Category: Knowledge and Concepts

Will you be able to buy a property worth Rs 20 crore? In all probability, you would say NO. However, if I say  – “Can you buy 1% of that real estate property for just Rs 20 lacs?”

Now, I guess the answer may be YES!

Welcome to the concept of Fractional Real Estate.

What is Fractional Real Estate?

So, as the same says, when you buy a small fraction of real estate and become a part owner, that’s called fractional real estate. It’s a growing trend in India and a lot of people are now investing in fractional real estate because the ticket size is smaller and it gives you access to quality real estate.

Real Estate investments are one of the favorite’s of Indians, and in the last few years, this concept is quite a hit among Indians. I would like to share 10 things about fractional real estate which will help you understand various things related to fractional real estate.

Here is how it works

Imagine there is a property worth Rs 20 cr, where you want to invest, but you have only Rs 20 lacs with you, under fractional real estate you will become 1% owner of property.

1. How to buy Fractional Real Estate?

While technically you can make a group of 5-10 friends and all can contribute to buying the real estate which will make it a fractional real estate, truly speaking its not possible for all people and hence there are various online platforms which help you invest a small amount into a real estate. Various investors like you will invest from that platform and this way everyone will become a part owner.

These websites or platforms are called FOP’s or Fractional Ownership Platforms. There are various websites which have cropped up in the last few years and you can search them online. FOP’s are various important because they are the one who carry out all the tedous tasks like.

• Researching property
• Buying Property
• Selling property
• Documentation work
• Legal work
• Collection of Rent
• Distribution of Rent back to the co-owners

2. What kind of properties can you buy under fractional real estate?

It mostly deals in commercial real estate, because those are the properties which have very good appreciation and a regular rental income. Also, these are prime properties which are quite expensive and can be of the ticket size of anywhere from 20 cr to 500 cr.

Obviously, the retail investor cant invest on their own in these properties and fractional real estate is the only option.

3. Minimum ticket size

The minimum ticket size to invest in fractional real estate are mostly in range of Rs 5-25 lacs, which is within reach of most of the people who want to invest in real estate.

You can see the target IRR, and total price of the real estate along with other details on the website of these Fractional Ownership platforms

4. Liquidity issues in Fractional Real Estate

Real estate in general is a illiquid asset class, where it takes time to find buyer and get the right price you are looking for.

However in case of fractional real estate deal, if you want to exit, then you don’t  sell the property per se, but sell your share to another buyer. Hence its quite tricky to comment on the liquidity in fractional real estate. If the rental cashflow and property quality is very good, it will be easier to find a buyer, other wise you may be stuck for a long time, because unlike a residential real estate, the end usage does not exist for the buyer.

5. Less Hassle, no management

One of the best parts of Fractional real estate is that you as an investor don’t have to do all the research about the property, documentation, running around for all tasks, buying process and maintenance of the property.

For the end investor, all you need to do is just research the deal and if it makes sense for your investing needs or not. You pay and that’s all. You become the part owner.

Even the collection of rent, property construction progress, selling the property, paying of taxes etc is done by the FOP and not you as the end investor.

So the investment in fractional real estate has very less hassle, which quite a good thing.

6. SEBI coming up with regulation on Fractional Real Estate

Over the last many years, many platforms have come into this market and there is no standard way these companies deal. There are no proper processes and standardization is the disclosures which are made to investors and how the dealings happen.

Hence SEBI has come up with a consultation paper which aims to regulate the FOP (fractional ownership platform) and bring them under REIT regulations in the coming days. It will be interesting to wait and watch this development.

REIT vs Fractional Real Estate

REIT’s are already in existence and getting popular from last many years. Its also a simple way to invest in real estate, however when compared to Fractional Real Estate, they are different on various parameters. Let’s see those differences

We hope that you are now clear about the fractional real estate and various points related to it. Do let us know if you have any queries in comments section.

Today I will tell you about foreclosed properties and how you can buy them for lower than the market price.

What is the meaning of Foreclosed Property?

Many times, banks seize the properties when their owners fail to pay their EMI payments for a long time. These properties are called “foreclosed properties” and banks put them for sale in the auction in order to recover back their dues. Once the properties are seized by banks, they are the rightful owners of the property under the Sarfesi Act and they have 100% legal rights to sell off these properties.

These properties are mainly sold below the market price because the focus on banks is mostly to recover bank their dues and not to make profits. So you can strike a very good deal if you are ready to go through the process of buying foreclosed properties.

Advantages of Buying a Foreclosed Property

• Price Advantage: Auction properties are approximately 20-25% cheaper than the market price.
• Legal and Safe: Banks / Financial Institutions approve loans after verification of all the legal aspects only. Bank Auctions are legally safe and fall under the SARFAESI Act and DRT Act.
• Quick Process: The entire transaction will be over in less than 2-3 months period. Ownership will be transferred within a month’s time.

Disadvantages of Foreclosed Property

• No Guarantee of quality or internal condition: Bank cannot provide any disclosures as to property history/condition issues. If there is any damage to the property then the banks will not repair and give. Property conditions might be suspect due to damage done by upset homeowners.
• Heavy initial Money requirement: Only serious buyers are entertained as you have to put a big amount as a guarantee
• Tedious Process: To some people, the process may seem to be tedious and daunting.

How to find a foreclosed property?

The data and information about foreclosed properties are quite fragmented. There is no single central database of information but divided a lot. Here are some ways you can find information about foreclosed properties

• Online aggregators like Foreclosure India.com, NPAsource.com, Bank e-auctions, and BankDRT. com
• Bank Advertisements in local newspapers
• Banners in the bank branch (mostly PSU)
• This SBI-specific website

Next step after shortlisting the foreclosed property?

Once you get the preliminary information about an auction, you can visit the property along with the foreclosing bank’s official.

