## What Would You Rather Have: Rs 10 Lakhs Right Now or 1 Paise Doubled Every Day For 31 Days?

A few days ago, I was having a conversation with my brother regarding the power of compounding. He’s an assistant manager at Bank of India and brilliantly understands how compounding works.

During the conversation, here’s the question that he asked-

What would you rather have:

1. Rs 10 Lakhs right now or
2. 1 Paise doubled every day for 31 days?

By hearing the question itself, I understood that it is a trick question.

Although Rs 10 lakhs (right now) seems a huge amount and sounds very tempting. However, getting your money doubled every day for next 31 days is even a bigger deal.

I chose option B. I was confident that the total amount would be greater than Rs10 lakhs. However, by how much, that was something that I was looking forward to.

When I calculated the total amount that I will get on day 31 if I choose one paise option, the result turned out to be something like this.

### How much is- 1 Paise doubled every day for 31 days?

• Day 1: Rs .01
• Day 2: Rs .02
• Day 3: Rs .04
• Day 4: Rs .08
• Day 5: Rs .16
• Day 6: Rs .32
• Day 7: Rs .64
• Day 8: Rs 1.28
• Day 9: Rs 2.56
• Day 10: Rs 5.12
• Day 11: Rs 10.24
• Day 12: Rs 20.48
• Day 13: Rs 40.96
• Day 14: Rs 81.92
• Day 15: Rs 163.84
• Day 16: Rs 327.68
• Day 17: Rs 655.36
• Day 18: Rs 1,310.72
• Day 19: Rs 2,621.44
• Day 20: Rs 5,242.88
• Day 21: Rs 10,485.76
• Day 22: Rs 20,971.52
• Day 23: Rs 41,943.04
• Day 24: Rs 83,386.08
• Day 25: Rs 1,67,772.16
• Day 26: Rs 3,35,544.32
• Day 27: Rs 6,71,088.64
• Day 28: Rs 13,42,177.28
• Day 29: Rs 26,84,354.56
• Day 30: Rs 53,68,709.12
• Day 31: Rs 1,07,37,418.24

If you chose option B, at the end of 31st day, you will get Rs 1.07 crore. This amount is greater than the first option by over 97 lakhs (even more than 10 times).

Till 27th day, Rs 10 lakhs as a lump-sum amount seems as a good option. However, on the 28th day, one paise option would have surpassed Rs 10 lakhs and by 31st day, it would have crossed the 8-figure mark.

Big difference between Rs 10 lakhs and 1.07 crores, right?

### Conclusion:

It might be little difficult to grasp the fact that Rs 0.01 doubled every day can turn out to be Rs 1.07 crores in 31 days.

Anyways, if you choose one paise doubled for 31 days, the result might seem low and disappointing in the initial days. However, if you keep on going, the final amount will be worth the patience. This is all because of the power of compounding.

In the end, here is an amazing quote once said by Albert Einstein regarding the power of compounding:

“Compound interest is the eighth wonder of the world. He who understands it earns it … he who doesn’t … pays it.”

## How to Measure Risks in Mutual Funds?

How to Measure Risks in Mutual Funds?

Before you jump start your monthly-SIP or lump-sum equity plan, let’s get this clear that these investments are subject to market risk. Now when this statement pops up or scrolls by on the big fat TV Screen, what do you think it means? To put it in layman’s term ‘You cannot expect a fixed return on your fund invested.’ There’s always a risk of market volatility gawking on your funds.

Fret not; you can always research better to invest better and make sound investment decisions when it comes to mutual funds. Let’s quickly come to risk measuring.

Yes, it’s possible and within your means to delve into the true basics of indicators; alpha, beta, and r-squared that tells you what risk is associated with your fund portfolio. Other statistical measures such as calculation of standard deviation and shape ratios are important to calculate or estimate the risk.

Sure, all backs up the estimation values as when it comes to the volatility of the market, no one can put a word to it. Market volatility is altogether a sensitive scenario which depends upon several factors including politics. Let’s know learn how can we calculate/measure risks!

## Modern Portfolio Theory:

Or should we say a bible for expert investors? Although there are various “SIP-Calculators” and other calculators that track “Mutual Fund’s Growth and Return” but without considering the omnipresent risk factor, one cannot take his pick. Let’s tell you why!

MPT or Modern Portfolio Theory is a theory defined as:

For a given market risk level, the maximization of investment return is supported by the theory of Modern Portfolio.

The objective of these portfolios is to maximize the return (profit) on a fund investment while considering (and hence minimizing) the level of market risk.

As mentioned, the market is not static, it is ever changing. Therefore, to make an estimation of how the market will deviate and how will it affect your own fund. For a desirable return, it’s possible for an investor to construct a portfolio such that he/she could minimize the whole lot of risks.

The question is, how? The answer lies in the introductory part of this piece. There are a handful of indicators and other statistical measures that help us calculate the risk involved. Once we track down the possible risks (in numbers – thanks to the statistical measures), we can find ways to minimize those risks.

One thing to keep in mind is that return of your portfolio is calculated as the weighted sum of the return of the individual assets in your portfolio.

For example, (6% x 25%) + (4% x 25%) + (14% x 25%) + (10% x 25%) = 8.5%

The portfolio is divided into four parts (assets) for which the return is expected as 6%, 4%, 12%, and 10% respectively. The total becomes 8.5% and the risk associated with the assets giving 4% & 6% return is mitigated or balanced.

## Alpha:

Risk-adjusted calculation on a fund can be done using the alpha measure.Alpha uses a benchmark index which is the center of calculation for this indicator.

Basically, alpha takes the risk-adjusted return (performance) of a fund investment and compares it with the benchmark index. This comparison yields out the possible value for alpha which specifies the performance or underperformance for a fund.

Alpha is commonly a measure that specifies the security of a fund as per the benchmark index. Let’s say, after the calculation, the value of alpha is 1.0. It means that the fund has outperformed as compared to the benchmark index by 1%.

On the other hand, if the value of alpha is -1.0 – it means that the portfolio fund has underperformed as per its benchmark index (mostly due to the volatility of the market).

## Beta:

The next indicator to measure the risk associated with a mutual fund is beta. Beta talks general i.e. it takes the whole market into consideration and analyzes the systematic risk associated with a specific fund portfolio. Just like alpha, the values of beta or “beta coefficient” also tell us a “market-compared” result.

However, the value of Beta can be calculated using advanced statistical analysis technique known as “Regression Analysis”. Beta is affected by the movements in the market. By the standards, the market has a value of 1%.

If the value of beta comes out to be less than 1, the volatility of the fund will be lesser than that of the market. Similarly, if the value of Beta is captured to be more than, say 1.1% then the volatility of the fund is 10% more as compared to the volatility of the market.

What’s favorable for the fund with least risk associated? – Low beta.

## Standard Deviation:

The calculation of Standard Deviation has a plethora of applications around the globe in various sectors. And luckily, one in the sector of Finance. Standard Deviation graphically shows how scattered a particular distribution is. In plain and simple words, SD or Standard Deviation makes use of the historical data to put an analysis over the current funds.

Generally, an SD-graph would tell how deviated is your “annual rate of return” from what it is expected from the historical sources. Using this calculation, the future predictions can be made most naturally.

A volatile stock has a higher Standard Deviation.

Mean is a measure of central tendency which holds an importance while calculating the values of Standard Deviation. SD tells how much dispersion of data is there from its mean. Various expert investors make use of this indicator to minimize the risk factors in a portfolio.

## Summary:

As we have seen, there are various possible ways through which one can estimate the risks in mutual funds.

A portfolio consisting of different assets would have different risk factors associated individually. Therefore, to make the best decision and to minimize the individual risks in your portfolio, the indicators mentioned above can lend you a helping hand.

For a finance newbie, these things might be no less than a rocket science right now. However, eventually one can get a hang of it. After all, a good investment is most naturally important for a good return.

## Life Expectancy: The Most Important Variable in Retirement Planning

Life Expectancy is a crucial variable to monitor when calculating the needs for a retirement fund. The age which you are expecting to get retired in and a calculated life expectancy (obviously, keeping all the health aspects into consideration). Often while scrolling through the Google results for “how much should you save for your retirement”, the two major bars you have to set are:

1. At what age, you are expecting yourself to get retired?
2. What is the estimated life expectancy of yours?

Frankly speaking, the second bar to set is quite tough if not impossible. Precision is something which is quite hard to gain on life expectancy or your projected age. However, to stabilize a fund that’ll keep you going well for such and such years, you need to determine how much monetary fund you would require that will keep you active for dash years of inactivity. Needless to say, the calculations can’t be made accurate or 100% precise but you can always put a good analytical game to use and then act accordingly.

