When Not Investing Is Subjected To Certain Risks

“When you invest, you are buying a day that you don’t have to work.”

– Arya Laraya

That is exactly what Bhushan Patil told us in so many others words at our continuous learning session last week. Now, we are into this new theme of learning where we would request a topic and someone from the team would help us understand the in and out of that session. This is a great way to solve the doubts that we have and this was one such session. Usually, most of us only worry about earning a good salary, but not many know how to make investments or save money (many of us really needed to cultivate the habit and this was a great push in that direction).

Bhushan is not new to leading our continuous learning sessions. His sessions are unique and there is quite a bit to learn. This one was no different. Pranjal had put in a request to know more about investment and that led Bhushan to “invest” in this session (yeah, the pun is intended). To start with, Bhushan started off with explaining how investments would help us survive during the time when we are not working (or rather in our old age).

He explained the idea with a simple example. An example of how much a person earning Rs. 15000/month would save every year without investments and what he would save if he invested the money as savings. His calculation was also based on the assumption that a person’s employer would give a 10% hike in salary and there would be 1% increase in inflation every year. Taking everything into the calculation and another assumption that a person would stop working when he or she was 50 years old, he would say Rs. 2, 40,000 every year which would equal to Rs. 1.67 crores by the time he or she retired. This amount would last that person for 8 years. So, it summed up this quote:

“Never depend on a single source of income. Make an investment to create a second source.”

– Warren Buffett

Bhushan’s next step was to tell us about various investments if we decided to invest 12% of the salary and he was quick to tell us that it would be better to invest at a young age. These were:

Fixed Income of Fixed Deposits as these are commonly known. Fixed deposits hike your invested income with an interest rate of 8% to 10% after 20 years.

Next came Equity Investments which is commonly known as Share Market or Mutual Funds. These investments would bring in an increase of 14% to 15% after 20 years.

Then came Real Estate which though difficult to calculate would generally bring in an increase of 10% after 20 years. Real Estate is the buying and selling of commercial properties.

The last part was the Commodity Investment which is the buying and selling of commodities such as gold and silver and would bring an increase of 10% in the invested amount after 20 years.

Bhushan was quick to point the ceteris paribus angle to his theory that there would no change in the way a person lived his life to which Vivek quipped that marriage changed that situation and there was laughter all around. Bhushan also covered the topic of insurance to protect the family in case of the illness, accidents or death. He enlightened us on Term Insurance and Health Insurance and provided a great tip that if we invested in these two insurances at a young age, the premium amount will be smaller.

Moving on to mutual funds, Bhushan explained how mutual funds worked. The mutual fund company would invest the amount we invested in the mutual fund to buy shares of different companies and will calculate a cumulative return after 1 year. The key to investing in mutual funds is that we should invest in it for a long time period (it is an ideal long-term investment plan) and if we keep invested in the fund for more than 10 years (vs. 3-4 years) the return would be more than 10%.

Next, Bhushan touched about the share market and stock trading and told us that to deal in shares, we need to open a demat account (dematerialized account) to trade. Though he didn’t delve a lot on the subject, he covered an important aspect to investing in shares – the debt to equity ratio. That is to look for a company has less debt and more equity (less debt from outside parties and invests more of their own money) would be good. The next thing to look at would be profit and loss statement as well as the balance sheet of the company. Next criteria was that market capital of the company has to be more than 10 crores. These were the things to look for when investing in a company’s shares – they would be safe. The other thing to look at when buying shares was that to check the fundamental analysis (which is all about the debt to equity, P&L and Balance Sheet) and the Technical Analysis – the graph of up and downs during a long time duration. The key is to invest in a company whose graph is northward bound in the long run.

Bhushan was also for buying shares of companies whose products have real-time usage, such as MRF Tyres, Bata shoes, etc. Recycling back, he told us that mutual funds is good for long-term investment and for short term investment, it was good to go for term insurance. The one thing he pointed out was that for insurance it was also good to go for LIC as they had a 90% claim settlement and would make a settlement within 24 hours of putting in a claim.

There were also questions from the team about why some shares fail despite looking at the technical analysis to which Vivek said that each of the investments also has risks associated with it and it was important that these also be analysed along with the rewards.

There was a surprise for us as well. Once Bhushan was done with his session, Vivek requested the team’s permission to add a few more points to the session and everybody agreed to it. He added 3 more investment options:

PPF or People’s Provident Fund – it paid more than the fixed income option (fixed income came with tax so it only protected the money but did not increase it) and came in the non-taxable bracket – so it has better returns, lower risks and no tax which made it a perfect candidate for investment.

Vivek was of the opinion that no matter what investments the team made, one big take away was that savings are a must – be in Rs. 10, Rs. 100 or Rs.1000. And when investments were made, the things to keep in mind are: What is the risk? What is the return? What is the tax?

Debt Fund – another low-risk investment there was collateral and generally increased income by 10% to 12%

My Self – came from investing in self – upgrading one’s skills and learning that could help enhance our salary and can be considered as investing money to upgrade ourselves. The best way to calcite this was to create an Excel sheet and think of ourselves as a product and as an investment option and how much investment returns we were getting in salary.

Vivek also discussed how one should consider a combination of riskier options and safer option to invest wisely.

Overall, it was a great session and we had this huge influx of knowledge about investment – both from Bhushan and Vivek. We were all quick to roll the information and shared quick lessons. Here they are:

Prajakta was aware of a few of these things and was into saving, but now she would try out a few investment options.

Astha had already invested in mutual funds due to parental pressures so she knew about it but felt that commodity investment was dead money and really not that helpful. She liked the mutual fund and real estate options.

Blessy was aware of all the investment options but wasn’t keen on investing as she felt that each one came with its own risk factors though her family – parents and her husband has invested. She was planning to take the plunge after the session.

Vivek felt that the session was wonderful, a refresher and felt a little guilty about hijacking Bhushan’s session but he also felt that not sharing what he knew was not justice. For him, savings was a not a mathematical option that one had to work out, but a mind-set and one needed to save. How much didn’t matter.

Shubham wanted to know how to get money faster and was always interested in shares and stocks from childhood and had a personal session of his own with Bhushan. He already had invested in FDs and LICs and wanted to try out the share market.

Subhodh knew a lot about investment and had already invested in many options. He also sadly informed us that he had lost money in the share marke, and felt that real estate would be a good place to invest

Pritam found this all new information and felt that it would be good to dive into the investment world.

Bhanu had the funniest answer – he told us that he had thought about investing multiple times and ended up investing in many places but didn’t get any returns. He was planning to invest and felt that he needed some disciplining to do that.

Pranjal had heard about PPF but not the other ways of investing and felt that one should seriously save.

Sakshi was willing to take the plunge but wanted to research first as she had never invested.

Prithashree felt the session was very helpful and she understood the meaning of savings. After much dilly-dallying, she had recently opened an RD Account.

Monali had heard about PA PPF RD, and have been planning to invest but was unable to do that. She felt its importance now.

Jayant liked the session. He tryst with investment was into bitcoin a few years back and had made some income.

Jahir felt that the session was good and was not aware of everything and felt that gold and silver, as well as real estate investment, were giving good returns.

Avinash had started saving many years ago and gave a great tip to think about savings. He told us that just as we keep aside EMIs and then spend the rest of the money the same way we should think about savings – keep savings aside and then keep the rest of the money. So, savings and investments, here we come!

So, savings and investments, here we come!

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