All exact information about the property is given on the website such as the name of the borrower of the property, the property belongs to which state and city, what is the reserve price of the property, exact time and date of the auction of the property and so on

What do I need to do, If I want to participate in the auction?

To participate in the auction, you will need to submit an application and KYC (know your customer) documents, along with the bid value which can range from 5-20% of the reserve price, to the bank.

Then on the main bidding day, whoever is the highest bidder wins and they have to then pay the rest of the money to secure the property. There may be some advance to be made and the remaining money has to be paid in a few weeks. So you can go with a home loan if required, but remember that you will need to have a decent amount in your hand to participate in the auction anyways.

Beware of these small issues with the foreclosed property

Remember that the foreclosed property is coming into your hands from another owner who was financially distressed, and there is a good chance that there might be some

• Pending property taxes
• Pending Maintainance to Society
• Pending Electricity bill/gas bills etc

Banks are not going to recover these and these are your headache, but even after paying these, you may be getting a great deal.

Is it worth buying a bank auctioned property?

Below is a short video that answers your question.

3 precautions to take before taking a Foreclosed Property

1. Do hire a lawyer so that all the legal papers can be checked thoroughly especially if the amount involved is very big.
2. Do not buy a very old property as that would require major renovations.
3. The chance of earlier owners staying in the house is less because banks usually ask them to vacate before auctioning the property. However, if the property is already let out, the tenants may be still staying in the house and it becomes your responsibility to evict them. Freeing a house of its tenant is difficult, especially if the tenant has been staying there for a long. The best strategy is to avoid a house that is already occupied by tenants.

This was all that I wanted to share in this article. If you have any queries post them in the comment section.

A lot of investors are quite worried that they do not get same-day NAV when they invest in mutual funds? There are days when markets are down by 1%, 2%, or even 3-4%, and it’s a great opportunity to invest in equities at lower NAV!..

However due to the recent changes by SEBI, Now the NAV is allotted on the realization of funds by the fund houses before the prescribed time of 3 pm.

This simply means that most of the investors are not able to get the same-day NAV (except in a few cases). This frustrates the investors and they feel they are losing out on this opportunity because markets may go up the next day and they will not get a lower NAV.

In fact I am also seeing many articles and youtube videos teaching investors – “How to get same-day NAV in mutual funds” without even understanding if it’s worth the effort or not. There are some ways through which you get same-day NAV like if you invest through AMC portal directly or invest using UPI in the MFU platform or invest very early by 10 or 11 am so that your money reaches AMC the same day.

But is it really worth the effort?

So we thought of doing a small study on this topic and investigating if investors are really losing out a lot or not?

In our study, we found out that the same-day NAV or next-day NAV does not matter for investors over the long term and it has almost no impact on their wealth creation in equity funds.

Now let me share some stats and what we found

For this study, we picked 3 equity funds that are quite old, which were

• ICICI Pru Discovery
• Franklin Prima Plus
• Birla Equity Hybrid 95

Also, these are at least 18 yrs old funds and we downloaded the NAV of these 3 funds since inception. We have the data for a total of 4350 NAV points.

As a next step, we assume that there is an investor who wants to invest when markets are down. For that, we picked all those days when NAV of these funds came down by 1%.

Then we also found out how many times NAV of that fund was again down the NEXT day!!. Let me show you the data

So if you look at the NAV data of ICICI Pru Discovery, there was a total of 543 out of 4350 days when NAV was down by more than 1%.

What happened the next day?

• 258 days, the fund NAV was UP with an average upmove of 1.02% (average of those 258 days)
• 285 days, the fund NAV was DOWN with an average downfall of -1.37% (average of those 285 days)

This simple means that on average, the next day NAV was actually lower than the day of investment and it was a good thing to get the next day’s NAV rather than the same day’s NAV.

Same-day NAV or next-day NAV? Which created more wealth?

Let’s assume that a person invests Rs 10,000 in the fund whenever NAV of the fund is down by more than 1%, then there are two cases..

• Case 1: Investor same-day NAV
• Case 2: Investor gets next-day NAV

We found out that the wealth created was MORE in case 2 actually, however, the difference was not significant enough to brag about. Let me show you the numbers

• Case 1: Investor same-day NAV : Rs 3,47,08,084
• Case 2: Investor gets next-day NAV : Rs 3,48,48,780

The difference between same-day and next-day NAV is roughly 0.41%, so by getting next-day NAV the investors create 0.41% more wealth, In this particular case, it was actually a good thing for investor to NOT GET the same-day NAV

Let me also show you how the wealth will increase over time in both the cases

If you look at the graph above, there are actually TWO charts. The red line is the growth of wealth (with Rs 10,000 investment every time markets fall by more than 1%) in case the investor gets same-day NAV. And there is a black line that shows the next-day NAV case. You can see that both the lines are so close that you can literally just see one single line.

Data with the other two mutual funds?

Let me also show you the same study results with Franklin Prima Plus and Birla Equity Hybrid 95 fund.

Incase of Franklin Prima Plus, whenever NAV was down by more than 1%, the next day NAV fell again 56.83% of the time and it was more probable to get a better NAV if one got the next day NAV.

Investors created roughly 0.26% more total wealth by getting the next day’s NAV

In the case of the Birla Equity Hybrid 95 fund whenever NAV was down by more than 1%, the next day NAV fell again 51.66% of the time and it was more probable to get a better NAV if one got the next day NAV.

Investors created roughly 0.13% more total wealth by getting the next day NAV.

Markets down by more than 2% and one got NAV after 2 days?

Let us also see what if we changed the data a little bit. What if one invested when markets were down by more than 2% and one got NAV after 2 days (not just the next day)?

If this happens then how will data change? 

