The Ant and Grasshopper : 21st Century

August 12, 2018

Almost all of us have either read or listen the old story of Ant and Grasshopper. Many of us are now a days aware of jokes created around this simple yet beautiful story. In this blog post, I’m trying to take the old background to convey the point, I want you to understand.

Once upon a time, there were 2 friends – Miss Ant and Mr. Grasshopper. Both belonged to same neighborhood. Both went to same schools and colleges and ended up earning same university degrees. After finishing their college education, both landed into similar job profile but in different companies but in same city.

Mr. Grasshopper was also aware of the FAMILY HISTORY of his forefather, generations ago and the misadventures of that forefather, so from his first paycheck, he started investing for a Goal.

Miss Ant on the other hand was also aware of her family history and to continue the family reputation, legacy, she was equally hard working and laborious like her older generations. She also started saving from her first paycheck, for a financial Goal.

Both were having a common Goal – To create a Corpus of Rs. 10000000 (One Crore) in next 15Y. The readers are thinking till this point, each and everything is common the life of these 2 characters of our story. Where is the difference? Please hold on with me. Here is the difference.

For their future Goal – the expected return figure, Miss Ant opted for was 10% (Post Tax).

Mr. Grasshopper was true to his family legacy and thus opted for 15% (Post Tax) figure.

With the help of so many calculators, excel sheets and more, both came to a conclusion, if no increment is made in these 15 years, the fixed monthly amount to be invested in, to reach the corpus of 1 Crore is as below.

Miss Ant            Rs. 25081

Mr. Grasshopper Rs. 16424.

Real twist in the story comes here on wards. Although these friends were investing their money on monthly basis, regularly but the performance of Market was not in their control and hence the corpus created was as below.


Actual performance of market was just 8%. Yes, you read it right – 8% only. So the Corpus value for both friends after 15Y was as below.

Miss Ant            Rs. 8472852

Mr. Grasshopper Rs. 5548348


Actual performance of market was 12%. So the Corpus value for both friends after 15Y was as below.

Miss Ant            Rs. 11839590 or 1.18 Crore

Mr. Grasshopper Rs. 7753018 or 


Actual performance of market was 18%. So the Corpus value for both friends after 15Y was as below.

Miss Ant            Rs. 19845327 or 2 Crore (almost)

Mr. Grasshopper Rs. 12995481 or 1.3 Crore (almost)

Story ends here but readers of this blog, needs to introspect on their financial life. Are you having Traits of Mr. Grasshopper or you are more similar to Miss Ant?

The lesson – Instead of chasing RETURN from Market, start putting more money to work.


GST on exit load in Mutual Funds.

June 6, 2018

In it’s recent meeting of GST council, it was proposed and accepted to levy GST on the exit load charged by Mutual funds. How it’s going to impact us, the investor? Let’s discuss it and try to understand it here.

Before we move ahead, please do understand, Exit load is always charged on the redemption amount and not on your invested amount. So no matter, you are redeeming in profit or loss, if Exit load is applicable to your redemption, it’ll be levied on your redemption amount.

Let’s assume, we are redeeming Rs. 10000 (ten thousand) and the applicable Exit load is 1%. So here goes the calculations for pre GST and Post GST situations.

Case 1 – Pre GST 

A. Redemption amount = 10000

B. Exit load @ 1% = 100

C. Net redemption amount in your bank account = A – B = 10000 – 100 = 9900

Case 2 – Post GST

A. Redemption amount = 10000

B. Exit load @ 1% = 100

C. GST @18% of B = 18

D. Net redemption amount in your bank account = A – (B+C) = 10000 – (100+18) = 9882

Now one interesting thing for your information, the exit load is not the profit of AMC. As per SEBI mandate, it’s added back as part of assets of fund for the remaining investors. So, what’s the difference now for this exit load addition, for old investors, who are not redeeming?

Nothing. That 100 in our example was added in pre GST era as well as now also in Post GST era.

One important point, the exit load and GST there on, does not impact your Short or Long Term Capital Gain Tax liability. For tax calculation, your redemption amount is still 10000 in our example.

