 years in retirement), he would need a corpus of 14.8 Crores.
  • If he prepones his retirement to 60(30 years in retirement), he would only need 11.8 Crores.
  • If he wishes to retire even earlier at 50 (40 years in retirement), he would only 6.7 Crores. More than 50% reduction for 15 additional years in retirement!!!

At first sight this is astounding! The longer Dagwood needs to live in retirement, lower is the corpus he needs!

The reason for this is the interplay between negative and positive compounding.

Negative compounding refers to the effect of inflation and positive compounding refers to the grow rate of the retirement corpus.

The sooner Dagwood retires, lower would be the expenses at the start of retirement. If he retires at 50, his expenses would be about 30% lower than at 65 (the projected value).
Meaning, he would withdraw less from his corpus. Therefore, more of the corpus can grow.
Thus, he needs a lower corpus at 50 than he would at 65!

This bizarre but easy to understand idea is illustrated below.

lower-retirement-coprus-1The retirement corpus initially increases because the growth is higher than withdrawals. Soon due to inflation, the withdrawals exceed the growth. Therefore, the corpus peaks and then rapidly falls with each additional year in retirement to zero (at age 90 in each case).

Earlier the retirement or more the years in retirement, the longer it takes for the corpus to peak and then fall. That is the annual growth of the corpus is higher than the annual withdrawals for more number of years. This is why one can do with a relatively lower corpus (vertical dotted arrow).

This aspect can also be illustrated by compared the retirement corpus required for different retirement age and the expenses in the first year of retirement.


Higher the retirement age, higher the corpus because of higher the initial expenses.

Where is the catch?

This does not mean that one can retire early!! Although a lower corpus is required, the time needed to accumulate it is also lower.

That is, there is not enough time for Dagwoods monthly investment to grow! To offset this, Dagwood will need to increase his monthly investments.
Lower the corpus required, higher the monthly investment! In fact, the investment rapidly increases with decrease in retirement age and soon become impractical. This is calculated assuming Dagwood has not made any investment so far.


Thus, if Dagwood wishes to retire at 50 rather than 65, his monthly investments should more than double (while his corpus is less than half!).

Moral of the story:  No free lunch!

The low-stress retirement calculator (hopefully!)

The first time someone uses a retirement calculator, they are in for a couple of rude shocks!

  • The corpus required for financial independence post-retirement, taking inflation into account typically would be a few crores (if not several!)
  • Therefore the monthly investment required is typically equal to monthly expenses or even more!

Becuase of this I get more bricks than bouquets for my retirement calculators  :(

With an aim to lower user stress here is an alternative version which explicitly accounts for three types of current  and future investments:

  • equity investments
  • taxable debt investments (fds, debt funds, gold, etc.)
  • tax-free debt investment (PPF, EPF)

It also takes into account future EPF contributions.

The corpus necessary for financial independence is reduced by the expected future value of current investments and future EPF contributions. This (hopefully!) would look a lot less daunting.

The sheet then asks you the intended asset allocation for future investments an annual increase in monthly investment.

The monthly investment required in each asset class and the expected future value at the time of retirement are calculated.


My aim is to make a visual retirement tracker (like the visual SIP tracker) with this sheet as the basis.

I have annotated the inputs following a suggestion by Raghavendra Paripati. This tool was made after discussions with Aparna. Check out her presentation: An Introduction To Personal Finance For Young Earners

Do let me know if any additional features are necessary.

Download the low-stress retirement calculator

An Introduction To Personal Finance For Young Earners

This post showcases a presentation by Aparna C K to her office colleagues on Sep. 19th 2014. I am delighted that she kindly consented to let me share this here. Regular readers maybe aware that Aparna has written two guest posts for freefincal which became instant hits:

I have chosen to post the PowerPoint slides as individual .jpeg figures  with the authors notes (mildly edited for public consumption) and relevant hyperlinks.

Persoal Finance Basis
Author Note: Personal finance is more to do with you as person than finance. It is not finance in the conventional sense. You must participate actively to get max return on your time invested. Let us find out what you guys expect from this.

Author Note: Not “making” money. What suits one person may not suit the other. Avoid copying others. Personal comes first rather than Finance, precisely because it is Personal.

Author Note:
What if your vehicle meets with an accident and goes for repair,
What if you die due to accident or illness?
What happens if you lose jobs?
Now you have income, but when it stops, how are you going to live
How are you going to finance your dreams/goals which are a few years away
Before really getting into deep waters, knowing one’s inclinations, attitudes is very important.

