My learnings from Ramit

I follow a blog that is run by Ramit Sethi "Iwillteachyoutoberich.com" and two of his teaching that have profoundly influenced me are

• Automate your Finance
• Ask your Seniors

Automate Your Finance:
This aims at removing all the "Human Element" from the act of investing and tries to make it as mechanical a process as you can possibly think of . In my limited investment experience i have see that Human Elements like fear,greed,procrastination,laziness are the biggest stumbling blocks to disciplined investing and Automating your Finances focuses on removing these stumbling blocks.

Are you desirous of Automating your Finances , you can automate in these ways click here

Ask your Seniors:
This is about , learning from mistakes , more importantly, from mistakes of others .
Ramit suggests that you approach a person about 5 years your senior , may be a colleague or a friend or may be somebody in your family and ask them , if they had the chance to re-live last five years of their financial life again, what would they have done differently . how would their priorities be different , what investment they would have avoided , what investments would they have maximised .

Think about these two points , see how simple and yet how drastically can these alter your investment style.


Thank you Ramit for these insights.

Did You Know

It has been quite sometime now that Mutual Funds have enabled their own website for Online Transactions , Initially the Mutual Funds wanted

• You to be a existing investor with a Valid Folio Number
• You to have a online transaction PIN ( which the investor would have received from the MF after filling in a Online Transaction Form and mailing it to them )

Now all this is changing , MF now allow you to Invest and even start a SIP ( Systematic Investment Plan ) , even if you do not have a PIN . All that you would need now would be

• Your Valid Folio Number ( which means you would still need to be a existing investor )
• Your PAN number
• Your Bank Account Number ,that is registered with the Folio

KYC is mandatory , this goes without saying .

Which means , if you have a online transaction enabled bank account , you are all set to start investing .One less excuse for you not to invest

Currently i find these fund houses allowing investor to invest without a PIN
HDFC Mutual Fund
DSP Blackrock Mutual Fund

But remember , without a PIN you can only Invest/Buy , but you can never sell , this is a safety feature , So do remember to apply for a PIN , you would need that , the day you want to redeem your MF investments online.

So, go ahead and start investing from the comfort of your couch .

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MF Statement

When you start investing in Mutual Funds ( MFs) you are suppose to receive a Mutual Fund statement every quarter , especially , if you are investing through SIP.

Watch out for these details on your MF statement

Scheme Name and Option :
Make sure your money is being invested in the correct Mutual Fund scheme of your choice and also make sure the Option of the scheme which could be Growth, Dividend - Payout , Dividend - Reinvest , is as per your choice

Name and Address :
Make sure your Name is spelt right and also check your contact address ( Postal Address in case you received the statement by Email and Email address, in case you are getting your statement by Post ).

Email  Address and Mobile Number:
Make sure your email address is proper as, then you can get a statement from CamsOnline.com ,anytime you like using your registered email Id. Check you mobile number too , so that you can be sent SMS alerts by the MF when your SIP is due and when a purchase has been made

KYC Status :
Make sure your KYC status is OK/Validated on your statement .if your are not KYC compliant , you will not be allowed to make any new investments nor will you be allowed to sell your current holdings

Bank Details :
Make sure proper Bank Account details are mentioned , along with the IFSC code ,
If IFSC code is mentioned then MF can directly credit the dividends as well as redemption money into your bank account saving you time and effort of depositing cheques into your bank account and also avoid getting into the agony of losing/misplacing cheques.

SIP Amount/Lumpsum Amount:
Make sure the amount that has been invested is correct .

Broker Details:
If you were helped by a broker to invest , you would then see the Broker's name here, else you are suppose to see "Direct". This must not affect your investment directly , but brokers are usually paid a trail commission by the Mutual Funds , which is paid from charges deducted from you . So, in case you have invested directly/Online without any broker's help make sure it is "Direct"

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IFSC ( Indian Financial System Code )

RBI statistics show that Investors are increasing using NEFT and RTGS for funds transfers .

Even companies and Mutual Funds have made it mandatory to provide bank details along with IFSC ( Indian Financial System Code ) and MICR ( Magnetic Ink Character Recognition ) codes

Only pain point would be that , you may not be knowing these code for your branch , here is a website that can help you find this piece of information without any hassle

This website provides you the MIRC code and the bank branch address too :
Find IFSC CODE here

Best of both worlds

For a conservative investor who is taking baby steps towards investing in equity , here is combination that must work really well and help build confidence

Investor can try a combination of  Post Office Monthly Income Scheme ( MIS ) - with a SIP in a Equity Mutual Fund

Let me explain :
Suppose you have Rs.3 Lakh rupees that you want to invest , open a Post Office Monthly Income Scheme. MIS provides you with a interest rate of 8% and at the end of 6 years, the term of an MIS account, you will be get a additional bonus of  Rs.15,000 ( 5% of 3 Lakh )

So at 8% interest you would be getting an annual interest of Rs.24,000. Which means an amount of Rs.2,000 would be paid to you every month . MIS pays out the interest every month

Investor could channel this Rs.2,000 into a monthly SIP of a good diversified Equity Mutual Fund like the HDFC Top 200 or DSP Blackrock Top 100 or may be a Fidelity Equity Fund.

