Sanjay Matai - The Wealth Architects Classic Tips on Money Management.pdf · At even one penny, this book would be overpriced. ... free is too expensive, because you’d still waste

Sanjay Matai

"Money is not the most important

thing in the world.

Love is.

Fortunately, I love money."

…Jackie Mason

101 Classic Tips on Money Management

Sharpen your financial acumen

April 2016

Sanjay Matai The Copyright of this book, as well as the matter contained herein, rests with the author. This book is sold with the understanding that the author will not be responsible for the result of any action taken on the basis of this work, whether directly or indirectly, for any error or omission, to any person, whether a buyer of this book or not.

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CONTENTS

Invaluable Tips on…

i. financial planning

ii. equity shares

iii. mutual funds

iv. fixed-income products

v. insurance

vi. credit cards

vii. loans

viii. gold

ix. miscellaneous

About the Author


Sanjay Matai Page | 5

1. Top Tips on Financial Planning

1. Managing money is really (really) simple. Even a school child can master it. I guarantee that you will find it lot easier than trigonometry and calculus; chemical reactions and equations; Newton’s and Einstein’s laws; etc. that you studied in school.

2. You need to be ‘financially ready’ for the day, when your monthly pay cheques will stop (unless, like Amitabh Bachchan, you hope to get great work even at an advanced age). Since your income will cease some day, you must start converting it into wealth.

3. Wealth (and not your income)…

… is the very foundation of your financial independence, … has the ability to fulfill many of your dreams and aspirations, … gives you the opportunity to retire early, and … will support you and your family, in your non-earning years.

4. You may own the best car. But, if you don't know how to drive, it

won’t take you anywhere. You may earn the best salary. But, if you don't know how to manage it, you will probably end up with nothing useful. Hence, you must invest in financial “lessons”, before investing in financial “assets”.

5. Get yourself a detailed Financial Roadmap and GPS. Without the same, you could easily get lost in the financial maze… and not reach your desired goals.

6. Can’t find money to invest? Switch your formula

- From: Income – Expenses = Savings - To: Income – x% of income as Savings = Expenses



7. You are unique. Hence, do what suits ‘You’. Blindly copying

others is a very bad idea. Your assets, liabilities, needs, desires, time-frame, risk-appetite are all different from your friends, neighbours, colleagues, relatives. So naturally, your investments too should differ.

8. Keep things Simple. In most cases, a simple term plan, a simple mutual fund, a simple health insurance policy, etc. will work perfectly well. Don’t be under the ‘false’ impression that only complicated products deliver better outcomes.

9. Start early, invest regularly and stay invested. “Time” makes money. Most important is the YEARS that you put into your investments. Assets are merely the tools, which Time employs to make money for you. Even Einstein was impressed by the power of compounding.

10. Contrary to popular belief, cars, televisions, air conditioners,

phones, etc. are NOT assets. They are liabilities. Because, they depreciate. Because, to use them, you need money. They reduce your Net Worth.

11. Property, fixed deposits, bonds, shares, mutual funds, gold, etc.

are the REAL assets. Because they appreciate. Because they generate money for you. They add to your Net Worth.

12. The secret to becoming rich, and also enjoying many luxuries, is

to first build REAL ASSETS. And then, start buying things from the RETURNS that you generate from such REAL ASSETS.

~ ~ ~ ~ ~



2. Top Tips on Equity Shares

13. Want to buy shares? Don’t! Leave it to the experts. Just because you know how to drive a car, doesn't make you eligible to participate in an F1 race.

14. Don’t buy shares… unless you have…

~ sufficient expertise to buy / sell stocks ~ sufficient amount to diversify your portfolio ~ sufficient time to monitor it, AND ~ sufficient aptitude to withstand market volatility

15. You have to be INHUMAN to profit from shares. Because human nature – guided by Greed & Fear, rather than by Reason & Logic – will invariably lead to losses.

16. Buy Businesses, not Stocks. Keep an eye on the growth in the

company’s business and its profits; not on the rise in its stock prices. Wrong perspective, wrong decisions. If you keep selling every time the stock say doubles, your portfolio will never have a ten-bagger.