Author Note: When you already have so many genuine expenses, not spending on unnecessary things is very important. Not needed also applies to financial products.

Author Note: Once you start DIY, it is hard not to enjoy it. It is equally hard to trust someone else with our hard earned money. Only advantage with hiring someone to handle our finance is, they may help you to take balanced decision, but this may or may not happen. Many a times, they get interested only in their commission.
Link in the slide: What does it take to do your own financial planning?
Author Note:
One may not realize the importance if staying in parents house, parents still working
Check if you live within the budget.
Don’t purchase anything on a whim, without understanding. In finance, this results in loss of investible surplus, which is formally termed as an opportunity cost.
If you are already stuck with one, don’t try to avoid current loss, when you know further investments in bad products will only lead to more future losses.
-Credit card is not bad if you exploit all its advantages and do not get spoilt

If you get tempted to spend, transfer it to another account. Best to keep one more account other than salary account. Let the salary account be expenses account and the other one savings. As soon as you receive salary, transfer the surplus to savings

When I say cutdown, I am not saying lead an ascetic life. As I said earlier, evaluate needs and wants.
My own experience: I used to record my expenses right from my highschool days, as a result, once I started earning, I completely stopped it. I did it on and off after marriage, since December 2013, religiously doing it.
Link in the slide: Budgeting Gets Your Financial Act in Place

Author Note:
Touch it only for real emergencies-unforeseen events. Accident, house collapse, or forgetting wife’s birthday!
Business people may keep more emergency fund, like 12 month expenses.
On Life insurance: Go for it only if you have dependents/loans that too if your net worth is not sufficient to take care of them in your absence.
Term + PPF/ELSS is superior to Endowment/ULIPs.
Health insurance is a complicated product, be careful when you buy. Read exclusions, pre-existing illness cover, co-pay.

Link in the slide: My Best Friend Named “Emergency Fund”

Author Note:
An example. 1000 rupees invested today. After a year get back 1100. But what costed 1000 rupee today costs 1090 next year. Still net gain is 10 rupee, but this 10 rupee next year is not the same as this year’s 10 rupee. It is only 10/1.09 = 9.1 rupee. So your real return is 9.1 rupee for 1000 rupee invested.

CII Started in 1981-82, at 100.
In 2014-15: 1024 => Over 33 years, 7.3% annualized inflation – At this rate, after 33 yrs, your 20k becomes 2L expenses.
Collect actual data from your parents. My own experience: When I started in 2002, with rented home, my expenses were 10k per month, but now it is not comparable. Lifestyle itself has totally changed.
FDs at 9%, after tax give 6.3%/7.2%/8.1% (Fixed Depreciation)
So, don’t be fooled by how banks present their interest rates. Would you really love to save money in FDs if banks all over put banners saying, “we give -1% real returns”.
It is just the way numbers are presented makes us not see the reality.

Link in the slide:  Real return Calculator

Graph (click to enlarge)


Author Note:
If you are 60 today and your monthly expenses are 11900, you can retire with a corpus of 40Lakh, provided, the returns from corpus matches inflation.
For 50 yr old, In 10 yr duration, due 40L gets inflated to 74L. For 22 yr old boy, in 38 yr duration, it gets inflated to 5.23Cr. This is the reason for the difference in the corpus needed.
(Numbers entered in the fields of jagoinvestor calculator: 11900, years, 7,7,8.07,30,7,7)

Author Note:
Set your personal priorities first. If you do not like grand weddings, do not have one, worse, do not take a loan for it.
In general, do not plan for unnecessary expenses to please parents, relatives or friends. If your parents are ignorant and made mistakes, does not mean out of respect for them you must repeat them. Be logical.
Another point. Do all these activities ASAP, before marriage, otherwise you need to please one more person. (At the same time, be flexible, and accept if the other person has better suggestions) If you are in single ready to mingle state, it makes sense to talk about finances at some stage while dating. It can start indirectly initially and go deeper with a few more meets. Converging on a common finance philosophy becomes very important in marriage. Do you want to be fighting about money every day?
Own home in Bangalore, as of now does not make any financial sense. Renting is far sensible than buying. That is a different analysis by itself. We can take it up later.
People are uncomfortable with huge cash, for the fear of spending them. Due to lack of familiarity with other avenues, they get into EMIs. This should be avoided.

Link in the slide: So you want to buy a house?