## Why Is Life Expectancy So Important?

Whenever the question arises, there are basically two kinds of fears that develop in people’s minds:

1. What if one gets to live more than he/she expected?

I.e. the possibility of an underestimated life expectancy. In this case, your funds might meet a shortage in the later years. For example, suppose if you decided to retire at an age of 58 and you estimate your projected age to be “70 years”. You will have to manage your funds such that you get to stretch your living for 12 long years without an active income.

Please note that it also includes all the health check-up, rents, travel, and other miscellaneous expenses.

2. What if one overestimates his/her projected case?

The matter of life and death is probably the most unpredictable notions in the world. One does not actually know what might come the very next moment. In this case, overestimation can cause inconvenience. Suppose, if one is predicting his/her survival age to be 68 years. Now, suppose if one gets to live for 60 years, wouldn’t the money in the savings fund go completely wasted?

These two reasons make financial experts believe that “life expectancy” and its accurate prediction is actually an important variable to consider.

## How to Determine Life Expectancy?

We have already established the fact that calculating one’s life expectancy is not an easy task, is it? But, there’s always a way out. We can predict a bit accurately with a few tricks that you must read.

### 1. Consult generic tables:

Researchers have worked hard to finally be able to present to us a normalized table with which we can predict our estimated life expectancy. The table is based on a generalized current age scenario through which you can actually predict how many years you are left with (according to statistics, of course).

For example, if Mr. X is 45 years old, he can expect another 38 years to live. Moreover, 0.4167% chances say that he could die this year.

Needless to say, these predictions are not including lifestyle scenarios and other health-related concerns.

### 2. Online Life Predicting Applications (More accurate):

As we have noticed that the former means of calculation wasn’t considering some of the crucial aspects that could alter a standard result. The variables include the family history of a specific disease, eating habits, and lifestyle scenarios. The online applications that predict life expectancy such as Living to “100 life expectancy calculator” (available on Apple Store and Play Store) can accurately estimate one’s life expectancy.

There are certain bars which can be manually adjusted as per the real-time scenario which helps in backing up the predicted result.

Not only that, but these applications have incredibly easy interfaces to work with. Moreover, these applications suggest you ways or two with which you can stretch your life expectancy. Adopting a healthier lifestyle always helps financially for all the health-related costs it saves I future.

Here is the link to the two popular online life expectancy calculator:

(Source: World Life Expectancy)

There are more than 50% of the people in the world who plan for the future. No matter how interesting those pep talks seem that say; “live in the present, let future come as a surprise”, no sane person would “actually” follow the advice.

Us humans being rational thinkers always plan in advance which is quite great actually. Other than being able to make rent, pay for food, and commute freely, you too might have a list of long aspirations you want to fulfill in “future”. Keeping everything in mind, you need to save accordingly.

Let’s hope for the best and let’s prepare for the worst.

## #3 Best Ways To Save Money- That 90% People Are Not Using.

#3 Best Ways To Save Money:

Monetary freedom, isn’t the whole world revolving around it? Generally, you, I, and others have this notion in our minds that in order to retire rich, you need to earn millions. Earning a decent remuneration is definitely certain but is this the whole picture? I am afraid not.

Where does the trick lie? – Well, the trick lies in the power of saving.

We personally know a ton of those people who have earned below par for their entire lives but have managed to retire rich. If you are diligent enough to know how this works for people with a median wage, you need to rely on the power of religious savings.

Moreover, you also need to know how to put a full stop to reckless spending in order to save money. With the title, the picture gets a little clearer but we have barely scratched the surface yet.

The best ways to save money is by cutting back on the big stuff. However, cutting on big kinds of stuff doesn’t even remotely point to living in misery. No, it doesn’t! Then what does it mean in its true form? Let us all know in this article.

### 1. Maintain a Ritual:

Consistency always works out. For your monthly expenses, you need to maintain a ritual to save your income. You might perhaps save 100 bucks a month by choosing a cheaper alternative to your monthly errands but if you do it consistently, you will definitely see a positive change in your savings account.

• Revise of Dish/Cable plans and switch to a cheaper monthly plan.
• Cancel unnecessary monthly subscriptions.
• Remove your saved credit card details from your most used online stores.
• Cut down on your food expenses by cooking meals yourself instead of ordering them online.

Such rituals individually wouldn’t reflect a significant amount but collectively such rituals manage to save a heck load of money.

Not validating your needs is one of the major causes of reckless spending. You’re smart enough to back up your own choices to shop.

You know, there aren’t going to be enough clothes, gadgets, footwear, and what not in your wardrobe no matter what the number of such stuff you purchase.

Us humans being rational thinkers have this capability to justify each of our purchases. We can start this by asking these questions whenever we pick something up from a shelf:

• Do I really need this?
• What was the last time when I made the same purchases?
• What purpose am I purchasing this for?

Validating your needs make sense whenever you are going to put a significant amount of money on a commodity. If you really need it, you can purchase it by all means. However, if there is no specific need for the same, you can always use the saved money to something significant and crucial – say, your rent.

### 3. Optimize your “big expenditure”:

It is quite clear that 1. Housing and 2. Transportation is the two most “fund-eating” necessities we have to pay for every month.

No matter how big you are earning, you’d have to pay for rent and transportation costs unless you are of course living in your own house. If your savings are actually taking a toll on you, you need to reconsider your choices.

All you have to do is to carefully monitor better options. If you can, switch your high rented apartment and move into a cheaper one. However, saving money shouldn’t be corresponded to living out in misery. On the other hand, for transportation, switch to the means of public transport.

Walking more often to run regular errands also helps not only in saving your income but also helps in maintaining your body shape.

## BONUS (For students and recent graduates):

### 4. Consolidate your Student Loan:

Putting all your eggs in one basket is never considered a better option.

However, when it comes to something like education, one doesn’t think twice about doing so. We must tell you that opting for an education loan is a commitment for a longer duration. If you have a student loan on your head, we have a couple of life-saving tricks – one of which is to consolidate your student loan.

Statistics say that it takes anything from 15 to 20 years on an average for a student to repay his/her loan.

Consolidation means to merge multiple loans into one single frame which makes sense to save interest amount. There are various consolidation options available all over the internet to explore. Private Federal Consolidation options still prevail in the market which sometimes is quite beneficial as well.

We know how it sometimes gets difficult to cut down on your regular expenses but you must realize that there is always more than one way to get through with things. This holds true for the financial sector as well.

We wish you all the good luck saving!

Tags: 3 ways to save money, save money, how to save money, ways to save, how to save money each month

## 11 Best Passive Ways to Make Money While You Sleep.

PASSIVE WAYS TO MAKE MONEY IN INDIA:

Passive income” certainly sounds like an interesting and appealing idea, but making money while you sleep is certainly not that easy. Majority of passive income ideas won’t really work (either limited or minimal financial returns or will need a great degree of efforts from your side), certainly not like making money while you sleep.

So, the question is what really works? What are the ideas that can actually get the money ball rolling for you?

Here are some top picks that can help you leverage some real basic factors for that continuous stream of passive income.

## #11 Best Passive Ways to Make Money While You Sleep-

You might be a skilled designer, a graphics expert or someone who just picks up the paint-brush as a hobby. But what if those raw pieces of your art can ensure you a continuous flow of money. There are several websites like Etsy, Zazzle, etc. that will pay you a nice amount of money for sharing your artworks with them.

These websites use your artworks to create patterns for their branded t-shirts, mobile covers, posters, mugs etc. Whenever these products are sold, you will be given a fair share of commission from the product price.

Got some special dance moves, singing skills, the art of mimicry, stand-in comedy or detailed workout sessions? Showcase your talent to the world using YouTube videos from your own channel. YouTube is an immensely popular and exciting medium for earning a decent flow of passive income for yourself.

You will be paid higher as per the number of views, likes, subscriptions, and popularity that your channel will get across different user groups.

