Simple Finance

Investing for Engineers

Need to invest

For any individual beginning his journey after education, he has to fulfill his/her responsibilities. Everyone should understand how money works. An Indian individual undergoes 3 important events in their life when capital expense is highest. Separating needs from wants builds discipline very early, investing is easier when you form a habit around it. It’s easier to form one when your responsibilities are fewer.

First goal should be your own retirement

Second build that corpus your kid needs for his education

Third is your kid’s wedding

How much do you need ?

Planning for retirement

After you retire, the money in your bank account is the only source of income to take care of you for your day to day expenses as well as your health expenses. In a country like India where social security is minimal, it becomes imperative to save up for retirement. Our plan for retirement cannot be depending on our children as they themselves have a ton of responsibilities to shoulder.

Advances in the field of medical sciences has increased average lifespans, this has led to a deepening retirement crisis as people are living longer but not saving enough. To put it in plain words, the longer you live, the more money you need to take care of yourself.

The earlier to start investing, the lesser you need to put aside every month. For a 2.5-3 crore retirement corpus at 60 years of age, a 20 year old needs only Rs.2104/- invested at 12 %, a 30 year old needs Rs.7082/- , a 40 year old needs Rs.25021/- , a 50 year old needs Rs.107601/- . To make understanding easier, you need to put aside 4 times more every 10 years. Hence the earlier you start the lesser you need to invest.

Planning for Kid’s education

An investment in knowledge pays the best interest – Benjamin Franklin

Planning for education is very similar to planning for your retirement. The difference here is you might need this amount before you retire.

Education inflation is one of the highest inflation in India. It’s not easy to fund your child’s education if you haven’t saved enough. There will be pressure on your yearly budget, you will constantly worry about your child’s education, there maybe chances you wont be able to provide quality or desired education to your kid. Starting early again becomes the key to not worry in the future. Not worrying about it makes you take better decisions with respect to your professional life as well.

Planning for kid’s wedding

This expense depends from culture to culture, some communities spend higher and some lower. This expense is likely to happen after you retire. The rate of wedding inflation is almost two times to that of general inflation. And the cost keeps rising year on year.

The key to save up enough for your kid’s wedding and not burden him with loans in the future ,is to start investing early. When a loan is taken to create an expense , rather than build an asset, it is liking borrowing time from your future. When an opportunity in your professional life presents itself, it becomes difficult to take it, as you constantly worry about your present debt.

Engineers do have the added skill to look at everything objectively, but when it comes to planning for finances they seldom do. One of the best ways to start investing is to create a habit, SIPs are a good way to achieve that. Starting now gives you a better edge over others to take asymmetric decisions when it comes to your work life.

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Why Businessmen Don’t save enough

Don’t put all your eggs into one basket !!

Don’t we as businessmen do that most of the times ? When we start the business we know the importance of capital, we see capital as a raw material. After a few years into the business we don’t realize that if the capital is not generating returns above nominal returns then maybe that is not the right use of the capital.

Your income in your business is directly dependent on yourself and the business venture. Many businessmen take very little income as possible for themselves and funnel out the rest for the growth of the business. As far as the business is generating growth above the nominal growth rate of the country it is a good business, but as soon as you see growth moderating. Allocate the cashflows towards something that gives better returns. It is a balancing act for sure, if your sacrificing for the growth of the company you need to make sure your taking care of your personal finance ( Retirement savings, healthcare cost, college funds for the kids). The last thing you need is under funding your personal finance.

60 % of entrepreneurs don’t have a plan for retirement

The journey of entrepreneurship is hard, filled with mental fatigue, persistence, responsibilities among others. An essential aspect of entrepreneurship is financial well being of the promoter as it enables him to take better decisions when in adversity.

Adept money management is an indispensable requirement for enterprising individuals. This may be a tough task initially but once you get a hang of it, It improves your risk taking abilities exponentially.

An entrepreneur is someone who is constantly striving towards making a difference to the society, someone who pushes himself constantly for growth and progress, while these are absolutely taxing, the journey is what makes them going. Thus planning for themselves enhances the mental capacity needed to better the venture.

About us

At Equibond Investments we aim for tangible progress and growth in our investors wealth, through long term conservative and responsible non speculative investments to give financial security and peace of mind by remaining always on your side.

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How can US and Canada NRIs invest in India ?

One of the cardinal rules of investing is choosing the best asset among various options available to us. The fewer mistakes we make, the lesser time it takes to get value for your investment. When we think deeper, we probably have only 25-30 years of working lifespans assuming your in your 30’s and the key to increasing your corpus is to allocate your money in the most efficient way possible.

