7 Things You Need To Stop Doing To Be More Productive, Backed By Science

Working smarter, not harder, is the key to better results

When I was 17 years old, I used to work and study for about 20 hours a day. I went to school, did my homework during breaks and managed a not-for-profit organization at night. At that time, working long hours landed me countless national campaigns, opportunities to work with A-list organizations and a successful career. As I got older, I started to think differently. I realized that working more is not always the right, or only, path to success.

Sometimes, working less can actually produce better resu

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ELSS : Tax Savings Plus Wealth Creation

  • If you are young and have more years of service ahead, you can put a major portion of your tax saving investment in equity linked savings scheme
  • ELSS is mutual fund investment, which also gives you tax benefit. Here is how you can use it to work for you in terms of investment and taxation

The beginning of a financial year is a good time to plan your investment. It is also a good time to put your money in investment basket and get tax benefit as well. One such product is equity linked savings scheme (ELSS). ELSS is mutual fund investment, which also gives you tax benefit. Here is how you can use it to work for you in terms of investment and taxation.

What is it?

An ELSS scheme invests in equity mutual fund. “At least 65% of the corpus is invested in equities. It cannot be less than that.
These funds are meant for long-term wealth creation by participating in equities and should be able to deliver alpha (active returns) over the benchmark.

According to Value Research, currently around 37 asset management companies provide open-ended ELSS schemes and six asset management companies provide close-ended ELSS schemes. the total number of open-ended schemes in the market is 42 whereas the number of close-ended ELSS schemes in the market is 28. There are no sub-categories or types within ELSS schemes as such but the customer has the liberty to choose among ELSS schemes that invest in small-, mid- and large-cap stocks.

As an investor, you can choose either the growth or the dividend options in ELSS schemes. “In growth schemes you will get a lump sum on redemption. In dividend option, you will get regular dividends from the profit generated by the scheme,” said Krishna Kumar. According to financial planners, a growth-based ELSS scheme generally fares better than dividend-based ELSS schemes. “When you are paid a dividend out of your ELSS scheme, the net asset value (NAV) takes a hit. If you need money after your lock-in you can always redeem it without affecting the NAV of the scheme at all. Hence a growth scheme is better,” said Suresh Sadagopan, founder of Ladder7 Financial Advisories. If you have a salary income and are not looking for regular income from your investment, then you should opt for growth option. “Also you cannot be certain that your scheme will generate returns and the fund manager will declare a dividend. For example, in the year gone-by, the returns were hardly 2-3%,” said Sadagopan. If you invest in ELSS, you can claim tax benefit under section 80C of the income tax Act for up to ₹1.5 lakh.

Considering ELSS in your portfolio

There are a couple of parameters that you can keep in mind before zeroing down on a particular ELSS scheme. “Consistence in beating the benchmark, historical returns, the kind of underlying assets they invest in, fund manager’s performance and expense ratio are some of the parameters you should look at,” said Vishal Dhawan, founder of Plan Ahead Wealth Advisors. According to financial planners, you should not have more than two ELSS scheme in your portfolio. “Depending on your age and risk profile you can decide which kind of ELSS scheme suits you but multiple schemes are not required,” said Melvin Joseph, founder of Navi-mumbai based Finvin Financial Planners.

Remember that ELSS has a three-year lock-in, hence, you can withdraw only after three years. “If the scheme continuously underperforms after the lock-in period, you can pull out from the ELSS scheme. If you want to invest gain after pulling out for tax-saving purposes, then you can look at a different ELSS scheme. For the same reason, when you are studying your scheme’s performance and returns, it is essential to compare it with the performance of the peer schemes and then analyse if it is underperforming or not,” said Dhawan.

Now are you wondering of all the 80C options, where does ELSS stand? “It is difficult to compare ELSS with other taxsaving options because of the difference in the nature of products. Let’s take the example of PPF. ELSS and PPF are inherently different products so who should invest in which product is completely contextual and depends on your risk profile,” said Sadagopan. If you are young and have more years of service ahead, you can put a major portion of your tax saving investment in ELSS as equity investment can help in growth.

Source : Live Mint

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Season’s Greetings

We have all worked very hard throughout yet another year, and for what? For the love of our jobs, for the love of our ambitions, for the love of our near and dear ones, to fulfil our dreams to travel the world and the list goes on. However, don’t you think it may be also wise to just pause and check if we have done all the necessary provisions and arrangements to take care of our future and the future of our loved ones…..Financially!

Here are some Cardinal Rules for a Happy Financial Life which you may find handy!

