Paisa Sherpa - Personal finance and investment guide

Recently heard people in my peer groups discussing criteria for selection of schools, education boards and so on. I realized one can draw many parallels with investment philosophy and thought we'd do a "School Selection and Financial Decisions"  series.  One thing I realised is the old criteria of selection - distance of the school from your home, the cultural, and extra-curricular activities, the quality of the teaching staff have a diminishing relevance. After all, if all the child's friends in your residential complex are going to IB and other fancy schools, you'd be mad to enroll anywhere else, even when you know you cannot financially afford it. Financial incapacity is just one of many other psychosocial reasons one has to consider.  " All my colleagues have enrolled their children in the Cambridge board."  "They follow the international board of education. They have very high standards, and we need to give the best to our child".  There i...

Introduction Just imagine that you are living happily with a stable job and family life. You bought the dream home recently. You are soon going to become a first time parent. Life couldn't get better. And suddenly the future that you saw yourself building suddenly crashes to a halt. Your company announces layoffs and you are one of the unfortunate people in the "list". As the only earning member, how do you service the home loan EMI? How do you cover all the baby expenses that are only weeks away? What if it takes you 3-4 months to find a new job? Well, you have a healthy emergency fund for precisely such times and you thank your first boss who advised you to start saving for emergencies all those years ago.  What is an Emergency Fund?  An emergency fund, like the name suggests, is to take care of the essential expenses during times of peril. A general rule of thumb is that the fund should be able to cover anywhere between 6-9 months of monthly expenses. But this depends ...

Are you chasing the so-called "best performing fund"? Are you switching an existing SIP because your current fund(s) are not in the top 5 list? Then read on. You are having coffee with your colleagues and the financially savvy person in the group says he does SIPs through the direct plans instead of regular plans to save on intermediary commissions. "It is so easy," he says, with the digital platforms – there is a lot of information available. A good intermediary – and by good we mean someone who generates consistent, goal-oriented returns and regular reviews; but more importantly gives the emotional and psychological guidance to avoid costly decisions – will generate better returns than an investor doing their own investments in majority of cases. However, in this post, we are trying to highlight a totally different aspect of the investment process – the selection of the fund or scheme. How to Analyze Performance Ranking of Funds? If one looks at the past 10...

I recently saw two siblings - a boy and his elder sister boasting about their piggy banks recently when I'd visited their home for a social occasion. The boy had an electronic piggy bank with a passcode to open it. After about 5 minutes of counting the sister said, victoriously "You have only Rs. 620 in your bank, I have a lot more!". She added "620 mei to ek bhi accha toy nahi milega, kuch bhi accha nahi milega".   My mind immediately went to SIPs, I wished I could explain to them just how rewarding a small amount of Rs. 500 can be. One can easily whip up an excel sheet and find out how much a Rs. 500 SIP started in the early 20s will be worth after 15 or 20 years, but returns rarely follow the excel formulae. What is more important is to be aware of the power that an SIP has.   So what exactly is an SIP? How does an SIP work? What is the minimum investment required in an SIP? Let's find out.  What is an SIP? As the name suggests SIP is a System...

  How to measure the return on investment of a mutual fund?  We have all heard about "compounding effect" and how "staying invested" helps in the long run. What we are all talking about is the return on investment . There are a few metrics that one can use to evaluate the returns on a mutual fund investment. We often use these metrics while comparing, selecting and evaluating investments. These are Absolute return, CAGR and XIRR. Ever wondered, which is the more appropriate metric for you? Let’s find out. Absolute Return The most common is the absolute return which simply shows how much the investment has grown in the period. If an investment of Rs. 10000/- is now worth Rs. 15480/-, the absolute return is Rs. 5480/- and the investment has grown by 54.8%. Wow, that's great. But is it really? Absolute returns  simply considers the return from the initial investment till the present day without factoring in the period of the investment. In the above case, whether...

