Wise Wealth Advisors

D.Muthukrishnan (Muthu), Certified Financial Planner- Personal Financial Advisor

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Archive for the ‘General’ Category

Our India is not big

Posted by Muthu on June 17, 2018

I was reading this piece recently.

India has been classified into three as India 1, India 2 and India 3 based on per capita income.

There are 280 million households in India with a population of 1340 million, averaging 4.8 persons per household.

We all belong to India 1 for which details are given below.

India 1 has 23 million households containing 110 million people. The working members of these households are 31 million. So an average a household has 1.3 working people.

The annual per capita income of India 1 is US$8,800 (Rs.0.6 million).

Only 8% of India, 110 million people are upwardly mobile.

10 million iPhone users, 32 million car owners, 37 million credit card holders, 50 million post paid mobile users, 59 million tax payers, 65 million domestic flyers, 24 million international flyers and 20 million ecommerce shoppers; all belong to this top 8% of population categorised as India 1.

India 2 with 104 million people spread among 22 million households has per capita income of US$3000 (Rs.0.2 million). This is another 8% of India which is aspiring to move up to India 1.

India 3 with 1126 million people spread among 235 million households has per capita income of US$1200 (Rs.80 thousand). This 84% is poor of India struggling to survive.

India moving from low income to middle income over next 2 decades would increase upwardly mobile and aspirers.

Only 8% of India can even dream of achieving financial independence. Like many countries, only 1% of population may actually achieve it. We need to keep this in mind.

Also giving needs to be part of everyone’s financial planning. Focus on giving should be on par with consuming and saving. We definitely owe that to the less fortunate.

Posted in Economy, General | 4 Comments »

Annual review

Posted by Muthu on March 30, 2018

As always, April is the month of annual review.

We would be sending your portfolio reports along with our notes and inputs.

We plan to complete the task by end of April.

This review is in addition to our meetings and interactions during the year.

Though we’ve given you online access, it would be good if you see your portfolio once a year. Lesser the frequency better would be the results.

Sensex has delivered 11.3% for the financial year 2017-18.

As far as debt is concerned, yields have hardened resulting in subpar performance.

Those of you who have invested during the recent past would see average to poor results.

For those who have been investing for long, the results continue to be good.

Short term is like weather. Not predictable. Long term is like seasons. Reasonably predictable.

Based on our experience and expectation, we are confident of good long term results. Those of you who have been with us for many years have been experiencing it through portfolio performance.

Emotions and liquidity influences short term performance. Fundamentals influence long term performance. Always focus only on long term. For equities, the long term is not less than 10 years. For hybrid like MIPs and balanced funds, long term ranges between 3 to 6 years.  Only for liquid funds, we can expect all time performance.

You’ll start seeing changes in the name of the funds you hold. This is being done by fund houses in line with latest SEBI guidelines. For the funds we’ve recommended, there has been no major changes in fundamental attributes and it is only change in nomenclature. So you need not worry about this.

Expense ratio for funds are being brought down by 15 bps by SEBI. In our view, this is only beginning and we may see more in coming years. Also as we wrote last year, due to TRI benchmarking and reclassification, we expect alpha to come down in the next few years. We would see more passive funds and ETFs coming into the being. We are keenly watching the developments and would suggest suitable changes at the appropriate time.

It is markets which give you results and not us. We are there to ensure you stay the course to receive the long term benefits offered by markets.

I’ve no new message to offer except asking you to stay the course.

Posted in General | 4 Comments »

Points to remember

Posted by Muthu on February 8, 2018

1) Equity beats inflation and provides superior return over other asset classes in the long run.

2) Good years are more than bad years. Based on the past we can say 70% of the time it is good years.

3) Not possible to time the market. Need to stay invested through both good and bad years to reap the long term return.

4) 10% correction once a year is a normal. Should not be surprised whenever it occurs. Only non occurrence should be a surprise.

5) 20% correction once in few years and 30% fall once in a decade is also very normal. Need to live through this roller coaster ride to enjoy high returns which equities offer.

6) Better to avoid checking portfolio during the periods of market turbulence. Once a year review is good enough, more so during bear markets.

