About 80 Participant Questions | Answered

Finance For Beginners

Some 80 odd questions came from about 350 participants of a corporate webinar held last week. Those questions are being posted here, since the blog is a free resource and will help other readers as well.


Answering these questions is never easy

For two, rather obscure reasons.

  • One, because investing in financial products is all about the footnotes. And without an understanding of those footnotes, any one-line response can cause harm.
  • And two, because these questions, and about eight million others have already been answered. I wrote my last book for this very reason – so beginners have some place where they can learn everything they need to get started.

No surprise then, that I answered these questions with the same enthusiasm as a child who’s been asked to do redo his last year’s homework.


I’ve clubbed similar questions together. And again, just about every question here has been answered in excruciating detail in the book.

Let’s begin.


There’s just so much out there. It’s a bit overwhelming. Where do I even start?

I empathize. I understand how overwhelming the field of finances can be for beginners. Where to start? Who to trust? Where to begin?

I was once where you are now. Every seasoned investor was once where you are now. The field of finance is too noisy and the information is too scattered. And the presence of commissions means that pure, unbiased advise, or education is very hard to come by.

So go here and do your future self an elephant sized favor. Order a copy of the book and read it this weekend. It is everything I wished someone had taught me when I was getting started.


Which platforms should I use for investing in direct mutual funds?

  1. For a list of direct fund platforms in India, refer to this post. If a site isn’t on this list, it most likely does not provide access to direct mutual funds.
  2. Sites like Scripbox, fundsindia, upwardly do not provide access to direct funds. Read about such sites here.
  3. Demat account providers like Sharekhan, ICICIDirect do not provide access to direct funds. They become the intermediary/middlemen. Zerodha does, but the units are held in de-mat form. This may create problems if you ever decide to not use Zerodha.

I’ve already invested in a ULIP or an LIC. How can I exit them?

Every LIC policy and ULIP is different. So a blanket recommendation on when or how to exit is impossible to make. Start first by calling your agent or customer care and asking what would happen if you did exit.

You will be able to decide reasonably well after building up some basic knowledge of finances. But if you’re not planning to do that, consult a financial advisor. You can find a list of fee-only financial advisors here.


Which are the right mutual funds for beginners and those who are risk-averse?

There are multiple stages of risk averseness. It’s not 0 or 1.

Complete risk averseness is typically a symptom of low financial knowledge. If you never care to build that knowledge, you will most likely be risk-averse for life – which is a terrible way to live life in general.

If you are 100% risk averse, stick to investing in FDs of large banks. But if you are specifically interested in equity mutual funds for risk averse investors:

  1. Pick up debt-equity hybrid mutual funds.
  2. Pick up index funds or large cap funds.

I could explain more about why these type of funds. But I’ll just end up writing a whole book again.


I know why I need to invest. Can you please tell us how to start investing? Should I start by opening a Demat account?

You don’t need a Demat account to start investing. A Demat and trading account is only needed if you plan to own individual stocks stocks or ETFs. And beginners need neither.

The ‘How’ indeed can be confusing for beginners. With this in mind, I’ve dedicated an entire chapter dedicated in the book called ‘How to invest in just about anything’. It provides clear step-by-step instructions on how to go about investing in various products, or buying the right insurance policies.


What is the ideal debt to equity ratio, or the right mix of mutual funds/categories?

There is no such thing as an ideal debt-to-equity ratio, and no such thing as an ideal mix of investments.

Because this depends heavily on a person’s ability to absorb short term risk, and their life’s milestones.

One 23 year old’s needs for money, could be vastly different from another 23 year old. One might be planning to take up PG studies, other could have a lot of dependents, while another could have no liabilities at all. And you could easily find a senior citizens who has a higher risk appetite than a 25 year old.

So there is truly is no ‘ideal’ debt-to-equity ratio, or an ideal mix of mutual funds.

However, even if you are an aggressive investor with a high risk appetite, I would not suggest more than a 60% exposure to equities. Anything more will make you lose sleep, increase stress, and lose sight of things which are more important in life.


How do I select and identify mutual funds?

Firstly, figure out your risk appetite. Decide first between debt and equity. Every category of mutual fund behaves differently.

Once you’ve decided upon a category, sites like Value Research, Moneycontrol, ET, Morningstar rate mutual funds based on a host of parameters.

There’s no doubt that these ratings can’t predict future behavior. But they are a good indicator of the past, and a great place for new investors to start.


How do I monitor my funds and my portfolio?

For monitoring funds, most mutual fund investing sites provide tools and dashboards to for it. None of them are perfect. You’ll simply have to try a few out and eventually, you will find something which works reasonably well for you.


