How can I become a crorepati?

Most of us want to become one, but ‘believe’ that crorepatis are born and not made. Wrong!

As Noel Whittaker (a well known Australian money columnist) put it: “Becoming wealthy is not a matter of how much you earn, who your parents are, or what you do….it is a matter of managing your money properly”.

Some people believe that ‘they’ cannot make money. Wrong again! Money can be made by anyone and everyone. All it requires is planning and discipline. Any investor who takes care of these factors is bound to make money in the long term. There’s nothing like a quick buck. If you made it, consider yourself lucky and not skilful.

The legendary investment guru, Warren Buffet (his net worth in 2008 is USD 62 billion or Rs 2,48,000 crore) has said: “Time spent IN, is more important than TIMING the market”.

The more time you give your money to grow the more it will grow. In other words, the younger you start investing, the more money you will have at your retirement. Each year delayed would mean a loss in earnings. Let us look at an actual example:

Investment: Rs 5,000 per month up to age 60
Expected Return: 7% per annum

Notice how the ‘cost’ of a 10-year delay is HALF the amount.

The chart above clearly indicates that the best time to invest is NOW! More so, when markets are down and the long-term picture looks encouraging. Every day, every month, every year that you delay is an opportunity lost. And the loser is no one else but you!

To conclude, as Mary Kay Ash (a business woman and author of three best-selling books) says: “Don’t limit yourself. Many people limit themselves to what they think they can do. You can go as far as your mind lets you. What you believe, remember, you can achieve.”

When is a good time to invest?

Focus on your long-term goals. And stop trying to time the market. Even the wisest pundits have failed to predict the ‘top’ and the bottom of stock markets

When should I invest? Whether the markets are up or down, this is a million dollar question that constantly looms over an investor’s mind. Should he/she invest now or wait for the markets to fall even further. This waiting for a ‘more opportune’ time goes on and on. As a result, time passes us by.

Over the last two years, I have seen people withhold the decision to invest, despite my spending considerable time with them to convince them to make the investments. Their reason - they feared that the market has ‘topped’ or they had the ‘greed’ to wait for the markets to hit the bottom.

It is not possible to time the market. Even the wisest pundits have more often than not failed to predict the exact ‘top’ and the ‘bottom’ of stock market.

So is there really a ‘right’ time to invest or is it merely a myth or an illusion? The answer is a YES and a NO. ‘No’ because there is nothing like a right month or a date to begin. And ‘yes’ the right time to start (if you already haven’t) is NOW!

There is an old adage – ‘buy low and sell high’. But reality is a lot different from that. Most investors actually end up doing the reverse. They get into the market after the prices have risen because they believe that the ‘bull run’ is back. Such investors tend to panic the minute the prices begin to slip.

Investors must have a horizon for all equity or equity-related (mutual funds) investments of at least 5 years. The longer the better, since only then will they realize the ‘power of compounding’. Discipline and planning are crucial to achieving the goal that the investor has set (be it his own retirement or children’s education or marriage, or any other goal).

As a basic thumb-rule, during volatile markets (like the one we are currently witnessing) invest every time there is every dip. There should be no fear in the investor’s mind if he/she has a long horizon. In the near term, he/she may see negative returns because of volatility. If he looks at the big picture and has a long horizon, he should just keep plugging in the money. The returns will happen in due course.

If you wait to time the market, fear (of seeing short-term negatives) and greed (of trying to catch the bottom) may leave you stranded, thereby seriously affecting your long-term goals and objectives.

Caveat Emptor

Investors, beware of advisors who ‘guarantee’ you high returns on insurance policies. Though the fancy returns may or may not happen on maturity, your advisor will certainly be a satisfied person.

Around three months back, I met a young lad at a call centre - he wanted to invest in mutual funds that would give him at least 40% returns per annum. For a brief moment, I was stunned. When I tried to explain to him that it’s impossible to guarantee such a return, he told me that he had just bought a product from an advisor (from a well-known private insurance firm) who had told him that if he invests Rs 30,000 p.a. he could redeem double the money (i.e. around Rs 2 lakh) after 3 years. He showed him some numbers to convince him and clinched the deal.

It’s not just the educated who get taken in by such advisors. Last week, I got a call from my father’s ex-driver who said that someone from a bank was with him, who was promising him Rs 1 lakh after 5 years, if he deposits Rs 10,000 per annum for 3 years. I was shocked that someone from a reputed bank (coincidentally, I bank with them) was actually trying to dupe poor people of their hard-earned money.

I wonder when all this will stop. Will advisors stoop to any level to earn a living? These advisors are trying to make a living by ‘mis-selling’ insurance products - by guaranteeing returns these policies just won’t fetch. And since there is ignorance at the buyers’ (and in most cases the seller’s, too) end, these agents are getting away with it (and with fat commissions to boot).

What happens at the time of maturity – which maybe anywhere between 10 to 25 years away? I am sure the agent would probably have retired, thanks to the commissions he made during his ‘selling’ days. The agency manager would have moved on. While the insurance company would exist, they’d probably tell you that you didn’t read the fine-print.

Our friendly neighborhood advisors are getting away with making false and unrealistic promises. Unfortunately, the “sab chalta hai” culture has trickled down to even the personal finance industry. But it’s your hard-earned money, after all. It’s only you who will pay the price for your ignorance and not anyone else.

Shouldn’t there be a minimum qualification in finance / financial products before one is allowed to advise on such products? And no, I am not talking about the IRDA certification. Because almost everyone (even your neighborhood aunty or your office receptionist is now selling insurance) who has tried his hand at ‘clearing’ this exam has managed to do so and is now an ‘advisor’.

To pay or not to pay – is that your question?