The TAX SAVING in NPS – A Calculation

January 15, 2018

A lot of young earners are fascinated with the additional tax saving offered by NPS for an investment of Rs. 50000, every FY under section 80CCD(1b). Here I’m going to check the impact of TAX saving. Are we really saving tax today?
To get the answer or to start a calculation, few assumptions are made. Here are the assumptions for your kind considerations – the readers of this blog.

The investor aka NPS subscriber –

  1. Age 30Y old at the time of first investment in NPS.
  2. Only Rs. 50000 yly is invested at the start of year, here year means Financial Year.
  3. The retirement is taken at age 60Y. So the total investment period is 30Y.
  4. The corpus is growing at 12% rate in all these 30Y.
  5. Total amount over these 30Y, invested in NPS is Rs. 1500000 (50000*30 = 1500000).
  6. The maturity value of NPS at age 60Y is Rs. 13514630
  7. The 40% corpus is withdrawn tax free. Another 20% is withdrawn taxable and remaining 40% is used to purchase annuity from LIC under it’s immediate annuity plan, where, the Annuity (pension) is payable Yly for both husband and wife and after death of both, the purchase price is returned to to nominee/legal heirs. Point to be noted, the data available on LIC site, showing an annuity rate of 6.3% (roughly) for age 60Y person.
    Investment year Maturity year Year to remain invested The growth rate @ 12% Growth multiple Amount Invested Corpus for each individual investment Tax saving in 30% tax slab. Tax saving in 20% tax slab.
    2018 2048 30 1.12 29.95992 50000 1497996.1 15450 10300
    2019 2048 29 1.12 26.74993 50000 1337496.5 15450 10300
    2020 2048 28 1.12 23.88387 50000 1194193.3 15450 10300
    2021 2048 27 1.12 21.32488 50000 1066244 15450 10300
    2022 2048 26 1.12 19.04007 50000 952003.61 15450 10300
    2023 2048 25 1.12 17.00006 50000 850003.22 15450 10300
    2024 2048 24 1.12 15.17863 50000 758931.45 15450 10300
    2025 2048 23 1.12 13.55235 50000 677617.36 15450 10300
    2026 2048 22 1.12 12.10031 50000 605015.5 15450 10300
    2027 2048 21 1.12 10.80385 50000 540192.41 15450 10300
    2028 2048 20 1.12 9.646293 50000 482314.65 15450 10300
    2029 2048 19 1.12 8.612762 50000 430638.08 15450 10300
    2030 2048 18 1.12 7.689966 50000 384498.29 15450 10300
    2031 2048 17 1.12 6.866041 50000 343302.04 15450 10300
    2032 2048 16 1.12 6.130394 50000 306519.68 15450 10300
    2033 2048 15 1.12 5.473566 50000 273678.29 15450 10300
    2034 2048 14 1.12 4.887112 50000 244355.61 15450 10300
    2035 2048 13 1.12 4.363493 50000 218174.66 15450 10300
    2036 2048 12 1.12 3.895976 50000 194798.8 15450 10300
    2037 2048 11 1.12 3.47855 50000 173927.5 15450 10300
    2038 2048 10 1.12 3.105848 50000 155292.41 15450 10300
    2039 2048 9 1.12 2.773079 50000 138653.94 15450 10300
    2040 2048 8 1.12 2.475963 50000 123798.16 15450 10300
    2041 2048 7 1.12 2.210681 50000 110534.07 15450 10300
    2042 2048 6 1.12 1.973823 50000 98691.134 15450 10300
    2043 2048 5 1.12 1.762342 50000 88117.084 15450 10300
    2044 2048 4 1.12 1.573519 50000 78675.968 15450 10300
    2045 2048 3 1.12 1.404928 50000 70246.4 15450 10300
    2046 2048 2 1.12 1.2544 50000 62720 15450 10300
    2047 2048 1 1.12 1.12 50000 56000 15450 10300
    1500000 13514630 463500 309000

    7. Now check the next table.   Here it goes.

    Tax free 40% withdrawal Taxable 20% withdrawal 40% Annuity purchase amount Yly annuity amount
    5405852.1 2702926.1 5405852  340713
    Tax @30% on withdrawal 835204.15 105280.3
    Tax @20% on withdrawal 556802.77 70186.85

    From the 2nd table How many of you can see the impact of TODAY’s TAX SAVING resulting in a larger TAX outgo tomorrow?
    Point to be noted, the tax outgo on annuity is lifelong. Year after year, till the couple is surviving.

