Paisa Sherpa - Personal finance and investment guide

  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...