You can see above that even if one gets NAV after 2 days, still, two funds created more wealth. If you look at ICICI pru discovery fund, 3.54% of the times the NAV of the fund fell by more than 2%, and whenever that happened, 48.70% of the times, the next day NAV was further lower, it was beneficial to get the future NAV and not same-day NAV.

Eventually, by getting after-2-days NAV, the person was able to generate 0.70% more wealth compared to same-day NAV.

Conclusion and What we can Learn

By the time you may have figured out that while investors visualize that the day NAV can again go up, they forget that the next NAV can go down also and they can get an even cheaper NAV.

Over time, if you are a regular investor who is there for the long term, sometimes you may get a little higher NAV the next day and sometimes you may get a lower NAV, which eventually cancels out the impact.  So here are the learnings

• If you get next day NAV, there is almost a 50% probability that you will get an even lower NAV
• Over a long time, the amount of wealth you will make will not be very different in the case of same-day or next-day NAV
• The worry and frustration are not worth it at all, and you shall just not worry about what NAV you are getting.
• If markets jump by 2-3% on a given day and you want to book profits, then it’s better to sell the next day as the chance of getting a better NAV is higher on the next day due to the same logic.
• While you may lose out a bit on a single transaction, there will be other transactions when you will benefit and in totality, you won’t lose out at all. In fact, the study shows that you are better off getting the next day NAV to improve your returns, but then it’s a small margin.
• Next time when markets are down by a good amount, investing on that day is more important than which day NAV you are getting. So focus on systematic investment more than anything else

Note that we are not discussing in this article if it’s morally right or wrong for AMC to give you the next day NAV. Those are surely technological challenges that need to be solved. In this article, we just wanted to do number crunching to find out which path is better and I hope we did the job

We would love to listen to your comments on this topic and if you think otherwise?

The Networth formula is quite simple

Networth = Assets – Liabilities

So, if you have assets of Rs. 2 crores and your liabilities are 50 lacs, your net worth is Rs 1.5 crores.

We have always been taught to calculate networth this way and there is nothing wrong with that, however, it’s a very simplified version of calculating your net worth, which does not give any kind of insights or information to you.

A lot of times, you may also get the wrong impression about someone because of this over-simplified formula. A lot of investors on paper are having good networth, but they never feel RICH or satisfied with what everyone thinks about them.

For example, imagine a person who lives in a house worth 2 crores (no loans) and also has another real estate worth 1 crore, plus mutual funds worth Rs 50 lacs.

Now, what is his/her net worth?

• Some will say that the person’s net worth is Rs 3.5 crores (2 cr+1 cr+ 50 lacs) as per our simple definition?
• Some will say that we shall not count his current house, hence it’s just 1.5 crores.
• And some may comment that because the real estate is not liquid enough, it shall just be seen as 50 lacs of networth?
• And what if this same person may also inherit shares worth 10 crores in the future? Then?

I hope you got my point. Just doing assets minus liabilities, gives you a one-point answer and that misses the details and gives you very superficial information.

4 categories of Assets

Recently, I created a framework using which it becomes simpler to visualize your networth. In this framework, the first step is to categorize all your assets into one of the 4 categories as below.

• Blocked – An asset is marked “blocked” if it’s not liquid and the money is blocked for many years. You can not liquidate, or do not wish to liquidate right now. However, in the future, you will liquidate it and use it for funding any goal.
• Free – An asset is marked “Free” if it’s possible to liquidate it in a few days/weeks and get the money in your bank account.
• Usable – An asset is marked “Usable” if it’s used for consumption purposes. So the house you live in shall mostly be counted as “Usable”. The gold jewelry at home shall be marked as “Usable”. However if you have a house where you live right now, but you know that in future, you will surely move to your home town and sell off the house or put it on rent, then that house shall be marked as “Blocked” and not “Usable”. A car can also be marked as “Usable” if you wish, however, it’s not recommended.
• Maybe – Another category is “Maybe”. An asset shall be marked as “Maybe” if you are unsure if it will come to you in the future or not. You do not want to count on it as of now, but if you are lucky, that will come to you. So any inheritance may be marked as “Maybe”. Some money which you gave as a loan to a friend may be marked as “Maybe”.  However if you are very sure that its surely going to come to you, then you shall mark it as “Blocked” and not “Maybe”

Let me show you a sample data of how it looks like

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Note that if there is a home loan or car loan then please adjust the loan amount with the market value of the asset and only write the difference. So if a house is worth Rs 1 crore and the outstanding home loan is 40 lacs, then write value of house as only 60 lacs.

Visualizing your Assets

Once you categorize the assets into 4 types, you get clear information on how many assets you own in each category. It helps you a lot to make sense out of it.

Here you can see that by categorizing the assets into types, it’s so clear now that this person has a total of  Rs 1.96 crores in those assets which are in Liquid form (FREE) and a major chunk of 1.1 crores (Maybe) is into assets that may or may not come to him. So it’s not very prudent to count on them for his future. If it comes to him/her, it’s a bonus.

Also, Rs. 88.7 lacs is blocked into various assets, so while all the relatives and friends consider it to be his net worth, it’s not available to him/her at the moment if need arises. So he is paper rich, but not in reality.

Also, Rs. 70 lacs is into those assets which is used for consumption purpose, which he will never liquidate for his goals (unless there is an emergency or in theory)

4 types of Networth

This brings me to the final and conclusive point – “What is his net worth”?

Here, we shall different kinds of networth rather than just looking at one single networth.