### 3. Online educational courses:

Since the introduction of the digital age, online learning platforms and resources have gained a lot of popularity. There are certain web portals like Udemy, Coursera, Edx that offer digital certifications and classes to students across the globe. If you have specialization in any academic, technical or non-technical subject then you can structure your own educational courses on these websites. You will be paid for every subscription or registration that a user makes for your course.

### 4. Sell-Stock Photos:

Are you someone who is amazing with a camera in his hands? If yes, then there is a good scope for earning a decent flow of money with your stock photos. There are several websites like Shutterstock, Alamy or iStockPhoto that need photography enthusiasts or experts who can deliver some really amazing and high-quality images from different niches.

### 5. Rent your vacant property:

Renting your own vacant property can also be a good way to earn some easy passive bucks. Some working professions even prefer moving in shared apartments and houses in order to save their hard earned money.

### 6. Start your own blog

There are a number of bloggers who are making tons of money enjoying their life on a beach or travelling by setting passive ways to make money on their blog.

Note: If you are new to blogging and planning to launch your blog soon, we’ll recommend getting a hosting from “HOSTPAPA”. They offer most affordable hosting plans starting at just Rs 99/month. Here’s a quick link to get started. Cheers!

Fond of writing? Great! This can be one big opportunity for you to earn. Convert your passion for writing into some easy money. You can fetch 5-10\$ easily with short write-ups of 70-80 pages, but make sure you choose the trending titles and themes. To sell your ebooks, you can choose various platforms, Amazon and iBook are two of the best once.

## Market investments:

### 8. Mutual Funds:

What if you can earn regular income on your basic savings?

Mutual funds are the best passive ways to make money in India. You do not need to spend much time, knowledge or even money to start investing in mutual funds. These funds are managed by professional fund managers and there are several low-risk investment schemes that offer high returns compared to the interest amount that banks pay for your deposits with them. Nevertheless, you will need to select the mutual fund smartly to reduce the risk of financial loses.

### 9. Stock Market Investing:

If you are willing to invest some time, then investing directly in the stocks offers the highest returns and can easily be considered the best passive ways to make money with even limited investments. You can make money in stocks through capital appreciation and dividends. If you have a good working knowledge of stock market and shares, then it can ensure high returns for your basic investments, but such investments are always subjected to risks of market fluctuations.

New to stocks? Want to learn how to invest in Indian stock market from scratch? Here is an amazing online course: INVESTING IN STOCKS- THE COMPLETE COURSE FOR BEGINNERS. Enroll now and start your share market journey today.

### 10. Real estate Investments:

Investing in the Real-estate market is another way of ensuring a continuous income stream on a part-time basis. You can either buy a rental property to ensure a monthly fixed amount or look for those perfect deals at the perfect time (when you purchase properties at a low price and then sell the same when the market hits a high.) In both the cases, you will be getting a decent amount of income on regular basis with minimal efforts.

### 11. E-commerce service outsourcing:

An e-commerce portal that bridges the gap between the local retailers and customers can be a handy way of earning a continuous stream of passive income. Your e-commerce portal, website or app can be structured to serve the requirements of a locality, zone, town or a whole city.

Who knows it might develop into a fully-fledged business venture in future?

## The Easiest Asset Allocation Method- 100 Minus Your Age Rule

The easiest asset allocation method- 100 minus your age rule:

It’s always difficult to decide how much you should save and how much you should invest. The answer varies on the different stages of life. The investing strategy of a 22-year-old need not to be same as that of a 60-year old.

But, how much you should actually invest in different assets at the particular stage of your life?

There is no single answer to this question and there can be multiple correct answers.

However, it this post I’m going to suggest you one of the easiest asset allocation method, known as the 100 minus your age rule.

## 100 minus your age rule:

This rule is quite old and is based on the basic principle of investing which says that you should reduce the risks as you get older.

The logic is simple. When you are old, you will have lot more responsibilities and expenses compared to when you’re young. For example, if you’re at 58, you might be worrying about the retirement fund, retirement home, higher education of your kids, marriage of your daughter/son etc.

On the contrary, when you are young, you do not have much expenses or responsibility. That’s why it is said to take more risks when you are young.

100 minus your age rule is based on the same principle of minimizing risks as you grow old and simplifies the asset allocation depending on the stage of your life.

## How ‘100 minus your age’ rule works?

100 minus your age rule states that the percentage(%) of allocation of your wealth in equity (stocks or mutual funds) should be equal to the 100 minus your age.

The rest amount should be allocated in safe funds like savings, fixed deposits, bonds etc.

For example, if your age is 45,

Then, your percentage allocation in equity = (100- 45) = 55% of your net worth
Percentage allocation in safe funds= 45% of net worth

You can notice here that as you approach an age of 100, the risks are totally zero.

Moreover, please do not argue what about those whose age is above 100. Do you really think that they will be in a position to make investment decisions at that age?

## The drawback of using ‘100 minus your age rule’:

Although this ‘100 minus your age rule’ make quite a sense for the asset allocation, however, there are few drawbacks of using this rule.

For example, from the last few decades, the life expectancy of the people are increasing. This means that you can stay invested in the equity (and take more risks) for few more years now.

Further, at any time, the asset allocation by an individual depends on the person’s financial situation. For example, if you have a large family with dependants on you, then you might not be willing to take many risks, even if you’re young. The ‘100 minus your age rule’ doesn’t takes care of the financial situations of the people.

## Conclusion:

100 minus your age is a simple, yet effective way to easily allocate assets depending on the particular stage of your life.

However, while deciding the asset allocation, you should also keep in mind your priorities and financial situation.

That’s all. I hope it post is useful to the readers. Happy Investing.

## The Best Ever Solution to Save Money for Salaried Employees

The Best Ever Solution to Save Money for Salaried Employees:

Not having enough savings in the bank account is one of the biggest problems that majority of people are facing in India. Especially the youth.

Living on pay-check to pay-check and relying on the credit cards to pay even for the basic amenities of life is a common scenario nowadays.

But how can we solve this problem? How can a salaried employee save enough money to buy his dream car or dream house, without being a cheapskate or without cutting money on coffees?

The answer is simple. I’ve been implementing this solution for a long time since the pocket money’s in my college days to the paycheck that I get from my first job.

### And the solution to save money for salaried employees is:

Now, this is not a new concept and in no way, I want to take credit for sharing this notion. I read this concept for the first time in the book ‘THE RICHEST MAN IN BABYLON’ by George Clason. Then I found the same concept of saving money in Robert Kiyosaki’s book ‘RICH DAD, POOR DAD’.

If you haven’t read the book ‘The Richest Man in Babylon‘, I highly recommend you to read this book. It is one of the best classic personal finance book that I have ever read.

### The idea is simple.

Keep a fixed part of your salary for yourself. Say you keep 3/10 or 30% of your salary for yourself only.

You are not giving this to your landlord, or to the automobile company for your bike/car EMI, or to Dominos to eat a pizza or to anyone else. You keep this money only to yourself.

Nonetheless, you can spend the rest 70% of your salary in any way that you want.

I am not asking to not to go to a party or to eat in the cheap restaurants or not to renew your Gym membership. Enjoy your life. Saving few bucks by not drinking a cup of tea/coffee won’t make you a millionaire.

Just do not party with your 30% share of income that you kept for yourself. You have earned this money after a lot of hard work and you deserve to pay yourself first.

Keep this money with you only. It’s not your liberty, it’s your right.

Quick note: Saving money is just the beginning. If you want to become a millionaire, you have to start investing in the right way. Nevertheless, how to invest is a topic to discuss in another post. In this post, I just want to focus only on the first step to get rich. And this can be done by saving money. You can’t invest if you do not saved first.

(Please do not be this guy ;p)

That’s all. I hope this solution to save money for salaried employees is helpful and you can also start saving from today.

If you liked this idea, please share this post with at least one of friend who needs to learn the concept of paying yourself first 😉

`Tags: How to save money for salaried employees, how to save money from salary every month, how to save money for salaried employees with small salary`

## What are Assets and Liabilities? A simple explanation.

What are assets and liabilities?

In this post, we are going to discuss what are assets and liabilities. Although these words might sound a little complicated for the non-finance guy/girl, however, once you understand the basics, it’s won’t be complex anymore.

Typically, assets and liabilities can be defined as:

Assets: It is a value that a person holds with an expectation that it will provide future benefit. For example- cash, property, gold etc.

Liabilities: It is an obligation that a person has to pay in future due to its past actions like borrowing money in terms of loans, bills, credit card debts etc.

