The Business of Personal Finance in India

Posted on February 3, 2011 by Ranjan

Two personal finance businesses (Rupeetalk and iTrust) were acquired recently. Rupeetalk story, iTrust story on Medianama. This prompted me to go back to my post dated Sept. 21, 2009 which reviewed three businesses. Excerpts:

There are three personal finance portals that has caught my attention. They are InvestmentYogi, iTrust and RupeeTalk.

Overview:
Both RupeeTalk and iTrust provide articles, comparison table on financial products and have tied up with leading financial product companies to sell their products. They appear to be the online channels of the financial majors.

InvestmentYogi has content focused on helping individuals on financial planning, retirement planning and tax planning. It doesn’t sell any financial products but focuses on helping you to learn, share and grow.

To me, they [Rupeetalk and iTrust] are just another addition to the 3 million strong financial advisors community with a unique online presence.

InvestmentYogi has the most disruptive business model, to my mind.

The articles are written in a very unbiased manner and they do not push any products. Their goal is to promote a holistic financial planning approach to investing and managing wealth.

InvestmentYogi is still hanging on and I believe they will win in the long run.

To my mind, personal finance is not just about having access to unbiased and useful information, but it is also about being aware/improving our financial behavior and taking concrete action steps to improve personal finances.

Having said that, competition and active regulation has changed a lot of rules in the past few years. The rules of financial services are seeing a lot of disruptions. Examples of no entry load on Mutual Funds and the recommendations of the D Swarup Committee on doing away with commissions come to mind. Mutual Funds being available on the NSE wef 30th November, 2009 and conceptualization of fee based advisors (CPFAs) are more examples.

There is a unique opportunity to bring in personal financial services in tune with these changing times.

But it ain’t easy to enable behavioral change and persuade people to manage their finances in a better way!

What do you say?

Coming Soon! RupeeCamp "Financial Planning Workshop". "Join us"

Welcome back! Join me on this journey to improving our financial IQ and sharing what we know. Updates at RSS feed or Email. And spread the word please Thank You!

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Four Personal Finance Tips From a 19 Year Old

Posted on January 29, 2011 by Ranjan

Shankar Ganesh is my latest role model! He validates my theory that today’s young people are smarter than what we were. (Of course, the question remains whether they use their smartness in the correct way). Read Shankar’s guest post for proof of a correct way.——————————————————————

Hi! I’m Shankar and I’ve been a big fan of Ranjan’s blog for quite a while. I’m 19, in my sophomore year and I blog for fun and passion. I’ve been trying to learn about money as much as I can so when Ranjan offered me a chance to write a guest article on this blog, I just couldn’t refuse the opportunity.

I’ll use this post to share some of my experiences and learnings. I’m young and I’m trying to learn as much as I can about finance and money, so please correct me if I’m wrong.

1) One simple flow chart that could save you a lot of money

I got a Dell XPS laptop when I finished school because I thought the device was ‘future-proof’. It’s a high end laptop but ironically, all my work boils down to writing and blogging. A netbook could have been the best choice for me, but I went ahead and bought something I really didn’t need without forethought.

These days, if I ever feel like I need something new, I use the ‘Should I buy it?’ flow chart for help. If I can live comfortably for 30 days without something I wanted during the start of the month, I probably don’t need it. Print this chart out and stick it near your desk if you are a spendthrift.

2) Ask, and you can get it for free

Sometimes, you can get things for free if you know where to look. I do a good amount of reading and I spent a considerable amount of money buying books this year. Sometimes, you can get things for free if you just ask.

I’m a blogger and many authors are happy to send copies of their books for free in exchange for a review. Granted, you need to be at least slightly established but I got a handful of books this way, and saved some money by doing so. If you’ve got a personal brand, you will get a lot of freebies – no doubt.

You can also save money when buying online by doing a twitter search for coupons (try your luck – an example here), or by using like price comparison tools like isbn.net.in or MySmartPrice.

3) Tracking expenses using pen and paper sucks (for me)

I track all my expenses using an Android app called Toshl. Previously, I was doing this on paper but doing it on phone is better for two reasons (at least for me):

I don’t always carry a notebook, but my phone is always in my pocket and I can quickly type in an expense and sync it to Toshl.com
I can quickly see expenses charted out based on the timeline/tags I had assigned to them.