• Liquid Networth – You just add up all the FREE resources and call it your Liquid Networth. In the case above, its Rs 1.96 crores
• Networth – Add up your FREE and Blocked assets, which I will call “Networth” which totals to Rs 2.85 cr here, which is the traditional definition of net worth. I am not including the Usable and Maybe category of assets into this.
• Full Networth – This will include all your assets except the “Maybe” category. Full Networth means all assets which you own (either for investment or consumption), and you have full control over it. In this case, its Rs 3.55 cr
• Best Case Networth – This is the total of everything you own or can own in the future. This will be the same as full networth for those who don’t have any inheritance or assets which are probable to come to them. In this case, it’s Rs. 4.66 Cr

Here is what you shall do now

Put your assets in an excel sheet, and mark each one of them into FREE, BLOCKED, USABLE, and MAYBE. I am sure you will get a lot of clarity on how much of your assets fall in these categories and the various kinds of networth you have.

Do give me feedback if you liked this framework and if it helped you? This is just a framework and you can customize it as per your way of looking at things.

A lot of people think that paying health insurance premiums is a waste of money.

After all, why pay the premiums for years and years, and what if nothing happens? After all, our grandparents never had any health insurance and they are in perfect health. Why pay for something which is an imaginary risk?  These health insurance companies are here to just make money, fool customers with their fancy presentations and brochures, and reject claims finally.

Why not just save that money or enjoy life!.. Some people also give a nice example of how they can save up the premiums each year and if after 10 yrs, there is some hospitalization, they can use the money to pay the bills.

This is exactly how millions of investors feel and that’s one reason why insurance penetration is so low in our country. I am sure you must have met someone in your office or in your family who just reject the idea of taking the health insurance, because “Company ka cover to hai na” types of remarks

I see two big reasons why many people think this way!

Reason #1 – Transactional Benefit Mentality

A lot of people have a transactional benefit mentality, where they want to get some tangible benefit the moment they pay.

• Like you pay for a movie, and you watch it.
• You pay for apples, and you get it.
• You buy a TV on Amazon, and it gets delivered!

What do you get when you pay your health insurance premium? What do you get?

A PROMISE!!

That’s all, a promise that your medical bills will be taken care of in the future, only if it arises?

It’s very hard for these people to see benefits in terms of probabilities and future possibilities. It’s all about a short-term mindset and no ability to visualize the future.

This is even true for many investors who buy health insurance premiums, but eventually, they let expire the policy because they feel frustrated looking at their premiums go waste!

Reason #2 – Fake confidence of “Nothing will happen to me”

I don’t know how some people have this super confidence in themselves that “nothing will happen to me”

People don’t say it, but many people truly believe that there are fewer chances of anything bad happening to THEM.. It all happens to others.

I have lost one of my close friends and one more known person to COVID in the last 12 months, both below 40 yrs!. I was also admitted to the hospital in Nov 2020 as I was having cough and breathing issues. Both the people who died in Covid got admitted the same way with minor issues at first, and then it got worse and finally, they died.

I survived.

Remember that a person who dies in an accident or gets cancer has the same “Nothing will happen to me” kind of confidence 5 min before the event happens. We are all like that.

I feel it’s nothing but a lack of maturity and a bit idiotic to think that nothing will happen to me or my family because “we are careful”.

If you are careful, it’s just that the chances of something bad happening to you reduces a bit. That’s all, it does not get eliminated. Don’t live in the imaginary world.

Premiums are wasted if nothing happens?

It’s foolish to think that premiums get wasted if nothing happens to you.

• When you wear a mask, is it a waste if you didn’t catch COVID?
• Was the helmet a waste if you didn’t meet the accident?

What about the protection it provided you and you had that peace of mind?

In fact, the best thing is that your health insurance goes WASTE!.. I have tweeted the same some time back

Health insurance is so funny

You get the best out of your #healthinsurance is when your health insurance premium totally goes waste!!!

?️?️?️?️ pic.twitter.com/abBMPJThRL

— Manish Chauhan (@jagoinvestor_) January 10, 2022

3 levels of risks

In any area of life, you have various levels of risk.

You either accept the risk, reduce the risk or transfer the risk!

Health insurance is all about transferring the risk of very big hospital bills to insurers by choosing to pay a premium each year. If someone does not want to pay the premium, it means that they are accepting the risk that someday they may have to shell out a big sum of money for medical reasons.

And sometimes it can run into such a big amount that it can wipe out your years of effort. Sometimes you may get a disease that may require multiple or regular hospitalizations and it can really be crippling to your financial life.

So it’s up to you to decide if you want to accept these big risks or transfer them to the insurer (The cost part)

Is company cover enough?

I have already said this multiple times.

A company cover many times is not a full replacement for full-fledged health insurance which you buy yourself. At best you shall see the employer cover as a complimentary benefit because it can go away anytime. You also don’t know if it’s sufficient for you or not? And the worst, you cant depend on it after retirement, when you will need it the most!

The FIRE (financial independence/retire early) movement has got quite famous for the last couple of years in India. Every investor I meet these days wants to achieve FIRE asap.

I would like to discuss some important points related to FIRE movement and types of FIRE today with you all.

What is FIRE?

FIRE or Financial independence retire early is all about creating enough wealth for yourself as early as possible, so that you are financially independent and free from worries of money. Once you achieve FIRE, your wealth is enough to generate an inflation-adjusted income for you which lasts your lifetime

Let me give you an example.

Imagine a 30 yr old person with the monthly expenses of 75,000 per month (or 9 lacs a year) who has 18 lacs of current corpus and is ready to now aggressively invest Rs 80,000 per month for the next 15 yrs and will increase the SIP by 8% each year. The investments growth will happen at 12% and the inflation assumed is 7% (pre-retirement) and 6% post-retirement along with post-retirement returns of 7%

Below is how his corpus will grow and reach a level at age 45 (in 15 yrs time). He will achieve FIRE at the age of 45 with a corpus of 7.2 crores. At that time his expenses would be around 22.8 lacs approx. And his corpus will be around 32X (32 times his expenses). His graph would look like this.