The word dysmorphia means a mental health disorder where one spends a lot of time unnecessarily worrying about an imagined lack of a desirable trait. You might have head of body dysmorphia, muscle dysmorphia. So what exactly is "money dysmorphia".  A recent study shows a growing number of Gen Z and millennials facing this issue. Young families in their 30s and 40's are earning a decent incomes and can be classified as being "rich"; however, they themselves do not feel like it as they are generally comparing their financial status with some one else. They feel they do not have enough. There is a FOMO factor which often leads to poor financial decisions and high spends on things that you do not need just to feel familiarity of a association with a specific cohort or to "fit in".  One of the major reasons for this is wrong and unfavorable comparisons. Feeling inadequate when you see your favorite sports icons, movie stars, celebrities, influencers showing...

💳 All credit card users must have seen the "Minimum Amount Due" line in your monthly statements. This is the minimum amount that you have to pay in order to keep a good standing with the credit card company. This is merely a percentage of the total dues for the month (generally around 5%) and can change from month to month as per your expenditures. If you feel that you can get away with paying just the minimum amount and not face any penalties — you are grossly mistaken! You have fallen for the "minimum dues trap". How Credit Card Interest Works To know the dangers of paying only the minimum dues, you need to understand how interest is charged by credit card companies. There are 3 aspects you must remember: 1. Interest Rate If you study your card, the monthly interest charged is around 3–4%. That may not seem much, but annualized, this balloons to 36–48% per year . Yes, you read that right! Key Takeaway: A 3% monthly interest is not small — it compounds...

Consider this - you have just started your first job, and you have to manage with a meagre salary of Rs. 25000 a month. With statutory deductions, rent, fuel expenses, food expenses, the occasional movie or eating out, other discretionary spends you are left with Rs. 4500 every month. Saving money, investments, retirement planning are a distant memory.  Years later, you are celebrating your 40 th  birthday (at a 5-star restaurant of course) and after all the celebrations you wonder how you will manage after you retire. Now after so many years of slogging and a decent package, however you are still left with very little money at the end of the month. You realize that after working for 15 years you haven’t even begun saving and investing for your goals yet to begin. Sounds familiar?  According to a recent RBI study, more than 100 million Indians are going to face a similar predicament in the coming future.  Well how could this be?  Lifestyle inflation (or lifestyl...

The Employee Provident Fund Organization (EPFO) has set the interest rate for FY 2024-25 as 8.25%. The rate for FY 2022-23 was 8.15% and was increased to 8.25% for FY 2023-24. So this year there has been no increase in the interest rate. The rate decisions are taken by the Central Board of Trustees (CBT) of the EPFO.  There are more than 7 Crore subscribers under EPFO who will get this interest on their money saved in Provident Funds. Provident Fund is a savings scheme meant for a person's retirement for salaried individuals. Here both employees and the employers contribute to the fund every month and the beneficiary keeps getting interest on this corpus as per the rates decided for the financial year. The corpus can be withdrawn post retirement or after attaining the age of 58. Partial withdrawal is also possible for specific cases.   Tip: Instead of withdrawing, always beneficial to transfer the Provident Fund if you are changing jobs.

Managing our finances is a challenging task to get the right balance between our income and expenses and keep some money for savings and investments. Whether you're living in a bustling city or a small town, it can be hard to figure out where your money is going, how to save, and how to invest. Some of us are stuck in a habit of overspending, failing to keep track our expenses, and then getting stuck in debt or feeling anxious about our future.  Is there was a way to take control of your personal finances? Budgeting is a good way to start. This budgeting guide will break down important concepts like creating a budget, tracking expenses, saving money effectively.  Understanding the Basics of Financial Planning Financial literacy is very low in India. However, our lifestyle spends are on the rise due to a more digitally connected youth, higher disposable incomes and reducing saving mindset, targeted marketing and changing consumer habits and preferences (like BNPL - buy now ...