In short, assets are the value that the beholders hold and liabilities are the obligations that he has to pay off.

### Now, this is the definition of assets and liabilities that we are traditionally taught.

From the above definitions, we can consider our house, cars, washing machine, fridge etc as assets as they have a value and can provide benefits in future.

However, the definition of ASSETS & LIABILITIES varies a little according to Robert Kiyosaki.

## What are assets and liabilities?

The concept of what are assets and liabilities are beautifully defined in his book ‘RICH Dad POOR Dad’ which I’m going to describe here.

In the book ‘Rich Dad Poor Dad’, Robert Kiyosaki had two fathers. The Poor dad was his real dad and the Rich dad was his friend’s dad. At a very young age, Robert Kiyosaki decided to listen to his Rich dad if he wants to become successful in future.

Here is how the RICH defines assets and liabilities which his rich Dad taught him.

• An asset is anything that puts money in your pocket.
• A liability is anything that takes money from your pocket.

Assets can be a business, real estate, paper assets like stocks, bonds etc. Anything that brings money in your bank account.

For example, if you buy stocks and its price appreciates, it will bring money to your pocket.

If you have a business and it’s growing, then again it will bring money to your pocket in future and hence, can be termed as an asset.

On the other hand, liabilities can be your expensive car, a big house bought on the mortgage with excessive maintenance and running charges, expensive phones etc. These are those materials that take money from your pocket.

The concept of ‘money in’ and ‘money out’ is good enough to define assets and liabilities.

### Easy, Right?

Now, the trouble is, anything can be an asset or a liability, depending on whether it brings money to your pocket or takes it away.

### For example, in the book Robert argues that ‘Your house is not always an asset’.

Let us understand what he means by this.

If you own a house and you pay excessive expenses for running the house like electricity bill, water bill etc, then it is a liability. The house is taking money out of your pocket.

However, if you own a house and you are making thousands of rupees a month by renting it, then it is an asset. The house is putting money in your pocket.

Overall, it depends on how you are using your house. Your house is not always an asset.

This is something that most of the traditional people of India won’t agree with. To be honest, even I didn’t like this idea of Robert Kiyosaki in the beginning and argued with myself a lot about it. Nevertheless, after considering a lot, I concluded that his definition is correct.

The problem is that most people do not understand the concept of assets and liabilities. They buy expensive watches, shoes, sunglasses etc considering them as an asset. However, it turns out to be an expense.

The only thing that separates the poor and rich is how they spend their money.

Poor invests in liabilities that they cannot afford and consider them as an asset. Whereas, rich invest in assets.

If you haven’t read the book ‘Rich dad Poor dad’ yet, I would personally recommend you to read it. It’s one of my favorite books on personal finance and I have read it multiple times. You can order the book using the Amazon link here.

That’s all. I hope you have understood what are assets and liabilities.

Happy investing!

## What is Bitcoin? How to buy bitcoin in India?

What is Bitcoin? How to buy bitcoin in India?

From \$800 USD to \$18,000 USD in just 1 year. An appreciation of over 2250%. Wouldn’t you want to make such investments?

This is BITCOIN!!

By now you all might have heard about it. Even the terms ‘cryptocurrency’ and ‘blockchain’ are consistently in news a lot lately.

However, people are still confused about its real purpose. What is a bitcoin? Is it a currency, asset class (to invest) or simply a transformation factor from the old monetary system to new one.

I am going to answer all the important questions regarding bitcoin in this post.

Here is what we will cover:

• What is bitcoin?
• How does bitcoin works?
• How is bitcoin generated? (What is mining)
• What are the advantages of bitcoin?
• Few facts and data related to bitcoin.
• Is bitcoin legal in India?
• How can you buy bitcoin in India?
• What is the capital gain tax in bitcoin?
• Other cryptocurrencies to watch out.

It’s gonna be a long post. But will definitely worth reading. So, let’s get started.

## What is bitcoin?

In simple words, bitcoin is a virtual currency made by people with no central authority.

Huh, what does it mean? To understand it better, let’s compare it first with the normal currency.

In India, we have a fiat money.

Fiat money is a currency without intrinsic value established as money by government regulation. It has an assigned value only because the government uses its power to enforce the value of a fiat currency. Source: Wikipedia

The Indian currency is printed in the name of RBI and people believe in this currency because of it and exchange in the name of the government.

On the other hand, bitcoin is not generated by any government or authority. People exchange bitcoin only because they believe this as a kind of money (no central authority to implement it). It has no physical value.

Therefore, we can define bitcoin as a new form of digital currency that does not require any bank, government agency or a third party to operate.

People inside the system carry out transactions among each other over a decentralized network.

Now, let us understand bitcoin in details.

Bitcoin is a purely peer-to-peer version of electronic cash that would allow online payments sent directly from one party to another without going through a main institutional institution.

It is the first and the most popular cryptocurrency. However, it’s not the only one as there are a number of other cryptocurrencies available in the world.

Bitcoin was invented in 2008 by Satoshi Nakomoto. However, no one knows who is Satoshi Nakomoto. It might be a dummy name used by the creators of the bitcoin.

Bitcoin is a decentralized currency, which means that no central bank or government is controlling it.

In India, we have a fiat system. This means RBI decides the number of notes to print. They have their own rules on how much notes can be printed and when to print next notes.

However, for bitcoin, there will only be 21 million coins (This restriction is imposed by the creators to limit the bitcoin that can be generated).

Hence, it can be considered similar in attribute to gold (which is also finite). As there is fixed number of bitcoins, hence it’s worth will be more over time.

Didn’t understood? Let me explain.

The current fiat system leads to inflation. The currency notes can be printed more in future. Hence, their number will keep on increasing an, therefore, the currency notes value will worth less in future.

On the other hand, bitcoins are limited in number. It cannot be created more once a fixed number of coins has been generated. Hence, this will lead to ‘deflation’ which means that the bitcoins will worth more in future.

Also read: Where should I invest my money?

## How does bitcoin works?

Source: SciShow

To understand how does bitcoin works, you first need to understand what is cryptocurrency.

A cryptocurrency is a digital asset designed to work as a medium of exchange that uses cryptography to secure its transactions, to control the creation of additional units, and to verify the transfer of assets. Source: Wikipedia

The bitcoins are generated and stored in a form of mathematical code called cryptography. This is the private encoding of the data.

Similar to bank accounts, wallets are used to store bitcoins. Wallets have a unique address which is a personal crypto address that only the individual can access.

This unique address helps to confirm that the money has been sent/received to the right address. Further, the transactions can be checked but cannot be altered or tempered.

Now, if there is no central authority, how to confirm that the transaction happened between two people? What if one lied?

Can’t a person just lie that he didn’t receive the coins if there is no central authority to check and the transaction happened peer-to-peer?

Or he can just say that he sent the coin (although he didn’t in actual). If there is no central authority, how will one proof the transactions between people-to-people?

Well, all the transactions are recorded in ledgers which you (or anyone) can see.

When you perform a transaction, you send this information to a number of people. Although there is no single centralized authority, however, this group of people maintains the transactions record. The best point is that anyone can become one of these people who keeps the track of transactions.

In this way, no one can cheat. If one people changes the transaction record, then it won’t match with the remaining other’s record and the dissimilarity will be found. Hence, this makes bitcoin one of the most secure currency.

And this is also the core concept of the blockchain.

What is Blockchain? The blockchain is a decentralized peer-to-peer system.

In simple words, millions of computes agree to keep a global record of the history of all the transactions that have ever placed in the system. This is called ledger.

## How are bitcoins generated? What is mining?

When you transfer bitcoins, everyone knows about the transactions and writes it in their ledger. Hence, it is impossible to cheat.

The people who use their computer to look after the ledgers and keep the system running are called miners. They solve complex problems to put together all the transactions.

But why will anyone use his computer, pay the electricity bill and solve complex mathematical problems to keep the records of all the transactions taking place in the world?

This is because miners are awarded BITCOINS for their efforts. Each time they solve a complex problem to keep track of transactions, they receive few bitcoins.

And this is how bitcoins are generated.

Moreover, these miners also receive a small reward/concession per transactions for keeping the record alongside newly generated bitcoin.

Therefore, mining helps these people to generate new coins.

This is way similar to mining of gold. Both are limited in number and both are mined so that the miner will get the benefit.