Why do I need life insurance? Should I only buy term insurance for my needs?

Term life insurance is something you should have even before you start investing. It is also the only type of life insurance you need.

  1. Read this post here to understand why it’s so important
  2. This post on why you should avoid ULIPS and this one on LIC policies which also provide a return.

Should I invest in NPS?

You can read this post on NPS.


How can I switch existing mutual fund investments to direct plans?

Typically, you will need to sell your investments in regular plans and re-invest them into direct plans. This opens you up to capital gains tax. So you’ll need to evaluate the costs. 9/10, if you are investing for the long term, you’ll be better off bearing this cost and switching as early as possible.

Some AMCs allow investors to switch from regular to direct without redeeming the units, but you’ll need to evaluate that on a case-by-case basis.


How can I invest in international markets?

You can pick an international fund or an ETF. There are quite a few options now.


What about index investing, ETF investing?

Index funds and ETFs have among the lowest overheads when it comes to passive investing. However, the verdict on whether they perform better than actively managed mutual funds is still out there. You’ll be able to find data to support both arguments depending on which category/period you pick. I’ll write a follow up posts next week which will specifically highlight this ambiguity.

All this apart, if you’re planning to only invest in large cap funds, you should definitely consider investing via a large cap ETF or index fund.

You’ll find ETFs for every asset class including Gold. And how much to invest in each again depends on your personal risk appetite.

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Should I buy or rent?

For individuals, buying real estate as an investment never made sense. And I’m not just talking keeping in mind the recent downturn. The only reason real estate seemed so lucrative is because of the large figures involved. You’ll find plenty of articles online which will validate this view. I’ve also written extensively about it in my book.

Your annual return on properties in most metros in India is about 2-3%. Which means even an FD will provide better returns than a real estate investment.

Renting is much cheaper, its more flexible, and comes with lesser overheads.


How to learn to invest in stocks?

I do not personally advise anyone to start their investing journey directly with stocks. People act too hastily, and often out of greed, and end up losing money. If you are however determined, start by picking up stocks of bluechips and largecaps across multiple sectors. This reduces your chances of losing money. Picking multi-baggers isn’t a science by any means.


Why is the price of Gold going up?

The price of gold tends to go up in times of financial turmoil. And currently there’s a lot of it. We have trade wars, and a pandemic at the same time. This price behavior is rather typical and has happened several times in the past.

But long term returns of Gold don’t match up. If you do decide to invest in Gold, you’ll also need to know when to sell it off.



About courses for beginners

Most courses in India are hosted by middlemen who promote a specific product or a service. So impartial, unbiased courses are very hard to come by.

But there are some simple ways to check if a financial program is being unbiased and impartial. You can read my article on medium here.

I’ve founded an initiative called the The Moneyplanting Program with this very need in mind. More about the course here, and course reviews are here.

I enjoy teaching, and I used to conduct full day weekend programs. These are now being moved online thanks to Covid. You can get alerts on online and future weekend workshops by subscribing here.



Can you review my investments or provide financial advise? I’m willing to pay a fee.

Sadly, no. I am not a financial advisor and have no intentions of ever becoming one. It’s a lot of work, and it takes time away from teaching and writing — two activities which I enjoy much more.

If you do think you could use a a financial advisor, I’d suggest you only hire fee-only financial advisors. You’ll find a full list of such advisors here.


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If we need to save for the rainy day, i.e the emergency fund, where do you think we should save this? Cash, Bank, FD or Mutual Funds.

You can chose FDs, liquid funds or overnight funds. Bear in mind that since this is a rainy day fund, the goal should be to keep it safe and protected. There’s little sense in chasing returns here.



You mentioned platforms like scripbox, fundsindia take away a lot of our money via commissions. So by what means do we invest in MF?

You should use platforms which provide access to direct plans of mutual funds. There’s a little bit of info here on direct mutual funds, but it isn’t complete. Book has the rest. Because you’ll also need to know how to pick/choose the right mutual fund.

A full of direct fund platforms in India is available here.


If we have 1L, instead of investing all the amount in one place, should we not invest in multiple places. i.e FD,House,MF, Stocks,Gold. If yes, how much percentage would you suggest in each medium.

You are right. It makes no sense to invest the entire 1L in a single place. No investor has just one type of asset class in their portfolio. How you split across these assets will again depend on your goals and risk appetite.

There’s unfortunately no way to comment on the percentage without undertaking a through conversation. But there is an entire section in the book on goal planning and asset re- balancing.

Vinod


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