Health and Financial lessons by COVID(1)

                           Introduction

                                                                                                                                                              By Dr.S.Thirumalai Kolundu

Most terrorizing word for the past one month is COVID. COVID has taught us many lessons on both health and financial aspects. But for COVID, people are healthy, thanks to the clean air, clean water, less job tension, no junk food only homemade food, and adequate sleep. Very few people are visiting the very few functioning OPDs and medical shops are also getting more of chronic illness prescriptions only. Even MIs and strokes are less.

This clearly shows that one disease may be made in China, but all other diseases are made by the people who are corrupt, paying scanty respect to the society, exploiting the environment to their personal benefit and adamant in not following personal hygiene.

Leave alone the health, COVID has taught us a lot of financial lessons also. COVID has proved beyond any doubt that in finance bright sunshine and pleasant sea breeze can at any time change into a dreadful hurricane.

Financial havoc: more than the morbidity and mortality, it had caused unbelievable financial damage to billions of people. Daily wagers are the worst hit people. As saving habit is almost nil, they have borrowed money at a higher interest rate. It will take decades to come out of this.

Aviation, hospitality, automobile, travels, and tour sectors are completely thrown out of gear. IT industries are facing job cuts, salary cuts.Many working abroad may be sent back home.Industries with low debt and cash-rich will survive the bad times. Similarly, persons with low debt and savings can survive many adverse conditions.

 Let us have an introspection about our personal finance, what mistakes we could have avoided and how to withstand these types of adversaries and travel safely to financial independence at the earliest.

To be continued tomorrow Dr.S.Thirumalai Kolundu

Health and Financial lessons from COVID (2)

There is not much financial strain for Government doctors and pensioners as the regular income is not affected. For pure private practitioners, what is happening now?

They can't go to work and even if they go, turnover is less than maintenance. No elective surgery and inpatients number is also very low. But there is no going back on monthly expenses under professional head.

This is an unprecedented happening which Nobody expected. There is no guarantee that it will not happen again. Let us use this bitter experience in a better way for the future wellbeing. This writing will be more useful for youngsters.

 First let us find out what are our shortcomings

•  Clinic income should be one of the sources of income, not the only source of income.

•  More than saving money, we must learn the art of investing money.

•  Everyone should possess basic financial knowledge and spend some time in it.

•  We must understand the power of compounding and importance of starting to save early.

•   We can't be working 24*7 for our entire life. Let us make the money we have earned, work for us. " Money should earn money "

•  Avoiding Unnecessary expenses and luxury at the early stage of life.

 For our financial wellbeing, we are going to concentrate on few things.

•  Wealth creation

•  Wealth protection

•  Making our clinics into financially productive

•  Reorganizing our loans.

•  Becoming Entrepreneurs.

Wealth creation: here also there are so many Avenues for investing. As age advances, we must shift from risky investments to less risky investments. When we invest, think about capital protection rather than the interest rate risk. Let us see one by one.

•  Choose the better fixed income savings.

•  Enter into the world of shares ( you are going to enter into the business)

•  Carefully invest in mutual funds.

•  Novel ways to buy gold

•  Real estate- not so attractive now.

Fixed income investments: less risky but less income and more suitable for little older persons. We can choose from the following

•  Bank FDs

•  Post office Schemes

•  Bond mutual funds

•  NBFC FDs Points to note:

•  Bank interests are coming down and around 5% now less than the inflation which may touch around 6%. Still interest rate may come down to 3%. Now if you invest Rs 100 in a bank, next year its value will be 99.

•  Due to COVID, banks are not in good shape. NPA will increase. Don't invest more than 5L in a single name ( Deposits upto 5L in a bank ( not branch ) is insured). Choose good PSU banks. In private sector, good banks like HDFC, ICICI, AXIS, CUB will be better. LVB not in good shape. Choose the bank which gives higher interest. Even 1% matters lot. For example, Rs 100000 invested for 1% more interest will give extra 1000 every year. Repco bank gives higher interest

•  Now better avoid Small finance banks as they are in micro-lending and may face repayment problems due to COVID.

•  Post office Schemes offer 1 or 2% more than banks, better choose them.

•  Non-banking financial corporations ( NBFC) are risky at present as they are having Liquidity crunch.

•  Don't go for corporate FDs at present.

•  Bond mutual funds are also experiencing redemption rush and Liquidity problems, but we can choose carefully which we will see tomorrow.

To be continued tomorrow Dr.S.Thirumalai Kolundu

Health and

Financial lessonsfrom covid (3)

Yesterday we have stopped with bond funds. I am investing in bond mutual funds for the past several years with decent returns. Usually If we stay invested for three years, we need not pay income tax but only long-term capital gains which is very less. We will be getting 3 to 4% more than the FDs.

 First time in the recent history, Debt funds also swept away by the cytokine tsunami of covid. Franklin india had closed 6 debt funds. Investors don't know when and how much they will get back.

 Debt funds invest in government securities, treasury Bill's, money market instruments, PSU and corporate bonds. Still you can invest in debt funds with following precautions.

•           Money in S/B account can be invested in Liquid funds. You can get back the money in one day. Another choice is overnight funds. Here you will get 5 to 6% interest.

•           You can choose ultra-short-term or short term bond funds. The majority of their portfolio should be in AAA bonds ( very important). You can expect 7 to 8%. AAA is the highest rating by the rating agency.

Certain points:

•               Why FD is not good for youngsters? You get 5% Interest and pay 30% tax. Now it becomes 31/2

%. Inflation is 6%. Your money depreciates by 2.5% in a year.