## What are the advantages of bitcoin?

Here are few of the advantages of bitcoin:

1. There is no middleman involved in the transactions and hence the fees are lower.
2. Bitcoins are hard to track. Although the records are maintained by the miners, however, the transactions are recorded in the form of cryptography.
3. Bitcoins are global with no barrier to join: Anyone can buy/sell bitcoin. There’s no fee, no government permission required and no bank account required.
4. The transactions are fast and transferred directly from person to person without going through a bank or clearing house.
5. Accounts cannot be frozen (unlike bank accounts)
6. Transparent and secured.

Image source: 99bitcoins

## Few facts and data related to bitcoins:

Here are few important facts and data related to bitcoins that you should know:

• There will be total of 21 million bitcoins only that can be generated. Currently, over 16.8 million bitcoins have been mined.
• To limit the total number of coins being generated by the miners, the creators of the bitcoins made a rule that after every 210,000 blocks, the number of the bitcoins generated will be half of the last time.

In the starting, 50 bitcoins were rewarded to the miners every time they solved a blockchain problem.

Then it reduced to 25. Currently, 12.5 new bitcoins are created and awarded to the miner’s account after solving a blockchain puzzle.

• By 2140, all the bitcoins will be mined.
• The market capitalization of bitcoin has crossed over \$300 USD (by December 2017), which is more than that of Visa, Wal-mart, Intel, Coca-cola etc.
• There are over 14 million users of bitcoins worldwide.
• Price chart of Bitcoin: Here is the price chart of bitcoin since inception:

Price of bitcoin in 2011: \$0.05 USD
The Price of bitcoin in Jan 2017: \$800 USD
Price of bitcoin (Dec 2017): \$18,000 USD

Source: Coindesk

• Bitcoin can be divided into smaller parts. It is named after the creator and is called ‘Satoshi’ (1 Satoshi= 0.00000001 Bitcoin).

## Is bitcoin legal in India?

Yes, bitcoin is legal in India.

Can you make ‘internet’ illegal? The internet is also decentralized which means it is not authorized/regulated by any central government/authority. And that’s why the government has no control over it. The same goes for bitcoin.

The government of a country can restrict it but cannot make it illegal.

Bitcoin is not regulated by any authority in India. This means that nor government or any authority makes rules, regulations or guidelines for resolving any disputes regarding bitcoins. You cannot approach the government if you have any mis-happenings while dealing with bitcoins.

Source: RBI Press releases

In March, RBI Deputy Governor R Gandhi warned against crypto-currencies such as Bitcoin. “They pose potential financial, legal, customer protection and security-related risks,” Gandhi said.

“Payments by such currencies are on a peer-to- peer basis and there is no established framework for recourse to customer problems, disputes, etc. Legal status is definitely not there,” he added.

Nevertheless, Bitcoin is legal and there are no restrictions on the transactions of the bitcoins. There is no ban or regulation on bitcoins.

Moreover, many developed countries like Japan, Russia etc have already legalized the use of bitcoin.

## How to buy bitcoin in India?

You can buy the bitcoin against real current price from digital currency exchanges. Just pay the price and get the quantity of bitcoins that you want.

You can use your credit card to buy bitcoins from coinbase or coindesk. Further, there are few mobile apps that you can use in India to buy/sell bitcoins:

Mobile apps to buy bitcoin in India:

• Zebpay —>

Source: Zebpay

• Unocoin —>

Source: Unocoin

## How are gains from bitcoin taxed in India?

The taxes for the capital gains are decided differently depending on generating factor:

• For the miners, who get the bitcoins directly from mining, there are no capital gain taxes.
• On the other hand, those who get bitcoins from the exchanges, they have to pay a capital gain tax of 20% for long-term and tax according to their income slab for short-term gains.

Other cryptocurrencies to watch out:

Here are few other cryptocurrencies (besides bitcoin) that you should watch out:

• ETHEREUM
• RIPPLE
• BITCOIN CASH
• LITECOIN
• DASH
• ZCASH

## Conclusion:

It’s logical to consider cryptocurrency as the currency of the future. Bitcoin is certainly one of the most popular cryptocurrency and has played a big role in creating space in the hearts of the people against the traditional currencies.

The transaction of bitcoins are definitely legal in India and you can buy/sell bitcoins using the mobile apps like Zebpay or Unocoin.

However, bitcoin is not regulated by the Indian government. Hence, invest at your own risk.

Footnotes:

`Tags: What is bitcoin, how bitcoin works, what is bitcoin India, what is bitcoin and how does it works, what is bitcoin and how to buy it`

## Where Should You Invest Your Money?

Where should you invest your money? This is one of the most popular questions for anyone new to the investment world.

Everyone has their own living style and financial dreams. Some people are frugal while many are spendthrift.Some people live their life below their means and save money. While there is another group of people who spend a lot of money every weekend in parties and outings. They do not care about savings and have a huge credit card debt.

However, there are not only two kinds of people in this world. There are also many people whose spending habits lies between that of the extremes.

Anyways, when it comes to investing, all these kind of people are confused and have the same question- “Where should I invest my money? Where can I get the best returns on my investments?”

In this post, I am going to give a simple answer to this question- ‘Where should you invest your money?’ So buckle up and plan your financial journey ahead.

## Factors affecting your investment decision:

Before discussing the various investment options available in India, first, we are going to understand the factors that can affect your financial decisions. Here are the four pillars for making a sound investment decision:

### 1. Investment goal:

Before you decide where should you invest your money, you need to define your investment goal. Your investment amount will depend a lot on your goals.

Your goal can be anything like buying a new car, buying a new house, savings for marriage, to fund your higher education, retirement or even just for fun.

Now depending on your goal, you will have to adjust your investment amount. If you are investing to fund your higher education (after 2-3 years), then you need to ‘save more’ and ‘invest frequently’. Here the time horizon is small and hence the power of compounding will not be that helpful.

On the other hand, if you investing for your retirement, then even the small investments will add up to a huge sum when compounded over a large period of time.

### 2. Risk appetite:

This is the amount of risk that you are willing to take. Not everyone believes in ‘high risk and high reward’. Many people want minimum risk for their investment so that they can a sound sleep.

Your risk appetite will decide your investment style. We will discuss the risks involved in different investment options later in this post.

### 3. Current financial situation:

If you have a huge debt like education loan, car loan, house loan etc, they pay it off first. There’s no point getting returns from your investment and directly giving it back to your lender. Therefore, get rid of your debts first.

Next, your investment decision will depend a lot on your financial situations. If you have dependents, then you might first need to have insurances, LICs etc. If you are single with no dependents, then you can invest without any worry.

Moreover, you will also need emergency fund so that you can have some financial flexibility.

#### 4. Time Horizon:

The longer you remain invested, the greater will be the returns. The time horizon of your investment will vary with your age. If you are in your 20s you will have long time horizon compared to people who are in their 40s and just starting to invest.

There is a famous thumb rule of asset allocation while investing. This is called ‘100 minus your age’.It says that the total percentage of your investment should be equal to 100 minus the age times of your net worth.

For example, let’s say that you are 28 years old, then you should invest (100-28)= 72% of your net worth and keep the remaining in your saving account.

This rule is based on the philosophy that as you grow old, your needs will increase (like children’s tuition fee, children’s marriage, house debts etc) and hence you won’t be able to invest much. Therefore you should invest more when you are young and have minimum liability.

## Where should you invest your money?

Now that you have understood the different factors affecting your investment decisions, here are the few of the common investment options available in India-

### 1. Fixed deposit (FD):

This is a low risk and low return investment. You can expect a return of 6-8% per annum by investing in FDs. The capital invested in FDs are considered to be safe if you do not count inflation and taxes.

### 2. Stocks:

Investing in the stock market involves high risk and high returns. You can expect a return of 15-20% per annum by investing in stocks.

Investing in stocks has been a life changer for many people. Although a number of people have lost money in stocks, however, many of the billionaires in India created huge wealth by investing in stock market.

New to stocks? Here is an amazing course on the stock market for beginners: How to pick winning stocks? Enroll now.

### 3. Mutual funds:

This is a moderate risk and high return investment. You can expect a return of 10-14% by investing in mutual funds. These funds are managed by highly qualified fund managers and hence it doesn’t require much involvement of the investors. However, these funds are also subjected to market risk.