Note that the above graph is based on the rough calculations and assuming that all other goals are taken care of separately.

Do you stop working when you achieve FIRE?

Actually NO

It’s your choice if you want to work after FIRE or not. You can stop working if you wish, but if you still want to work, you can & any money you earn will be a cherry on the top and will only add up to your FIRE goal.

Top 3 reasons why people want to achieve FIRE?

1. It’s getting tougher and tougher to be employed till 60 these days, and hence people don’t want to depend on the fact that they will keep earning for a very long time
2. Once you achieve FIRE, life is less stressful and you get power in you to live life on your terms. People want to create a situation where they don’t have to dance to the tune of their managers and employers
3. People also want to get out of stressful and demanding jobs by the time they hit a mid-life crisis and that means moving to a job that is more enjoyable, even if it pays very little. This is possible only when you have already created enough wealth

But, FIRE is tough!!

Is it very easy to achieve FIRE?

NO, is the answer

Forget FIRE, even normal retirement at 60 is not possible for many people in India. We can clearly see that a big number of investors will have a bad retirement because they are not living their financial lives in the right way and are not on the path to creating sufficient wealth.

FIRE in that sense will only be achieved by a small minority.

Our team has worked with hundreds of investors in the last many years and here are some of my comments on achieving FIRE

1. Most of the people who achieve FIRE do that not because of fantastic returns, but very aggressive saving and deploying that money in meaningful investments.
2. If you keep your expenses in check and keep it on the lower side, it simply means that it becomes easier for you to achieve FIRE because FIRE is not just about wealth, but both wealth and your expenses
3. Most of the people who achieve FIRE are those who earn quite well. If you earn 4 lacs a month and your expenses are 50k per month, You are earning 8 times of expenses every month. That helps a lot
4. Most of the people who are not able to control their lifestyle and keep upgrading their life find it tough to achieve FIRE despite having good wealth as the goal post keeps shifting.

In simple words, if you want to know how does a person who achieves FIRE looks like, its like this

• The person has a very good income
• The person saved a very big portion of that income (often more than 60-70%)
• The person is not extravagant and mostly lives a frugal and simple life (but not compromising on fun and desires)
• The person makes sensible investment choices (often earning at least more than inflation)
• The person has mostly created liquid assets and not blocked his money, because you need to generate cash flow at the end
• The person is quite confident of managing the money post FIRE and earning decent returns (he won’t keep all money in FD)

So what are various types of FIRE?

Let me now talk about various types of FIRE. You can pick which type of FIRE you want to work on and you will get some ideas

Normal FIRE

Normal FIRE is when you want to create enough wealth which can sustain your current lifestyle and desires for all your life. Note the word “Current lifestyle”, which means that going forward your expenses, your vacations, your spendings, your outings, your desires will be maintained at roughly the same level. This I think is the default mindset and something which most people will like to pursue.

A very high-level thumb rule says that if a 45 yr old has achieved approx 35X corpus (35 times of their yearly expenses), you have achieved normal FIRE

Lean FIRE

Lean FIRE is a concept where you are ready to compromise on your expenses and lifestyle, and ready to live lower expenses. A lot of times it may not be possible for a person to achieve normal FIRE. In which case you can say – “I am ready to live with just 75% of my current expenses, but I want to FIRE faster.. I can’t wait”.

This is like a little compromised version of normal FIRE.. but hey, it’s still some kind of FIRE!

A very high-level thumb rule says that if a 45 yr old has achieved approx 25-28X corpus (25-28 times of their yearly expenses), you have achieved Lean FIRE (Living with 75-80% of your expenses)

Fat FIRE

Fat FIRE is exactly the opposite of Lean FIRE, here you want to spend your life like a king and want to want to freely spend money after FIRE. You don’t want to restrict yourself and take expensive vacations etc. In which case obviously, you need a much bigger corpus to last all your life.

A very high-level thumb rule says that if a 45 yr old has achieved approx 45-50X corpus (45-50 times of their yearly expenses), you have achieved Fat FIRE (Living with 125-140% of your expenses)

What is COAST FIRE?

There is one more concept called Coast FIRE, which is something many of you may have already achieved.

A person is said to have achieved Coast FIRE when he/she has enough corpus already which will grow to FIRE corpus in the future without the need for any new investments. This simply means reaching a point, where you just have to earn money equivalent to your monthly requirements and wait for 5-10-15 yrs to achieve the actual FIRE

Example of Coast FIRE 

Let’s say a 30 yrs old person is earning Rs 2 lacs a month. In order to achieve FIRE at age 50, he has to create a corpus of Rs. 6crore. The person aggressively invests his 60% income (ie Rs 1.2 lacs) and starts his wealth creation journey.. In the next 10 yrs, when he turns 40 yrs old he has already created a corpus of 2.5 crores.

At this point, his income is let say 4 lacs a month and he is still saving 2 lacs out of that (his expenses are 2 lacs a month). However now, if he wants to reach his original target of 6 crores in the next 10 yrs, he does not need to put in any new investments. His 2.5 crores will anyways grow to 6 crores in 10 yrs @10% returns.

So his direction and speed is already set in such a way that he can reach his target without putting in any extra effort. If he wants, at this stage of life, he does not need to create an income of 4 lacs.. If he wants he can move to another low-stress job or something else which he wishes which pays less. All he needs is to create an income that can take care of his expenses for another 10 yrs and let his existing corpus grow without touching.

I am sure many of you who are reading this have already achieved Coast FIRE in your life and you are unaware of it. Try to do the calculations

Which category of FIRE you Are Pursuing?

So, which category of FIRE are you pursuing?