Asking right questions

November 9, 2015

Many readers of this blog are aware of PV Subramanyam. He writes a blog Many a times, he has asked to readers on asking right questions  to the advisers or planners or agents or sellers of financial products. Why does he say so?

My dear friends, personal finance is also about asking the right questions. Below is an old joke. Please read and understand it.

Two men went into the church and questioned to father.

Man 1 – Father, I’m drinking my glass of wine and suddenly, there is a desire within me to remember God, to pray him. Should I do it?

Father’s Ans. – My dear Son, God can be remembered any time. Please feel free to do so.

Man 2 – Father, I’m praying to God, remembering him and suddenly there is a desire within me to have a glass of wine. Should I do it?

Father’s Ans. – How dare you to do it? When you are in prayer, you should only remember God and nothing else.

Joke is over. Can you people get the point, this joke is about? Both the men were doing the same thing. Mixing drinking and prayer. Yet the answers to both were different.

Now go out and search for right questions within you, so that next time you get the right answers.

Why RBI is not printing more money to pay off all the loan of World Bank and IMF?

June 12, 2014

This post is not my work. It’s Copy-pasted from Quora. The original Post is here.

A very simple and ordinary question (actually this question is far more serious than it looks in first glance) was asked. Here is the question-

Question – Reserve Bank of India (RBI): Why can’t Indian government pay world bank loan by just printing money?

RBI can print as much money as it wants. Why can’t it print enough money to pay off all the loan that has to be paid to World Bank?
And here starts the answer given by Mr. Akshat Agarwal.
Answer – Let us say you are a farmer and you have mango plantation (keeping in line with the season’s favorite  :P). You do hard labor and work day and night and grow 100 kg mangoes every year.

Now, one cannot live his life eating only mangoes, And since mango is a good seasonal fruit, good for health, and not to mention utterly delicious, there would be others who’d happily trade their farm products, say wheat, for some of your mangoes. Realizing this, you decide to exchange your mangoes for other products. You tell about it to your friend who has wheat farms. Incidentally, he happens to be a mango lover like me and together you develop a rate of exchange, with mutual understanding of course in this example, say, 5 kg mangoes for 10 kg of wheat. You give him 10 kg mangoes and get 20 kg wheat for your family, which you assume should suffice for 6 months. You do the same thing with your other friends as well in exchange for pulses, rice, vegetables etc.

Now, past 6 months comes winter, and your supplies have started to diminish. Moreover, you do not have any mangoes to offer in exchange for wheat and other commodities. But without the commodities you wont survive for next six months. Now what should, or rather, what could you trade in exchange for wheat?

You find a solution. You go to your best friend who trusts you a lot, and you promise to give him 5 kg of mangoes next summer for 10 kg of wheat right now. He thinks about it for a while. There are of course things to be concerned here. What if you refuse to give him mangoes later? What if the mangoes you give him aren’t good quality? What if next year is a drought and there are no mangoes?

Let us say for the sake of simplicity here that your friend here thinks about it but on goodwill and years of friendship, he trusts you and agrees. Similarly, you go to your other friends, gain their confidence and promise them some mangoes next summer for providing you with supplies right now. Now, what you have done here is that you have developed a trading system wherein you trade items and commodities for other items and commodities. And the trading currency is none other than the “items and commodities“.

But now, since you are trading with so many different people at different time, it is getting difficult for you to keep track of how much mangoes you owe to whom. So what you do is that you start handing over promissory notes to the people you trade with, with your sign on it and the amount of mangoes you owe them. So next summer, whenever you have mangoes harvested, people come to you, show you the promissory note with your sign on it, and take the mangoes.

But there is a problem with this system: you are promising X kg of mangoes which you have not harvested yet, i.e., which do not exist. Similarly you would have supplied mangoes to someone for a certain commodity he’ll have in future but doesn’t have it now. And then there is always a risk factor, i.e., next year maybe a dry one and you may not have enough mangoes to trade.

Realizing this, you are worried now. You need a damage control. You consult this with your trusted friend and ask him how to avoid possible damage. Now this friend of yours is quite a trader himself and has traveled many cities and traded with many people. He tells you not to worry about it and that he’ll let you on a little secret. He explains it to you how people will need mango no matter what: after all it is a seasonal fruit and very delicious. Now if there is less growth of mangoes next year, then he can ask to negotiate exchange rates in his favor, i.e., more commodities for same amount of mangoes. Simply put, due to scarcity, his mangoes will become costly.

