Each week, I try to answer generic questions from readers. This is part two of this week's Q and A. You can use the form below to ask your questions. I am glad that the Q and A has been received well. I have now added a link to the archives in the top menu. Part one is here.
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Sid: Hi Pattu, Your blog has been a great help for me in my financial journey. Thanks a lot for sharing your knowledge with us. I wanted to know if it is safe to assume 12-13% annualized returns over a period of 15 years, 20 and 25 years. This question is because I have used XIRR to calculate the corpus that I need in buckets. e.g. My total investments until end of 2016 will give me the corpus that I need to spend from 2029 - 2035. Investments for 4 years from 2017 - 2020 will give me the corpus that I need to spend for years 2036-2041. Next, investments from 2021 - 2023 will give me the corpus that I need to spend from 2042 - 2047. The investment from 2024 - 2029 (include EPF money as investment in 2029) will give me the corpus from 2048 - 2068. In all these buckets, using XIRR, the returns that I need to get based on what I can invest falls between 12-13%. I am 38 years old and the above plan is to see if I can retire at 50 (Dec 2028). I will still be taking up a job but less stressful one for additional income. Kind Regards, Sid
Pattu: Thank you. I assume you are referring to the even lower stress retirement calculator! that combines the retirement bucket strategy with a standard retirement calculator. Yes, 12-13% over those periods should be reasonable. Key is to keep updating the calculator. I have attached my calculator to the Excel goal tracker. This way, each time I update NAV (once a month), all calculations are auto-updated with current portfolio value (not xirr). I will put together a version for general use and post it soon.
Ashish Gupta: Can you expose how are fetching MF Nav's? I got this URL format from your VBA http://portal.amfiindia.com/NavHistoryReport_Rpt_Po.aspx?rpt=1&frmdate=3-Apr-2016&todate=10-Apr-2016&mf=22&scm=121109. But can tell me how you get MF number (i.e. 22) and scheme (i.e. 121109). Others are self explanatory.
Pattu: No big secret! Just good old sweat and toil. Go to
To see the current NAV of all funds with their scheme codes and amc codes. Write a macro to format it and get the scheme codes. I think for the amc codes, I entered one fund from each amc into their nav history link to get the code.
Kumar Gaurab Harichandan:I want to invest Rs 8000 p.m in SIP, Whether I will invest in a single fund or Rs 4000 p.m each in two fund. Which option will give me maximum return & how ?
Pattu: I have no idea which option will give you better return. If 8000 seems like a "big sum" to you, invest 4K in a large cap and 4K in a mid-cap fund. If it does not seem like a big sum, invest it all in a multi-cap fund. Or if you want a touch lower risk, invest it all in a equity oriented balanced fund. The performance will depend on how well you manage risk in the portfolio.
OM: have the following two questions: 1. I have a Term policy from ICICI which is almost a year old. But I have realized that I need more cover and also that other policy from MaxLife is around 10-20% cheaper. Should I drop the ICICI policy and go for the other one? Maybe keep the ICICI policy around for one more year? 2. Motilal Oswal Nasdaq 100 ETF is currently trading for a 20% premium over its NAV. This is surprising to me especially reading this: http://www.etf.com/etf-education-center/21014-what-is-the-creationredemption-mechanism.html Does that mean that the price will fall once the above mechanism kicks in?
Pattu: (1) Get additional cover from the insurer of your choice, but keep the old cover as is. (2)
(2) I think the premium is entirely because of the difference in market timing. If I am not wrong, the US markets open only after the Indian markets close. So there is no way to correct this difference. To compound the problem, I don't think the ETF is not actively traded as other India based ETFs. I dont think this price can be corrected. If you hold this ETF, try setting a limit order for a buy or sell close to the NAV and see how easy it is to buy or sell. If it is not, I would suggest avoiding this.
Srivatsan: Dear Prof, I am not able to locate a retirement drawdown vs inflation calculator you posted. Can you point me to it ? I want to evaluate a scenario where let's say you have 1Cr FD at 6% interest and you keep drawing down at 3% for monthly expenses when inflation is say 8%, how long the amount will last ? thanks
Pattu: This can help evaluate different scenarios: Four Simple Retirement Planning Tools
Rakesh: Hi Pattu, There are some government insurance/health plans launched which is tied to ones savings bank account namely - Pradhan Mantri Suraksha Bima Yojana(Accident Death insurance plan) Sum insured - 2 lakhs, yearly premium Rs. 12 Pradhan Mantri Jeevan Jyoti Bima Yojana (Life insurance plan) Sum insured - 2 lakhs, yearly premium Rs. 330. Is it ok if I could encourage my maid to subscribe to that and I pay the premium. Will it be helpful to them. Thanks Rakesh
Pattu: Yes indeed.
