Freefincal Q & A: Saving vs Spending – What is the purpose of life?

Published: September 23, 2017 at 5:33 pm

Each week, I try and answer generic questions from readers. Here is this weeks edition. You can use the form below to ask your question.

Announcement: As part of Diwali sales, my first book: You can be Rich Too with Goal-Based Investing is available for a 21% discount (rs. 316) at Amazon and at a discount of 37% (Rs. 251) at FlipkartYou can also get my second book Gamechanger for Rs. 199 (Kindle Rs. 100) at Amazon

Niranjan: was comparing this article: Insight: Screening for mutual funds with consistent outperformance with the “PlumbLine”: a handpicked list of mutual funds. some of the funds that were mentioned in plumbline are not reflecting here. any reason for this?

Pattu: PlumbLine is mix of quantitative + qualitative (meaning my assessment largely) whereas the monthly screeners are only quantitative. So differences are bound to be there. PlumbLine is for beginners to quickly get started and screeners are for DIYers.

GK Swamy: Dear Pattu, I wanted to know your opinion on commutation vs non commutation. I have seen both sides of the argument but still confused to take a decision.

Pattu: For the benefit of others, commuting a pension means withdrawing a lump sum from the pension corpus. Thus the pension will reduce proportionately. You can now use the  Freefincal Robo Advisory Software Template and evaluate both options. Enter the full pension as post-retirement income along with your other assets and compare it with the commuted pension with the lump sum added to the assest and see the difference in results.

Raja: Dear Sir, Last month I took term insurance with medical test. My mother has thyroid problem which i never mentioned in the family medical history column. I did check the application , there were no questions related to thyroid apart from other pre-known disease like diabetes,cancer etc. Now what should I do to rectify the issue ? Sorry if its not right forum to ask this question other than investment.

Pattu: Not the wrong forum. You can write to insurer stating that you inadvertently left out this information. Let them respond. My guess is that they should be okay with it.

Ranjan: Dear Pattu Sir, 1. On Moneycontrol and Value Research we can see the fund returns for various time periods. For example 15% CAGR over 5 years. Is this 15% after accounting for the expense ratio or do we need to subtract the fund’s expense ratio from this return percentage? 2. How do mutual funds handle dividends paid by the companies who’s stock they hold? Thanks Ranjan

Pattu: Yes Nav and therefore all returns are after accounting for expenses. Dividend paid by the stocks are reinvested into the portfolio.

Praveen: Do i need to show profit earned in a financial year or after redeeming in our income tax return, if we have invested for more than one year.

Pattu: The question is not clear to me. If you asking about reporting gains from mutual funds each year, then you should report only in the financial year that you redeem

Kalai: I have query regarding method of Re-balancing portfolio, My current accumulated portfolio value is 75:25 (Equity:Debt). But My desired asset allocation is 70:30. Can i stop investing equity part in the coming months and fully invest into Debt part to get rebalanced to the desired asset allocation(70:30). Likewise, every month before making an investment, Can i check asset allocation level and change the investments towards either Equity or Debt based on the current level of asset allocation. Reason for monthly re-balance is to avoid redemptions and tax loads on both side of portfolio and maintain the desired level of allocation. Please let me know, what will be cons on this periodic rebalancing methods.

Pattu: You can rebalance portfolio by changing investment amounts for only a short period of time. As you wealth growths, you will have to buy and sell.

Ramamurthy: What is mining Bitcoin please?

Pattu: Sir, as you know, Bitcoin is a digital currency. When it is being exchanged by two parties a third party has to validate the transaction. In the case of normal currency, the bank will do this. In the case Bitcoin, a person randomly chosen from a group of accountants will do this. When verified the person will receive a fee in Bitcoins. This creation of new currency when a transaction is verified is known as mining.

jb gupta: how to choose energy mutual fund

Pattu: I can see three such funds

DSP Black Rock Natural Resources and New Energy Fund
Reliance Diversified Power Sector Fund
Escorts Power & Energy Fund – Growth

These kind of sectoral funds when chosen individually can be quite risky and should be used only if you understand the sector. If you understand the sector, you will probably be picking individual energy stocks!!  So I would suggest not to invest.

Sector fund make sense in only one way to me: Building a Diversified Equity Portfolio with Sector Mutual Funds

krishna: Dear Pattu Sir, I am a huge fan of your blog and i must say that, my finances are much better now with a planned approach. i have a question. i always see some people, who are happy spending everything they get and not worried of future requirements, even though they do not have enough assets to sustain till 20-25years post retirement. having a calculated approach makes me cautious, and living a bindas life makes them happy. so, if purpose of life is to live happily, who is right here ? and if they/me need an advise, what can be it ?

Pattu: Thank you. What is the purpose of life? asked a man to a sage. Nothing, said the sage.

Nothing?!! Exclaimed the man.

Nothing, therefore everything, said the sage.

Pic credot: Jaybe Messiah

His point was that there are many paths to joy. It is unfortunate that we compartmentalise something as enjoyment and something else as boring/painful.