You get it a little bit, but you are still confused. You wonder how will you negotiate rates when you do not know how much mangoes you are going to harvest next year; how can you negotiate when there is uncertainty? Your friend smiles, and tells you that you can. He suggests you to issue only a certain value of promissory notes, lets say  1000, and then do the trading with these notes after declaring their new meaning to the traders. These 1000 notes will represent 100% of your harvest, no mater how much you harvest. So if there is a guy with your promissory notes valuing to 100, he”ll have 10% of your harvest next summer, no matter how much you harvest. He can also decide to not exchange it for mangoes next year when there is a drought, and wait for next to next year hoping for more amount of mangoes then. Lets call your promissory notes as Mango Currency (MC)

All goes good and the mangoes, being good quality and sweeter than its competitors, are valued more. People want to buy mangoes from you even if they have to pay more. This means the value of MC gets more, only a few people can afford it. The very lower class, who wants to eat mangoes but cannot get hold of MC due to its high value is suffering. This also causes you loss in business since people are now holding MC instead of trading it for mangoes since the value is increasing. Since mangoes are not being traded, they are rotting in the collecting compound with very less people to buy them, causing you huge loss. You now need to keep the value of MC in check so that people do not hold up to it.

You go to your friend again and consult him on how to keep value of MC in check. He tells you to simply issue more promissory notes. Since the total sum of promissory notes is equal to 100 % of your harvest, if you issue 1000 more promissory notes in addition to the initial 1000 that you’ve had, the value of MC would be halved. 100 MC that was 10% of the harvest would now only be 5% of your harvest. (This is also how RBI keeps the value of Rupee under check, else Economic activity of country would go down)

Now you have developed a good trade system and also know how to keep the value of MC under check by regulating the supply of promissory notes. Now you decide to expand your business. You go to your best friend who deals in wheat and has currency WC (Wheat Currency). He is already doing very good in business and has surplus money. You tell him about your plans to expand our business and your requirement of more money for expansion purpose. He listens to you and agrees to lend you some money at certain interest rate: he already has enough money and extra money sitting at home isn’t earning him anything, so lending it to you for certain interest seems a good deal.

You borrow 500 WC from him. Now WC is quite strong in market. So much that 500 WC costs around 1000 MC (how much % of wheat harvest it represents doesn’t matter).

Now, you use up all the WC for expansion but suffer heavy losses. All the WC went down into the drain. You bought some stuff from it and have it still, but it is not bringing you any revenue and nobody is ready to buy it back. You are now left with only a few MC (remember, your currency is also floating in the market; you have maybe 1200 MC at hand). To pay back 500 WC, you need 1000 MC. But if you give 1000 MC right now, your remaining business will not be able to sustain itself with only 200 MC at disposal and you’ll eventually end up bankrupt.

You now think about possible way out. You plan to issue 2000 MC more, exchange 1000 MC for WC and return the loan. But if you issue more MC, the value of MC will be halved. Moreover, you can not think of cheating because the value of various currencies is now checked by Association of Auditors and you need to report any more printing of currency to them before it can be floated in the market, and all the currencies are numbered to keep the authenticity in check

Basically, you are now left with only one option: to try to get your act together and grow your business back to what it was, and then further more to get enough MC with sufficient value, to be able to return the loan amount.

Now in the above scenario, lets replace you with our country India, and replace mangoes you harvest with the economic activity that takes place in country; and replace your promissory notes, valuing to 100% of your harvest, to 100% of the economic activity in the country.

Now, back to your questionWhat happens when RBI prints more money to pay off bank loans? You should be able to guess it. More the money printed, lesser the value of currency. Money flowing in the country is nothing but standardized promissory notes issued by RBI. They are equivalent to the total economic activity of the country. If the economic activity does not increase in proportion to the money printed by RBI, the value of Indian Rupee will go down.

And obviously, value of MC will go down with respect to promissory notes issued by other people for other commodities. So when value of Rupee goes down, it does w.r.t other currencies, USD being one of them.