Author Note:
Short term : Buying a bike/car, house renovation, Big amounts of charity for a cause you believe in
Medium term: Child education, downpayment for home/land for future home
Long term: Retirement

Link in the slide: Four-part Series on Goal-based investing


Author Note:
There are some more lesser known advantages of PPF apart from Govt backing
It can be extended by 5 year blocks, after maturity, for n number of times. There are some fine rules to be adhered to.
At any time after crossing 7 yrs, you can withdraw half the balance 4 yrs ago. But go for it only for matter of life and death
PPF balance is safe, lenders can not claim it.
Fact about PPF: Interest rates are volatile. Till 2002 it was around 11%!

On tax evasion
TDS is not same as paying tax. Bank cuts at nominal rate of 10%, but you need to pay as per tax bracket.
Also the 10k exemption is only on SB interest, not on FDs and RDs. To be paid on accrual basis
If you do not pay tax and get caught, you may be fined 3 times the hidden income.
Scrutiny is random.
Author Note:
Debt mutual funds: These could be superior to FDs especially for 20 and 30% bracket people, for short and medium term goals, due to indexation benefit after 3 years.
Index funds: Do not choose blindly still. See AUM, expense ratio and tracking error. Buy it from reputed fund house.

Important point: SIP: Any time is a good time to start. Rupee cost averaging works independent of start and end points.
Some numbers. Consider 1000 rupee SIP.
Buy 100 units at 10 rupee
Next month, say it falls to 9.5 rupee. Investment value has fallen to 950 rupees., But you get 105.26 units. Now your investment chart reads as 1950
Say next month it fell to 8 rupee. You get 125 units for 1000 rupees and your cost value 3000, investment value now reads as 2642. Do not panic. Wait patiently.
Consider next month, increasing to 11 rupee, due to some factors. You get 90.9 units, your cost value is 4000, but the investment worth is 4631. You can either cry you got 90.9 units, or celebrate you gained 632 overall due to jump.
Do not redeem. Let the SIPs continue.



Link in the slide:  Reddit IndiaInvestments

Author Note:
Once invested, focus on learning basics. Read books/blogs written by qualified people (not necessarily finance people).
My list of Personal finance teachers (names not important):  An old wise CA, Computer Sc Engineer turned financial planner, Physics Prof in IITM, Chemical Engineer, Doctor and all the active folks in an FB closed group called “Asan Ideas For Wealth” whom I’ve never met in my life and might not meet. For motivated people inspiration can come from anywhere, just have the willingness to learn. To be financially intelligent, you do not need to have a degree in finance.
Do not listen to TV channels or read newspapers on market movements. Rebalance, not profit booking. Periodically move back and forth based on asset allocation ratio.
With active funds, one needs to evaluate its performance wrt benchmark index, not as absolute performance.
At least in the case of index funds, there is not even the need to check if the fund is performing poor, unless there’s a big change due to which the basic parameters started drifting.

It is found that if r is small enough, then any MF does a good job with SIP, but same cannot be said about lumpsum. Only in sideways markets SIPs wont work, but nor will the lumpsum.

Link in the slide: All about SIP

Author Note:
Do not link happiness and money. Also, frugal doesn’t mean miser. Clearly distinguish between needs and desires. Miser compromises on needs, frugal controls his desires, but spends on needs.
When you do not know what it means to be in financial stress, it is hard to guess what will happen if you do not have enough in the retirement.
This is just accumulation phase. During retirement, one can treat blocks of 5 yrs as a separate goal and keep aside money from the total corpus.



Links in the slide: How to make a will in India

Story of a finance person, a CA getting into mess in her own personal finance, when her husband in early 30s dies. When there is a death (Unable to locate the original post. Pity that so many people have  published this story but none of them seem to point to the original sour)



Please share your views on this presentation and any questions that you have in the comments section. If you found it useful, do share it with fellow young earners.

Here is why you should not invest in closed-ended mutual funds

It is raining closed-ended mutual fund NFOs. Here is why one should avoid this category of mutual funds.

There are many articles that describe the features of closed-ended mutual funds. Therefore, I will not mention them here. Let us focus on the titular suggestion alone.

1) The first and foremost rule of purchasing – be it a financial product or a bottle of shampoo. Never buy anything based on unsolicited recommendations.

There is usually a pretty good reason why a product is recommend to you without your asking for it and it has nothing to do with you!

Bank branch mangers/relationship managers or mutual fund distributor are eager to push closed-ended mutual funds because of high commissions! In a closed-ended mutual fund, the intermediary is paid the entire commission of the tenure upfront, unlike a SIP or lump sum investment in an open-ended mutual fund.

This is the reason for the aggressive selling.

Yes, yes, yes, not all distributors are like that and all that sort of thing.

