Freefincal Q & A: VPF, Rebalancing, SBI Max Gain and relationship with our children!

Published: April 29, 2017 at 9:52 am

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Each week, I try to answer generic questions from readers. Here is this week’s edition. You can use the form below to ask your questions. Yesterday’s post on Five Books That Will Redefine Your Understanding of Stock Markets was interrupted by server maintenance that went on for four hours too long. So do check that out.

The writing for Gamechanger, my new book with Pranav Surya is over. We are both excited about the way it has turned out, and currently editing it and waiting for the ISBN number. This will be an out and out DIY undertaking, thanks to Pranav who is doing everything possible to keep the book cost as low as possible. Watch this space for more developments.

Jitendra: Hello Pattu, First, let me thank you for the wonderful blog and advice to all. Q. Is there one Excel that you might have created, to track mutual fund from different fund houses? Thank you!

Pattu:  I track all my investments with this tracker (last 3 years). It dynamically updates all goal calculations and can tell you how far you are from financial freedom. I have inserted the PPF tracker into the above and also manually update my NPS corpus value. And in case you are interested, I use this sheet for tracking my investments (last 6Y).

Sriram: Sir, I have been reading up on the voluntary provident fund and have the following questions: 1. A VPF is nothing but an EPF account where more than the minimum required amount is deposited. So if I deposit more than the basic, it still earns interest at 8.65%. Is my understanding correct? 2. Is there a ceiling to putting in money into an EPF/VPF account in one financial year? 3. Can I deposit lump sum amounts into the EPF/VPF account? If so, what is the process? Thanks, Sriram.

Pattu:  There is no investment limit for VPF and it will earn the same interest as EPF. The tax saving limit is only 1.5L though. My understanding is that you have to provide a standing instruction to your employer and arbitrary investments may not be possible. I think for those who understand the importance of asset allocation, VPF is a fantastic option.

Jay: A basic question on re-balancing – Before re-balancing for AA my numbers are clear on what was invested and what is the present value hence the profit made. However, for re-balancing say some profits from Equity is moved to Debt (or vice-versa) after which the new invested amount number is no more “original invested” amount as it has some profit amount mixed in it. How can one track of the “original” investment amount over a long period that involves multiple re-balancing updates? My idea is to keep track of actual profit made over multiple years. Hope my question is clear.

Pattu: Good question! In a fixed deposit, there is a clear demarcation between the investment and interest. It is possible for me to withdraw only the interest and reinvest the principal. In a mutual fund, we purchase units and redeem them. There is no distinction between investment and gains. The redemption will have both. Therefore,  there is not point trying to track investments after rebalancing. As long as the rebalancing is done right, you are good. Hope I understood your question right.

Shivam: This question is on behalf of my father. He is 66yrs old and my mother is 61yrs old. Their medical expenses are around 10-15k/month. His pension is around 30-35k/month. The loan of around 1.5L (Car + personal), we can go for pre-closure of load but as he is an ex-bank employee so the interest we get from FD and interest on the loan is almost same. One of his 2L FD has been matured recently and another FD of 6L will get matured in July. No extra savings or emergency fund. I earn around ~80K per month and have started investing around 30K in SIP’s from April. They don’t have any medical insurance except the one from my company group insurance of 3L and 1 family floater by his bank of 4L (Both of these exhausted for my mother’s surgery this year). I too don’t have any emergency fund left as whatever I had have been put into my mother’s surgery. 1 surgery is still left which will cost us around ~3L which will be done in September or October(would get my insurance renewed till that time) I’m in the process of getting my life insurance done(medicals are pending) So basically I would like to know how should I invest his 6-8L and earn better returns than FD(He gets returns of around 8.25 on FD, being an ex-bank employee). I know its a very long question but wanted to explain my and families financial condition in detail so that I can get better guidance.

Pattu: First get your parents a bank group insurance, allocate about 2-3L in an online FD as an emergency fund. Where you should invest the rest of the amount will depend on the comfort level of your parents. If they have never touched mutual funds, now is not the time to do so. You can get the Senior Citizen’s Savings Scheme or the 10Y 8% scheme to be announced by the PM.

Darshan Trivedi Sir, great job you have been doing..!!! I have been reading your posts and articles since 6 months now. I have a query regarding the freefincal-outperformance-screener-April-2017. If I filter any fund (e.g. Large Cap fund – L&T India Large Cap Fund), then the rolling returns of 3Y is indicated but for 5Y and 10Y it shows 0. But, this particular fund is almost about 9-10 years old, then how come it can show 0 values for 5Y or 10Y for rolling returns. This holds true for many other funds as well. Awaiting your kind reply. Thanks,

Pattu:  Thank you. It could be because of the benchmark. That may not have the data. Or it could be because of an error in the NAV data.   Please list the names of the funds in the comments below or send me an email.

Prasanna G: Dear Pattu Sir, When relocating overseas for a temporary period (2 years), what are the things that one should consider financially? Regards.

Pattu: This depends on where you are going and tax treatment for Indian investments. If you are going to US or Canada, better to get rid of all Indian investments. I will try and get someone to write a post about this.

Pradeep: Retirement calculation becomes, even more, trickier if you think about your son or daughter coming to you after your retirement and ask for a reasonable chunk of your retirement corpus to fund their new business or buy a home. I guess as a loving parent you would not deny them their request. So how the money would you save to build a retirement corpus then?

Pattu: Ha ha! Hard to answer this. I was going to write a post about this. Suppose we say NO to them and tomorrow become bed-ridden, they may not take care of us! One cannot plan for such situations but I think we will have to accommodate them in some way. This is not something young people will understand – they are busy proclaiming that they will not fund their kid’s marriage or PG education!

Bottomline: It is essential to remain cordial with kids until we die. If that requires payment, so be it!

Akshay Kumar: You had done a post some time back where purely financially speaking, it was better to invest any extra money rather than repay home loan. Does that statement hold even for SBI Maxgain home loan?

Pattu: SBI Max Gain is a waste of money, imo (the rate is a touch higher than a normal loan). If one should not mix investment and insurance, one should also not mix liability with insurance. I will keep it simple, get a normal home loan, focus on investing and prepay in small chunks when I get extra money each year. This notion of “parking” some money in the loan account is a needless exercise.

Excuse the rant. To answer your question, you can adopt the invest and prepay in chunks to any loan account.

Karthik: Dear Sir, Recent articles in Business Line give the impression that Large Cap oriented mutual funds are going to have a tough time generating returns higher than index funds and that mid cap and small cap funds are the ones to look up to for beating the index. In view of your suggestions regarding DIY investing wherein it has been mentioned that one large cap/ multi-cap fund and PPF is a sufficient for a decent investment portfolio, could you elaborate in the context of the above?

Pattu: Set up financial fortifications like life, health and accident insurance. Identify your goals, decide on an asset allocation; invest systematically for them; review once a year.
Once you do that, get a nice hobby like an information diet. Don’t read Business Line, ET Wealth, Money Life, Live Mint, or any other publication.

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In the post, I started investing Late, Can I Catch Up?, the link to my past mistakes was missing and many messaged me about this. This is the account: The Financial Arrow of Time.


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M Pattabiraman author of freefincal.comM. 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 Linkedin
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  1. Dear Pattu this is regarding the question AA and actual profit made during a long course of time. Is there no way to mathematically quantify the actual profit made over multiple AA actions done over a period of time?

  2. The VPF can be maximum 85% of Basic salary. As per my understanding the combination of PF & VPF can’t be more than 100% of the basic salary. At least this is the case for me. My employer doesn’t allow more than 100% of basic salary.

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