I can’t comment on which category of FIRE is right for you because only you can define how kind of life you want to pursue going forward. What money means for you and what level of comfort you want, however, I think Lean FIRE is not for everyone. Lean FIRE is surely some level of compromise and there is almost no margin of safety there. If a few things go wrong, your FIRE goal can go for a toss.

Hence I think one shall target normal FIRE as it’s more realistic and practical. However having said that, one shall try to first reach Lean FIRE and target normal FIRE 5-6 yrs after that.

If you are quite lucky and have enough interest left to earn and invest more money, you can try moving towards Fat FIRE too..

Important Disclaimer 

FIRE is a concept and based on mathematical calculations. A small difference in inflation or returns assumption can change the target amount or target year by a big margin, hence look at the discussions above as just an example. You need quite a good level of calculations and discussions with a good financial planner to project your calculations. Also, these are all complicated topics in reality, but for discussion’s sake, these points look simple.

To give you a simple example, if your calculation says that you achieved FIRE and your money will last till age 90 yrs. It’s more of just mathematics. Now if you increase the inflation by 1% and decrease the return by 1%, this may tell you that now your money will last only till 73 yrs (a reduction of 17 yrs) which tells you that these calculations are very dynamic and sensitive to assumptions.

So please take precautions which doing any kind of calculations. This discussion above is just for basic knowledge.

I would love to know what you feel about FIRE and what are your thoughts about it?

This week, govt launched a long-awaited portal called RBI Retail Direct which allows investors to buy and sell various kinds of govt bonds online. You can directly buy the bonds without any intermediary and without any Demat account. All you need to do is open a Retail Direct Gilt (RDG) account on the website.

The retail investors will be able to buy bonds in primary and secondary markets. Primary market means when a bond is issued for the first time and secondary market means buying and selling of bonds after they are issued. Note that there is no intermediary/agent in this and you will be directly dealing with RBI here and all your bonds will be with RBI itself. This is 100% FREE service and there are no charges at any stage.

What kind of bonds you can buy on RBI Retail Direct?

You will be able to buy various G-Sec bonds issued by govt like

• RBI Bonds
• Central Govt Bonds
• State Govt Bonds
• Sovereign Gold Bonds
• Treasury Bills

Who can open the RDG account?

As per the RBI notification, the retail investor needs the following to open an account.

• Rupee savings bank account maintained in India;
• PAN issued by the Income Tax Department;
• Any officially valid document such as Aadhaar, Voter ID for KYC purposes;
• Valid email ID; and
• Registered mobile number

Other points

• The account can be opened in single or joint names
• NRI’s can open this account, provided they are able to meet the eligibility criteria

What type of Govt bonds are available to invest in?

IF we leave aside the short term bonds, you will be able to buy bonds with 5-40 yrs of tenure. Govt of India issues very very long term bonds also like for 30 yrs, where if you buy the bond today, it will mature after 30 yrs and you will be able to get the interest (mainly called coupon rate) for every 6 months. The rate of coupon is fixed for you, so in a way, you are able to lock in the returns once you buy the bonds

Here is an indicative table that gives you the idea of the yield as of 15th Nov 2021

How to register on RBI Retail Direct Portal?

• Go to https://rbiretaildirect.in/#/rdg-account-registration
• Choose Single Holder or Joint Holder from the dropdown
• Enter Name (better enter as per PAN)
• Enter PAN
• Enter Email ID and Generate OTP to validate
• Enter a Phone number and generate OTP and validate
• Choose Date of Birth
• And finally, enter a login name

On the next page, you will get the application request number

• Click on “Initiate KYC process” button
• Be ready with the following things
  • Scanned Image of Signature
  • Scanned Image of Cancelled Cheque
  • Any Valid Address Proof
• On the next page, based on your PAN, if you have a CKYC number, your details will be fetched like your date of birth and other details
• On the next page enter other details like personal details, nominee details, bank account, signature upload, cancelled cheque,. nominee details along with nominee bank details etc
• Finally, you need to eSign the contract towards the end
• A signed contract is sent to you over your email
• Important: Your login and password details will be sent to you after 3-4 days, which was not clear on the portal, but I confirmed this by calling their customer care.

My Experience with the registration process

I personally registered on the platform under a single name and my overall experience was quite satisfactory. The moment I entered the PAN number, it fetched the CKYC number linked and then fetched all other details like Adhaar number, aadhaar image, address etc. I just had to upload my signature and cancelled cheque.

The registration process was a bit lengthy and will take time (15-20 min). Some people on Twitter said that it was quite long for them and they were frustrated, but for me, it worked fine. Dealing in bonds directly with RBI may require too much documentation and it’s ok if it’s lengthy a bit at the start. It’s a one-time process anyways!

Why did govt brought this platform?

This is a big development in our country as there was no easy way for a retail investor to invest directly in govt bonds with RBI directly. There were platforms that had some ways of buying bonds, but still, it was never comprehensive. With this platform, now retail investors will be able to sell the bonds directly to other investors (anonymous transaction) directly from the platform itself.

The whole bond market will expand as all retail investors have a way to access it. Also, the govt will be able to raise the funds for infrastructure by issuing the bonds to a larger market.

How can you sell the bonds later?

There is a screen-based electronic anonymous order matching system called NDS-OM by RBI which can be used to sell the bonds to other entities. Till now it was only available to big institutional players, but with this platform, all the users already registered will get access to this platform where they can trade the bonds. You will be able to put an order for selling/buying the bonds on the platform and if it matches with other users (like the stock market), the transaction will go through.

Suitable for senior citizens and assured income seekers

While anyone can invest the govt bonds, it’s important to note that the money will be locked in for a very long time if you buy long term bonds and income in form of interest will be paid on a bi-yearly basis. So it is most suitable for senior citizens who want to park some part of their portfolio into assured bonds from govt to generate some regular income.

