Real Vs Perceived returns…

I have come across people who often complain about their money not growing. This is a very common thing, and today I will try to shed some light on this issue.
All the investments products comes with its merits and demerits. Some are high on risk and so give better returns as well. While with the safer investments returns will always be low. Now when I speak about returns, please note that there are two kinds of returns. One is the perceived returns other is the real return.
Ok, so what do I mean by this?
The answer is quite simple. Let me put it this way, supposing one decides to make investment in Bank Fixed Deposit and, say the bank is offering an interest rate of 8.25% per annum on its fixed deposit for a period of say three years. This 8.25% is not the actual returns on your investment, it’s a perceived return. You have not factored in the tax implication and the inflation on this. When you apply these two parameters your actual returns will be different. To illustrate this let me consider the following example.
Suppose you want to invest Rs. 100, 000/- for a period of 3 years @ 8.25% per annum (simple interest) in a bank fixed deposit. So the amount you will receive on maturity is Rs. 124, 750/-, this will be mentioned in your fixed deposit certificate.
Now if you are in 30% tax bracket you will have to pay tax on the interest earned, which comes to about Rs. 8167.50/- (including cess & surcharge) thus now the interest earned has come down to Rs. 16,582.50/- To this amount when we apply an inflation which is Rs.15,122.50/-  (from Year 2014 through 2016) the actual amount that works out is Rs. 1,460 /-
So you see, Rs. 24,750/- which you initially saw is the perceived returns while Rs. 1,460/- is the real return that your investment actually will give. So how do you decide which investment product should you choose? Well that depends on the time you want to invest for and also the amount of risk you are willing to take. If your investment horizon is short term, say less than three years, better stick to fixed deposits or Mutual funds debt funds. If it is between 3 to 5 years you may opt for balanced and or diversified equity mutual funds. For tenure more than 5 years you may consider investing in equity oriented mutual schemes and shares. These my friends is only a general guideline and not an investment advice or recommendation. The idea is only to make you aware of the fact that please factor in the inflation and tax implications before you make any investment decision when planning for your various financial goals. And, please consult your financial advisor before making any investments decisions.
I hope you will choose wisely where you invest your hard earned money, so that your money works harder for you, than you work to earn it.


P.S:- Cost Inflation Index (CII) for each year is published by The Government of India, Ministry of Finance (Department of Revenue), Central Board of Direct Taxes, and can be accessed online.

Soulmate….

As a person we all have the mind to think (Intellect), varied sense of feelings (Emotions) and the body (Physical being). The band or spectrum of these three may vary in different people as with others.

We connect with different people at different levels. It can be intellectual, emotional or physical. If any one of this connection is established we say we have a ‘connect’.

This first level of connection may or may not lead to the second level connect. But if connection is established at any two out of the above three levels, there is a very high possibility that third level connection can also come into force.

Look amongst the relationships you have or have had, be it with friend, relative, colleague, people you have come across in life so far. With each one of them you connect at some level. With complete stranger you may develop one someday.

So in our life there are some people with whom we can talk anything as far as it is intellectual, but with other we only talk personal and or emotional stuff, yet with others it is more of physical connect something like hand holding, kissing, cuddling, walking together, etc… which involves more of bodily connect (not necessarily sexual). One of these connect will always be dominant with some while with limited few all is well balanced. Thus, when we connect with people at all the three levels they are our Soul-mates, they stay in our life forever 

The possibility is that there may be either no one, while sometimes we may have one or even more Soul-mates. Anyone can be our soul-mate, possibility is endless……

Having said that, there is one more kind of soul-mate, that ONE very special person with whom we already are or may someday connect at one higher level which is above these all soul-mates. You will know in your heart of hearts, this is the one. With this awareness and realization, the connection is absolute, and the circle is complete. This special person is your “SOULMATE”.

With this special person you will develop a level of bond which is above everyone and everything else. No matter what, you will always be together. Growing together as individuals and as a couple. This is your companion for life the one with whom you want to share everything….. Your experiences, your ideas, your feelings, your needs, nothing remains incomplete.

You might be surely knowing such a couple. One look at them and you know they are complete “A Perfect Couple”. Married or not married, the only thing that matters to them is being together. Some get lucky very first time either knowingly or unknowingly…. while others are in search or might start their search someday.

Have you found your “SOULMATE” yet?

Appreciating Assets….. Depreciating Assets.

What is an Asset? Simply speaking it is an item or a product or a thing bought for a particular price, which increases in value with the passing of time.
A good example of this type of an asset is “Property”. Generally it is seen that the value of property increases over period of years. Thus investment in property can be called as an appreciating asset. Similarly an investment in purchasing a car for example is a classic example of a depreciating asset. Why? Because when you want to sell this car you do not get the price at which you bought it, forget about getting more over and above the price at which you bought it.
Knowing this basic fundamentals, why do people still end up investing in depreciating asset? One probable answer could be that they do not know the difference between them or two they do not know the difference in affordability and sensible spending.
As humans we often get tempted and this leads to impulsive buying. We do not think if the purchase is going to add value or not? If you sit and analyze about all the purchases you made in say last 5 years, you will find that most of them which once you bought are not even being used.  And if you agree with this, then don’t you think it is time for you NOW to take charge of your buying behavior and spending decisions.
So how can that be done? Well it may sound simple but in reality it is not that easy. First of all you need to know the difference between both an Appreciating asset and a Depreciating Asset. As seen above any purchase which adds value or increases in value over and above its purchase price over a period of time is an Appreciating Asset. Few classic and general example of an appreciating assets are Investments made in Property or real estate; financial products like Mutual Funds, Shares, Public Provident Fund, Unit Linked Plans etc. Precious metals like silver, gold and diamonds; collective items like Arts and antiques etc. Similarly some of the best examples of depreciating assets are Vehicles like Car and Bike, Electronic items, Gadgets like phones, laptops etc. Amounts spent on unwanted furniture and interiors done at home.
Having explained the above I am not trying to dictate what you should buy or what you should not, this decision is something which you all need to make. But what I am trying to bring to your attention is the fact that you must carefully analyze your needs and requirements before you make your purchases. In the world and times that we are living there are few things which we need to do in order to stay with times, and we need to spend on these depreciating assets too, so how can a balance be achieved?
I have this approach in most of the purchasing decisions I take, it helps me have the best of both worlds. And you know what? It works for me, may be it will work for you too. No harm in trying, right? Recently I had to change my cell phone. Smartphones are available at every price point nowadays. So this is what I asked myself before making my purchase…. What is it that I am looking for in a phone? I need the following basic things in my phone….making and receiving phone calls, using text message application, whatsapp messenger for sharing videos and pictures, and yes being a person on the move always I have to have continuous access to my business emails. So with these parameters set, I narrowed down my search for a decent Smart phone which not only served all my above mentioned purposes, but also was friendly on my pocket. Affordability is not the question here, being sensible with your purchases and money is 
My idea of writing these stories is not to impose my views on you all, but to educate you all on the basic concept of using your money in your best interest. If you adopt or try any or all of these ideas which I share and if it helps you manage your finances better than before, then my job is done as we can be much happier and stress free.