### 4. Gold:

This is one of the conventional ways of investing which has been followed over thousands of years. This is a low risk and low return investment. The best part of investing in gold is that- it will always retain its face value.

Moreover, it is easily acceptable and highly liquid. You can sell your gold jewelry, gold bar or gold coin to any of your neighbor jewelry shop. The only disadvantage of investing in physical gold is its safety.

Nevertheless, after coming of GOLD ETFs, even this problem has been solved.

Also read: Getting Smart With Investment in Gold.

### 5. Real estate:

This is a low risk and high return investment. One of the best option available in a growing economy like India.

If you buy a property and hold it for 10-15 years, your initial investment can give multiple times returns. In many developing cities, the prices of a flat double itself just in 2-3 years.

Overall, the returns from real estate investment are tremendous.

However, the two big problems with real estate investment are high initial investment amount and liquidity. You cannot find a seller for your property in a day and it takes time for the paper works.

Nevertheless, don’t stop yourself from investing in real estate just because of these two reasons. The return on this investment is amazing. Moreover, if you do not own a house, it can be one of your biggest investment.

## Few other points to know:

Stocks and real estate investment are the ones which have given the best returns in the past.

You can find a number of millionaires who made their fortune by investing in stocks and real estate. However, you will hardly find anyone who created huge wealth by investing in FDs, mutual funds or gold.

The other options available in India for investments are currencies, commodities like silver, metals, crude oil etc.

In addition, it’s better to invest in more than one option. You can own a property and remain invested in stocks at the same time.

Like the elders say -’Do not put all your eggs in one basket’. This is one of the best advice of all time.

## Conclusion:

 Risk Reward Fixed Deposits LOW LOW Mutual Funds MODERATE HIGH Stocks HIGH HIGH Gold LOW LOW Real estate LOW HIGH

No investment is completely risk-free. However, the severity of the risks is different in different investment options. Select the investment option carefully depending on your investment goal, risk appetite, time horizon and current financial situation.

That’s all. I hope this post on ‘Where should you invest your money?’ is useful to the readers.

Happy Investing.

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## #5 Things Warren Buffett looks for before investing.

#5 Things Warren Buffett looks for before investing

Warren Buffett, the veteran investor and one of the richest man on this planet, is certainly an icon to look for in the investing world. The success and wealth that Warren Buffett has accumulated are really galvanizing.

In this post, we are going to discuss the five important factors that Warren buffet looks for before investing in any company.

## #5 Things Warren Buffett looks for before investing

### 1. Circle of competence:

Warren Buffet looks for the business he can understand and analyze. He only invests in the company that is in his circle of competence. (And it makes sense because if you can’t understand the business, then you can not forecast its future business performance.)

For example, during the technology boom in the 1990s, everyone was investing in the technology stocks. It didn’t matter to the investors to understand the underlying business of the company they were investing in it. However, Warren Buffett didn’t invest in technology stocks simply saying that he cannot understand them.

He said- ‘I can understand the business behind coca-cola, automobile or textile industry. I know how they work and how they can generate profit. I can predict their growth. However, I do not understand technology companies. These companies do not lie inside my circle of competence, therefore I do not invest in them’

The technology sector was a boom in those time and gave amazing returns to everyone that invested in that sector. However, if you fast forward a few years, you will know that there was a big crash in the technology sector which destroyed the wealth of lots of people who were just following the herd mentality.

His advice to other investors- Stick to your circle of competence and do not take an irrational decision by investing in companies that you do not understand. Expand your circle of competence but do not cross it.

### 2. Management:

Warren Buffett gives a lot of weight to an efficient management. He evaluates the management’s rationality towards reinvesting for growth along with rewarding its shareholders. Further, he is very stern about the honesty of a management.

### 3. Value:

‘Price is what you pay, Value is what you get.’.

Warren Buffet spends a lot of time reading the financials of the company. He goes through all the annual reports of the company to find its profitability, returnability,  liquidity, valuation etc.

Warren Buffett always analyses the value of the company before looking at its market price. This is because he does not want to get biased by knowing the company’s market price before analyzing its financial statements.

### 4. Moat:

The concept of the moat was popularised by Warren Buffett.

A moat is a deep, wide ditch surrounding a castle, fort, or town, typically filled with water and intended as a defense against attack. Some stocks have a similar moat around them. That’s why it’s really tough for its competitors to defeat them in its sector.

Warren Buffett always looks for a company with a wide economic moat. This moat helps the company’s business to outperform its competitors. The moat can be anything like brand value, license, patent, switching cost etc

In addition, Warren Buffett also prefers older companies which have been public for over 10 years. He avoids buying shares in Initial public offerings.

### 5. The margin of safety:

‘A good business is not a good investment if you overpay for it’.

The concept of margin of safety was originally introduced by Benjamin Graham, the father of value investing. He was also the mentor of WarreBuffetet.

This is the central concept of value investing.  Basically, this concept states that if you think a stock is valued at Rs 100 per share (fairly), there is no harm in giving yourself some benefit of the doubt (if you are wrong about this calculation) and buy at Rs 70, Rs 80 or Rs 90 instead. Here, the difference in the amount is your margin of safety.

Warren Buffett looks carefully for a margin of safety in a company before investing. He only invests if the company is currently selling at a discount.

To calculate the margin of safety, he first finds the intrinsic value or true value of the company. The current market value should be less than the intrinsic value of the company. Generally, he prefers to buy a. company with a margin of safety of at least 25%.

These are the five things that Warren Buffett looks in a company before investing. I hope you have learned a lot from this legendary investor’s way of investing.

Comment below what factor you give most weight while evaluating a stock?

## 6 Surprisingly Common Financial Mistakes People Make in Their 20’s

6 Surprisingly Common Financial Mistakes People Make in Their 20’s: It is often said that the mistakes you make in your early days come back revolving around to you in future. We all have been a spectator of how lifestyle standards have been raised to a whole another level. Statistics say that we tend to indulge in the reckless shopping’s mostly in our 20’s. Keeping up with the standards of style quotient might be one of the reasons for the adults to not pay attention at their savings. It is a matter of time when you get to realise how roughly life can strike you with its lows.

We don’t mean to scare you in the first place but in this article we have managed to gather some of the most common financial mistakes that people do in their 20’s that can end up making them financially vulnerable in the near future. You can pay your attention at them to know money mistakes to avoid in your 20’s. So, let’s get started.

## Common Financial Mistakes People Make in Their 20’s

### 1. Pursuing a degree you don’t want to on a student loan:

You have to admit that in your teen years, you find it very hard to decide what you want to pursue and make your career in. In countries like India we get influenced by the aspirations of our parents and society that eventually ends up getting us admitted in colleges for a degree that doesn’t even ring a bell to us. Most people choose to pay their college fee through loans that they have to repay at a considerable interest rate which can be really burdensome sometimes.

### 2. Getting influenced by big fat Indian wedding:

Accept it or not, it is just one day party in which you blow your entire life savings just by being fascinated by that glittery and sugar coated wedding idea and plan. This is one of the major money mistakes to avoid in your 20’s. The wedding industry is one of the biggest industries of the country with an annual turnover of billions. Now, you need to understand that there are other important things in your life which you can spend wisely on. Have a good wedding but don’t put in your entire financial savings at stake.

### 3. Not being in a habit to save:

Trust us; it is very easy to save a part of your income. With this habit, you would be able to make your future much better. Spending your entire income on things and services could insure you a luxurious lifestyle for now but at the same time, it is also putting you at a risky position in future. Life is really unpredictable and uncertain and you never know what you are going to need in future. Moreover, if you will look for a switch of job in future, you will definitely need some cash in hand to keep your stomach full for a couple of days until you get a hold of your new job.

### 4. Not keeping an emergency fund:

Most people choose to spend their money on shares and stock market without even knowing a bit of it. Instead you should maintain and put enough money in your emergency fund that will back you up in the odd times that might act as a hurdle in your life in future. You must put enough money in the fund for medical expenses and at least 6 month of unemployment. There are various ways and schemes provided by different insurance companies to ensure such funds for you. Sadly, most of the people in their 20’s fail to keep an emergency fund for themselves.

### 5. Not saving for your retirement:

The age group of 20’s is also known as the carefree zone. As the name suggests, most people are unaware and seem careless about their retirement plans. Of course, they must find the time of their retirement far enough to be out of scope but it is actually not. 20’s is the correct time to start your retirement fund. You must make sure to put a little every month in your retirement that would yield an amount adequate enough to feed you and fulfil your needs after your retirement. Another money mistakes to avoid in your 20 is not paying attention on your retirement fund.