Its not difficult to guess that loans provided by World Bank are in USD. If money is printed to pay off the loan, value of Rupee goes down, which means you need more Indian Rupee to buy USD. As you can see, you can not repay the loan unless youactually have the money, over and above what you ‘ll need to run the country.

So my dear blog readers, What’s your take on this answer? Please update me with your comments.


Post Retirement Planning

May 11, 2014

The Idea of this post came from here. Dear Viren Phansalkar requested for a post on Post Retirement Planning. A lot of articles have been written on pre retirement planning. How one should invest, where to invest, when to start, when to stop, when to switch for a wonderful retirement. All this stuff is concentrated on how to prepare your cake to eat in your post retirement life. But not much info is there on how to deploy the corpus post retirement to earn return as well as income so that corpus can sustain the expenses till death which is going to be some 25-40 years away in post retirement life.

Few good posts are available with important calculators on dear Pattabiraman’s Here are 2 such posts.


Few days back we also have a detailed group discussion in our FB group for a case study on post retirement planning. There can be multiple ways to deploy ones money for consumption in post retirement life. But the important thing is, the corpus should outlived the investor and spouse. In case the corpus deplete well before the actual death of investor (including spouse’s death), the deployment of money was not proper we can say.

Now problem in post retirement planning is complex due to 2 things.

1. Inflation

2. Risk Tolerance

1. Inflation – it’s the single biggest enemy to any retirement portfolio in post retired life. Can any one of us imagine the impact of inflation in just 10Y time frame on a person from age 60 to 70? Most of you ‘ll quickly put a basic figure like 5-6-7-8-9 or 10% for retail level inflation. Is it the only inflation? Certainly not. The biggest impact of inflation ‘lll come in the form of healthcare cost. Interestingly this may anywhere from 15 to 25% and even more if health condition is not good. People may say that health insurance may take care off such inflation. Really? Try to read the queries on various forums where people want to purchase health insurance either for their own or for parents. Most of the time, the covers are either not available for the required sum assured or come with a hefty prem.

2. Risk Tolerance – When we are in job, we can bear few bad years of loss on our portfolio as we have both (time as well as resources – fresh money) to counter these loss. Once we set our feet in sunset years, neither we have enough time on our hand nor the resources – fresh money to overcome such loss on portfolio. This situation severely restricts the portfolio creation and deployment. So in a sense our risk tolerance level comes down to a very low point. This low risk tolerance may not allow to deploy more money in growth assets as safety of capital is prime importance here.

A very  generic and crude solution is to split the whole corpus in following manner (what dear Pattu called bucketing).

1. 1 year equal expenses in SB account

2. Next 2 years equal expenses in FDs and liquid funds

3. Year 4 to 10 years’ expenses in FDs, short term funds and Arbitrage funds.

4. Year 10-20 years’ expenses in instruments at 3 above as well  as add some Eq. to provide growth here.

5. Year 20+ years’ expenses in instruments + higher allocation in Eq.

I repeat the above solution is very generic in nature and the things should be done as per each individual’s own situation.


Please feel free to share your views in comments below.

One Sentence Investing Rules

March 28, 2014

Dear Reader of my blog. this post is dedicated to dear Deepak R. Khemani who posted all these rules in our FB group. The below rules are not my work. I have simply copy pasted.
Please read each one, its a long list but worth reading,
Its a US finance post replace dollar with rupee.
1. Dollar-cost average for your entire life and you’ll beat almost everyone who doesn’t.

2. Only invest in products and companies you can explain to a six-year old.

3. Every five to seven years, people forget that recessions occur every five to seven years.

4. You’re twice as biased as you think you are (four times if you disagree with that statement).

5. Read more books and fewer articles.

6. Read more history and fewer forecasts.

7. It’s strange that you go to the doctor once a year, but check your investments once a day.

8. Be careful when reading about how stupid investors can be and not realize you’re reading about yourself.

9. Your circle of competence is probably 90% smaller than you think it is.

10. You’re only diversified when some of your investments perform worse than others.

11. Big risks will always be disregarded; small risks always blown out of proportion.

12. Check your brokerage account as infrequently as it takes to prevent rash decisions.

13. When in doubt, choose the investment with the lowest fee.

14. Emotional intelligence is more important than book intelligence.

15. The more you learn about the economy, the more you realize you have no idea what’s going on.

16. Start saving for college before your kid is born, and start saving for your retirement before you graduate college. You’ll feel silly when you start and like a genius when you finish.

