The thing about a blog is that if you make an error in your analysis, especially a dumb one, it gets caught very quickly. I did not notice that HDFC floater LT has a 3% exit load. As a result, one of my conclusion in the previous post is invalid, if one is looking for parking short term funds. If however, the time horizon is more than 1.5 years, I think HDFC floater LT should turn out to be a decent option.
In addition to the options posted in my previous post, it was pointed out that flexible deposits and sweep-in are good options for short term funds. I agree with those comments completely. There may be a difference of +/- 1% point in terms of return between these various options, but unless you plan to invest 10 crores, I don’t think it will make a huge difference.
My personal preference when investing short term funds is for liquidity and safety of principal. Returns are important, but I will not compromise on the safety of my capital. A few percentage points is not worth the risk at all. I am a very conservative and risk averse investor in terms of debt and have always given high priority to the safety of principal.
Personal finance
This brings me to the next topic – personal finance. My own personal finance is split between equities, a little bit of debt instruments and cash. It is an idiosyncratic split reflecting my personal needs. I will definitely not recommend it to others who may have different goals than mine.
I don’t consider real estate (primary home) as an investment. I find it completely stupid to think of my primary home as an investment. If my home appreciates by 50%, what will do with it ? sell it and go live in a forest ? A home is an expense and responsibility. A second or third home or apartment can be called as an investment, but that’s a different story.
I consider insurance as simply that – insurance. So I have never bought a ULIP or a hybrid policy which are instruments of fleecing the common man. I have bought term insurance to cover my liabilities and to secure my family.
Keeping it simple
I prefer to keep my personal finance structure simple and manageable. I prefer to low to non-existent risk on my debt and other investments. The only risk I like to carry is the one for which I am paid – equity risk.
17 comments:
Hi Rohit,
I am amazed how value investors think. I have few friends from value school of thought, and it amazes me how similar structure and simple their personal finance is.
You are right on about housing, primary housing where one lives is not an investment.
Best Wishes,
dear rohit
i parked upto 20% of my profits in kotak LT g fund
also, waiting for ur 2nd stock for those donatees
i alredy have decent gains with the first pick
also ur analysis was good
any idea on land bank moats like TCI,HOCL, ABC INDIA,RCF etc
regards
This is abt Floating rate funds. I agree that Floating Rate funds are good for increasing interest rate scenario (conversely, Bond funds can lose value). But, there are 2 types of Floating funds. Short Term and Long Term (and probably flexible floating rate funds - though I dont know any).
I dont think Floating Rate LONG TERM funds are suitable now., for increasing rate scenarios.
Floating Rate Short Term could be the best bet to take advantage of increasing interest rate scenarios.
I dont know how different are Floating Rate ST funds - from - other ST Debt funds. Could anybody care to explain.. Thks. Are they also good bets for increasing rate scenarios ?
Hi Rohit,
In my view, primary home can be considered as investment when it is generating positive cash flow.
Mostly people pay towards homeloan principle & Interest and claim tax rebate. They never break even.
regards
Aniruddha
Hi Rohit,
Related to personal finance (Equity, RE, Commodities etc.), it would be great if U can give Ur views on "Tax implications on personal finance", specially related to the new direct tax code which would be enforced in future.
Also whether NPS (New Pension Scheme) is good enough to be part of anybody's finance profile.
-Raj
Hi , mr.value investor i find ur views on the stock market quite well researched and thought provoking. Keep up the gud work. Its quite a refreshing experience to see an indian value investor(in itself a rare commodity) willingly sharing their thoughts and views . p.s wud it b possible for u to give an analysis of ifb selling at a p/e of .6 at rs 66 with an eps of rs100.(this years combined 3 quarters earnings are rs22 a share with rs 18 in the first quarter,i know paying attention to short term earnings is harmful but still !) eagerly awaiting your reply, Selfish wannabe investor
Hi income.portfolio
I think in a lot of cases the simple personal finance structure comes from a basic need to keep things simple and focus on the important. that may be a trait shared with value investing
Hi anon
i have promised another idea to the donors, however with the market at current level it may take some time for that to happen
rgds
rohit
Hi NPR
A long term floater will rise more in value than a short term floater in an increasing rate scenario.
difference between a floater and fixed rate debt is the nature of instruments held by the fund. floating rate funds generally hold instruments which are indexed to an benchmark rate, whereas fixed rate funds hold the typical fixed rate funds. in a rising rate scenario a floater's rate remain fixed whereas in case of fixed rate fund it will drop
rgds
rohit
Hi aniruddha
i did not understand your comment. how will you primary home in which you stay provide a positive cash flow and be an investment ?
irrespective of tax and other factors, in the end most us will need some house till we die ..so such an asset can never be liquidated irrespective of its appreciation
regards
rohit
Hi raj
i have not really reviewed the tax implications. will provide some answers when i do review the tax changes
rgds
rohit
Hi Rohit
Yes it is possible, in Tow way sat least which i am doing myself.
1) Home Equity Line of Credit/Loan against property/ or Home loan (Which i will not endorse here)
2) I have rented part of my terrace (which has separate access) to cable companies to setup additional dish & equipments. and my property lies on the busy road, I allowed corner of my plot for small billboard (18'X20'). which can be seen from the road.
Both the things fetch me 12k pm.
Regards
Aniruddha
Hi anirudha
point 2 is a very creative idea and agree that is giving you a cash inflow. that is however not possible for apartment owners. renting part of the house out is a subjective thing ..if you have excess 'housing' then you can rent out, but for a lot of people who buy to stay, that may not always be possible.
option 1 is not an income ..you are leveraging your asset and only if you can earn more than the interest paid then it may work out.
primary home can still be asset. you do any investing (in fact anything) for being happy. so happiness is ultimate return. which you get in abundance when you have your own home to live and not bothered about that somebody may kick you out tomorrow from your rented home.
even if you leave emotional aspects alone. you save on rent payment. that is 4% cash flow increasing by 5% every year. plus you should get 10% appreciation on long term.
Hi nilesh
i agree with the emotional part 100%. it is great to live in your own house. its also an obligation to provide your family with their own roof.
on the rent v/s buy ..let me write post as my thinking is different due to the point of hidden cost of buying
btw, i have a house of my own so i am not discouraging buying a house v/s renting
Hi nilesh
i agree with the emotional part 100%. it is great to live in your own house. its also an obligation to provide your family with their own roof.
on the rent v/s buy ..let me write post as my thinking is different due to the point of hidden cost of buying
btw, i have a house of my own so i am not discouraging buying a house v/s renting
awaiting your post on it.
Rohit
Long-Term floaters should be chosen when the interest rates are going/expected to go down.
Short-term floaters should be chosen when the interest rates are going/expected to go up.
Please do your analysis and come back to me.
Thanks
NPR
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