However buying very short term bonds does not make sense, because the yields are not that attractive and anyways there are simpler options like debt mutual funds or banking products like fixed deposits.

The biggest disadvantage of the platform for retail investors is that the bonds market is not quite liquid as of now for small investors. So if you want to sell your bonds and urgently need money, it might happen that you are stuck because there is no one else looking for buying.

Final points

Note that this platform is quite new and we shall give some more time for it to evolve and things to get clear. There might be small bugs in the platform, so be a little patient. This platform adds a new way for retail investors to invest in debt markets

Are you investing in equities through mutual funds or directly picking stocks for your long-term wealth creation?

Many times investors doubt their decision about equity investing when markets are volatile or any big negative event happens like a pandemic or any economic crisis. But it’s very important to be 100% convinced about your decision to invest in equities.

A lot of investors are now looking at diversification outside India and there is nothing wrong with that, however, do not bet against Indian equities because our country has huge potential going forward.

With this in mind, we did 2 sessions with Industry Walmarts on this topic and today we are sharing the recording of those sessions with you

Session 1: Wealth Creation in Next 2 Decades

The first session was with Mr. Nilesh Shah, MD, and Group President of Kotak Mutual Funds. Mr. Nilesh explained with great examples how investors shall behave incoming 2 decades and what shall be their mindset.

Session 2: Why Invest in India and India as an Asset Class

The next session was from Mr. Navin Agarwal, the MD, and CEO of Motilal Oswal mutual funds, where he explained with some concrete data on how this is a very defining moment for Indian stock markets and also gave some insights on various sectors and companies.

Do share what were your learnings from these videos and if you still have any queries or doubts? Please share that in the comments section.

What are some of the reasons because of which you may get a shock while making a health insurance claim?

There are tons of bad reviews for various insurance companies and policies that they rejected their claims or didn’t pay in full. A lot of times these incidents happen because customers are not aware of many rules and best practices of making claims. So we did a podcast with Mahavir Chopra of Beshak.org (listen to the whole podcast + Q&A below) to understand the top 5 reasons for this.

5 major reasons for disputes & claim rejections in health insurance

#1 – Proportionate Deductions

Proportion deduction happens when you choose a hospital room whose rent is higher than the one you are eligible for. In this case, all the other expenses (other than the room rent) also get the deduction in the same proportion and you can lose a lot of money.

For example, if you were eligible for a Rs 5,000 per day room, but if you choose Rs 10,000 room, then the proportionate deduction will be applied for your entire bill, not just the room rent part. So if the entire bill is for 10 lacs, you will be just paid 50% or 5 lacs in claims.

A lot of old policies or PSU policies still have a room rent limit. Even corporate policies have a fixed amount limit on their policies, so it’s always suggested to check this before you choose the hospital room.

#2 – Not disclosing pre-existing illness

A big reason for many claims dispute is when your claim is rejected or partially paid because you didn’t mention some past illness, surgery, issue which you had but never disclosed it.

A lot of people feel that only some recent surgery or a big illness has to be disclosed while buying health insurance. But the truth is that even the smallest of details has to be shared. That small surgery 20 yrs. back, that 2 months of medication for hypertension which one went through the long back, some illness which got cured long back – everything matters, simply because this all data is used by the insurance company to gauge the risk factor.

You never know how all these medical issues are linked to each other.. Don’t skip it, else that will be used against you. And the premium does not necessarily increase by mentioning every detail!

#3 – Reasonable and Customary Charges

Don’t think that insurers will always settle any amount of bill which the hospital charges. There is a clause of “reasonable and customary charges” in health insurance, where the insurer will only pay if the hospital charge is reasonable and has an acceptable logic. That means that it should be close to what others hospitals of the same nature on average charge in a given location.

So if surgery is costing 2 lacs on average, the company will not pay if you go to a hospital that charges 10 lacs for it. It’s your responsibility to make sure that you also put some thinking and effort into making sure that you are not overcharged just for the sake of it. Insurance is not a license to overspend or enjoy hospitalization at lavish hospitals.

A little deviation from the average cost is fine, but too much deviation will not be accepted and you may be getting a rude shock later. So better spend as if you are paying from your pocket.

#4 – No coverage for “Consumables”

Imagine you went to a restaurant for your dinner and in the bill, the restaurant also charges you for the AC, the food plate, the 2 hr rent for the chair you used apart from the food.

You will freak out! .. RIGHT!

You will say, but you always thought that it’s part of the whole deal and it’s all needed to provide you with the dinner.

That’s exactly is what consumable expenses are. These are various small things that will be required for the medication/surgery etc. which shall be all part of the room rent or the surgery cost and shall not be charged separately (but hospitals still charge many of these separately).
Insurance companies don’t pay for these consumables separately as they consider them as inclusive of the hospital package. Examples of these things are…

• Masks
• Gloves
• Cleaning kits
• Spectacles
• Hearing aids
• Adhesive bandage
• Crepe bandage
• Cotton roll
• X-ray Film
• Surgical drill
• Hair removal cream

Note that the consumables cost can form around 2% – 10% of the overall bill in general, but in COVID times, we have seen that the consumables themselves was forming around 15-25% of the hospital bills and they were not paid by the insurer.

There are some extra riders for consumables that one can buy while buying the health insurance policies (it will cost extra)

#5 – Unnecessary Hospitalization Case

Insurance companies won’t pay for unnecessary hospitalizations.

Unless there is an active line of treatment at the hospital which is really needed, it will not be considered a valid claim. Let me give you an example that Mahavir Chopra shares in our conversation. Let’s say that a 50 yr old person has chest pain and the family rushes to the hospital. The doctor checks up everything and tells you that you may want to just get admitted for 1 day so that they can monitor things to be on the safer side.