Let us choose to believe that investors read the SID cover to cover and chose, of their own free will, to invest an insignificant AUM of 4,500 Crore in such funds. Naturally no one made any promises of high returns to these investors.

Here is a simple way to ensure your relationship manager does not even recognise you as a human being: Invest before you spend and reduce the balance in your SB account to something small asap.

2) What are you doing with a lump sum in the first place?
If you are considering a closed-ended fund, you have a lump sum free to be invested (who on Earth would invest a small amount in such funds?!).

Ask yourself where does this lump sum figure in your scheme of things? Has it been tagged to a financial goal?

A person who has budgeted efficiently, accounted for all present and future expenses (foreseen and unforeseen) will not have any lump sum lying around to invest each time an NFO pops up.

3) Do you know how to expect when you are expecting?

Let us face it. Be it a sector fund or a fixed deposit, every investor has expectations. What are the expectations of a closed-ended mutual fund investor? Especially the ones who choose predominantly equity-based closed ended funds for 3 or 5 years.

Surely it is not a single digit return!

Just because redemptions are not allowed does not make a fund better. What matter is intelligent stock selection and the necessary time for the stocks to perform. There is no evidence that closed-ended funds have performed better than open-ended funds (you can check at VR online).

A skilled, experienced fund manager is certainly a plus for any active fund – closed or open. Unfortunately, that cannot guarantee returns. Equity as an asset class is too volatile for such short periods of time to  have any kind of return expectations.

It is time existing and prospective closed-ended fund investors learn about standard deviation and how compounding occurs in a volatile instrument. You could start here: Understanding the nature of the stock market returns.

A ‘veteran’ fee-based financial planner revered by his colleagues stated to a reporter that closed-ended funds are good because the money is locked-in therefore enabling many investors to spend time in the market. What utter bollocks!

If anyone says three years is long-term for equity investing, they are either trying to sell a product or are clueless about risk.

They call it advisory ‘business’ for a pretty good reason!

Launching equity-based closed-ended mutual funds is an opportunistic exercise by AMCs to lure investors clueless about equity investing. All things that look good on paper (acche din) do not turn out that way. At least not within a definite time frame.

Bottom Line: Closed-ended mutual funds are utterly unsuitable for goal-based financial planning. Stay away  …. unless you like clutter.

Investment Strategy Analysis:  IDFC Dynamic Equity Fund

This post details a backtesting analysis based on the investment strategy to be adopted by the NFO IDFC Dynamic Equity Fund. It is inspired by a thread in facebook group Asan Ideas for Wealth started by Anup Maheswari.

IDFC Dynamic Equity Fund (IDEF) is a quantitative tactical asset allocation fund along the lines of  Franklin’s PE fund and DSP BR Dynamic Asset allocation fund (see details here)

Investment Strategy 

From scheme information document Excuse the long verbatim extract.

 Extract Begins

The scheme aims to dynamically manage equity and debt exposure in the portfolio. We are of the belief that such strategy will minimize the risk and optimize the risk return proposition for a long term investor.

The extent of equity exposure would be guided by an underlying quantitative model. The balance will be invested in debt and money market securities. The fund managers will follow a passive investment strategy and take equity exposure depending on opportunities available at various points in time based on the month-end weighted average PE ratio and 200 Day Moving Averages of the CNX Nifty Index.

Equity exposure:

Equity market exposure will be taken as per the quantitative model outputs. These exposures will then be passively maintained by tracking any of the market indices (subject to tracking error). The Scheme will endeavour to invest in stocks in a proportion that it is as close as possible to the weightages of these stocks in the underlying Index, taking into account the change in weights of stocks in the index as well as the incremental collections/redemptions from the Scheme.

The index to be invested in (tracked) will be determined on relative valuation of indices (month-end weighted average P/E ratio of the respective index) amongst themselves. The scheme proposes to track (subject to tracking error) CNX Nifty and CNX Nifty Junior indices as its investment universe. The Scheme will switch between indices when the current ratio of the indices’ PE ratios (PE of CNX Nifty/PE of CNX Nifty Junior) is above or below its 18 month standard deviation.

Debt exposure:

The scheme shall invest in various types of permitted debt and money market securities (including G-Sec) across maturities. The allocation to various types of debt / money market securities would be based on the fund manager’s view on interest rates and the market conditions.

Use of equity derivatives:

Under normal circumstances, the scheme shall primarily invest in equity and equity related instruments in the range of 65% to 100% and fixed income securities including money market instruments in the range of 0% to 35% for capital appreciation. The scheme will vary its investment in equity and equity related instruments and move towards exposure to equity derivatives when it needs to bring down the equity exposure below 65% depending upon the quantitative model.

