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 ...

We’ve all heard parents and elders say “in our times milk used to cost mere Rs. 5 a liter or petrol was Rs. 20 a liter". We have all blamed the greedy grocers, shop owners or governments for your ever increasing general expenses for necessary purchases. However, what really caused the price to rise? The answer is inflation . Not knowing inflation and how it affects you could be seriously harmful to your financial, mental and even to your physical health. Inflation is the general rise of prices of goods and services in an economy. The main reason of inflation is the increase in money supply and is related to the monetary policy of a country's economy. The effect of inflation is reduced purchasing power of the currency over time. This is the reason for incrementally increasing prices that are needed to pay for the same quantity of goods or the similar services over a period of years. Let us now look at various financial impacts of inflation and care that you must take in ...

Credit Card Credit cards can be a useful tool when used correctly and judiciously; but for first time users it can also be a bit confusing. In this post, we want to break down the ABCs of credit cards that one must know including few important concepts that are applicable - minimum amount due, interest charges. Have you wondered that if you buy something today with your credit card, and have to pay for it after 30 or 50 days, what exactly is in it for the credit card companies? Worry not, we will also try and understand how credit card companies make money so you know the habits to avoid. Let's dive in! What is a credit card? A credit card is essentially a loan. This is offered to the user by the issuer and allows the user to borrow the money (to make purchases) for a specific period of time. Debit Cards on the other hand, use the money which is available in your bank accounts, Credit Cards allow you to borrow money from the issuer and pay it back in full or in installments over a...

Importance of Financial Planning The Importance of Financial Planning: Your Path to Financial Success Financial planning is extremely important in your personal finance journey. In fact, your financial journey begins with a sound financial plan, it is the first step . Whatever are your financial goals - be it buying your first house, saving for your children’s education, or ensure a comfortable retirement - a well-crafted financial plan is the roadmap to meet these goals. In this blog, we will look at the essential aspects of an effective financial planning process that will put you on the path to achieving your financial goals . What is Financial Planning?  Financial planning is the process of setting your financial goals, evaluating your current financial position - analyzing your income, expenses, savings, and investments, and taking steps toward the financial goals. In short, it’s about preparing a framework for your  financial decisions . An effective financial plan...

 Lack of goals This is pretty basic. You need to have a clear idea of your destination in order to set a path to reach it. Similarly, we need to set SMART (specific, measurable, achievable, relevant and time-bound) goals in our financial journey. Lack of proper goal setting means we are only shooting in the dark. Without goals, there will be no visibility of the future. Only when the goals are clear, can one start to save, invest and work towards achieving the required financial objectives.  The financial goals will be different for every person and vary on the basis of various factors - family size, age, incomes, liabilities, future capital requirements for milestone events like marriage, home purchase, education, etc.  Ad hog investments Picture this - it is mid March and you are trying to "complete your investments for the year". Does this happen to you? Do you believe that investments start and end at the Rs. 1.5 Lac contribution towards 80C and have to be done before...

What do you mean by co-operative bank? Is co-operative bank private or government? Is co-operative bank under RBI regulation? Many such doubts might have popped up in your minds recently due to the news of RBI restrictions on the Mumbai based New India Co-operative Bank and the Rs. 122 Crore financial fraud by one of its employees.   How safe are Co-operative banks? Is it poor financial decision making to keep deposits in Co-operative banks? We want to answer all your doubts, so read on. Co-operative Banks  Co-operative banks started in the India with the noble purpose of offering financial solutions to rural and semi-urban areas. The co-operative banks have members who are also its customers that own the bank. The decision making is done in co-operational manner. The co-operative banks are regulated both by the RBI and the Registrar of co-operative societies of respective state governments. The RBI regulates the banking aspects like risk control, lending, etc. and the st...

The terms ‘saving’ and ‘investments’ are often used alternatively, but what they really mean is vastly different in many ways. Understanding the difference between savings and investments is the first step towards financial literacy. So, what do these terms mean exactly? Are Savings and Investments the same?  Savings Saving is the money that we put aside, often gradually, so that it is readily available when needed. Growth of the money is not the purpose of saving. The money is kept aside not for it to grow, but for a certain short-term need. This short-term financial goal could be buying a car, down payment of a loan, security deposit for a rental space, an emergency corpus, or even the expenses for the next few months. The money saved is highly “liquid” – it is easily and immediately accessible. Generally, savings are parked in liquid financial instruments like bank saving accounts, short term FDs, etc. where there is little or no financial risk of the saved money being ...

  We have all faced this - it’s the 20 th of the month and we are deep in thought of how we’ll manage finances till the next salary. At the start of the month, we eagerly await that message from the bank “xxxxx credited to your account”. Tragically this is very quickly followed by few more messages which go like “Rs. xxxx debited from account” – the EMIs for purchases against credit cards, home loans, etc. By midmonth, we are in a bad mood; come 20 th , we are dreaming of the salary day. If your story is somewhat similar, don’t worry we are one of millions who are in the same (sinking) boat. Forget about savings and investments, we are talking about merely getting through the month.   Conversation over drinks is often about how ‘my salary is a joke’ and ‘I’m have terrible luck’ but you will be surprised to know that there’s a lot that you can do to get out of this misery. It might involve a hard look at the mirror and some difficult lifestyle decisions, but it CAN be done. ...