17. 4 Ps to identify the best shares are

Promoter Product Performance Price Get the mix right and there is no reason, whatsoever, not to make money from stocks. People lose money because they usually take the shortcut of hot tips (which are often fake), instead of pondering on the 4 Ps.



18. History has proven, time and again, that

‘worst’ of the times, are the ‘best’ of the times to invest

not even God can 'time' the markets

‘good’ businesses almost always make money But I guess, people don't read history.

19. Cheap isn’t necessarily good. Low-priced stocks normally mean poor fundamentals. Hence, poor value. Buy ONLY when you get more ‘value’, than the ‘price’ you pay. Value of a company comes from its numbers (profits, EPS, EVA etc.). And, good performance enhances the company's value (and consequently its share price).

20. The stocks markets are a serious long-term commitment; not a make-money-overnight casino. You will ‘most’ surely lose money if you are not invested in the market (maybe not the same stocks) at least for a decade.

21. Protect your capital. Never hold on to the losers. Hope doesn’t

make money. Fix a stop-loss limit — always — and the moment your stock touches the same, get out — always.

22. Don’t be fooled by Bonus Issues. They are a mere financial

gimmick. You are not getting anything free. In fact, you get nothing at all – free or otherwise. It is just reclassification.

23. Do NOT touch the derivatives (i.e. Futures and Options) and other so-called exotic products. They have been rightly described as Weapons of Mass Financial Destruction.

~ ~ ~ ~ ~



3. Top Tips on Mutual Funds

24. Myth: Mutual fund means investing in equity shares. Equity-oriented mutual funds form just one category. Besides, you will also find excellent debt-oriented and gold-oriented funds, that have absolutely no relation whatsoever to the stock markets. This wide variety enables you to choose funds that ‘best’ match your ‘exact’ requirements.

25. Myth: Low NAV fund is cheaper. It is totally incorrect to think that "low" NAV (Net Asset Value) mutual funds are "cheaper" and hence "better" than the high NAV funds. NAV has absolutely no relation whatsoever to the performance of the fund.

26. Myth: New Fund Offers are superior to existing schemes. The age

of the fund — whether new-born or say 20-years old — is immaterial, irrelevant and inconsequential. Age has absolutely no relation whatsoever to the potential profits from a MF scheme.

27. Myth: Top-ranking funds are an ideal choice. Of course, past

performance is not totally unimportant. It does matter. However, exaggerated faith in the ‘ranking’ can prove treacherous. Instead, one must focus on ‘consistency’. [In fact, in 'certain specific' instances, the worst-ranked funds would deliver the best profits.]

28. Myth: Mutual funds are risky. Equity funds are definitely lot safer

than directly investing in stocks. Debt funds are definitely lot safer than company FDs, NCDs or bonds. Further, they are almost as safe as Bank FDs or Post-Office Schemes (plus a lot more tax efficient). Gold Exchange Traded Funds are definitely a lot safer

than gold bars, coins and jewelry.



29. Myth: Dividends make the funds more attractive. You would be

shocked to know that in MFs there is no such thing as "dividend". What is called as 'dividend', is merely distribution of a part of your corpus. Hence, any payout as dividend has absolutely no relation whatsoever to making a fund attractive or avoidable. [In fact, from taxation perspective (in almost all cases) Growth option is better than Dividend.]

30. Myth: MFs are primarily for the moneyed class. On the contrary,

MFs are an ideal option for the common not-so-rich investors, with little surplus money. You can start investing in a mutual fund scheme with a mere Rs.500. Most important, it gives the SAME returns whether someone invests Rs.500 or Rs.5 crores. It doesn’t discriminate.

31. Myth: Investing in MFs is expensive. Unlike the most favourite

investment viz. insurance, in MFs you pay absolutely no upfront commission. Even on exit there are no costs, once the minimum holding period is over (varying from zero days to around 1-2 years). And, the annual fund management expenses of 0.5-3% are quite nominal vis-à-vis the multiple benefits that you get.

