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

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Archive for the ‘Giving’ Category


Posted by Muthu on May 12, 2019

Many of our long term clients are building wealth which would last even beyond their life time. So I thought let me cover today about giving.

There are two kinds of giving. The first one is what we give to our own blood, the next generation and even grand children. The second one is what we give back to society, helping the needy. We cannot forget that society helped us in creating wealth.

If your wealth is limited to this life time of you and your spouse, you may not be able to leave your children anything other than primary residence. That is fine. As far as giving back to society, please see what best you can do, given your limited resources.

For those who have wealth that would last well beyond their life time, don’t wait to leave everything after your death. If you live well into your eighties, your children would then be in their fifties, way past their prime. They would not be in a position to meaningfully enjoy your wealth.

Don’t be tight fisted. Help your kids during occasions like setting up their family and buying primary residence. Take care of their education till post graduation so that they don’t start with student debt.

Also learn to help less privileged. While you may be doing something on and off during working years, this should start full-fledged latest by the age of 60. Giving while living and seeing how the money is useful to others is bliss. So don’t ear mark wealth for charity only after your life time. Give and enjoy giving at least during last two decades of your life.

In my view, not less than 10% of one’s wealth should be given back to society. If you find this less, do more. If you find this more, at least start with 5%. Charity should be significant. Having a wealth of Rs.100 crores and giving few lakhs a year to charity is sub optimal. Though philosophical, need to remember that you’re not going to take any money with you once you die.

Enjoy money in your life time. Give a part of it to your next generation while you live. Let them also enjoy your wealth. And don’t forget to give it to needy. This is a well balanced life and living this way is meaningful.

Kanchi Maha Periyava and Ramana Maharishi are the two Jnanis I respect most.

I end this note with what Sri Ramana said on giving:

“Giving to others is really giving to oneself. If one knows this truth, would one ever remain without giving?”

Posted in General, Giving, Muthu's Musings | 2 Comments »

Preserving wealth

Posted by Muthu on December 2, 2017

“The father buys, the son builds, the grandchild sells and his son begs.” says a Scottish Proverb.

The Chinese have a saying, “Fu bu guo san dai”, which means wealth never survives three generations.

Traditional wisdom holds good for modern days as well. I come across data, articles and stories in this regard.

It is very difficult to be rich. Only 1% can be in top 1%. According to Credit Suisse if you have more than Rs.5 crores, you are among top 1% of the world population. A million dollars (Rs.6.5 crores) puts you in top 0.7%.

We have to get rich only once as long as we don’t do anything foolish. As both investor and advisor, our focus is always on avoiding permanent loss of capital and at the same time to grow wealth at a reasonable rate.

Ben Carlson in a recent article points out that about 70% of people who receive a financial windfall lose it within a few years. Also nearly 80% of NFL players are broke or bankrupt after being out of the league for two years. Sixty percent of NBA players are broke after being out for 5 years.

If you are interested like me in studying about wealth, there is so much of information and data available.

The above example shows how difficult it is to stay rich in our generation itself. I’ve also seen people lose their wealth by taking unwanted risks.

I came across an article in Time magazine. It says that 70% of wealthy families lose their wealth by the second generation, and a stunning 90% by the third generation.

Out of the people who get rich, not all stay rich. Even amongst those who are able to stay rich, 70% lose it in second generation and by third generation it becomes 90%.

One way to minimise such happening is to teach children and grand children the value of money and the art of money management. There is no such thing as easy money and by design only few are endowed with good wealth. If we don’t value something we have, it would start slipping away. Not to talk us up, but having a financial advisor who can be a mentor and coach would definitely help.

This should also make us ponder over giving, as part of wealth management. Not all focus on giving as much as saving and spending. We all create wealth because of the opportunities provided by the society and we need to give at least something back.  In our case, our family has decided to allocate 10% of our wealth for charity when I turn 60. There is no hard and fast rule for giving. But we thought 10% is the least we should do.

Like all things in life, wealth is also ephemeral. By teaching next generation, you can at least prolong it. By giving, you can make positive impact in the life of less privileged.

Some points to ponder for the weekend.