Jithender: Hi, I am investing 23k per month in the following MFs as SIP like below: DSP BR Tax Saver 5k - 1st DSP BR Micro Cap 7k - 28th Mirae Emerging Blup Chip 7k - 15th Franklin Smaller co. 4k - 7th. Now I can increase up to 18k per month. Can you with suggest that I go with existing funds or any new funds. My goal is retirement plan and can invest up to 15 years for sure. I am an aggressive investor in equity. I already investing 1.5lakh in PPF and almost 1lakh in PF(both my and emp contributions) per annum. I had 1cr term plan and a health insurance plan. Thanks for suggestion.
Pattu: The hallmark of an aggressive investor is to take concentrated risks. So do not add more funds! Invest more in the same.
RK: Your post on iPhone prompted me this question: I have a home loan for a secondary flat which has interest at 9.75% pa. However I have additional cash I can probably pay towards this loan (which is currently only 5Lak, and will increase as the developments go on). I have resisted to pay off this loan - as my dad suggested that flat would pay off itself with rent. In addition, I also felt that if I can get even 1% more interest anywhere else, it is worth going for that. (1) In fact, I took a 2% personal loan that I used as some payment towards this home loan with the same logic - if I pay off a 9.75% loan with a 2% loan, it means I have gained 7.75% on that money which is not mine (just like how banks would do). (2) Am I right in both approaches ?
(1) What does additional cash mean? You have invested enough for all your goals, have enough emergency fund and then there is some left? If so, use it to prepay.
(2) I am not a fan of "do not prepay if you can earn more elsewhere". That is illogical because such high returns are not guaranteed.
And " if I pay off a 9.75% loan with a 2% loan, it means I have gained 7.75% on that money which is not mine" does not make sense to me (not saying it is wrong or right). If I can service a 9.75% loan with rent, why do I need another loan?
DK Nayak: What is the base figure to calculate the percentage return of a portfolio? I explain it further for more clarification. I started with an initial investment of Rs.100000/. I purchased 5 stocks worth Rs.20000/- each. After six months I booked profit in 3 stocks and earned a total profit of Rs. 30000. Now I have Rs.90000/- cash selling 3 stocks at Rs.30000 each. Again I reinvested this Rs.90000. Now the total investment is Rs.130000 (Rs.100000 initial investment+Rs.30000 profit). Again after six moths I redeemed the portfolio and got Rs.150000. So the total profit from the portfolio is Rs.50000. Should I calculate the profit percentage on Rs. 100000 i.e. my initial investment or Rs.130000 (initial investment of Rs.100000/- and profit Rs.30000/- reinvested).
Pattu: When you refer to profits, it is the absolute return on each trade. This is independent of the time involved. You need to calculate XIRR or the annualised return in the following way.
1st Jan 2016 Purchase shares for 1L
1st July 2016 Redeemed 45K (this is not profit, but total redemption)
1st Aug 2016 invested 45K
1st Mar 2017 Redeemed 5K
24th Mar 2017 current value of folio is 75K.
This information can be entered in a spreadsheet this way to calculate the net annualised return of the stock portfolio.
This is only an illustration and not to be taken seriously (although -17% returns are very much possible). Dividends should be treated as reinvested.
I would recommend stock investor to maintain an imaginary mutual fund portfolio. On the same day they buy and sell, they can enter a buy and sell transaction in a Nifty or Nifty next 50 or Quantum Long Term Equity Index fund. This will help them gauge their portfolio performance.
Many people believe that it is easy for stocks investors to beat mutual fund managers. The proof of the pudding is in the digesting. Meaning, compare after a few years and not six months.
Anirban: Hello Professor Pattu, I learned from your posts about the limitations of XIRR. So in case one incurs loss after periodic investments in a MF, is there no way to calculate the Annualized Return? (I've been an avid reader of your blog and it surely is one of the most educating ones in the Indian Personal Finance space.)
Pattu: Thank you. Anirban is referring to : IRR/XIRR: Limitations of Calculating Complex Cash Flow Returns. If there is a loss, one can try a negative guess.
For example, this is a two year SIP.
The normally used XIRR formula gives 0% return. This is Excel saying that it cannot find the return. So if we try with a guess of -0.1, then it finds a return. There are situations in which even a guess may not work as there could be multiple returns. So we must be aware of these limitations before getting happy with our "returns".
Suresh Nayak tells me:
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