This makes a case for investing in countries which have a higher probability of growth than the country you live in. Currently in our generation South Asian countries are the growth engines and allocating your investments towards a growing economy indirectly reduces your risk and increases investment returns. Investing in a country like India which has policies directed towards growth, A likelihood of stable political environment and an aspirational population can provide value for your investments.

How can an NRI based out of the US or Canada Invest in India ?

NRIs can only invest via offline modes unlike regular accounts that can be done online. There are two types of NRI accounts :

PIS (Portfolio Investment Scheme) account , this requires a permission letter from the RBI for making investments. With this account you can invest via NRO or NRE accounts.
Non-PIS accounts does not need any permission letter from RBI also it has lower costs associated with the account. However only NRO bank accounts can be used for investing. I would recommend this type of account to start with your investment journey as it has a better investing experience for US and Canada based investors.

The following representation differentiates the types of account

About us

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Why to Invest ?

The relationship between money and us starts at an early age when we notice our parents exchanging rupees to buy stuff which we need or like. We learn the value of money when we buy our first chocolate with the money from our piggy bank. These experiences teach us and mold us in the way we handle money.

Our parents, in our early lives become our authorities on how to save up for that Game-boy we needed, or the clothes we need to be in trend. This relationship between us and money grows more complicated over a period of time. The collection of our working life is either a comfortable retirement or a struggle to make ends meet.

Setting Financial Goals

When we associate money goals to a life event, the process of planning for it becomes easier. Setting short-term, midterm, and long-term financial goals is an important step toward becoming financially secure. If you don’t plan for a life goal then you are likely to spend more than you should. And then come up short for most of your bills in the future, you start compromising on things like basic insurance which leaves you more vulnerable than you already are.

Establish a budget

Make your present clearer, basically means spend some time on seeing where your money is flowing. “You might be shocked at how much money is slipping through the cracks each month”. With the tools and accountability our phone gives us on where we spend, you might discover that ordering seamlessly every work-from-home day is costing you on an average around 10000 a month. You might learn your spending another 2000-3000 per weekend on date night meals or on a socializing weekend.

When you see how you are spending your money you’re guided by that information and this makes informed decisions on where you want your money to be going.

Planning investments

Define goals into short, medium and long term, match natural life stages of youth, middle age and post-retirement.

There’s never an early or late time to start investing. Of course playing catch if you have not started early this will mean making few lifestyle changes based on your budgeting, major benefits accrue when you start investing early.

Debt management takes priority because it makes no sense earning 11-12 % on your investments if your debt is at 9-10% as inflation will make your money negate the benefits. Bear markets and bull markets are inevitable in your investment journey. Don’t invest just because you haven’t got a chance to be part of a bull market instead save up some money which is less volatile and invest when the markets are depressed and an opportunity presents itself. In our lifetimes we might have comparatively fewer opportunities while investing in equities the important trait to learn is perseverance, patience and seizing the right opportunity.

Conclusion

Starting early and figuring out your investment goals earlier helps reduce unpreparedness later in life. Even if you don’t make perfect linear progress towards achieving your goals it’s important to be consistent. Review your financial portfolio annually to make up for changes in financial goals. This continued pursuit towards achieving financial discipline will make you more aware of daily finances and make it easier to achieve your financial goals.

INVESTING AVENUES FOR US AND CANADA NRIS

While investing the key parameters to watch for are returns and goal associated with the investment.

Equity does give better returns over the long term compared to other asset classes.

While investing we need to look at the treaties of tax done between countries which will help in avoiding taxation errors in the future.

We don’t want the IRS to call us saying that you have been avoiding taxes and you need to pay penalties for it. This also doesn’t bode well with the internal rules in the company you work for as well.

1.Direct Equity Investing

An investor can directly invest in stocks by opening a PIS account (Portfolio Investment Scheme) commonly called as a PIS account. This account has to be linked to your demat account. Investing in stocks directly needs a lot of time as you will have to be constantly looking for opportunities and studying about companies which is fruitful but not at the cost of the full time job you’re in.

Returns are higher over the long term but it will have periods of volatility, Risk is higher over the short term and this isn’t a good option if you’re looking to park money for short term.

Taxation is based on the report that is generated by your stock broker.

I would recommend Zerodha’s platform if investing through this route as the seamless experience will make it easier for investing in direct stocks.

2.Mutual Funds

Some Mutual funds in India do offer investments with them. Taking care of the taxation part in the USA is primary before venturing into them. The mutual funds here obtain a declaration stating that they will comply with IRS in case there is an under reporting of gains made and taxes not paid there. Although India has signed a double tax avoidance treaty with the USA. It is still not very clear whether you need to pay taxes on the gains in the USA as well. Few leading mutual fund houses avoid taking investments for US and Canada based investors as it’s still a grey area.