I don’t think there are apps like Mint.com for the Indian market (Intuit is integrating with ICICI only now). By far, Toshl has been the easiest way to quickly record expenses on the phone. There are other alternatives you might want to check out.

4) Observe others. There’s nothing like it.

Like it or hate it – very so often, our friends influence our buying decisions. If someone in my peer group sports a brand new mobile, some of my friends also end up buying a new one in a few months. This could be an amateurish example to you but this is where it all begins.

I’ve been watching how people spend and I am trying to use that knowledge to make my money related decisions better. Try it and you’ll be amused by how people spend or don’t spend their money.

If you have something to say, please tell them in the comments. I’m all ears.

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Stop Your Brain To Take Quick Investment Decisions

Posted on January 28, 2011 by Ranjan

That’s what the book, Your Money & Your Brain by Jason Zweig says! Zweig simply points out that making investment decisions is one area where intuition and snap judgments simply don’t work and where our first reaction is usually the wrong one.

Read the review of the book here.. Excerpts:

Zweig’s basic premise is that our the function of our brains evolved to serve early humans in their quest to survive in a sometimes hostile world. While few can argue that humans have succeeded in dominating the planet, our brains haven’t quite kept pace. We still react to investment news and make decisions with the same mental firmware that allowed our forebears to avoid getting eaten by large carnivores, and that often leads us to poor investment choices.

Zweig points out the foibles of our investing brains, which are programmed to find patterns in the world around us. That may be good for coping with the natural world, but it is less useful for investing. For one, we leap to conclusions. If something happens twice in a row, we automatically project a third occurrence. We do this automatically and unconsciously.

Our “prediction” circuits are driven by the release of dopamine, a powerful brain chemical related to pleasure and rewards. This is one reason why people are drawn to stocks that keep going up; unfortunately, this neural extrapolation is usually setting us up for a fall.

So stop taking instant, impulsive decisions about your finances. Attending a “Personal Finance Workshop” would help!

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How Does Financial Planning Work?

Posted on January 26, 2011 by Ranjan

PV Subramaniam writes about an email from a reader who wants to understand financial planning and how it works. The reader details the service he got and says that he paid Rs 15000 in 2006 apart from what the Financial Planner got as Mutual Fund commissions.

Subra writes, “Equities are good in the long run” if you are planning for the long run keep money in equities. Buy critical illness, medical insurance, and term insurance. Keep money in a Unit linked plan for pension… none of this is a planners advice. this is generic and available on the web…but I have seen bills of 15k, 40k…for such generic advice. that is why i said ‘I have no clue what a FP is supposed to do’.

Subra’s post opens up a debate on how financial planning should work and I posted my opinion there. Here’s what I said,

I am not a CFP, Insurance/MF/PMS advisor but just a personal finance enthusiast. Having said that, I have certain thoughts on financial planning and being a smart money manager.

1. Investments is just one component of financial planning. The other components are about maximizing income and optimizing expenses. So a FP exercise shd start with some kind of cash flow analysis and a review of the current situation.

2. FP is also about two things. a)gaining info/knowledge about financial things and b) being aware of our financial behavior aspects. The behavior is more important in my opinion. So FP is more about improving financial behavior and not just doling out advice.

3. I shared a “Schedule of advice” with Subra which can be shared with the reader

I am sharing some points of the SOA here

Financial Planning is the process of managing your money with a view on achieving your financial goals. In consideration of the mutual benefits to be derived from this financial planning exercise, it is understood and agreed as follows:

1. Services of Advisor. Advisor shall prepare a financial plan to assist Client in defining his/her personal financial goals and objectives, and to supply analysis and recommendations as to the actions and strategies necessary to attain these goals and objectives. Specific financial planning issues to be addressed by Advisor are indicated below by Client’s initials.
• Risk profile analysis _____
• Insurance analysis _____
• Investment management _____
• Cash flow analysis _____
• Income tax planning _____
• Retirement planning _____
• Estate planning/Home Loans _____
• Other: _____

By limiting Advisor’s analysis to the specific areas indicated above, Client understands that information regarding specific issues not revealed to Advisor may have a direct impact on Client’s overall financial picture and well-being.

Advisor will meet or communicate with Client as frequently as determined mutually by the adviser and Client.

2. Confidentiality. All information and advice furnished by either party to the other, including their agents and employees, shall be treated as confidential and not disclosed to third parties except as agreed upon in writing or required by law.