32. Does the fund-size matter? Logically, No. But practical experience shows that average-sized funds have often delivered ‘better’ performance, ‘consistently’. Hence, funds with too small or too large an AUM (Assets Under Management) can be skipped.

33. Systematic Investment or Lump Sum? For equity and gold, do SIP. For debt funds, both SIP and lump-sum investments are fine.

~ ~ ~ ~ ~



4. Top Tips on Fixed-Income Products

34. You can NEVER become rich by investing in Fixed Deposits, Bonds, Debentures and such other products that earn you interest income. Tax and Inflation are the biggest enemies of debt-based investments. While tax will eat into the returns, inflation will keep eroding your capital.

35. You must invest in fixed-income products… when your objective is to earn regular income. For example, post-retirement there may be no monthly inflow to take care of your everyday living expenses. Interest becomes a steady source of income.

36. You must invest in fixed-income products… when the investment

time-frame is short. Equity, Property or Insurance are all long term investments; where you have to ideally remain invested for many (many) years.

37. You must invest in fixed-income products… when you require a

corpus for the emergencies. They are best suited for sudden withdrawals. Property takes time to sell. Equity is too volatile. Insurance policy surrender charges are very high.

38. You must invest in fixed-income products… to provide stability to

your overall portfolio. You can’t ALWAYS chase high returns from equity or property.

39. You must invest in fixed-income products… when you can’t afford

to lose money. If your liabilities are high or you have no sources of regular income, your risk appetite is low. Thus, any depreciation in your capital would indeed be very serious.



40. Don’t think these are risk-free investments. Risk of default is the

biggest threat when investing in fixed-income products. Not only the interest, but even the principal amount is prone to such risk. Numerous people have lost money ‘even’ in fixed deposits and bonds.

41. Minimize the risk of losing money by…

… Investing mainly in large, reputed and profitable banks … Limiting your exposure to company deposits … Opting for secured debentures vis-à-vis the unsecured deposits … Ensuring that the schemes have ‘very’ high Credit Rating

42. Never ever chase ‘supernormal’ returns from debt investments.

More often than not, these are just a scam. Higher the interest ‘promised’ as compared to the ‘normal’ bank deposits, higher is the probability that you will not get your money back.

43. Debt Mutual Funds are a (far) better alternative to direct

exposure in FDs, Bonds etc. They are professionally managed, rank high on liquidity, offer superior risk diversification, and attract comparatively lower tax. Ideal for investors in the higher tax brackets.

44. Do you know what is interest-rate risk (or opportunity)? In simple terms, the market value of a bond or debenture depreciates, when the interest rates in the economy rise. Vice versa, it provides capital gains when the rates go down. Thus, you can use the interest rate cycle to your huge advantage.

~ ~ ~ ~ ~



5. Top Tips on Insurance

45. Right insurance is not a cost; right insurance is not expensive; right insurance is easily available. Learn how to buy the “right” insurance.

46. Road to RIGHT insurance is dangerous and deceitful. Buy your

policies with extreme caution and care. There are just too many devils in the details.

47. Term Plan is the simplest, cheapest and the most flexible way to buy life insurance cover. And, it makes ample sense to buy 2 or 3 ‘small’ policies instead of a single large policy.

48. Don’t buy Endowment, Moneyback or Wholelife policies. Due to

high costs and sanitized investments, you will earn “pathetic” returns. Moreover, such policies offer very little flexibility to change if need be. Instead, PPF plus Term Insurance combo will give you lot more life cover, lot more money on maturity and lot more flexibility.

49. Once upon a time, Unit Linked Insurance Plans (ULIPs) were

among the worst products. Regulatory changes since then and the online agent-free plans have made them quite attractive. You can now look at them as a viable investment option.

50. Thou shall NOT BUY life insurance policy, when

~ Your primary objective is ‘investment’ Or ~ You have to ‘save tax’ Because the alternative options are far (far) superior!