Now, this is not treatment. This is simply monitoring of things and it’s really not required as such. It may be required in your world as you want to be safe and because it came as a doctor’s suggestion, but from an insurance angle, this is not treatment. Most of you will also agree that hospitals do this simply to charge of a day and play out the fear factor.

I am not denying the need for it. But the insurance companies will consider this is an invalid thing.

Another good example is a covid case. Just because one got Covid and his oxygen level is 90, does not mean that they rush to the hospital because things can still be treated at home. If one wants to play safe and wants to get admitted just to play safe, that’s his/her personal choice, but it’s not payable (unless things go really bad and then there is a doctor recommended that hospitalization is unavoidable)

#Bonus Tip – Dont forget the PRR 

At the time of making claims, many times people forget small things but always remember the PRR principle.

PRR means

• Prescription
• Receipt
• Report

Always ask the doctor to give a prescription for each test, surgery, medication … Dont forget it

Always ask the doctor to give a receipt, make sure its dated (pre-printed or stamped, but not handwritten)

Always obtain the report wherever applicable (mostly in tests)

A lot of times you will have to send these for getting a reimbursement (even in cashless, you may have to send documents to claim the pre & post-hospitalization reimbursements), and if you miss any of these then you will not be paid the money.

How was your health insurance claim experience?

I hope this was helpful and please share your inputs and claim experiences in the comments section. Were you paid the full amount or some major deductions were made?

For the last 2-3 yrs, more and more investors want to diversify beyond Indian equities and want to invest in other countries stocks.

We all have seen news of how some international stocks like Amazon, Facebook, and Tesla etc are doing wonderful and today we will see how Indian investors can also invest in these international stocks in 3 ways

#1 – Directly through a Broker website

One of the ways to invest in global equities is through a brokerage house by opening a Demat/trading account.

This can either be an Indian brokerage house like ICICIDirect, Motilal Oswal which has tie-up with a foreign brokerage house again. Or it can also be some new-age startups like Vested, IndMoney which has a direct tie-up with the global brokerage houses.

Once your account is opened, you can transfer the money to that account and do the buy and sell transactions. However note that these are quite expensive in nature, simply because there are transfer fees (while sending and while taking back the money in your account) which can make them quite expensive especially if your ticket size is quite small.

Here is a simple illustration given in this tweet on only Rs 6,166 get invested when you put Rs 10,000 because a lot of money gets eaten up in the charges etc.

Tempted to invest in US Stocks directly?

Hold your horses✋

If you can’t invest at least ₹1 Lakh at a time, you’re doomed to make significant losses the moment you transfer???? into your US broker a/c.

Huge remittance charges (per transaction) is the devil no one talks about ???? pic.twitter.com/OJX39TvXTK

— Babu (@pooniawalla) March 23, 2021

This simply means that this route is only for someone whose transactions is of large size, and someone who wants the fun of selecting the stocks themselves and reviews them on their own. I feel this is a cumbersome method of investing out of India, simply due to the paperwork and hassles involved.

#2 – Investing through a mutual fund

Another way to invest in international stocks is through a mutual fund. The best part of this is that for a retail investor, there is no change in process and no extra paperwork. You can simply buy the units of mutual funds or do the SIP in the same manner.

Another great advantage is that you get tons of variety and options you get through a mutual fund. If you want to invest directly in stocks through a broker, mostly you will see the option for investing in US-based companies only.

However, with mutual funds, you can get options based on countries, emerging markets, sectors or geographies.. Here are some examples

By Countries / Region

These are mutual funds that focus mostly on a specific country or a region.

• Edelweiss Greater China Equity Off-shore Fund
• DSP US Flexible Equity
• Edelweiss US Value Equity Offshore Fund
• Edelweiss Europe Dynamic Equity Offshore Fund
• Edelweiss Asean Equity Off Shore Fund
• HSBC Brazil Fund Gr Dir

Global or Emerging Markets Funds (which invested in various countries)

These are funds that mainly are not linked to any country, but are ready to invest in various countries stocks depending on growth sectors and opportunities spotted.

• Kotak Global Emerging Mkt
• ABSL Global Emerging Opp
• PGIM India Global Equity Opp
• Sundaram Global Brand Fund
• Edelweiss Emerging Mkts Opp Equity Offshore Fund
• Mirae Asset NYSE FANG + ETF FOF
• Kotak NASDAQ 100 FOF
• Motilal Oswal S&P 500 Index Fund

Funds based on a theme/sector

Finally, there are funds that are focused on a specific sector or theme and feel that it’s too promising. It can be technology, Real estate or consumption etc.

• Edelweiss US Technology Equity FOF
• Axis Global Innovation FOF
• Invesco India Invesco Global Consumer Trends FOF
• DSP World Gold Fund
• Kotak Intl REIT FOF
• DSP World Energy

I would to also show you the top 10 international mutual funds based on 5 yrs returns.

Know this, before you invest in international mutual funds

Note that it’s also quite fancy to think that you are investing in an international portfolio, so many people go overboard and put a very high amount in these funds. Look at these funds mainly as a way to diversify your portfolio and reduce the dependence on Indian equities only. There is no compulsion that you have to invest out of India.

Also, on the taxation front, one big disadvantage of these international mutual funds is that they are taxed like a debt fund. Yes- so any profits you earn before 3 yrs, they will be treated as a short term capital gain and taxed at your income slab rates.

Final point is that these are all mostly funds of funds at the end of the day, which means that they are just a mutual fund that is buying the mutual fund units of another foreign mutual fund (that’s totally ok). So their expense ratio may be a little on the higher side!. But if they are saying you from all hassles, paperwork and guesswork, I think it’s worth paying the fees and participate in the fund.

Do let me know if you have any questions on investing in global equities?