In the periods where the model indicates a bullish market, the exposure of the scheme in equity and equity related instruments will increase of up to 100%. However, if the market movement reflects a bearish tint, the scheme will restrict its investment in equity to 65% and if necessary shall hedge this equity exposure in underlying stocks up to the extent of 35% of the portfolio by taking offsetting position in the derivative segment, therefore resulting into an equity market exposure going below 65% bringing it down up to 30%. In such a scenario the balance will be invested into debt market instruments.

Determining the equity exposure:

A quantitative model will be used to determine the exposure in equity and debt markets. The portfolio shall be rebalanced on the last working day of the second week of every month.

The quantitative model approach used to determine the equity and debt allocation employs valuation and momentum factors namely month-end weighted average P/E Ratio and 200 Day Moving Averages (“DMA”) of CNX Nifty index. Valuation (P/E ratio) is used to determine whether markets are cheap or expensive relative to their 10 year history. We believe that the P/E ratio captures broader market valuations very well and thus helps judge market cycles while the moving average (200 DMA) help determine near term market sentiment.


Extract Ends

The funds asset allocation will follow a two step approach. First, the band in which monthly average of the Nifty PE falls is determined. Then depending on the 200 day daily moving average, the equity allocation will be fixed.

I was curious to check how this strategy works using past Nifty data. I have used the same asset allocation strategy but with only one index – the Nifty.

Unlike the fund I have assumed changes to the equity allocation on a daily basis (possible only on Excel!).

Analysis Procedure

1)     Monthly average of Nifty PE was computed.

2)     The equity allocation was determined with this on the above basis

3)     The daily index returns were computed.

4)     The daily fund-strategy return was computed according to the calculated equity allocation.

5)     The 1-year and 5-year rolling returns for the index and the fund-strategy were computed.

Note:  This analysis brings out the flavour of the funds strategy and is not an attempt to replicate what the fund aims to do.

 The 200 Day Daily Moving Average (DMA)


Notice that when the Nifty is above the 200-DMA, it represents an upward trend and when the Nifty is below the 200-DMA, it represents a downward trend. In a sideways market, the Nifty could repeatedly cross the DMA either way.

 The 1-year rolling returns



Notice that outlined strategy is less volatile than the Nifty. It has good downside protection and at the same time does not lose out too much when there is an upswing.

 The 5-year rolling returns


This results in superior ‘long-term’ (relative to 1-year!) performance. The outlined strategy seems to have comfortably beaten the Nifty.

I will discuss more about such tactical asset allocation strategies (including Franklin’s PE fund) in future posts.


IDFC Dynamic Equity Fund seems to be a better bet than DSP BR Dynamic Asset Allocation Fund (which in my opinion is a dud.  The yield gap strategy it follows is too conservative and will lose out during bull runs).

IDEF’s strategy appears to be much better in this regard. Unlike the DSP BR fund (which is a fund of fund) this is an ‘active’ index fund!

Franklin’s PE fund has a decent track record and it will be interesting to see how IDEF compares with it down the line.

Existing equity mf investors can give this fund a miss. For first time investors, this could be a suitable entry fund, provided they do not mindlessly buy other funds down the line.

How to Buy a Health Insurance Policy

It is frustrating to see individuals having difficulty in choosing insurance policies – be it life, health or accident insurance. Their minds are cluttered with so many product features (some necessary and others not so) that they keep delaying the purchase.

Here is a step-by-step guide to purchasing a health insurance policy. I am no expert on the subject. I am writing this partly from experience (3 claims + handling multiple hospitalizations) and partly from online information accrued over the last few years.

I wrote a version of this post some months back, but did not feel enthused to post. After Jignesh Acharya suggested I write about this in, facebook Asan Ideas for Wealth (AIFW), I would like to give it another shot.

First let us decide on the type of product.

Floater or individual plans?

Choose individual plans for all members if you can afford it. Each persons risk profile is different and there could be multiple hospitalizations in a year. Most insurers fix the premium based on the oldest person in the group. Steer clear of this and get individual plans.

For senior citizens individual plan is mandatory. Get the same for younger members if you can afford it, after all there are tax benefits!

Now let us ask,

What are the essential features of an ideal health insurance policy?

1) No sub-limits on room rent and ICU.

Sub-limits can be a pain if the room rent is quite steep (typically in North India and not in South India as learnt at AIFW). If the room rent even for a non-AC single room is quite high (a relative notion), having no sub-limits is crucial.