Posted in Giving, Muthu's Musings, Wealth | 3 Comments »

How a retired executive built $70 million?

Posted by Muthu on October 31, 2017

Theodore Johnson was born in last century and died at the ripe age of 91 in 1993.

From 1923 to 1952, for 29 years, he worked in United Parcel Service (UPS).

He joined the company at $25 a week, rose through the ranks and retired in 1952. At the time of retirement he was making $270 a week, which is $14,000 per year. For ease of understanding, in today’s dollar, it is worth around $1,25,000.

He had a habit of saving around 25% of his income every month and he invested it in stock. When I say stock, he invested only in one stock, that of his employer UPS.

When he retired in 1952, he has accumulated UPS stock worth $7,00,000.

He never touched the corpus. He might have been living on his dividend income. Assuming a dividend yield of 2%, he would have lived very comfortably with dividends itself.

Thirty nine years after his retirement, in 1991, the stock has grown to the value of $70 million. Please note that he might have received a dividend of $1.4 million a year for that corpus.

He gave a sizeable portion of this wealth to his son and two grand children.

After the same, he donated $36 million for various charitable organisations supporting education for poor and disabled.

He passed away next year. His wife died few years before him. They had a long married life.

From what I read, he has lived a well balanced and good life.

No doubt he was a high earner of his times. Still building a corpus of $70 million is a huge achievement.

Many of you are high earners. You can also save 25% of your income. Instead of investing in only one stock (we would not advice that), you’re investing in equity funds. Shareholders would receive dividends and mutual fund unit holders can do SWP (Systematic Withdrawal Plan).

Five equity funds or a portfolio of 15 to 20 stocks can do wonders if you save with discipline during working years and withdraw only for your lifestyle needs in retirement years. Higher the corpus, even a small withdrawal would ensure an excellent life style.

You can pass on wealth to your children and grand children and also provide for underprivileged in the society.

Leading a good life style, passing on wealth to next generation and giving it back to society, what more a life well lived needs?

Aim big and work for it.

Posted in General, Giving, Stock Market, Wealth | 2 Comments »

Gold Savings and Cancer Cure

Posted by Muthu on February 13, 2011

My contribution has appeared in the Q&A of current issue (dated 20.02.11) of Nanayam Vikatan which has hit the stands today. Thank you NV!

For those of us who feel 30% taxation in India is high can take consolation from the following data provided by Nanayam Vikatan.

In Sweden, the income tax rate is 59.17%. Likewise income tax rate for few other countries are as follows: Denmark- 59%, Netherland- 52%, Finland-51.5%, Austria-50%, Belguim-50%, Canada-48.25%, Israel- 46% and our unfriendly neighbour China- 45%.

Of course in western countries higher tax rates are matched by better social security. The only security we’ve is the guy standing outside the apartment with a blue uniform and a stick, paid out of the monthly maintenance fee collected from us!  

We’ve written in the past about poor performance of companies under Reliance Anil Ambani group. Some clients asked us last week about Reliance mutual fund coming under this group.

Mutual funds do not own either your money or the securities. They are with the custodians, supervised by trustees. Mutual funds only manage the assets for a fee. As long as the performance of a fund is good, there is no reason to move the money out.

I do not see a need to link the performance of the group companies while evaluating a mutual fund scheme.

For example, LIC appears very sound and profitable. But many of their mutual fund schemes are performing poorly and we do not recommend schemes of LIC mutual fund to our clients.

All mutual fund houses run under a premise that not all the investors would demand money at the same time. Something similar to your bank. If all the depositors demand money from the bank at the same time, a bank would cease to exist.

At the time of financial calamities, every banker dreads this scenario known as ‘bank run’.

If you recollect there was a beginning of a bank run with a leading private bank in 2008. Timely intervention by RBI and the finance minister saved the day for the bank.

In case of a fund house, the usual settlement period is T+3 days. This is for a normal redemption. Assuming all investors demand money at the same time, it would take a while to liquidate all the securities and pay the money. In such cases regulator may intervene, merge the fund house with another or take any other action which is in the best interests of investors. Only the regulator knows what it would do depending upon the situation. I can only guess.

