Wednesday, 17 October 2018

BMS Mumbai University

Tuesday, 24 July 2018

The fallacy of buying insurance

The great insurance fallacy
Insurance companies work on a simple idea: The older you are, the more likely that you will die.
As a result, the annual premium goes on increasing for a newly taken policy, as you become older. Please see the attached screenshot out of one of my presentations which brings out clearly the mortality charges  per annum for a policy of Rs 1000. A mortality charge is the portion out of your premium which is used to buy insurance cover. The remaining amount goes into the investment plan chosen by you and to cover umpteen charges stated directly or indirectly in the policy document. Annual policy administration charge, the up-front charge, switching charge, commissions paid etc. (Actually for these very reasons it never makes any sense to buy insurance policy as an investment - it makes sense only to buy term insurance. Unfortunately LIC flourished using it's monopolistic position for several years and gave absymal returns of 5-7% on the investible amounts remaining after mortality charges and it was the power of compounding that worked in your favour when you thought LIC gave you great returns).
This is particularly important for those below 45 since it does not make sense to buy any insurance cover after that. If you see the attached slide you will find that at the age of 26 mortality charges for a policy of Rs one crore will be Rs 14500, at age 46 it will be Rs 39800 and at 66 it will be Rs 253000! (And at that age you don't need insurance cover since presumably you have built your own corpus to replace you after your death)
Please send this message to all young people for whom it's still not late, so long as they are under 35-40.
Happy investing!
Madhusudan Sohani
(The mortality charges have been sourced from an actual policy document of ICICI Prudential)

Monday, 29 January 2018

Choosing a mutual fund in India made easy

Choosing a mutual fund in India can be quite a daunting task. If you want the exact tools to make your choice easy, visit my article at the following link. Try the sample or alternatively buy it for Rupees 76 only. 
Or visit and search for Madhusudan Sohani to get the exact link

Thursday, 31 August 2017

Life after death

Life After Death:
}   Death is a scary word. Your death is even scarier for your family. Just think for a moment that you suddenly die! What happens to your family is really scary, inasmuch as despite having everything, the family has no clue about your finances. They don’t know about your money matters, how and where it is invested, how to get hold of it, and what the worth of it is.

§  The author, a visiting professor of management subjects has worked for over 25 years in a finance company and at a recent meet of ex-colleagues, they all were sadly required to mourn the death of some of their colleagues. While that in itself may not be unusual, it threw up a need to write a small compendium for the benefit of surviving colleagues and their families to make them prepared better to face sudden shocks in their otherwise smooth lives.

Background - continued
§  Its very true that the sad loss of a near and dear one is irreparable
§  All the readers are probably well settled in their own way and money may not have been a matter of worry
§  Still a sudden and unfortunate event can make a smooth life topsy-turvy for the surviving partner and it is with this in mind that this compendium is prepared
§  The idea is not to scare anyone reading this, but to improve his / her preparedness for sudden shock 

The plan
§  It is not proposed that the reader will become a financial wizard by studying this document, but if it creates a sense of urgency in the mind to improve the preparedness to face shocks, the purpose will be served
§  The readers are perhaps in two categories, one where the husband is the lead spouse and wife is next, or the wife is the lead spouse, so far as dealing with finances and investments is concerned
§  Therefore the responsibility is more with the lead spouse conversant with the basic nuances of investments

What it will cover
§  Types of financial and physical assets and the way of documenting the same
§  The need to understand web use to access and encash the underlying securities
§  Information needed for different types of assets
§  Dealing with liabilities if any
§  Importance of nomination
§  Difference between nomination and will

What it will not cover and why
§  Different investment avenues and their risk profile
§  Choice of Shares, MFs, Bonds, PMS Schemes, other options like property
§  Most of you are investment wizards in your own way and no talk is needed to educate you on that
§  Any advice in distribution of wealth in posterity

Types of financial and physical assets
§  Bank Accounts
§  PPF Accounts
§  Demat Accounts for Shares, MFs, Bonds, IPOs etc
§  Portfolio Management Schemes / Wealth Advisory Services
§  Ongoing Insurance Policies
§  Ongoing Annuities like superannuation schemes or the older LIC pension plans
§  Bullion in any form

Types of financial and physical assets - continued
§  Property in the form of agricultural or non-agricultural land, farm house, flat, shop or any other
§  Debit / Credit Cards
§  Medical Insurance Policies
§  Bank lockers, list of contents, key & locker number, where keys are kept, photos of contents if possible
§  Time shares like Mahindra, Sterling, Country Club and any other, expiry date, annual charges if applicable
§  Vehicles, insurance date, policy and risk carrier
§  Any shares or MFs which remained to be converted into demat
§  Loans given to family, friends, servants, maids

§  Pending Bills
§  Society charges, salaries, mode and frequency of payment
§  Borrowings if any such as vehicle loan, housing loan, Overdraft against securities with applicable details
§  Loans availed
§  Credit card dues