This mode of investment is very similar to what is called STP or Systematic Transfer Plan , where a lump sum amount is invested in a Debt Mutual Fund and every month a fixed amount would be taken out of the Debt Fund and invested in a Equity Mutual Fund .

Know more about MIS here

The advantage with this approach could be that , the Rs.3 Lakh would have continuously earned about 8% interest and the equity investment would add a additional kicker to the returns earned with the original lump sum of Rs. 3Lakhs protected.

This combination of Debt and Equity may prove to be your best friend for a long time to come

Also read my previous blog Investing ? -- Make it boring

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Random Thoughts

KYC :

Three of my friends who wanted to invest in Mutual Funds , found that they cannot invest , because they are not KYC compliant . Since Jan 01 ,2011 , being KYC complaint is mandatory

KYC , is Know Your Customer guidelines for Mutual Funds to know who their customers are and to make sure that no ill gotten money is being invested in MFs

So,even if you have no plans of investing in MFs in near future , Please make sure you get your KYC compliance letter ready , so that you would not have to run around when you really need it .

You would need this letter to make fresh investments in MFs and also to sell/redeem your old investments in MFs

How to get your compliance letter , click here

Online Investing :

Most of the Mutual Funds , now provide an Online option for investing , If you are an existing investor in a mutual fund , all that you would need to do , is to fill their Online Investment authorisation form and post it to them and the MF would mail you back the Online PIN , which can be used to transact Online

So in case you have not yet enabled online transaction for your MF Folio number, go ahead and do that , Investing becomes so much simpler when you can invest online .

Life is about seizing opportunities and you can seize opportunities only if you are prepared

ASBA

When a retail investor invested in an IPO ( Initial Public Offer ) or an FPO ( Follow Up Public Offer ) , the Investor had to pay the entire application amount upfront and it would take upward of 15 days to get through this process, before stocks are finally listed .

This means that your application money would we LOCKED up during this period and in case there has been over subscription to a issue , you will not be allotted your entire applied quantity of shares and then you would have to wait for your refund

So in order to avoid all these confusions ASBA or Application Supported by Blocked Amount was introduced .

This is how it work , when you apply instead of actually transferring the entire amount to a escrow account, the amount would continue to be in your account , but this amount would be LOCKED , hence you cannot withdraw this amount .

So after all the allocation process have been completed , the requisite locked amount will be debited from your account .

So what does this mean to the investor

a) The Investor's money would continue to earn interest for him ,untill it is finally debited

b) In cases of over subscribed issues, only amount for the allocated shares would be debited , so there is no question of refund and hence all delays and disputes associated with refund is removed.

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Tax Deduction at Source (TDS)

Tax deduction at source , is the tax which a person responsible for making a payment has to deduct from the amount he is paying , in lieu of the tax the receiver of the amount is suppose to pay and deposit it into the government coffer, quoting PAN of the receiver of the amount .

This one of the most effeciant ways of tax collection for the government .

Take the case of the transaction that took place between Vodafone and Hutch . When Hutch sold its telecom business to Vodafone , as per law Vodafone which was making the payment , should have resorted to TDS and must have paid Hutch the balance amount . But they did not , claiming that both Hutch and Vodafone , were Non Indian companies ( or some reason like that ) .

But now the Indian courts have decided that Vodafone , must have deducted TDS before they paid Hutch , hence the TDS amount , which must ideally have been paid by Hutch, would now have to be paid by Vodafone and the amount involved is a staggering $2 billion as TDS along with another $2 billion as penalty.

For lesser mortals like us , we see our employer resorting to TDS every month when our salaries are credited . Now the question is how do we check if that amount has been credited to the government.

Well this is what you could do
Log on to the website http://www.incometaxindiaefiling.gov.in/ and register here . After you login in navigate to My Accounts > View Tax Credit Statement (Form 26AS)

you will able to see all the TDS credits in your account across different financials years

How many Bank account you ought to have

I would recommend that a salaried person , Ideally must have atleast three accounts

First of the account is the Salary account , the account into which your salary would get credited , this account would not be used for any other purpose other then salary credit . The day you change your job and the new employer is not able to use the existing account this account must be closed

Second account would be your Investment Account , this account would be used to route all your investment , all your premium payments ,credit card payments,all ECS, all bill payments . Take care to choose a bank for this account ,which would provide internet banking ( with a very good customer care ), bank which would proactively make sure that it is enrolled as preferred payment bank across various vendors and service providers.