However I can quote one example. In late 2008, due to global financial crisis, there was a huge redemption pressure on FMPs (Fixed Maturity Plans). There was an asset- liability mismatch due to the tenure of the security and immediate pressure on redemption. RBI opened a liquidity window to all mutual fund houses to meet the redemption pressure. The crisis was effectively managed with the help of RBI.

FMPs were subsequently restructured removing the redemption option before the tenure of the investments.

All I can tell you that mutual fund industry is well regulated in India. Protection of investors’ interest is of paramount importance to the regulator. As you are aware, value of mutual fund investments are subject to market risks. This is something inherent for all mutual fund investments. However given the regulatory structure, I do not see any fund house disappearing with the investors’ money. There is no need for fear on this front.

We never write about individual funds. We want to make an exemption and write about two unique offerings commencing this week which are not there in the industry so far.

First is the Gold Savings Fund offered by Reliance. Now investors can buy, hold and sell 24 carats gold without the hassles of storing it in the physical format. There is also no need for demat account and pay brokerage for each transaction. This fund holds the Gold ETF in demat form and issue an account statement for the same. This is similar to your other mutual fund investments where the fund house holds the securities in demat form and issue an account statement for the same.

Another example is like holding the money in bank and getting the bank statement. The money is safely held by bank and you can obtain one more statement if you loose or misplace the existing one.

Buying physical gold from banks or jewellers involves significant mark up price and wastages are also significant in many cases at the time of reselling it. Storage cost and risk of theft is also high.

You can be sure of the purity here and there is no entry load. There is also no exit load if the units are held for more than a year.

For gold owned through mutual funds, there is no wealth tax irrespective of the amount.

It is further tax efficient as holding of more than a year is considered as long term and the taxation is like that of a debt product.

One can invest as a low as even Rs.100/- every month in gold.

We would advise you to start saving gold through SIP mode for social occasions like daughter’s marriage etc.

We generally do not advice to hold more than 10% of one’s asset as Gold. Gold is a good inflation hedge. It does not provide superior returns like equity or real estate in the long run.

Like any other commodity, gold also goes through bull and bear cycles. The current bull cycle started in 1999. The last bear cycle lasted between 1980 to 1999.

Whenever there is war or any global financial crisis, gold becomes the most sought after commodity. However in the long run, gold has proven to match only inflation. So at best gold protects your capital from inflation. Also in a county like India, gold has lot of social value.

I do not know how the global financial situation would pan out in the next few years. The price movement of gold is likely to be correlated to this scenario.

However all I can suggest, for all your social needs, buy gold through SIP instead of buying it at one go. Likewise, invest up to 10% of your total assets in gold through SIP.

As far as investing lump sum is concerned, only invest smaller amounts. Given that gold has had a more than a decade of bull run, it is safe to be cautious and opt SIP route.

The next one is the debt fund for cancer cure, a social initiative by HDFC.

This is a 3 year debt fund rated AAA (so) by CRISIL. This is a capital protection oriented income scheme.

To support the social cause, there is no investment and advisory fee charged by the AMC. I understand that there is no expense ratio at all and the entire income is fully passed through.

There would be annual dividend. The investor has the option of donating 50% or 100% of the dividend income.

The dividend donation beneficiary is Indian Cancer Society (ICS).

Section 80G benefit is available for the donations made through dividend.

Minimum application amount is Rs.1 Lakh and in multiples of Rs.1000/- thereafter.

Assuming you opt for 50% dividend donation, you would still end up earning better than your savings bank account and would also receive the capital back at the end of 3 years.

We would be glad if each of you can invest atleast Rs.1 lakh in this scheme.  By this

1)    You would be donating a decent sum every year for 3 years towards cancer prevention and eradication

2)    You would also get a return superior to your SB A/C after donating 50% of your dividend income

3)    Your capital also would be back in your hands after 3 years.

Hats off to HDFC and Mr. Deepak Parekh for this initiative.

You now have option of SIP in gold and philanthropy for cancer cure.

You may choose either or both or neither!

Posted in Giving, Gold, Media, Mutual Funds | Leave a Comment »