Issues other than assets /  liabilities
§  Dates on which life certificates to be submitted (usually November every year) for EPS, any other pension
§  Any dead investments stuck up with or without possibility of future revival
§  Any legal matters pertaining to employers, family and others, case status, names of contact persons
§  Pending Income Tax queries
§  Life memberships like clubs, charities, associations
§  Long term subscriptions like periodicals, magazines, cable TV, internet connection
§  Manner of payment of pending bills like MTNL, electricity, mobiles, pipe gas, society

Bank accounts and demat accounts
§  Information in a table form as to website address, purpose, login details, password and PIN, linked mobile number, email id, branch address, relationship manager if assigned, any standing instructions linked to the account, balance as on XX.XX.XX etc. Note: Nomination is a must!
§  Similar information for demat account also. Approx value of securities as on XX.XX.XX
§  For Bank accounts information like IFSC code, MICR code, operating instructions, with / without cheque book, ATM or Debit Card/s linked

PPF accounts
§  The details like all other bank accounts
§  Date of opening
§  First date of maturity (15 years: Last date of financial year in which account opened + 15 years + one day, i.e. 1st April) (Example: For account opened on 1st March 2000, the first date of maturity will be 31-03-2000 plus 15 years plus one day, that is 01-04-2015)
§  If extended, the extended date of maturity which will be first date of maturity + 5 or 10 or 15 years if extended more than once
§  Check minimum deposit of Rs 1000 p.a. to keep account active

Portfolio Management Schemes or Wealth Management if outsourced
§  Name and contact details of PMS persons, web access details
§  Approx value as on XX.XX.XX, a recent date
§  Mandate, nomination, linked bank account details
§  Discretionary / non discretionary, lock-in period, entry / exit load, fee structure, performance bonus if any
§  Performance snapshot at a glance

Life Insurance
§  Details of life insurance covers such as name and address of the insurance company, policy number, type (term policy/ endowment / money back / limited premium paying term / life policy
§  Accumulated bonus, fund value as on recent date
§  Mandate for choice of funds (equity / debt / combo / % allocation within scheme)
§  Date of maturity on survival, any loans against policy if taken
§  Remember, for quick succession, nomination is a must!

Ongoing Annuities
§  Like say some superannuation scheme, Jeevan Dhara Policies or any other annuity purchased by you
§  Corpus value which gives annuity, applied rate of interest
§  Term of the annuity if any (some annuities are life long or limited period say 5 or 10 years), with or without return of capital sum or corpus)
§  Contact details, linked bank account details

§  Gold or silver may have been purchased, inherited, or gifted
§  It is useful to document the same, as to approximate weight, purity, source of receipt or purchase, purchase invoices if available, location where stored
§  It’s different ways in which men and women conceive precious metals in their mind. A wife’s description of an item may be totally unheard of by the husband. It’s best to keep a ready list of such items in excel sheet form with insertion of photos of items. Excel can lend to easier processing by sort, totals, sub-totals

§  Location of storing original agreement, purchase value, contact details of persons concerned such as society committee in case of flat
§  Registration details if any
§  Periodical pay outs, amount, frequency
§  Approximate market value as on XX.XX.XX

Debit / credit cards, medical insurance, 
§  Limits, priority ranking for usage, expiry date, PIN formula or PIN for debit or credit cards
§  For medical insurance, limits, terms, policy document, copy of cashless form, renewal date, premium amount
§  All other classes of information needed as stated earlier in this document.

Your wishes are paramount!
§  Living Will
§  Nominations
§  Last Will

Living Will
§  A living will takes effect while you are still alive
§  One may leave written instructions for family as to what treatment he / she would like or not like to receive. An example, one may not want to live on life support system, such as ventilator, or may not want to go in for by-pass surgery. This will relieve the family of moral dilemmas, but has no particular legal sanctity

Last Will
§  Last will means the last wish of the person about distribution of assets and properties after the person’s death
§  Assets may be distributed unevenly as per one’s wish, preferably with reasons there-for being documented, to avoid legal battles between family factions
§  In absence of a will, Succession Act provisions will leave no choice post your death
§  One may appoint an executor (which may include even a beneficiary) to ensure adherence to the  provisions and the will must be signed by two witnesses, preferably including a doctor (who can testify mental soundness of person while signing if need be in future)

Nomination and Will
§  Do you need a will when you have nominations?
§  Do you need nominations when you have a will?
§  Ideally you should have both!
§  If will signifies your last wish, nomination is the easiest way to achieve the wish with least cost
§  Nomination will ensure, on an immediate basis, who will deal with the underlying assets till provisions of the will are implemented
§  If neither a will nor a nomination is made, one’s family will have to adhere to the provisions of succession act

Will making
§  The topic of will and the legalities associated with the same is fairly complex and requires fuller and deeper understanding of the subject. It is not the purpose of the present compendium to expound on the same
§  You may like to visit the link and obtain a pdf document providing answers to 37 FAQs
§  For the time being, suffice it to say that your will about your assets is paramount and you should make a will

Is it too much?
§  Actually on first reading it may sound an uphill task to document this information, but let me assure you that it is not. It needs about one hour input per day for a week, even if you have dabbled in all this asset classes, and lesser if you have not
§  It is prime responsibility of the lead spouse to make a word document and make it available in soft and hard copy easily accessible to family
§  Since prime investors deal in these matters day-in and day-out, most information is constantly processed in their mind 24*7*365 basis and don’t find the need to document it in structured manner as summarised herein
§  For better preparedness to face adverse events, this document is a minimum must as a first step. You are all experts to improve on it with time. Update the document twice or at least once in a year.