7) Need to withstand emotional pain during the corrections and falls. Any adverse reaction to emotional pain would convert temporary notional loss into permanent real loss.

8) Invest when you’ve money. Redeem when you need money. Ensure there is not less than 10 year time gap between both.

9) Have strong filters when you consume market news. If it is not possible, you would be better off ignoring such news and updates.

10) Patience, discipline and staying the course would ensure you reach your goals and become wealthy. Always work on developing these traits.

Posted in General, Muthu's Musings, Stock Market | 4 Comments »

LTCG tax is back

Posted by Muthu on February 2, 2018

As you are aware, your debt fund investments like MIPs and liquid funds are subjected to both short and long term capital gains tax (LTCG tax).

For equity, there has been tax only on short term capital gains. Long term capital gains have been exempted from taxation for the last 13 years.

This has been changed by the budget presented yesterday.

Henceforth, long term capital gains on shares and equity oriented funds would be subjected to a tax of 10%.

For the purpose of calculation of long term capital gains, the NAV or share price would be taken as on 31’st January 2018.

Let us assume, you invested in an equity fund in 2010 at NAV of Rs.100. The NAV as on 31’st January 2018 is Rs.300. In 2020, when you redeem this fund, the NAV is at Rs.400. For calculating long term capital gains, your cost would NOT be taken as Rs.100 but only at Rs.300. This has been done to ensure that investments made till 31’st January 2018 does not suffer long term capital gains tax. Any investment from February 1’st 2018, would be subjected to long term capital gains tax of 10%.

There has been strongly divided opinion whether the taxation is correct or not. That debate would continue. But what matters to us is the fact that this tax has to be paid for equity investments made from now on.

We’ve to wait and see how this impact markets in the short term. I would not be surprised if markets react adversely in near future. These things are difficult to predict and does not affect the long term growth trajectory. Earnings have started picking up from last quarter and structurally corporate India is expected to deliver robust growth over next few years. In the long run, only earnings matters and sentiments which are so prominent in near term dissolve.

In 2014, I shared with you a tweet of Ben Carlson.

https://twitter.com/awealthofcs/status/542520113933864960

Start with a $1 investment that doubles in value year.

1) Sell the investment at the end of the year, pay the tax and reinvest the proceeds.

Do the same thing every year for twenty years.

End up with $25,200 clear profit.

(Or)

2) Don’t sell anything.

At the end of twenty years, end up with $692,000 after-tax profit.

See the difference in long term wealth creation when there is no churning.

We advised no churning even when there was no tax on long term capital gains. It now becomes all the more important to keep the churn very minimum.

Equity as an asset class delivers superior returns over all other asset classes in the long run. This was true when there was no tax and continues to be true when there is a 10% tax.

Currently there has been no indexation benefit for LTCG on equity. This is because the cost price of previous years has implied indexing as only the price as on 31’st January 2018 would be taken from now on.

Till 2004, long capital gains from equity was taxed either a flat 10% or 20% with indexation. I would not be surprised, if in the coming years, both the options are again provided to investors.

Now that you are aware of the changes, what you need to do?

Nothing. Just continue to stay the course, as always.

Posted in General | 1 Comment »

Bad News and Good News

Posted by Muthu on January 2, 2018

Bad News: Inflation destroys wealth

Good News: Compounding builds wealth


Bad News: Discipline is painful

Good News: Outcome is enjoyable


Bad News: Equities are extremely volatile

Good News: Equities create immense wealth


Bad News: Media amplifies greed and fear

Good News: Good books and blogs impart wisdom


Bad News: Short term is unpredictable

Good News: Long term is reasonably predictable


Bad News: Bad things can happen any time

Good News: Proper planning & risk covers can reduce negative impact


Bad News: Life is ephemeral

Good News: Most of us would live to reach old age


Bad News: Cannot control returns

Good News: Can control savings


Bad News: Markets are not under our control

Good News: Behaviour is under our control


Bad News: Disruptions can happen anytime anywhere

Good News: Continuous learning is the available antidote

Posted in General, Muthu's Musings, Wealth | 5 Comments »