Everything in life is a trade-off. No sub-limits implies a higher premium.

If the room-rents are nominal (several hospitals in Chennai), I would recommend a policy with sub-limits, typically sold by PSU companies – United India, New India and Oriental Insurance Cos.

Get a policy for a sum insured as high as possible initially, and be sure to increase the sum insured as much as possible each year upon renewal. I have been doing this for the past 9 years. I have individual cover for self, wife, son and mother from United India.

2) No increase in premium if a claim is made (aka loading).

Thankfully IRDA has mandated that there should be no claim-based loading. See  page 83 (last line) here  (Nikhil Verma shared this at AIFW) 

“The loading on renewals shall be  in terms of increase or decrease of premiums offered for the entire portfolio and shall not be based on any individual claim experience”.

According to Nikhil, portfolio here refers to the entire client base. Two individuals of the same age cannot have different premiums based on their claim experience.

Trade off: Higher premium from the start!

Please cite the IRDA ruling and confirm with the insurer, NOT the agent.

Nikhil Verma shared the following policy wordings of L&T insurance

“Based on the experience of the Product, Premium, Terms and Conditions may be revised subject to prior approval of Insurance Regulatory and Development Authority. Such revision shall be  intimated to you 3 months in advance with an option of renewal under any similar Policy being  issued by us. However, benefits payable shall be subject to the terms contained in such other 
Policy. Individual Claims experience loading is not applicable under the Policy.”

ICICI Lombard also has a similar policy as confirmed by Nikhil.

3) No Co-payment

The insurer should not shift part of the claim expenses to the policy holder by pre-arrangement. Since no co-payment implies higher premium,  it might be okay to accept co-payment in the case of very senior citizens.

4) Minimum exclusion period for pre-existing diseases

The minimum tenure that I have heard of is 2 years. The maximum is 4 years.

This is important for everyone, even those who do not have any diseases at the start of the policy. If a disease is diagnosed say, after 6 policy years, the  additional sum insured (if any) will be eligible only after the exclusion period.

Trade off: again price!

5) Lifelong renewability

IRDA has mandated that all insurers should provide lifelong renewability (see pages 78 bottom para and page 79 first para in the above attachment)

So this is not an issue. Best to confirm with the insurer though.

6) Minimal Exclusions

Again obvious but difficult to compare one insurer with another. Read the exclusions list after making a short-list and check if any hereditary or existing condition is excluded.

Trade off: probably again price.


In my opinion, if a policy is satisfactory in the above six areas, it will make my short-list.

Now that we have covered the core of the policy, let us look at the window dressing.

Window Dressing

Insurers reward policy holders if no claim arises by either offering a discount on the premium or by increasing the sum insured.

No-claim bonus:

If the sum insured increases each year by 5% for every claim free year, it will also decrease by the same amount when a
claim is made. See page 80 of above attachment. Please confirm with the the insurer.

The premium will typically increase up to 50% of the sum insured and no further.

No-claim discount:

For each claim-free year, there is a discount in the premium when the policy is renewed.

Which is better?

I prefer the no-claim discount. It is simpler.  I have seen many people who do not increase the sum insured each year and rely only on the bonus from claim-free years.

It does not matter which you choose as long as you increase the sum insured by as much as possible each year.

Restore Benefit

What about the restore benefit that an insurer offers?

Read the fine print and write down a typical situation in which the restore benefit will be useful. If you think it is useful, shell out the extra premium.  I don’t think much of it though.

Maternity Benefit

Never buy a policy because pregnancy is covered. Dumb! Pay for happy (God willing) non-recurring visits to the hospital. Remember the tradeoff mentioned above.

Out-patient Cover, Dental Cover, Spectacles and other goodies

Read the fine print. Are you willing to change doctors that you knew for ages just to get this benefit?

So now how do we shortlist policies?

1. Check out hospitals near your neighbourhood for room rent rates and if they accept cashless. This will help you decide whether you need a policy with no sub-limits or not. Whether they accept cashless or not, start mobilizing funds for a medical emergency corpus. Never forget that cashless is a privilege that need not be granted.

2. Decide on your budget and on whether you are going to choose a floater policy or individual policy. You can use the premium calculator of any insurer to get an idea.

3. Sub-limits and budget should help filter out many policies.

4. Choose your poison. I prefer PSUs. No logic behind that. Just a deep-rooted mis-trust of privates, regulator or no regulator.

If you like privates, find out who owns the company and how old they are. I suggest choosing a player who is at least 10 years old.

