Part 2: My Tryst with financial planning
Let me simplify Jargons for you and tell you what is good to know and what is important to
Good to know
FD /RD: Safe, go drink a pina colada. Your kid’s education cost will rise 2x of your RD interest over the next 15-20 years
Equity mutual fund: There is an insane number of funds running after some 300 Indian
companies. Let me simplify, they invest in the share market as professionals. Period!! Don’t muzzle
up your mind by knowing large-cap, mid-cap, small-cap, multi-cap, opportunity, advantage.
They all look like different stacks of saree in a saree shop in Chandni Chowk stacked by price
and pleasure. ( pleasure is the risk in case of mutual fund)
Debt funds: There are many types. Literally many types… Hybrid, liquid, short term, medium
the term, ultra long term, Dynamic, and what not… cut all of it for a moment and say “I need a liquid
fund and nothing else”
Important to know
a. Equity Mutual fund: The purpose is to grow money but it comes with risk.I
b. Liquid fund: The purpose is to keep money handy and yet save taxes. Beat RD/equal to RD.
Avoid risk in it. ( yes there are risky types)
c. RD/FD: Purpose is to satiate your ego which stops you from venturing into investing:)
You can make short term goals ( 2-3 years away), medium-term ( 4-9), long terms 10 years and
I made 3 goals and all 3 are long-term goals which are 12-15 years away.
a. Child education and child post-graduation: 12 /16 years away
b. Financial independence by 50: 14 years away
c. 100% down payment for the home at age 50: 14 years away
i.e Yes, I convinced myself that buying a home in Gurgaon is the height of stupidity
and I will not be PENNY wise POUND foolish. Home is the biggest expense. Yes
yes, I have had a fair share of my fights with my spouse but I seem to be winning
the battle as of now. Write back to me for tips:)
You can make as many goals as you want. Read Stable investor.com for goal setting. He has
written great articles.
But My funda has been a few BHAG goals… BIG HAIRY AUDACIOUS GOALS, rest all is noise/ too
many variables. I want to focus on the top 3 and biggest 3.
3. Why are you not able to choose a mutual fund
Greed, fear, trepidation, inertia, and paradox of choices, and of course your love for real estate and LIC. Believe me, I have gone thru all and in 3-4 years, have tried 12 mutual funds, and now down to 3. Happens with all, will happen with you too but they say you learn by doing it yourself:)
Choosing a mutual fund is like shopping with your spouse to buy a saree in SAROJINI or in CHANDNI CHOWK. The hunger, desire, appetite is insatiable and by the end of the day, you may have taken 1 or 2 but with a mutual fund, you will not.
The reason is “You are running after returns” instead of thinking “ How much %age return is enough for my Goals”. Now of course till now you have not made goals and hence you don’t know how much you need to save for a goal and how much return from the investment will suffice for the goal. You are stuck at either looking at financial websites showing either 3-year returns of 20% or 1-year returns of -3%.
Now imagine there are some 300 plus mutual funds in the EQUITY category giving some return ranging from 6% to 32%. What will you do? you will say “ I don’t know which mutual fund is right for me “
4. How did I choose my equity mutual funds?
I am a firm believer in the law of averages. I believe almost all mutual funds in a particular
category will be in a range of X to Y percent returns. So HDFC equity is equal for me as ICICI
value Pru or MIRAE India Equity.
What do I mean by that? I first decided on my goals and the monthly amount required for goals. I
then decided to do my planning at 10% returns. Yes, 10% and I am comfortable with it.
So if I have a figure of 10% in my mind and historically top 50 mutual funds in large/multi-cap
has given between 14% to 18%, what are the chances that if I pick any 2, I won’t be able to reach
So what happened here? I am not chasing returns. I am just putting my money in 2 well-known mutual funds with over 10 years of experience and that is it. Now they may give 14% and 17% respectively or 13% and 19% , or 9.5% and 12.5 %. All of these variables are unknown but what I have done here is removed noise/170 parameters to judge a mutual fund and the need to read about alpha beta gamma ratios.
Remember START is more IMPORTANT
Here is My choice of Mutual funds
For my Financial Independence Goal
a. Quantum Long term equity and Parag Parikh’s long term equity
For My Child’s education and home purchase
a. Mirae emerging blue chip
For experiment and dabble in the small-cap with 10k per month
a. DSP small-cap
I am deliberating hard on the index fund but have yet to make up my mind.
5. How to calculate Amount you need to save for
Ideally, this should be your exercise but let me simplify with an excel formula for you.
Example child education in 2032
a. Today expense in engineering ( the degree is hypothetical): 25 Lakhs
b. Inflation 10%
c. Expense after 14 years: 1 Crore ( 25 lakh – 50 Lakh ( in 7 years approx) – 100 lakh ( in
another 7 years approx)
d. Now use this formula in excel
FV=( Rate of interest/12, number of months, the amount per month)\
Try it out with 12%, 168 months and Rs10000
That is 90% of financial planning
I will write some other time on liquid funds/debt funds/ asset allocation/emergency
fund/insurance but I strongly recommend you to consult a financial planner for asset
allocation/understanding risk more and deeper questions that you may have.
Let me know how did you find it 🙂 this is my first attempt at writing something.
Things I think I have done well
● I have term insurance 30x my annual expenses. No other insurance product
● I have medical insurance from the company and a personal one for family
● I invest
● I have no FD
● I have a good portfolio in an index management fund
● I have 1 liquid fund and PF and PPF. That’s it
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By Rahul mishra