51. Beware of ALL ADVERTISEMENTS. You will easily get trapped in

all the sweet and emotional talk. Moreover, the terms used are often highly misleading and deceptive. I believe that they are the most dangerous of all communications in the media today.

52. Don’t forget to buy Accident Insurance cover. Given the medical advancements, disability (temporary or permanent) is a higher risk than the risk of death.

53. ‘Seriously’ plan your medical insurance. A combination of the

conventional Mediclaim policy + Super Top-up health plan + Critical Illness plan provides comprehensive cover against the risk of medical exigencies, at a much lower cost. Plus, of course, either you be healthy or your doctor will be wealthy.

54. Are you aware of the free-look period? If you are not satisfied with your insurance policy, you can return it within the ‘first fifteen’ days of receiving the policy copy. Your (almost) entire premium is refunded, after deducting the nominal administrative charges.

55. Say No to Pension Plans. They are high on tax inefficiency. They

are high on rigidity (with total loss of access to your capital). They are low on returns. Your own investment portfolio will serve your purpose (much) better than most of the readymade products available.

~ ~ ~ ~ ~



6. Top Tips on Credit Cards

56. Credit cards are like plastic explosives in your pocket. They have destroyed and devastated many families across the world. Handle them with utmost care!

57. Plan your credit card usage soon after the bill for the previous month is generated. You get around 45-50 days as ‘free credit period’ if you do so. This keeps on reducing as you approach the next billing date, when you get around 15-20 days of free credit.

58. Plan your credit card usage to the last penny. Either you make the

outstanding balance ‘zero’ before the due date. Or the credit card will make you a BIG ‘zero’ after that.

59. Because you have to pay exorbitantly hefty 30-50% p.a. as

interest costs, you must NEVER EVER carry forward the outstanding balances on your credit card.

60. Because your interest meter starts from the date of purchase,

and not the ‘due date’ (hence, no free credit), you must NEVER EVER carry forward the outstanding balances on your credit card.

61. Because you lose the benefit of free credit period on all ‘future’

usage too, you must NEVER EVER carry forward the outstanding balances on your credit card. You are liable to pay interest on all purchases, old AND new.

62. Because you have to also pay interest on the unpaid interest, you

must NEVER EVER carry forward the outstanding balances on your credit card.



63. Because you have to also pay service tax on the interest portion,

you must NEVER EVER carry forward the outstanding balances on your credit card.

64. Because your Credit Report is adversely affected, you must

NEVER EVER carry forward the outstanding balances on your credit card. ‘Not-so-good Report’ means higher rate of interest on all kinds of borrowings (home loan, vehicle loan, etc.) that you may avail in the future.

65. Don’t be enticed by the Minimum Amount Due. Pay only the

‘minimum’ amount due on your credit card, and the exorbitant interest costs (plus numerous other charges) will definitely push you towards ‘maximum’ financial destruction.

66. Are you using your Credit Card as an ATM card and withdrawing

cash against it? Congrats! You may soon become bankrupt. Because ‘cash’ gets no free credit period. The (high) interest time-bomb starts ticking as soon as the cash is dispensed.

~ ~ ~ ~ ~



7. Top Tips on Loans

67. Loan is a burden. The lesser you have, the taller you stand. Borrowing means spending tomorrow’s unearned (and possibly uncertain) income today… not a wise thing to do.

68. Borrow only Good Loans (such as home loans, education loans and vehicle loans). Why? Because they build useful assets for you. Besides, they are inexpensive. And icing on the cake — home and education loans enjoy tax benefits too.

69. Be very careful with the Bad Loans (e.g. personal loans). Why?

Because such loans are often ‘wasted’ on acquiring luxuries (such as high-end TVs, high-end mobile phones, iPads, etc.). Besides, they carry (much) higher interest rates than the Good Loans… and, of course, no tax breaks.

70. Strictly avoid the Ugly Loans. Credit card debts are the worst of the lot — the ‘Ugly’ loans. Why? Because they usually finance consumption or extravagances (such as a dinner at a 5-star hotel, a designer-dress or vacation at a foreign locale). There is no asset creation. Moreover, they charge excessively high interest rates.