### 6. Spending recklessly on credit cards:

Getting your hands on a credit card is very easy these days. Seems like teenagers in their 20’s cannot keep their hands off these credit cards! With amazing schemes, cash backs and numerous deals going on every day at various places make you spend a fortune through these easy cards. Now, you must remember that the money has to be paid by you only at the end. Most people get caught in their debts of credit cards bill and keep on paying for months and years to completely get rid of those debts. That is why one should remember to spend wisely in their 20’s.

I hope this post on “6 Surprisingly Common Financial Mistakes People Make in Their 20’s” helps the newbies in early 20’s to avoid these common mistakes.

## 7 Worth-It Reasons Why You Should Start Saving Early?

7 Worth-It Reasons Why You Should Start Saving Early? You may be a good spender or a hoarder of fancy things that grace up the lifestyle of yours but saving a little from what you get every month, comes in very handy for your future endeavours. Major problems in life always come unannounced and offer you a wee time to prepare for it. Nevertheless, it is never too late to figure out a little plan for your saving as it is said that as soon as you start saving, the better are the advantages. Let us guide you with the impeccable benefits of early savings.

## Why You Should Start Saving Early?

### 1. More Saving = Less Unnecessary Spending

The number of gadgets that you have won’t matter but the savings would. We all know how recklessly we get to spend as soon as we get our hands on those big fat pay checks. Also, half the things you buy aren’t even worth the money and therefore they just increase your reckless spending. If you stay firm on saving a part of your income as soon as you get it, you will make sure that you keep it safe and untouched until when in need. Therefore your own money is actually getting saved from being spent unnecessarily.

### 2. Gives you a way to live your dreams:

We tend to have lots of dreams since our childhood to the time when life actually strikes us. Amidst of our busy schedules, those dream plans of ours start fading away. It never actually matter about the number you make but what matters is how much you have lived up to your own dreams. A little spending from the beginning helps in funding us to live our dreams in future to the full extent and worth a reason why you should start saving early. As you see, absolutely nothing comes cheap in the 21st century.

### 3. Chip in for your own education:

A good education is termed as an investment and not as expenditure. Anything that you spend for useless things for now can be saved in a fund that will provide you a quality education in future. Even if you are done with your under graduation, does it mean that it is the end of the ‘scope of your learning curve?’ NO. You can go ahead and pursue the degree you always wanted to in your post graduation and can follow your dreams. Nothing worth having comes easy and also for free. Save some money yourself to treat yourself with good education in future!

### 4. Bad times come without an alarm:

Losing jobs, going downhill on health and family problems are some of the tit bits that life offers to everyone. You never know when you would have to experience the lows of life. All you can do as for now is to prepare yourself for the worst. Speaking of which, you should also make sure to have a strong financial back up for these toxic circumstances. Fixed deposits and saving accounts come in handy for the savings that you need to do. Being financially stable even during the bad times of life gives a great motivation to move forward.

### 5. Let the bank serve you with interest:

The principal amount that you deposit as your savings in bank is interested after a particular span of time. Moreover, if the interest is compound, you will get to save a heck of money if you will be consistent. The best idea would be to choose a bank that offers you a good interest rate on your savings. The sooner you start to save and deposit in bank, the better will be the final amount. That’s an easy math you can do yourself.

It often gets very hard to maintain your luxurious lifestyle after your retirement. That is going to be the time when you will regret not maintaining a retirement fund in your early days. You must know that there are a number of mutual fund retirement schemes provided by different firms across the globe but choosing the one that is most appropriate to you and at the same time, serve your needs to the fullest should be your pick. You must also make sure to read their policy agreement well enough before going with them.

### 7. You will be willing to take risks:

Life is all about taking risks but you should be smart enough from the beginning to be able to take the decision of risking things that don’t matter to you anymore. For instance, if you will be looking for a switch to a more decent company in future then you must have a financial backup already. Not having one actually stops you taking worth taking risks in life that have the potential of turning your world around. This way, you would be able to concentrate on your switch and won’t worry about the money.

That’s all. I hope this post on why you should start saving early changes your extravagant lifestyle. Further, do comment below any other reasons that you think should be mentioned on why you should start saving early list.

## Getting Smart With Investment in Gold.

Gold Investment Quotes by Famous Investors:

“If ever there was an area in which to do the exact opposite of that which government and the media urge you to do, that area is the purchasing of gold.”— Robert Ringer

“People view gold as emotional, but when they demythologize it, when they look at it for what it is and the opportunity it represents, they are going to say ‘We really should own some of that’. The question will then change to ‘Where do we get the gold’?” – Thomas Kaplan (Over \$2 Billion Invested in Gold)

Do you know that India Ranks 1 in the highest gold jewellery consumption in the world? India and China account for 44% gold jewelry consumption globally.

This alone proves that the Indian men and women are highly interested in buying gold jewelry. Further, gold is also treated as a sign of royalty in India. However, when it comes to investing in gold, now a day, people do not consider it as a good option. With the increase in the paper assets, the gold investment is slightly fading away.

Moreover, most of the investors think that investment in gold is not as rewarding compared to stocks, bonds, and real estates.

Here is what Warren Buffet used to say about gold:

“(Gold) gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”

“I have no views as to where it will be, but the one thing I can tell you is it won’t do anything between now and then except look at you. Whereas, you know, Coca-Cola (KO) will be making money, and I think Wells Fargo (WFC) will be making a lot of money, and there will be a lot — and it’s a lot — it’s a lot better to have a goose that keeps laying eggs than a goose that just sits there and eats insurance and storage and a few things like that.

“You could take all the gold that’s ever been mined, and it would fill a cube 67 feet in each direction. For what it’s worth at current gold prices, you could buy — not some — all of the farmland in the United States. Plus, you could buy 10 Exxon Mobils (XOM), plus have \$1 trillion of walking-around money. Or you could have a big cube of metal. Which would you take? Which is going to produce more value?”

However, being born in a middle-class family, and listening to my mother continuously talking about the jewellery & rising prices of gold, I differ a little with Warren Buffet’s idea of investing in gold.

Gold has been used as a currency for over centuries in this world. Gold is assumed to be first found in Egypt in 3000 BC. However, gold started acting as a currency only since 560 BC. Nevertheless, gold is one of such rare items which has consistently been in the market and used to buy/exchange items.

I believe that everyone should have a small portion of his portfolio invested in gold. There are various reasons why I believe this, however there are few main points:

## Why should you Invest in Gold?

### 1. Gold has high liquidity:

No matter which part of the country you live in, gold can easily be converted in cash and readily be bought and sold. However, such option is not available with other paper assets like stocks and bonds or physical assets like real estates. Further, there is no or minimal paperwork required in gold investment.

### 2. Gold preserves wealth:

Here is a chart showing the upwards trend of gold over the last few centuries.

From the year 2006 to 2011, gold has given a return of 29% per annum. Further, if we consider long term, it has given a return of 10% per annum. Overall, gold will preserve your wealth if you hold it for a long-term duration.

3. Hedge against inflation:
Gold acts a great investment to protect your money from inflation. Over the past couple of years, as the purchasing power of Rupee is declining; on the contrary, the price of gold is consistently increasing.

4. Portfolio Diversification:
Gold acts as a great asset for diversification. As gold has a negative correlation with other asset types like stocks bonds etc, gold moves in the opposite direction than these assets. Let me explain this with an example:

Here is a chart of SENSEX over the past few years.

In the above chart, please notice that when the SENSEX was sharply falling in 2008-09, the prices of the gold kept skyrocketing during this duration. Hence, if you had diversified your portfolio with gold investment, you wouldn’t have faced so much loss compared to concentrated investment in stocks.

In short, gold investment can help investors to avoid financial disasters.

Also read: 6 Reasons Why Most People Lose Money in Stock Market

Apart from the above four reasons, there are few other reasons also which favors gold investment.

For example, in the 21st century, every country has a different currency. Nevertheless, gold can act a commonly acceptable asset anywhere in the world. Further, it’s much beneficial to keep a gold in your pocket than a currency which is not acceptable.

In addition, gold is also a great investment to pass on to your next generation who might not have such luxuries to find gold in abundance.