5. A few years back policy comparison portals were user-friendly. Nowadays they are annoying to use and some do not list certain policies. Better to stay away.

6. How about buying via an intermediary like medimanage? If I want to buy fruit, I would like to pick and choose the fruits I need. I will not leave the choice to the fruit-seller.

What about their help during claim processing?

Overrated. Rules are simple and laid out clearly. If I don’t or won’t read rules, I don’t deserve insurance.

7.  Once you single out 2-3 insurers,  read their policy documents and compare features to single out your future insurer.

8. Now you will need to take a call. Insurance buying is all about taking a risk. It is however a much lower risk than not having any insurance. You need confidence to choose an insurer.

9. Never ask others about their claim experience or ask which is the best policy to buy. That is a one-way ticket to despair.

All this should be done over one weekend, within about 2-3 hours. The longer it takes, the more confusing it becomes.


This is one of my favorite Van Gogh painting. Not relevant to the post but I have been itching to include this for a very long time!

Vincent van Gogh - Head of a skeleton with a burning cigarette - Google Art Project.jpg
Vincent van Gogh – Head of a skeleton with a burning cigarette“.

A Guide to Understanding Stock Screeners

This is a guest post by Krishna Kishore who writes a refreshing blog on stock investing at He readily agreed to write this post, explaining the features of a stock screener, upon my request. 


There are many stock screeners available online like the ones from Google Finance, Reuters, Equity master and paid services from Bloomberg as well. Out of them all, is one of the best and the one that I personally use and recommend because of its salient features.

But why to use it in the first place?

Okay, to understand that let me give you an example.

You got a “tip” from a very good investor. He is very bullish about the stock. Now you wanted to know about the company. What will you do?

 Following are the steps!!

1) Open and type the company’s name.

2) Check the company’s current market price.

3) Click on 3 months, 6 months, 1 year, 2 years to know how the company is doing from past few quarters.

4) Quickly check EPS, PE, Dividend yield, Price to Book etc.

5) Get an idea of the company’s performance (without even knowing what are the products & services that the company offers).

But Krishna, What is wrong in doing so?

Nothing wrong in it but you will be “Biased”. Being in so called “Bull Market”, this can be dangerous to our portfolio. Every stock will make new heights these days. Hence, your mind takes the shortcut to process this least available information to say whether this company is doing great, good, bad or ugly. You start your analysis with a biased mode. We are not sure why that stock went up/down. Is it because of any sectorial momentum, Tailwind or Headwind? No idea, but we will start thinking that the stock price has went up, so something good happened/going to happen to the company (Shortcut processing of information).

Recently I watched a movie called “Drishyam”. The tagline of the movies goes something like this “Visuals can be deceiving”.

This particular tagline with a small change can be aptly suited for markets. “Stock Prices can be deceiving”!!!

But, also at the same time, we do not have enough time on earth to go through Annual reports of each and every company to understand the financial health of it. (Remember in olden days, Ben Graham, Peter Lynch, Buffett and many other legends actually did so)

This is where Stock Screeners comes into picture to serve the purpose.

Stock Screeners gives the fundamental view of the company (not in-depth information) which will be very useful and enough to get an initial idea of its health condition.

As already said I prefer using and now let’s try to understand the functionalities of it.

This is my stock screener page and I am taking example of one of India’s most consistent compounder, “Pidilite Industries”!!!


(Please do register to access all the functionalities and type which ratios you want to have in your page under “Manage Quick Ratios” section)

1) From this screen shot, I can get the following info.  (In order to understand a stock more than just looking at the price, you need to know about the terms stated in the above screen shot)

a) Market Capitalization: Market capitalization is calculated by multiplying a company’s shares outstanding by the current market price of one share. This is used to tell us the size of the company, what are the future prospects of the company to grow further at a good rate.

I highly recommend you to please go through the videos of 2 min each for better understanding for these terms. Fun Learning!!!

b) Book Value per Share: This gives the per share value of a company by calculating total assets minus intangible assets and liabilities.

c) Price to Book Value: This is an important ratio to consider if the company is trading at expensive levels or not. This is mainly used for NBFC’s to compare the stock prices among its peers.

d) Price to Earnings ratio: This is one of the most important ratios to consider. Leaving the technical terms aside, this gives the “Confidence of the Investors on the Company”. High PE says, Investors are expecting the company to generate above average earnings for the longer period of times. Sometimes this confidence turns in “Over confidence” & if it happens welcome to the Bull Market.