71. For Good Loans, the monthly EMIs should not exceed 40-50% of

your take-home pay. If the total EMIs paid every month is more than 50%, you will not have enough surplus to create wealth. In other words, never over-borrow and over-burden yourself.

72. In case you have to (perforce) consider the ‘expensive’ Bad or

Ugly Loans, make absolutely certain that the monthly EMIs do not exceed 10-15% of your take-home pay.



73. Lenders often mislead the borrowers with interest rate jargon,

where the loans appear a lot cheaper than they actually are. Simple solution to protect yourself from such dubious deals… don’t look at the interest rates. Instead, go for the lowest EMI/lakh for a given loan tenure. After all, what matters is how much (real) money goes out of your pocket every month.

74. If the EMI puts your monthly budget under stress, you can

increase the loan tenure to ease the EMI burden (ideally, of course, you should reduce the loan amount). But remember, this would mean more total interest payout, in absolute terms, over the loan period.

75. When your debts and liabilities exceed your income and assets,

you are Financially Fat. This is the warning sign to immediately start a debt diet plan. Please bear with this short-term pain for long term peace and prosperity (To cure any disease, we have to suffer the pain). You ‘owe’ it to your family.

76. A top-up on home loan, or loan against securities (such as shares,

mutual funds, insurance policies, gold, etc.) should ALWAYS be the first choice, than the personal loans or credit cards.

77. In financial matters, verbal promises do not matter. Believe me…

if it is not in writing, it is not true. Also, never sign on any blank documents nor leave any blank spaces in any document. Wrong details (sometimes, even deliberately) filled-in by others have hurt many borrowers in the past.

~ ~ ~ ~ ~



8. Top Tips on Gold

78. Buying gold is NOT a one-way street to riches. Like fixed-income products, returns from gold too are limited. So, be very careful with your (over) exposure to gold.

79. If investment is the objective of buying gold, strictly keep away from gold jewelry. Higher price of gold vis-à-vis the market rates, and enormous making-charges, will substantially eat into your returns.

80. If you prefer buying Physical Gold in the form of gold coins or bars, go to your jeweler. Banks too sell gold, but their margins are normally higher.

81. Financial-gold i.e. Sovereign Gold Bond and Gold Exchange

Traded Fund (Gold ETF), are the ideal modes of investing in gold.

82. Gold Bond and Gold ETF have transparent pricing and no margin. However, pricing of Physical Gold at jewelers is not transparent. (In fact, two jewelers in the same city will often sell gold at different prices). Plus, you end up paying 10-20% extra as jeweler’s margin, levied ‘both’ at the time of buying and selling.

83. Gold Bond and Gold ETFs are of the highest purity. Whereas, for

jewelry you have to trust your jeweler (and hallmarking it, only adds to the already inflated cost).

84. No one can steal your Gold ETF or Gold Bond. Whereas, Physical

Gold carries high risk of theft if kept at home; or else, you have to keep it at the bank and pay the locker charges.



85. Physical Gold has no holding cost (except locker), nor earns any

interest. Gold ETFs charge annual fund management fees of around 0.5-1%. Sovereign Gold Bonds are the best as they have no holding cost + earn interest income every year.

86. There is no capital gains tax in case of Gold Bonds. (Interest earned on Gold Bonds is, however, taxable.) Whereas capital gains on both Gold ETF and Physical Gold are taxable.

87. Investment in Gold ETF requires a demat account and does not

facilitate ‘automatic’ systematic investment. Gold Fund-of-Funds (FoFs) overcome these constraints. These funds simply invest in the Gold ETFs on your behalf. Advantages: you don’t need the demat account and SIP is possible. Disadvantage: extra fund management expenses.

88. Gold Futures are a short term product; useful primarily for

‘trading or speculating’ in gold and not ‘investing’ in gold. Avoid!