## How to invest in Gold in India?

Now that you have understood the importance of gold investment, I would like to highlight the simple ways by which you can invest in gold in India.

Typically, there are two ways to invest in gold:

### 1. Physical Gold Investment:

This is the old and conventional way of gold investment. You might have seen the jewellery of your mother, sister or other members of the family, which is the best example of gold investment through jewelry. Although these pieces of jewellery act more like ornaments, still they are worth considering as an investment.

The pros of buying gold jewelry are its easy feasibility along with zero paperwork.

However, there are also few cons while investing in gold jewelry.  For example, first of all, you need to pay the making charges (10-20% of total cost) along with the price of the original gold. Second, when you will sell the jewelry, the buyer will not consider the making charge. In addition, he will also demand a purchase discount (5-10%). Lastly, there is a high risk of theft and burglary in storing gold jewelry.

• Gold Coins and Bars:

These are a better option for gold investment compared to buying jewelry. There are no making charges involved here. You can buy or sell the gold coins and bars from any Jewellery shops. Further, some banks also sell them.

One of the biggest benefits of investing in physical gold assets is that you won’t need to open an account to start investing. No demat or trading account is required for this type of gold investment, unlike paper assets like stocks or bonds.

### 2. Paper Gold Investment Options:

• Gold ETF:

ETF stands for Exchange traded funds. Gold ETF is a type of mutual fund which invests in gold and units of this mutual funds scheme is listed on the stock exchange.

You can invest in Gold ETF through a demat account. However, this type of investment of gold involves assets management and brokerage charges. Brokerage fee for gold ETF is around 0.25-0.5% and the fund management charges are approximately 0.5-1%.

Because of these charges, the returns on Gold ETF are less than the actual increased value of gold. Gold ETF is directly proportional to the price movement of gold and is not affected by market fluctuations.

• Equity-based Gold funds:

This type of gold investment involves investing in companies related to mining, extracting and marketing of gold. Market fluctuations affect equity-based gold funds. Further, equity-based gold funds are susceptible to different risks like gold price risk and equity-based risks.

The biggest benefit of paper gold investment options is that there is no risk of theft or burglary here; as compared to physical gold.

### How much to invest in Gold?

The portfolio allocation for gold investment varies for different investors according to their investment strategies. In general, small investors should keep 5-10% of their portfolio invested in gold. Gold doesn’t give an as high return as stocks or real estate. Nevertheless, gold investment will help to mitigate the risks in your portfolio.

### How to start investing in Gold online?

You can buy gold ETF or gold fund online just like a mutual fund. However, you need to research carefully about the different ETF’s available. Here is the list of few gold ETF schemes available in India:

1. Birla Sun Life Gold ETF
2. Goldman Sachs Gold ETF
3. SBI Gold ETF
4. IDBI Gold ETF
5. R*Shares Gold ETF
6. Axis Gold ETF
7. Kotak Gold ETF
8. ICICI Prudential Gold ETF

Also read: Top 10 Gold ETFs in India

That’s all. I hope this post on ‘Getting smart with Investment in Gold’ is useful to the readers. Further, please comment below your opinion about investment in gold.

## What is Mutual Fund? Definition, Types, Benefits & More.

A mutual fund is a collective investment that pools together the money of a large number of investors to purchase a number of securities like stocks, bonds etc.

When you purchase a share in the mutual fund, you have a small stake in all investments included in that fund. Hence, by owning a mutual fund, the investor participates in gains or losses of all the companies in the fund. For instance, you can take a mutual fund as a basket of investments. When you purchase a share of that mutual fund, you are buying one share of this basket and hence has an ownership in the all the investments in one such basket.

Image source: Corporatefinanceinstitute.com

## Based on Asset Class

1. Equity FundsThese funds invest the amassed money from investors in equities i.e. the stocks of different companies. The associated risks for these funds are comparatively higher as they invest in the market. However, they also provide higher returns.
2. Debt Funds: These funds invest in debt instruments like bonds, securities, fixed income assets, the company’s debentures etc. They provide a safer investment option for investors looking for small regular returns with low risk.
3. Hybrid Funds: As the name suggests, Hybrid or balanced funds invests in both equity and debt instruments like stocks, bonds etc. This ratio can be variable or fixed depending on the fund. This fund helps to bridge the gap between entirely equity or debt fund and suitable for investors looking to take higher risk than debt funds in order to get bigger rewards.
4. Money Market Funds: These funds invest in liquid instruments such as bonds, T-bills, certificate of deposits etc. The risks associated with these funds are relatively low and suitable for short-term investments, less than 12 months.

## Based on Structure

1. Open End Funds: The majority of mutual funds in India are open-end funds. These funds are not listed on the stock exchanges are available for subscription through the fund. Hence, the investors have the flexibility to buy and sell these funds at any time at the current asset value price indicated by the mutual fund.
2. Closed-End Funds:- These funds are listed on the stock exchange. They have a fixed number of outstanding shares and operate for a fixed duration. The fund is open for subscription only during a specified period. These funds also terminate on a specified date. Hence, the investors can redeem their units only on a specified date.

(Image Credits: Kotak Securities)

## Benefits of Mutual funds:

There are a couple of benefits in investing in a mutual fund.

For example, if there is an investor who wants to invest in stocks but has no time to analyze and create a portfolio. Then he can be benefited from the mutual fund. This investor just has to buy a mutual fund and hence, in a single purchase he gets an investment similar to purchasing the entire portfolio of stocks.

The various benefits of investing in a mutual fund are described below:

• A simple way to make a diversified investment: A mutual fund has a number of securities like stocks, bonds, fixed etc already in its portfolio. Therefore, buying a mutual fund is a simple way to make a diversified investment. Further, diversification also reduces risk which is an added benefit of buying a mutual fund.
• Managed by a financial professional: The Fund manager or managers actively manage a mutual fund. They try to give the maximum returns to the investors using their professional expertise. Hence, those investors who don’t have time to invest by their own can get benefits from the expertise of these fund managers.
• Allow investors to participate in a wide variety of investments: This is one of the greatest advantages of buying a mutual fund. There are a variety of mutual funds available to invest in equity fund (Index funds, growth funds, etc.), fixed income funds, income tax saver funds, balanced funds etc. An investor can easily select the best one which suits his strategy.
• Investors can buy/sell/increase/decrease their mutual funds whenever they want: There is great flexibility to for the investors while investing in mutual funds. They can easily buy, sell, increase or decrease their investment in different funds within seconds. However, please note that it’s suggested to read the mutual fund prospectus carefully before subscribing as some mutual funds have an entry or exit-load.

If you are new to mutual fund investing and want to learn from scratch, I highly recommed you to check out this online course: Investing in Mutual Funds? A Beginner’s Course.

## Which mutual fund to buy?

After understanding the benefits of a mutual fund, the next question is which mutual fund to buy? There is a variety of mutual funds available in the market which you can find online. These mutual funds have different ratings & rankings and you can choose a suitable mutual fund according to your goal. Here are the two few sites where you can search online:

Generally, you need to read the prospectus of a mutual fund which gives a wide variety of information about the fund. The fund prospectus has details like fee & charges, minimum investment amount, performance history, risks, and other particulars. Here are the few examples of mutual funds (provided by moneycontrol website):

• Fees and Expenses: There are a couple of possible fees in mutual funds like expense fee, exit fees etc which might reduce the overall returns.
• No Insurance: There is no guarantee of success in the mutual funds. The mutual fund providing companies always state the following in the declaimer in their advertisements:
• Mediocre Performance: On an average, a majority of mutual funds are not able to beat the market indices.
• Loss of Control: The fund managers are responsible for buying and selling of the securities and you have no say in managing the portfolio. You are trusting someone else with your money when you invest in mutual funds.

## How to make money by the mutual fund?

There are basically two ways to make money by a mutual fund –

1. Appreciation: When the mutual fund appreciates i.e. when the fund grows in value. You can sell the mutual fund at the appreciated value and get a good return on your investment.
2. Dividend Payment: Mutual funds also provide dividends to the investors when they receive the dividend from the companies they own in their portfolio. Please read the prospectus carefully if you are buying a mutual fund for dividend payments.

So, that’s all for the basics of the mutual fund. In the next post, I will describe how to buy a mutual fund.

In the meantime, if you need any help or have any doubts, feel free to comment below. I will be happy to help you.