17. The most powerful way to grow your money is learning to live with less, since you have complete control over it.

18. Singer Rihanna nearly went broke and fired her financial advisor, who described her situation well: “Was it really necessary to tell her that if you spend money on things, you will end up with the things and not the money?”

19. You have no obligation to have an opinion about anything.

20. You have a strict obligation to not have an opinion about things you don’t understand.

21. No one attending private school should be on student loans. Most should utilize community and state schools, which provide just as good an education for a fraction of the price.

22. You shouldn’t feel strongly about any investment you haven’t spent at least a week thinking about.

23. Holding 60% of your assets in stocks and 40% in bonds isn’t perfect for everyone; but I can think of a thousand worse strategies.

24. Respect the role luck has played on some of your role models.

25. Don’t take out $100,000 in student loans for anything other than medical school (if that).

26. Change your mind as often as the facts change.

27. Ignore people who refuse to change theirs when the facts change.

28. Read last year’s market predictions and you’ll never again take this year’s predictions seriously.

29. Warren Buffett’s folksy talk misleads people into thinking that what he’s accomplished is easy. It’s not.

30. Sleep on every investment decision for a week, then run it by a trusted friend before acting.

31. Two things you can do to make yourself a better investor are increase the amount of time you’re investing for and the humility you put into your ideas.

32. Just as you should dress appropriately for your age, you should spend appropriately for your income, and not a penny more.

33. Warren Buffett has the best explanation of dumb risk-taking: “To make money they didn’t have and didn’t need, they risked what they did have and did need. And that’s foolish. It is just plain foolish.”

34. You can probably afford not to be a great investor — you probably can’t afford to be a bad one.

35. You’re twice as gullible as you think you are.

36. Learn more from your bad investments than your good ones.

37. Judge investors by the quality of their arguments, not the performance of their last trade.

38. You can realistically afford probably half the home the mortgage broker approves you for.

39. Teach your kids about money before they’re old enough to earn their own.

40. Admit when you are wrong.

41. Imagine how much stuff you’d have to make up if you were forced to talk 24/7. Remember this when watching financial news on TV.

42. There is, and always will be, more money to be made providing investment advice than receiving it.

43. Assume the worst, hope for the best, accept reality.

44. Save for your own retirement; assume Social Security and private pensions won’t be around (even though they probably will).

45. Annuities: A product mixing the complexity of high finance with the sales tactics of used-car salesman has an entirely predictable outcome.

46. The correlation between confidence and future regret is incredibly high.

47. During the last 100 years, there have been more 10% market pullbacks than Christmases. Everyone knows Christmas will come; think of volatility the same way.

48. Don’t attempt to keep up with the Joneses without realizing the Joneses aren’t any happier than you are.

49. Predictions, opinions, and forecasts should be discounted by the number of times the person making them is on TV each week.

50. Not taking advantage of an employer match on your 401(k) is no different than declining a raise.

51. Don’t let Washington sway your investment decisions. Congress has been a dysfunctional swamp of disappointment since 1789, and stocks have done well ever since.

52. To quote Larry Summers: “A good rule of thumb for many things in life holds that things take longer to happen than you think they will, and then happen faster than you thought they could.”

53. Another Larry Summers gem: “THERE ARE IDIOTS. Look around.”

54. “Invest in what you know” is dangerously simplified.

55. Quit day trading, and donate your money to charity instead. Same financial result for you, and a better outcome for society.

56. Most people’s biggest expense is interest, which comes from living beyond your means, and buying things they think will impress others, which comes from insecurity. Avoid these two and you’ll grow richer than most of your peers.

57. Reaching for yield to increase your income is often like sticking your hands in a fire to warm them up — good in theory, disastrous in practice.

58. Your devotion to a political party or economic philosophy is directly proportional to your tendency to think irrationally about how politics affects your investments.

59. Most people need a financial advisor, but everyone needs a financial counselor, or someone to talk them off the ledge before making a dumb decision.

60. There’s a strong negative correlation between flaunting money and being rich.

61. Investors were probably better informed 20 years ago when there was 90% less financial news.