Mutual funds can be a better to way to passively take part in India’s equity growth and an equity mutual fund will give better returns compared to other asset classes.

Fixing goals while making an investment plan plays an important role.

3.Real Estate

Real estate does play a role in diversifying your investments. “Diversification is the holy grail of investing”. While it sounds attractive owning a physical asset there are certain drawbacks with investing in real estate. Some of them involve large ticket size, meagre returns when you compare against equity as an asset class, higher taxation and transaction costs, finding the right opportunity as it is not as transparent as other asset classes, low liquidity.

It should be a part of the overall portfolio for diversification but not a large part.

4.FDs

Having an FD through your NRE account will also serve a tool for returns on your overall portfolio and also be a way to diversify your investment. The safety grade being high and volatility being low to the asset class makes it an attractive form of return as the interest rates also tend to be higher.

Happy Investing…

The Post COVID-19 World

Humans are resilient. More than one quarter of the world’s population are now largely confined to their homes, the virus has turned living cities into hospitals. It is hunting everybody regardless their caste, creed or religion and the best defence is to remain indoors as much as possible.

Humans have been preyed on before for most of history on the planet. Our ancestors have faced many more pandemics without the privilege of the modern day healthcare system and they fought against them by sticking together.

There is no question that Humanity will prevail over the present crisis as well. The only question is how fast will it recover. There will be an immediate change in the way things are done post crisis. Perspectives have already began changing during the lock down period.

A New Human Being Will Emerge

Post the epidemic we will see difference in the way we perceive things around us. We will find ourselves faced with a generation who thinks differently from the pre-pandemic generation. The thirst for more information around us will make our decision making different. Priorities will get reassigned. And we will adapt to it all of it within a short span.

How business economics will change

Events such as this, change the way goverments, economis and business do things, altering the course of history. The black death in 1300’s changed the feudal system in Europe with a modern employment contract. In modern times the SARS pandemic of 2002-2004 changed the way Chinese bought goods with the emergence of Ali baba which was a small ecommerce company then. Similarly it will lead many businesses to picot the way they were doing things, lot of emphasis on automation and supply chain will make businesses more efficient.

Yes it will lead to fall of many businesses which don’t pivot, but it will lead to a more efficient world order.

Probability of industries that gain and those that loose

Video games might be more popular and we should’t be surprised to see its emergence as a sport for the masses. A recession usually accelerates business model changes driving costs down. And pandemics tend to get in entirely new businesses. Firms which capitalize on changing will succeed those who don’t will get disrupted.

Investments in businesses which adapt become defensive bets.

Bureaucracy

Emergence of technology to monitor things around us will become the new normal. When the Chinese started to monitor people through their phones they were heavily criticized, this can become a new normal throughout the world. South Korea used smartphones to tag the movement of the infected – alerting people around via real time updates.

This will lead to cities needing to become smarter.

What’s in store for us ?

We should prioritize that we are built of the same constituents. It means that this is a threat to everybody around us. Facing this together will help us go through it faster and it will lead to lower recovery time. The more divided we are, that’s what the virus wants.

#stayhomestaysafe

Where should I invest now ?

With increased volatility the market wide impact would have deterred your equity portfolio returns and this could get more volatile with the VIX (annual volatility index) being at an all time high, will also make your investments more volatile over the short term.

Although the swings started with global factors , it will get more domestic in the coming months and the volatility is expected to remain high.

What Happened During The SARS Outbreak ?

Because of lower exposure to China’s economy compared to peers India was the only Asian economy that didn’t have a major decline in it’s growth due to the SARS impact in 2003. It’s expected to have a similar effect this time as well if the pandemic is contained in the country.

What to expect in the coming months ?

The pace at which the government takes measures will be closely watched , the demand scenario which was already weak will get weaker. The contagion which is already developing will make people more averse to traveling and vacationing , people will switch to modes of entertainment at home, stocking up on essentials and this will impact a growing economy to a large extent. Automobile sales will plummet as it did in China. This is bound to make the market a risky asset class to invest in the short term.

How have markets responded previously ?

While past rebounds can’t predict what will happen in the future. In the past, markets have rebounded after the peak of the outbreak.

Currently the COVID-19 situation looks more grim than the previous outbreaks and it is difficult to predict it’s peak.

The markets were trading at life time high valuations 60 days back (NIFTY P/E : 28.56) and a correction based on fundamentals was expected. The outbreak has just hastened the fall. However long term investors should stay put.

The long term fundamentals of the markets still remain intact , yes there had been pockets of overvaluations in certain large caps , this correction will only make the markets more attractive. Long term investors shouldn’t be deterred with the dips in their portfolios and should be looking to invest some more when the market becomes less volatile.

HAPPY INVESTING