89. Gold-on-instalment schemes are worth considering ONLY if you desire gold jewelry for personal use; not as an investment (subject, naturally, to the condition that the underlying ‘terms and conditions’ are favourable to you). Caution! You are taking a big risk on the jeweler. So be very careful.

~ ~ ~ ~ ~



9. Top Miscellaneous Tips

90. There is no such thing as ‘no risk’ or ‘zero risk’. 100% safety is a BIG myth. Even PPF and Fixed Deposits are risky! Because losing capital is not the only risk. Inflation, lower returns, illiquidity, volatility are also ‘serious’ risks. Therefore, think of risk “management”, not risk “prevention”. Avoid Safety. Protect Risk.

91. Inflation, like cancer, is a silent killer. Your money is losing its value every minute; unless you make it work hard to beat the inflation. Many families have turned paupers, as inflation consumed their modest capital.

92. Buy top-end phones, top-end cars, top-end gadgets, top-end

designer dresses and you will surely hit the bottom-end with your finances. Become a smart buyer, not a foolish spender.

93. Nomination is not a Will. It does not ‘legally’ transfer the assets

to your nominee. For that, you need a Will. Write one TODAY. It is ‘really’ simple, and it makes life ‘really’ simple for your near and dear ones.

94. Rebalance your portfolio periodically. It is the ideal way to tackle

emotions, which can be a serious threat to your investments. It makes you ‘sell’ when the markets are up (which GREED may prevent you from doing) and ‘buy’ when the markets are down (which FEAR may prevent you from doing).

95. When you want to save and invest for your children, you don't

have to do anything different... what is good for you, is good for your child too!



96. Thieves, nowadays, don’t come only through the doors… they

come via computers too. Many of you are still unaware of this new threat. Be aware of the many ways in which computer-savvy criminals use the Internet to cheat you, and how you can protect yourself.

97. Making money is not only about making the right choices. But it

also requires getting out of the wrong ones… in ‘right’ time. So don’t be afraid to book a loss, if you have taken a bad decision. It is easy to get out of small holes, not the big ones.

98. You can’t expect to grow mangoes in the winter season. If you do so, you are sure to lose your crop. Likewise, align your investments with market realities. If anything sounds too good to be true, it usually isn't true. Beware! Every year, lakhs of people lose crores of rupees to scams and scheming agents.

99. For any financial dealing, it is extremely important that the paperwork involved is proper, adequate and up-to-date. If any document is ‘amiss’, please give the scheme ‘a miss.’

100. If your investments have no objective, no discipline, no proper

asset allocation and no appreciation of the risk-reward ratio, you can only pray to God to make you rich.

101. THE BIGGEST TIP: Buy this book and implement all its tips!

~ ~ ~ ~ ~



About the Author

Sanjay Matai, Mentor – Personal Finance

Post-graduate in Management from IIM, Calcutta with graduation in B.E.(Mechanical) from Delhi College of Engineering

Promoted ‘The Wealth Architects’ in 2006, offering fee-based

financial planning services to individuals. (Not associated with any mutual fund, insurance or any other company, to avoid any conflict of interest and provide unbiased advice.)

Prior to this, more than 19 years’ of work experience in the area of Corporate Finance, Management and Investment Advisory with some of the large corporates in India

Author of four published books viz. 'Your Guide to Finance and Investments', 'Millionaires don't eat cakes...they make them', ‘10/10 Now control your money...perfectly’ and 'Plan for Prosperity', besides a self-published e-book 'The Money Gyaan'

Expert Advisor to CNBC TV-18’s book ‘Everything you wanted to know about investing’

On the expert panel of Moneycontrol.com since 2005 and penned around 250+ articles on personal finance and investments

From time to time, numerous columns, articles and opinions have featured in Financial Times, Business Today, DNA, The Analyst, ezinearticles.com, Yahoo Voices, Money Mantra, Right Choice, stockmusings.com, domain-b.com, rediff.com and more.



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Sanjay Matai - The Wealth Architects Classic Tips on Money Management.pdf · At even one penny, this book would be overpriced. ... free is too expensive, because you’d still waste