Providing Financial Solutions & Sharing Knowledge

Posted on November 2, 2010 by Ranjan

October 2010 was a month when I made a transition from a giant Organization to a Startup. I am also metamorphosizing from just sharing my knowledge on personal finance to providing financial solutions.

Paisa.com, a fresh way to track, compare and analyze the financial markets and products in India, has been built by a very passionate team of hackers and product designers who believe that the best products share the DNA of simplicity, aesthetics and function. I am excited to join them as the Community Evangelist.

I also passed the certification exams that allows me to be a certified mutual fund and insurance advisor.

I strongly believe that generic advice is useless and it depends on the individual situation, risk appetite to arrive at the best fit solution. I also know that just more knowledge and information doesn’t really help. You also need the right approach and take concrete action instead of debating on the pros and cons of various products.

The exciting news is that the Regulators in India are cracking the whip and are affecting the business distribution models of the Insurers and the AMCs. And Glenn Williams, CEO, Bharti Axa Life Insurance, says (Mint Column),

The new regime necessitates the distributor to better understand the customer requirements, undertake a sound financial needs-analysis and recommend the appropriate product offering to the customer that would thereby result in a long-term mutually beneficial relationship. Adopting a customer-centric sales approach will affect the distributor’s absolute earnings positively and also result in higher persistency, the importance of which can never be understated.

That’s encouraging for folks like me who want to provide the right financial solutions and not recommend products based on the commission factor alone.

I am in the process of documenting a “Schedule of Advice” that includes the process of providing solutions, confidentiality clause, disclosures and the compensation expected.

Do you have any suggestions/expectations? Or better still, would you be interested in a new age Financial Advisor? Awaiting your comments, emails (ranjan@ranjanvarma.com) and your call (+91-9867755615)

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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How to set up your financial freedom?

Posted on August 11, 2010 by Ranjan

As we celebrate another Independence Day, let’s take a look at setting up your financial freedom. The following article was published in Jetlite’s in house magazine Flylite.

Freedom is being free of restraints and means having liberty from slavery, detention, or oppression. So, Financial Freedom would entail being free of money worries, to be free from working under oppression for money. Sounds interesting? Or does it look like too difficult thing to do? Does it look to be a utopian idea? The good news is that it can be achieved. Read on for the details.

It important to remember that freedom does not come for free and does not mean doing whatever we like. The fact is, Freedom is earned and freedom comes with responsibility.
Financial Freedom: Financial freedom comes when you’ve built a capital so that the interest earned from this capital takes care of your expenses when you decide to retire. We shall keep our discussions limited to managing our money. And managing money has three important components too.
1. Investing, to get more bang for your money.
2. Maximizing your income, to control the game of money.
3. Frugality, to save and not leak money.
So, personal finance is not just about investing. It’s also about optimizing your expenses as well as maximizing your income. In this article, we will focus on building the capital required for your financial freedom.

The situation: There are more than 300 life insurance schemes, numerous health insurance schemes, over 1000 Mutual Fund schemes, 2500+ stock scrips to choose from. Then there are 100+ deposit schemes with Banks, Corporates and the Government itself.
Wouldn’t it be a good idea to bring down the choice galore to a maximum of 20 products to choose from? Can’t this group of 20 products be the best in class and stands validated through a reasonable thought process?

Setting up your investments: The answer, to my mind, is yes! Read the following 7 points that gives you a set of 20 products to choose from for your investments.

Before we go on to investing our money, it’s a good idea to take a bit of cover. Let’s start with the emergency fund.

1. Emergency Fund: Keep an amount of three times your monthly expenses in your Bank in a Savings Account.

2. Insurance: Many of you who are just started having an income, are single wouldn’t really need insurance now. But some of you who have started a family need to get a cover. Trying to find how much insurance do you need from the internet will throw multiple calculations and options. Each one of them have their own logic. A simple thumb rule for me is to get insurance worth 60 times your monthly expenses. Not 60 times your gross monthly salary, mind you. Insurance is for taking cover, not profiting out of it.
You also need to get health insurance. A group health insurance privided by your company should be enough. If not, start with a mediclaim policy with one of the General Insurers.
To start investing, you need to first exhaust your tax planning options.

3. Tax Savers: Apart from the PF that might be deducted from your salary, getting a PPF account is a good idea. Plus you might go for equity linked tax saver Mutual Fund schemes. HDFC Tax Saver, SBI Magnum Taxgain, Sundaram BNP Paribas Tax Saver, Franklin India Tax shield and Sahara Tax Gain have given a return of 20%+ over the last 5 years.
From the money left after taking a cover and exhausting your tax planning options is available for investment.

4. New Pension Scheme (NPS): NPS is THE best & effective tool that covers capital protection and also provides growth for your retirement plans. With its lowest charges, it also is the cheapest way to get an exposure to the market. Despite being such a fabulous product, there’s not much sales to boast. This is because there’s no commission for an agent there. Infact getting a PRAN (Permanent Retirement Account Number) under NPS is not easy.