3. Responsibilities of Client.
Client recognizes that the value and usefulness of the financial planning services described herein will be dependent upon information that he/she provides and upon his/her active participation in the formulation of financial planning objectives and in the implementation of plans to attain those objectives. Client will complete one or more detailed questionnaires provided by Advisor.

Client also agrees to discuss needs and goals and projected future needs candidly with Advisor and to keep Advisor informed of changes in Client’s financial circumstances, needs, and goals. Client acknowledges that Advisor cannot adequately perform his services on Client’s behalf unless Client performs such responsibilities on his/her part and that Advisor’s analysis and recommendations are based on the information provided by Client.

Implementation of any portion of the financial plan is entirely at Client’s discretion. Client understands that the responsibility for financial decisions is his/hers and that he/she is under no obligation to follow, either wholly or partially, any recommendations or suggestions provided by Advisor.

4. Compensation can be clearly mentioned under two heads.
a. Financial Planning and
b. Implementation of Recommendations

I welcome your thoughts on how a financial planning should work. Thanks

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Top 10 Personal Finance Resources in India

Posted on December 27, 2010 by Ranjan

Betting on the huge population of young Indians and their need to manage money, there has been exciting developments in the personal finance vertical. The online world has responded with some awesome products and services in this area and I list the ten best resources that I have come across.

The list is in no particular order.

1. PPFAS: I am a big fan of Parag Parikh and regard him as India’s best brain on investing. His books are a must read. Their site has a section devoted to behavioural finance and they have a wide range of products and services to offer.

2. Paisa: Built by possibly the best tech team in India, the user experience of the site is awesome.

3. InvestmentYogi: They have built an online financial planning engine and useful tax filing application.

4. TaxMunshi: A tax software that impressed me. They have plans for building many more applications that help people with their personal finance.

5. MProfit: This is a desktop portfolio management software for Indian users. All your financial data is saved locally on your computer for data security.

6. InvestPlus: Invest Plus is your all-in-one Personal Assistant. Right now they have a special X’mas offer going on too!

7. InvestorFirst:The website, an initiative by NISM, is a cool and useful resource for financial literacy. (My review)

8. BankBazaar: If you want to do anything with loans, this site is a must. They have cool calculators and their services are super cool.

9. FundsIndia: It’s an online platform for buying Mutual Funds, Equities, Fixed Deposits, NPS and more.

10. Blogs: There are some awesome blogs on personal finance. They are SubraMoney, Rohit Chauhan, Deepak Shenoy, TIPGuy, Manish Chauhan, Hemant Beniwal, Manshu. Update: I missed Raag Vamdatt and TheWealthWisher

Here’s a bonus! Check out my website on personal finance too. It’s being updated regularly now.

All the above 10 resources are awesome and I aspire to be like them in some way or the other. And if you take it as a business, each of them compete with each other. But if you take it as a profession, there’s enormous scope of collaboration/s.

Atleast I am always ready to collaborate with them in any way I can.

Have I missed some awesome resources? Please let me know.

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The Magic of Compounding

Posted on December 20, 2010 by Ranjan

It is one thing to know theoretically about the difference between simple and compounding interest. It’s another thing to see an example.

I think it makes a much more impact to look at the following example instead of reading about the magic of compounding. Do you agree/disagree?

• Age 25, Invest Rs 2000 p.m. till age 60

• Asset @ 10% growth is Rs 65 lacs

• Age 30, Invest Rs 2000 p.m. till age 60

• Asset @ 10% growth is Rs 39.5 lacs

Difference: Rs 25.5 lacs

• Investment difference only Rs 1.2 lacs

Does it tell something about the power of compounding? How would you explain the magic of compounding?

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Beware Of Free Lunches

Posted on December 16, 2010 by Ranjan

Do you get invites for FREE HOT TIPS, daily newsletters with hot market picks with a request to share your email id or mobile number? Most of us do.

I am reminded of the following excerpts about an email scam (from the Boglehead’s Guide to Investing)

Get a list of email addresses of people interested in sports betting. Say you have 32,000. Email 16,000 of them to say that the home team will win this week’s big team, and 16,000 to say the home team will lose. Now, half of the people will have gotten the correct prediction, and the next week, you do the same thing with them. After 5 weeks, you’ll have 1,000 email addresses of people who have seen you pick the winner five times in a row!. Now you pitch your 1-900 number or paid email list subscription to this amazed group.

Interesting, no? Still happy to be a guinea pig in the hands of such scamsters?

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