Just to give you an example, during the time of Reliance Power IPO, the oversubscription of this went viral and people are ready to pay 5000 (Five thousand) PE for this company. This kind of ratios is highly unsustainable. If you ask me what PE is cheap and what PE is costly. These are mostly considered by Relative valuations and preferably from same sectors.  (Read more about Reliance IPO here)

e) Dividend Yield: This is calculated by ratio between Annual Dividend per share to the current market price.

f) Earnings per Share: The portion of a company’s profit allocated to each outstanding share of common stock. Very important metrics to look for.

Profitability Indicator Ratios: ROE & ROCE

g) Return On Equity: Another major ratio to look for. It tells how much profit a company generates with the money shareholders have invested. If explained properly, ROE alone can be a separate post.

h) Return on Capital Employed: A financial ratio that measures a company’s profitability and the efficiency with which its capital is employed

ROCE = Earnings before Interest and Tax (EBIT) / Capital Employed

i)   Piotroski score: This is an interesting number to know the fundamentals of a company. I have already written an article for the same:  What is the Piotroski Score of Your Stock ?

j)    Price to Free Cash Flow: A valuation metric that compares a company’s market price to its level of annual free cash flow. This is similar to the valuation measure of price-to-cash flow but uses the stricter measure of free cash flow, which reduces operating cash flow by capital expenditures.

There are much more ratios that this Screener provides, but as I told you, for the initial analysis of a company, these is good enough to start.

2) Later, it provides an amazing screen which states the Pros and Cons of the company.


3) In this screen, it provides the information of Individual stock performance vis-a-vis Index along with the shareholding pattern.

Only one small issue is, here we will not know if any of the promoter holdings have been pledged or not. This is critical information in terms of analyzing a company. Promoter pledging is not a good sign while analyzing the current condition of the company. 


Peer Comparison:

4) Relative Valuation is very important for any company. This screen allows us to understand the financials of the company with respect to its peers.



Financials (Income statement: Standalone & Consolidate):

5) As already discussed above, this particular section gives us the first glance of the company’s financials on Quarterly & Annual basis for both Standalone and Consolidated.



As you can see below that some of the terms below are in “BOLD” which states the importance of it. Let’s have a quick understanding of them:

Operating Profit: The profit earned from a firm’s normal core business operations. This value does not include any profit earned from the firm’s investments (such as earnings from firms in which the company has partial interest) and the effects of interest and taxes.

 EBIDTA: EBITDA is essentially net income with interest, taxes, depreciation, and amortization added back to it, and can be used to analyze and compare profitability between companies and industries because it eliminates the effects of financing and accounting decisions.

Profit Before Tax: As the name suggests, it is a profitability measure that looks at a company’s profits before the company has to pay corporate income tax.

Net Income: This is Very Very critical number to look for in the company’s Income statement. Net income is calculated by taking revenues and adjusting for the cost of doing business, depreciation, interest, taxes and other expenses. The measure is also used to calculate earnings per share.

6) The other screen gives the compounded growth of Sales, Profits and ROE over 3,5,10 and TTM periods of time.


 7) Financials (Balance sheet: Standalone & Consolidate):


Let me take a moment and try to explain what is first 2 rows (Equity Share capital & Reserves) of any balance sheet tell us.

screener-9Example: Let’s say company ABC came up with an IPO and wanted to raise 10 crore rupees. It shares are prices at a band of 170-180 rupees with a Face value of 10 each. Total number of issuing shares  is 1 Lac.


Working Capital: A measure of both a company’s efficiency and its short-term financial health.

Formula: Working capital = Current Assets – Current Liabilities

8) Cash Flow statement: Even though Cash flow statements are the critical ones to check where and how the money is flowing in & out. This gives info of Cash Flow from Operations (CFO), Cash Flow from Investments (CFI) & Cash flow from Financing (CFF)


Cash Flow from Operations: The amount of cash generated by a company’s normal business operations. Operating cash flow is important because it indicates whether a company is able to generate sufficient positive cash flow to maintain and grow its operations, or whether it may require external financing.

9) Recent Announcements, Annual reports & Credit Ratings:

This section gives the information on recent activities like AGM, Corporate actions like Dividends, Splits. It also provides us with the latest information of Annual reports and credit ratings for the Debentures or Bonds issued by the company.



Also, another great feature of this is, this allows us to export all the above information into an Excel sheet. It takes all the data from


You can also customize many things and create your own stock wish list.

 Go & Explore the amazing stuff available at

Happy Learning & Investing :)


Do join me in thanking Krishna for a comprehensive review of a stock screener.

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