5. ETFs: This Pdf will tell you why ETFs are the best. Nifty Index ETFs which benchmark the Nifty that are available in India are NiftyBEES, KotakNifty, UTISunder, .QNifty

6. Equity Diversified/ Balanced Mutual Funds At a young age, you can take more risks and I will not ask you to invest in debt funds. A few Equity funds that I like are HDFC Top 200, Franklin India BlueChip, Sundaram Select and SBI Magnum Global fund. But to get a bit of diversification in your portfolio, I will recommend investing in a few balanced funds. Balanced funds have exposure to both equity and debt and their fund managers take a call on when to focus on equity or debt. HDFC Prudence, DSP Blackrock Balanced, Birla Sunlife 95, Tata Balanced are balanced funds which have done well. In fact some of them are at par with Equity Funds!

7. Gold ETF: Gold has been outperforming the equities for the last decade!. Looks like it’s on a dream run. For diversification purpose, investing 5-10% of your money in Gold ETF isn’t a bad idea. Gold ETF is seeing the highest turnover these days and there are a lot of players which are offering Gold ETF these days.
To set up your financial freedom, we have shortlisted a set of 20 odd products out of 5000+ financial products. Does it help you get started?

Advantages of the set up recommendations:

It tunes out the noise of the market place which is worse than the fish market.

It takes care of Diversification, Rupee Cost Averaging, Asset Allocation principles, Magic of Compounding and all principles and theory of investing.

It also gets you real bang for every Rupee at a very low cost.
Disadvantages: It’s boring and non-happening. More like a Cricket Test match when it’s the age of Twenty-20.
But the question is, do you need an audience for your finances? Or do you need to perform in front/for the benefit of others? Remember, it’s “personal” finance.

And once you set it up, you can forget about it and focus your life on more happening things! Yes, you have earned your financial freedom! And it is also the time when you become more responsible. And being responsible is easy. Just stick to the plan!

Yes, Freedom is earned and freedom comes with responsibility.

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Search Or Ask: India’s First Personal Finance Search & Ask Engine

Posted on July 27, 2010 by Ranjan

Technology is a powerful tool to build an environment of learning. And I am excited about building two simple sites on personal finance.

One, India’s first personal finance search engine

Two, India’s first personal finance ask engine

The search engine will search my own websites and blogs which now comprises of over 900 posts and articles.

If you have a question, you can visit this page. I will attempt to answer your question to the best of my ability.

Another site which I am building is the FAQ. It will consist of very direct answers to 6 compelling questions. How, Why, Where, Who, When and What.

I keep six honest serving-men
(They taught me all I knew);
Their names are What and Why and When
And How and Where and Who.
-Rudyard Kipling

I believe there are simple solutions to seemingly complex issues of personal finance. Examples:
1. Become Our Member

2. The 88% Solution

As always, I will be delighted to read your views via comment/email. Thanks.

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Drink Your Glass Of Water; Put It Down!

Posted on July 19, 2010 by Ranjan

Don’t hold on to it forever! Read the story below:

A lecturer, when explaining stress management to an audience, raised a glass of water and asked, “How heavy is this glass of water?”

Answers called out ranged from 8 ounces to 20 ounces.

The lecturer replied, “The absolute weight doesn’t matter. It depends on how long you try to hold it. If I hold it for a minute, that’s not a problem. If I hold it for an hour, I’ll have an ache in my right arm. If I hold it for a day, you’ll have to call an ambulance.

“In each case, it’s the same weight, but the longer I hold it, the heavier it becomes.” He continued, “And that’s the way it is with stress management. If we carry our burdens all the time, sooner or later, as the burden becomes increasingly heavy, we won’t be able to carry on.

“As with the glass of water, you have to put it down for a while and rest before holding it again. When we’re refreshed, we can carry on with the burden.

The above story on stress is very interesting. I have been holding on to my disappointments with people for decades. I guess I need to put that glass down now. And pick up new disappointments after a while!

What about your investment stress? Do you keep looking at the stock screens every day?

Just today, (19.07.2010), the stocks opened weak and there’s an update on my feed reader at 9.20 am: Financials Down (link updated to the second story). And just after an hour, another update from the same paper says, Markets turn positive, earning optimism!

But unless you enjoy the above stress, it’s a good idea to set up your finances in a holistic manner and check progress once in a while. Have a glass of water when you are thirsty and then keep it down!

That’s where I think that the 88% solution can work. Ofcourse you need to tweak it to suit your style and situation. But it will surely work for the majority while keeping all the financial stress away.

What do you say?

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Buying In Bulk Gets You Bargains

Posted on June 30, 2010 by Ranjan

That’s common sense. Every urban or rural housewife knows that buying in bulk saves you money.

But the problem is that it is not very convenient to buy a truck load of biscuits! Buying in bulk always may not save money. Usually our tendency is to dump random items even if we do not require them. That’s what Ashutosh, a Supply Chain Consultant warns.