Third account would be your Emergency account , this account would be used to put some or substancial money for emergency and This account must be , no excuse, has to be a sweep account , so that money lying here will not just lie idle, but earn optimal interest .

What is advantage of splitting accounts , well
1) When closing old unused salary account , you are sure , you will never receive DDs,ECS request , which will be drawn on the closed account , as all investment were routed through Investment account

2) You want to find detail of all payments , Investments made , Dividends received just get a statement of your Investment account and lo .. all details are there for you

3)You are concerned , that you may accidently invest money in illiquid instrument , money meant for emergency , that would never happen as your emergency cash is in a totally different account

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How to store your important documents

The latest scanners allows you to not only scan your important documents , but would also allow you to scan a set of related documents into a compact PDF document and then email them, so that it can be access online or write it on to a DVD .

This is a very elegant way to of storing documents . Imagine what you can do with this feature

a) Scan all you tax returns say in blocks of five years as a single PDF document
b) Scan all your educational marks card/Certificate as a single PDF document
c) Scan all your documents like Driver License , PAN card as a single PDF document
d) Scan all your Life Insurance Policies as single document , so your family can easily find them

There could be more uses ...above would be good list to start off with

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How not to miss your payment due dates

I'am sure everyone of us have quite a few bills that we have to pay once a year , which make them so much harder to remember . These could include our Life insurance premiums , Health insurance premiums , Accident insurance premiums , Property taxes ,Vehicle insurance premiums, could be renewal of some annual maintaince contract, Well is there a way we could make our life a little easy to remember these . Well Yes , try and use the reminder calender for example use the google calender , make sure you take care of these when you set the reminders

a) Set a recurring reminder , so you get a reminder every year

b) Make sure you set the reminder atleast a week to ten days ahead of your due day , so that you have enough time to pay the amount.

c) Include enough details in your reminder , so that you know exactly what the reminder is for and approximate amount you would need to pay.

So the little time spend to set these reminders , would be well spent , if you could avoid late payments fee or policies being lapsed .

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Reduce fix cost overheads

Further to my earlier post , regarding keeping cost low . I would say , we would need to keep an eye on cost , not just during investing , but in other aspect of spending too,Take you mobile phone plan , if you are an employee of a MNC or rather of a well known Indian corporation , do make it a point to check with your HR for corporate Mobile Tariff plans . Not only will these corporate plans have lower monthly rentals ,but would also have very competitive call rates and also they will not have CLIP charges associated and also have a feature called CUG ( Closed User Group ) free calling , That is unlimited free calls between number on coporates plans of same company.

So if the service provider is OK , you can pick more then one connection or change plans of exisiting connection to the corporate plans , so that people who you frequently calls say spouse , parents , use the other connection , and you can end up with unlimited free calls at a fraction of the cost

Any recurring cost , be they Internet connections Plans, Magazine subscriptions,Cable TV subscription plans , there is always scope to optimise and cut on wasteful expense .

The bottomline is to keep recurring cost low , because , in long run benefits of optimising recurring cost would be phenomenal , as it could also help you get into a "optimise" mindset

Let us try to do the simple things first .

Keeping cost low

Once a individual has overcome the initial intertia to start investng , it would help investor to keep a eye on the cost involved . The cost could be what you pay you broker/online broking account , what your MF agent ( if there is still such a guy around ) .

One of the best way , atleast for me , regarding my MF investing has been that , i have been able to keep my trading account completely isolated from my MF holdings, thanks to more and more Asset Management Companies (AMC) going online , allowing investors to invest from their website.

The backend of most of these MFs , CAMS and Karvy , have been equally proactive to provide investor with an option to see their entire portfolios across AMCs as a single consolidated PDF file and on demand, that too free.

So if you ask me, i would say , use the AMC websites to purchase you MF units , you can even use these sites to start off your SIPs. if not, a trip to the CAMS or Karvy office with physicals forms is not a bad idea .

Bottomline, be in firm control of your folios and not be at the mercy of your online trading websites , atleast not for your MF folios.

Rule of 72

I always used to wonder how long it would take for money to double at any given rate of interest. I seem to have found this easy way out

Assume that you are promised 8% rate of interest .Now, as per this "Rule of 72" , you would need to divide this number 72 by 8 to get at that (72/8 = 9). That would mean, you would need 9 years for your invested money to double in value , provided you invest it for that period of time and let the amount compound annually.

Please correct me if i'am wrong