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| Edited By: Vivek Kaul |Source: DNA |Updated: Jul 16, 2018, 06:45 AM IST
“Is your TV not working?” she asked.
“The TV is fine. But I haven’t had a cable connection for more than a year now,” I replied.
“But why?”
“There was nothing to watch.”
“What about cricket?”
“Everything is available on the world wide web now.”
“Oh,” she said. “I didn’t know that.”
“But why are you asking?” I questioned. “Do you want to check out the state of the weather? Watch young boys swimming in puddles of water that have accumulated all around Mumbai?”
“Well, I wanted to watch that business news channel.”
“On a rainy day?”
“You only keep telling me that I should be serious about the money I make and all that personal finance.”
“Hmmm. And you think you are going to become smart at personal finance by watching TV?”
“Why not? We all need to start somewhere.”
“All business news channels are built on the premise that they help you make money. But have you ever wondered, why they never highlight the track record of the stock recommendations that they make?”
“Now that you put it that way, it does make me wonder.”
“Personal finance is fairly straightforward, you don’t need to subject yourself to business television for that.”
“How simple is simple?” she asked.
“First and foremost, if you have any credit card debt, try paying it off. This is simply because the moment you are free of debt, you can start investing or increase your investment.”
“I did have some credit card debt, which I paid off last month,” she replied.
“Ensure that it stays that way as far as possible. Next, start a Systematic Investment Plan (SIP) on an equity mutual fund.”
“Yes. I already have one fund. But I need to start a couple of more. My problem is there are so many mutual funds out there, how do I choose which is the right one?”
“Well, there are websites that rank mutual funds from one to five stars. Choose funds that are ranked either four or five stars and keep track of their performance.”
“You mean look at their performance every month?”
“Not at all. Look at them every six months to a year. If there has been a dramatic fall in their performance vis-a-vis, the overall market, only then stop the SIP and move on to a new one. Also, stay invested in an SIP as long as possible. The real fun starts only after a decade of investing and not in three to five years, as fund managers would want you to believe.”
“What else?”
“Well, many insurance agents will approach you with investment plans from insurance companies. Best to avoid them. In all these years, I am yet to figure out which is the best performing investment plan offered by insurance companies. They are too complicated.”
“So, investing is not only about what to do, it is also about what not to do.”
“For sure. These days there are many investment plans which will offer you guaranteed returns. The moment the rate of guaranteed return is greater than 10% a year, you should stay away from making that investment. Chances are it may not be recognised by the Securities and Exchange Board of India and might be an illegal Ponzi scheme.”
“And what else?”
“Have a health insurance policy of at least Rs 5 lakh and a top-up of around Rs 15 lakh. You never know what is in store on this front. Also, if you have dependents buy a term insurance policy.”
“Good you reminded me of that. The company I work for does not offer a health insurance policy. Time, I bought one for myself.”
“Ensure that you have a public provident fund account in which you invest Rs 1.5 lakh per year that is allowed. Also, keep checking from time to time whether your company is making that compulsory investment into your Employee Provident Fund account.”
“This sounds pretty straightforward and boring.”
“It is. You need to look for excitement elsewhere. Ah, and make a will.”
“But why?” she asked. “I am not dying so young.”
(The example is hypothetical).
(Vivek Kaul is the author of the Easy Money trilogy).