I connected to Ashutosh Tewari, (Blog)who works as a Supply Chain Consultant in Mumbai, and is into Procurement Consulting. I have his permission to make our interesting discussion public. Here it goes.

me: hey, Ashutosh. a SCM question.
9:52 PM
What’s the distribution cost of a FMCG product
me: And how much a customer can save by bulk buying?
9:53 PM
ashtew: Distribution Cost will involve transportation & logistics

me: from the Big Bazaar, for example. Or from the factory itself.

ashtew: which in FMCG cos. is usually 3 phased.
Most FMCG cos. in india have outsourced the production to 3rd party.

ashtew: so its from manufacturer to company warehouse to distribution centre to retailer
9:55 PM
me: so what if i buy from the manufacturer? how much I save? as a thumb rule.
ashtew: there u need volumes… are u ready to buy a truckload of biscuits
9:56 PM
me: let’s say I bring 1000 people who want biscuits!
9:57 PM
ashtew: usually the manufacturer to MRP margin will be around 20-25% max
if u can bring a 1000 ppl then u can directly get in touch with the vendor and order from him
ashtew: buying in bulk always may not save money… usually our tendency is to dump random items even if we do not require them…
like my mom once purchased a one liter bottle of dettol because it was on 20% discount
10:03 PM
me: my proposition is that you can save 60% in a group insurance scheme!!
10:04 PM
ashtew: thats interesting
which insurance product are u talking of ?
10:05 PM
me: group term insurance
10:07 PM
ashtew: but thats only at an organization level. right?
10:08 PM
me: no, any association can do that. I am thinking of doing it under an association.
10:10 PM
ashtew: thats interesting. never knew something like this can be done.
me: Thanks Ashutosh. Wait for an announcement shortly.

You may not be aware if something similar could be done for financial products. However, there will be different set of issues to ponder when it comes to financial products. We are addressing that right now.

Would you be interested in buying financial products in a bulk and save huge distribution costs? Stay tuned for an announcement shortly.

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Coming Soon: A Simple Solution To Money Problems!

Posted on June 26, 2010 by Ranjan

Question: What do you do when there’s an emergency or a problem?

Answer: I panic. Blame it on others. Get drunk and pray to God that the problem gets over!

I read that sometime ago and the only thing I remember that it was Rahul Bose that gave that answer. My respect for him increases immensely, though I have yet to see any one of his movies. (I don’t have the link and am reproducing it from memory. The exact words may be different, but you get the drift, no?)

Reading that was refreshing. Especially when all the time when we read “How to” articles and books we are told such do’s and don’t like this:

Count from 1 to 100 when you are angry. Or take a deep breath. Any one of you who has taken a deep long breadth when you’re angry wins a free subscription to my blog for life! And I can get you many more such free offers!!

But I digress. Well, bear with me for another para till I come to the point.

I can talk endlessly about how our financial behaviour affects our money decisions. I can talk about the products that I like and don’t like. And then you go to an article in a leading daily or another blog which has a different view. And you get confused.

Doing nothing about your money is also a decision. But one that you may rue later. (Example, me!).

Coming to the point of the post, there’s something which is very simple to execute and can solve all you money problems. I wonder why I did not think of it earlier! It’s a solution that makes 1 + 1 = 1111.

But the announcement will have to wait till I tie all the loose ends. This will take a week.

Till then, all of you can continue to panic, blame others and/or pray to God that your problems are over!

Stay tuned for an announcement “Coming Next Week” that will take care of your money problems. (not the other problems, please)

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NPS Is The Best Investment Option!

Posted on June 17, 2010 by Ranjan

When I posted my 88% solution to all your investment problems, there were a few protests. Like,

Sanjay comments, for example I think that Equity diversified funds should be in the list and NPS not on it. Dislike NPS due to EET treatment as well as the non flexibility of not being able to get all of my money back on maturity.

I responded by saying that:

The reason I like NPS is because of the low cost and that it takes care of your asset allocation needs and also locks up your money for your retirement. So if it doesn’t give you all the money back at maturity, it’s for a valid reason. The tax treatment is at too distant a future to affect our decisions, IMHO. Who knows what tax treatment will we have for our other investments in the future. If you look at their cost structure, it looks better than ETFs too!!
Equity diversified funds is highly recommended. But after you get your feet in the water and learn some swimming!! You need to identify the right equity fund, that suits your investment objective and has a decent fund manager. It’s not that easy.

Well, the reason I am writing this post is because of the new Direct Tax Code (DTC) and that they have given a thumbs up for the NPS.

The government has proposed to bring long-term savings schemes like the NPS under the EEE (exempt-exempt-exempt) regime.

At the same time, the government has sought to levy tax on capital gains arising from sale of investment assets such as equity shares of a listed company or units of an equity-oriented fund, which are held for more than one year.

So the DTC has given a boost to savings schemes like the New Pension Scheme (NPS) and Public Provident Fund (PPF) as compared to equities and equity-linked products.

Has the 88% solution worked up to become a 95% solution!!

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