It is possible to enjoy life today and invest for tomorrows enjoyment. We can eat (half) our cake and have it too (the other half). Striking a balance is possible only if we open our mind to the possibilities in front of us today and those that wait for us tomorrow.

Incidentally, this the theme of my second book: Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you want

Tyson Bruno Chisambo: Should Africa take part in Cryptocurrencies and what should the governments and their central banks do to regulate the seemingly blockchain good principles?

Pattu: I am afraid I cannot comment on the first part. Block chaining is a solid piece of technology. However, the transaction validation should be made possible at a lower cost with no mining. Then it can be implemented in other spheres. However, I think it will lead to a lot of electronic junk.

Mayur Shah: Hi Pattu I have recently had to stop SIP for some my portfolios. To do this, only one AMC had this option to cancel the SIP through online account. For rest of the AMCs, it was quite a hassle as I had to download the forms, fill it, scan it and Email them. This is really annoying as rest of other transactions and reports can be done through online. Unless SEBI dictates, investors will continue to face this hardship. What’s your opinion please? Thanks Mayur Shah

Pattu: Yes and in many cases, the AMC will say “talk to your adviser” and then we will cancel. High time we tell them that unless they do as asked, we will (and must) complain to SEBI via their scores site.

Ravi Agarwal: I want to save Rs one lakh every month for my daughter’s marriage which is likely to happen in 2020 Please suggest which mutual funds would be suitable to invest this money. Safety of the principal amount is vital and I should be able to withdraw the money easily Thank you

Pattu: I will not suggest investment products. For a goal that is 3Y away, you can consider using liquid funds, ultra short term funds or arbitrage funds.

asheesh: Dear Sir, What is your view on current market situation, all time high, does it make sense to wait and watch 52 high and low, or it really doesn’t make difference for long term investment horizon. Not sure if you have discussed in any of your previous article.

Pattu: Do you have an asset allocation in mind suitable for your needs? Is your current allocation skewed too much from what you have in mind? If yes, rebalance. If no, continue investing.

Read more: How to Rebalance Your Investment Portfolio

Karthik Gunasekaran: Hello Sir, Any recommendation for debt fund for long term. (5-7+ years) Karthik

Pattu:  Choose a fund with a consistent average portfolio maturity of not more than 2-3Y if you can handle some risk. Else stick to an ultra short term fund.You can also consider equity savings funds or arbitrage funds

Hari: Sir, thank you for the wonderful service that you are rendering to aspiring investors. I am a 45 year old NRI and have been thinking of early retirement (say in about 6 years time when my son will complete his Bachelor’s degree, he is in Grade XI now). While I am confident of reaching the corpus needed for retirement, I am concerned about medical insurance. I believe none of the insurers in India offer medical insurance for NRIs. If I buy the insurance at the time of retirement, it could be too expensive. Are there any providers in India who could provide medical insurance for NRIs? Or any alternative suggestions based on your experience with NRI friends or acquaintances? Thank you.

Pattu: I only know that there are no legal restrictions about NRIs buying health insurance in India. Just that out of India coverage will not be provided, which you dont need, I guess. So if you wish to buy a cover to establish a history, approach an online broker unless you want to apply to insurers and find out if they cover or not.

Vandhi: I am getting almost similar Monthly required amount for my long term goals in both Unified and Independent approaches in Robo advisory template. Is this because,all my goals are greater than 14 years from Now.

Pattu: Could be. Too many inputs, so cannot say off hand.

Dr.A.Subramaniam: Hi Mr. Pattu, Greetings ! May I seek your guidance to choose a bouquet of MF across the large cap, Diversified & sector funds for a long term goal of 12-13 years for my 2-year-old grandson, please? I do understand the need for a periodical rebalancing of funds at reasonable intervals. I would be happy if you add or delete some categories that may enhance the goal. kind regards,

Pattu: Please consult a SEBI registered investment advisor from here: List of Fee-only Financial Planners in India

Use this form to ask Questions or reg. the robo template ONLY (For comments/opinions, use the form at the bottom)

And I will respond to them in the next few days. I welcome tough questions. Please do not ask for investment advice. Before asking, please search the site if the issue has already been discussed. Thank you.  PLEASE DO NOT POST COMMENTS WITH THIS FORM it is for questions only.

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GameChanger– Forget Startups, Join Corporate & Live The Rich Life You want

My second book, Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantco-authored with Pranav Surya is now available at Amazon as paperback (₹ 199) and Kindle (free in unlimited or ₹ 99 – you could read with their free app on PC/tablet/mobile, no Kindle necessary).

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The ultimate guide to travel by Pranav Surya is a deep dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for ₹199 (you will be emailed the pdf after payment)

You Can Be Rich Too with Goal-Based Investing 

My first book with PV Subramanyam helps you ask the risk questions about money, seek simple solutions and find your own personalised answers with nine online calculator modules.

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About the Author Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation to promote unbiased, commission-free investment advice. He conducts free money management sessions for corporates and associations based on money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association, IIST Alumni Association. For speaking engagements, write to pattu [at] freefincal [dot] com
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