Thank you!
§  Thanks for going through the document. I hope you could get some useful ideas which you can implement. Remember you have slogged through your life. Some time everyone has to say good bye, without getting time enough to say good bye. It is meant for such people to make their families more secure and better equipped to deal with sudden shocks and uncertainties.
§  Best wishes for a happy, healthy and wealthy life.

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Tuesday, 27 June 2017

Submitting here a new article written by Mike Loo. Very good advice to investors.

Hindsight is 20/20 and whether or not we have regrets, there are plenty of things we wish we knew when we were younger. Not only have I personally learned from my choices and mistakes, but as a financial advisor, I’ve also had the opportunity to see the consequences and rewards of other people’s decisions.
With nearly two decades of experience as an advisor under my belt, I look back at my younger years and wish I would have known what I know now. While this isn’t possible, I can do the next best thing: share my wisdom and lessons learned to clients, their children, Millennials and other young people in hopes of helping them make smarter financial decisions. (For more, see: The Biggest Financial Mistakes Millennials Make.)
Here are three pieces of advice I’d like to share.

Move Back Home

Rent is one of the biggest expenses young people face. With job competition and rising housing rates, it’s no surprise that it’s the first time in the modern era where more 18- to 34-year-olds are living at home with their parents than not. It may not sound like the most exciting living arrangement when you’re young and independent, but think about it in terms of your finances and retirement savings.
When I was in my early 20s, I believed that saving for retirement was important, but I wasn’t aware of how much money I needed to put away. I was saving and investing, but I was only saving 10% into my company’s 401(k) plan because 10% seemed like a nice round number. Had I stretched myself to a higher deferral percentage, I would have had even more money working for me at a younger age, leading to a higher amount saved for retirement today.
However, by living at home, I invested what would have been my rent and living expenses into non-retirement accounts that were accessible to me without penalty prior to age 59½. These investments enabled me to take on a smaller student loan when I pursued my MBA, and provided for a larger down payment for my first house. Most importantly, moving back home helped me jumpstart my retirement savings at the age of 22, a feat that not many people have the luxury of achieving. Instead of spending your money on rent invest your savings, whether it’s to eventually purchase a home, contribute to a 401(k), or pay off student loan debt.

Stick to Your Goals, Not Market Activity

I started investing during an exciting time. It was the dot-com era and in one of my non-retirement accounts, I was trading individual stocks. I was stressed if my stocks dropped after I bought, and I was anxious when the stock reached a high. Should I buy? Should I sell? What’s the best investment option at the moment? What will the market do next? What should my next move be? (For more from this author, see: How You Can Prepare for a Financial Setback.)
In hindsight, I could have alleviated so much stress by focusing more on a strategy than individual holdings and sticking to it for the long haul. Whatever your tolerance for risk or level of investment savvy, I recommend focusing on a strategy built around your goals. There’s no beating the markets and you can’t predict what will happen next. However, you can plan for different outcomes, which can help alleviate stress and anxiety.

Seek Out the Advice of an Advisor

We like to think of our friends and family as our confidantes. While they may serve as your compass for some decisions and choices, don’t assume their word is gold when it comes to financial advice.
My first job out of college was with Franklin Templeton, where I specialized in mutual funds. Because I worked for a financial company and knew about funds, I fooled myself into thinking that I knew everything there was to know about financial planning. However, the biggest challenge came in trying to piece together the information in a cohesive strategy because I couldn’t figure out which investment was best for me. It became so difficult to make a decision that at one point I had more than 12 funds.
With so many resources available online and in the media, it’s easy for someone to become an expert at just about anything. However, financial planning and investing aren’t two of them, namely because they are unique for everyone. There is no one-size-fits-all investment portfolio or retirement plan distribution percentage that will work for everyone. Financial decisions should be made with your specific circumstances in mind, not someone else’s.
As I grew older and became an advisor, I learned that growing wealth is more about creating a strategy and sticking to your plan. A comprehensive financial plan involves more than just investments. It’s important to also understand how insurance, estate planning, and other tools aim to balance out your plan and offer protection should the unexpected happen.

Looking Forward

Whether you’re fresh out of college or ready for retirement, there is always a chance to plan for the future. Take some time to plan out what you’d like your life to look like down the road and put an action plan in place to get you where you want to be. (For more from this author, see: 3 Reasons Why You Need a Financial Advisor.)