Fee-based financial planning service is still new to this country. Though there are firms and individuals who charge for their advice, the number is still very small. Investors often wonder, as to why they should pay a fee when they can get the same advice for ‘free’. Is that really so? Is that ‘free’ advice in your interest?

Let me explain this point through an incident. Some time back, a senior executive of a BPO firm had called me to discuss his financial plans. When I told him that I charge a fee for my services, his facial expression changed. “I’ll get back to you.” He curtly told me. I realized what that meant and why he had said that.

I decided to try and reason it out with him. I pointed out to the two insurance policies that he had taken a year back. Till we started the discussion, he did not even know the name of the policies he had bought nor what kind of policies those were - whether it was a term plan, an endowment policy or a ULIP.

During our discussion, he realized that one of the policies (a ULIP) was not going to be of any use to him in the long-run since he needed the money after 4 years. His ‘advisor’ had told him that he could pay for 3 years and redeem the policy in the 4^th year. What he did not tell him was that in the first 3 years almost 40-50% of his premium paid would be charged as fees (for his advisor) and that out of the Rs 3 lakh that he was going to invest over 3 years only Rs 1.50-1.80 lakh was going to be actually invested. (Don’t read me wrong, I am not against ULIPs. ULIPs, as investment products, are suitable over long horizon -- of over 10 years -- but absolutely unsuitable if your investment tenure is going to be short.)

To cut a long story short, he was actually paying a fee of Rs 1.50 lakh over a three year period. Since he was unaware that he actually shelled out that kind of a fee, he didn’t seem to mind it. And just because I asked him for a fee upfront, he was upset about it. (Incidentally, he would be paying me a similar fee for almost 10 years of unbiased advice, for a host of financial products, not just insurance).

Isn’t it better to know upfront the fee you are paying for getting unbiased advice, as compared to paying a huge fee and not having a clue about it? The ‘free’ advice feeling is actually just a misconception. The reality is far divorced from that. As we all know – ‘there are no free lunches’ in life.

Why hesitate in paying up for financial advice? After all, the financial planner is spending considerable time with you to understand your needs, your lifestyle and a host of other parameters in trying to help achieve your financial dreams. He/she is sharing his/her knowledge and expertise.

It’s better to know what you are paying for. If you don’t, you too may get mislead and will have to pay for it quite dearly (both in terms of cash outflow and a wrong product). And you won’t even realize it…till it’s all too late.

An introduction to financial planning

Here’s a lowdown on financial planning and how it can help you lead a life of your dreams.

Welcome to my first blog. Let me begin by introducing myself, my firm - Knowledge Partners - and our philosophy. I am an Associate Financial Planner and have also done my PGCBM from XLRI, Jamshedpur. In 2005, I moved to Gurgaon after spending 14 years in equity research, media and marketing at various firms in Bombay & Calcutta. Numbers always intrigued me. So did various financial instruments. But I also saw how people all around me were getting mislead by so-called ‘advisors’ and ‘agents’. While everyone wants a financially secure future, most people were either unaware or confused as to where and how to start. The result - decisions got indefinitely postponed; or wrong products were bought based on misinformation.

That’s what reinforced my decision to start my own financial advisory. And in 2006, Knowledge Partners took shape.

Financial Planning, as a concept, is still quite new to India. Traditionally, financial advice in Indian homes (invariably) comes from a family elder - who is, more often than not, heavily under influence of an insurance agent or a family friend.

Often, agents and advisors give you an improper advice so that they can make a quick buck. They often sell you a insurance policy or a mutual fund that gives them the highest commission or brokerage.

At Knowledge Partners, we believe in having a long-term relationship with all our clients and advise them to buy financial products they actually need. Our endeavor is to be a partner of our clients till the time they achieve their financial goals.

Have you planned your financial future?

You can get answers to this question by answering these simple questions:

· Have you started planning for your retirement?

· Have you wondering how to plan for retirement, children’s education and marriage in the face of rising inflation?

· Do numbers boggle you?

· Are your savings fetching you sufficient returns?

· Have you ever thought as to how many years you can maintain your current lifestyle if you were to take a sabbatical / retire?

· Is your money lying ‘idle’ in your savings/current bank account – would you not like to earn more than the meager 3.5%?

· Most of us limit our investments to tax saving instruments – or the amount that is to be covered under section 80C. But is that enough to meet all your future expenses? Will that create a sufficient corpus?

If these are some of the questions that are bogging you down, Knowledge Partners could be of help. We are a Gurgaon-based firm offering fee-based services in the area of financial planning having a clientèle in the Delhi-NCR region, primarily, and also in Bombay and Calcutta.

How do we go about it?

Our investment process begins with you. We perform a careful assessment of your individual needs and aspirations, and our evaluation is based on:

· Goals and objectives,

· Investment time horizon,

· Liquidity needs,

· Desired rate of return, and

· Tolerance for risk

The result is a complete understanding of your personal profile that will serve as the foundation for defining a long-term investment strategy tailored to your specific needs and preferences and not just catering to your ‘tax planning’ requirements u/s 80C.

Our philosophy is designed to achieve long-term investment goals, and is based on the following core principles:

1. Identify Your Unique Needs, Goals and Objectives

2. Build an Asset Allocation Roadmap

3. Formulate a Plan & Portfolio Selection

4. Continuous Portfolio Monitoring

We educate our clients so that with time they are more focused to achieve their goals and objectives with the help of their financial advisor, rather than by relying blindly on the latter.

Our fee-based approach is designed to eliminate conflicts of interest and results in unbiased and honest advice.

Money isn’t everything, but having control and confidence about how you are managing it can allow you to concentrate on other things like your family, your career, and your future. We believe that all your dreams are achievable and we look to partnering you so that you can live your dreams!