• Senior Citizens should invest in senior citizens saving Scheme with 7.6% interest. Maximum limit 15L.

•  Senior Citizens for regular income invest in post office Monthly income Scheme. Upper limit of investment is 4.5L.

•   Pradhan mandri vyna yojna is a good Scheme for senior Citizens. Maximum investment 15L and monthly income 10000. Closed on 31.3.20. People asking for extension. If granted invest immediately.

•  Those who are having a girl child of less than 10 yrs, invest in Suganya samrudhi yozna. Maximum investment 1.5L every year. Interest tax free. Maturity amount free from capital gains.

•    All of you should have PPF account. Maximum investment 1.5 L per year. Interest tax free.

 These are the important things about fixed income investments. Now let us move on to next type of investment.

World of shares : why this investment is important especially for youngsters who should take risk, let us see.

One day owner of a sales outlet which sells electrical and consumer durables in Palayamkottai came to me for a consultation of his child. As I am one of his longterm customer, he used to talk to me freely. On that day he suddenly asked me " doctor how much you are earning per day ". After seeing me not opening my mouth , he told me "whatever you are earning In one day, we will earn by selling two TVs". Yes true.We are most underpaid, yet we are being ridiculed for over charging. A lawyer arguing in supreme court gets many lakhs for 1 hour argument but a cardio Thoracic surgeon doing CABG gets 40 or 50 thousand for many hours work. Even if the lawyer sends his client to jail, he is not beaten. See how cursed we are?

As I have told earlier, clinic income should be one of the sources of income and not the only source of income. For that we have to enter into business. Directly entering into business is difficult, but we can do it indirectly through shares. This is the only way to become rich.

I can hear your mind voice," After knowing all these things why you have not become rich". I have learned all these things only after the age of 55. At my earlier age nobody was there to guide me or write like this. We learned finance only through our parents. I don't want this to happen to our youngsters. They must be well versed and confident in personal finance.  

Nuances of share investment, we will see tomorrow.

To be continued tomorrow Dr.S.Thirumalai kolundu

Health and Financial lessons from covid (4)

Thank you everyone for the encouraging words. Yesterday we were about to enter into the world of Shares. We don't know whom we are going to meet Angel or Devil. If we understand the fundamentals and follow certain basic rules, definitely a ticket will be reserved for us in Alcazar show. Let us first see what are our shortcomings.

•  It is not like other types of investments, it is business. We need some basic training and knowledge to get a grip.

•  We don't involve ourselves constantly in share market. When there is Euphoria, we peep our head and buy here and there. When it has gone to bear phase, we completely forget about our holdings.

•  Most of the time, we buy shares on friends, relatives or half baked financial advisers advice.

Certain basic rules:

•  Buy shares as long term investment. Don't go for speculation. Intraday trading, short selling are all not for us.

•  Don't invest more than 15 to 20% of your savings in shares.

•  Constantly watch the shares in which you have invested and ascertain that they are in good shape.

•  Though herd immunity is good for covid, herd mentality is bad for share investment.

•  Do opposite of other. If all of them sell, you buy and vice versa.

•  Have a realistic expectation on returns 12 to 15%.

•  If you know the right time to buy and right time to sell that means you have already booked your ticket in business class in Emirates.

Demat account: For easy trading open a demat account with a reliable broker ( very important) . You can open 3 in 1 account in some good banks like ICICI, HDFC. It combines savings account. Trading platform and Demat account.

Let us define ourselves: First decide whether you are going to be an "Active investor" or " Passive investor ". If you can find time to read and analyze, then you are Active investor otherwise passive investor.

Passive investor: He is going invest in shares without doing much homework and at the same time going to earn reasonable returns.

•  Invest in Nifty BeEs ( ETF ) whenever sensex goes down. This is investment in top 50 companies which are constituents of Nifty in the same ratio as their market capitalization .

•  If you want more growth and returns and ready to take risk, you can go for Nifty next 50. Investment in top companies from 51 to 100.

•  If you are fond of certain good sectors like pharmaceutical, banking, fast moving consumer goods ( FMCG) and like to invest in it , then you can invest in sector funds like Nifty bank, Nifty pharma.

What is index funds & ETFs: index funds also invest in index like Nifty, Sensex and it is a mutual fund. Can be bought as SIP also. Exchange traded funds ( ETF) are same but can be bought only in stock exchange through Demat account.

Return Analysis: I will give the details of 2 funds. Returns will be almost equal to the returns of the corresponding index. As this is passive fund, expense ratio will be less.

1. Nippon India Nifty BeEs: Launched on 28.12.2001. Annualized returns since launch 14. 17%

2.  Nippon India pharma fund: Launched on 5.6.2004. Annualized returns 19.92%

Compare returns: let us take the first case. A person is investing 1 lakh in FD at 7% for 19 years ( from 2001) for compound interest. Now his savings will be Rs 3,69,601.

He invests Rs 1 lakhs in Nifty BeEs ( From 2001). I am reducing the returns to 13% to avoid calculating errors. Now his investment of 1 lakhs in the year 2001 would have grown into Rs 10,94, 674. This looks unbelievable. This is the power of compounding. Even 1% difference in interest rate matters a lot. You will accept with me that a shrewd investor will become rich quickly. Remember passive investor is one who doesn't read financial magazine, not much knowledge in share market but only read my writings.

Again, if you know the right time to buy and sell , you will earn decent returns. Whatever you are going to earn in FD of 3 lakhs , you can earn with 1 lakh investment.

Tomorrow we will see about Active investing.

Dr.S.Thirumalai kolundu

To be continued in Next blog