Nomination! As morbid as it sounds, it is one of the wisest little things that one can do to make things simple and hassle free for our loved ones in our absence. Ensure that you have a nominee mentioned for all investments – be it in the bank, FDs, Post Office, PPF, MF, Life Insurance, Locker, Health Insurance, etc. Any place including any government agency related (electricity), society where you stay.
Have a large Term Insurance Policy with CI (Critical Illness)riders. Policy should at minimum be equal to your liabilities plus should sustain the lifestyle for your near and dear ones.
Have a good Family Cover Health Care Insurance even if you have some cover from your employer. Get it when you are younger as you save on the premium amount instead doing this when you are close to you retirement.
Invest for your short, medium and long term goals through Mutual Fund. Invest across asset classes Liquid Funds for emergency money needs (3-6 months), Fixed Income Funds for 1-3 years, Hybrid Funds (3-5 years), Equity Funds (5year plus).
We often pay a lot of attention in building a corpus for our car buying, home buying, child’s education when we are young. Save regularly for your Retirement Corpus also as seriously as you are doing the rest.
Purchase Gold etc through the ETF route which is far cheaper than buying physical gold
Ensure that Bank Accounts are linked with all investments and a schedule is kept for when the payments (premium payment or SIP payment) is to be done. Also check if you have any unnecessary and unused bank accounts and demat accounts and close them
Ensure you take a Home Insurance against fire & theft.
Keep an updated Will.
As we come close to the end of 2018, we often say “Ring out the Old and Ring in the New!!” Well, it may also make sense to say in the same breath …” take good care of whatever you already have “! All of the above rules are what makes you financially happy, secure and help you lead a contended life.

Season’s Greetings from Fortunext Investment Advisors to you!

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5 investing insights from Jim O’ Shaughnessy

Jim O’Shaughnessy is the Chairman and Chief Investment Officer of O’Shaughnessy Asset Management (OSAM). A pioneer in quantitative equity research, his interviews, tweets and writings are rich in wisdom. Here are a few insights gleaned from them that will help any investor, be it an amateur or a professional.

1. Design your own strategy. If you want to succeed as an investor, don’t imitate anyone. The “Warren Buffett” of 2038 will have gotten there via a much different road. Read as much as you can. Learn all that you can. Then synthesize all that knowledge into a strategy uniquely your own, so that your investment plan reflects ‘you’. When you create and own your investment strategy, you have many things in your favour. You… Make it easier to stick with it. Avoid playing the victim by blaming others or events. Commit yourself and put skin in the game. Have the leeway to continue to study/learn and adapt as you do so.

2. No one particular ratio has an advantage over a composite of ratios. A lot of people, when they think about value, they think about the P/E or the P/B ratio. Investors should go with a multiple-pronged approach to value which covers the balance sheet from top to bottom and offers a much better assessment. Move from a single ratio to many in a composite. A decade ago, the Citibank stock looked extremely appealing because it had one of the lowest P/Es and a super high dividend yield. But on the overall value composite, it had problems and bad financial strength. This could only be revealed by examining the stock on a variety of variables: price-to-sales, EBITDA to enterprise value, price to earnings, free cash flow to enterprise value, and shareholder yield (dividend yield + buyback yield). By considering all the various composites, one gets a much better sense for the overall attractiveness of the stock than by looking at any one specific variable. That’s because there is no single factor or fundamental piece of data that is the answer or solution to the complicated question of how to pick stocks that outperform. For example, shareholder yield is a good indicator, but performs much better when selected from a group of stocks that are very cheap; have good earnings quality and have a high conviction in their buybacks, as evidenced by percentage of outstanding shares they are buying.

3. Remember that you are prone to the Recency Bias. This simply means that we recall much more easily that fact that we recently came across. This bias in behavioral finance indicates that humans put way too much emphasis on the most recent and available information, which results in us being overly pessimistic or optimistic. And as we pay the greatest attention to what has happened recently, we forecast it into the future. This translates into being drawn towards stocks where we have just read or heard something really positive and away from those where the information was negative. At O’Shaughnessy Capital Management, a game used to be played with a 50-stock portfolio. The analysts would pick the 10 stocks that they think are going to do the best, and the 10 worst. Most often than not, the ones picked as the worst performers ended up being the best; the best potential performers performed poorly. This is human nature; your chances of going with your gut on a stock that has great numbers could backfire.

4. Investors attempting to actively manage their portfolios need the emotional and personality traits necessary for success. Successful investing is hard, but not impossible, if you have the right traits. It is simple, but not easy. The most difficult thing about applying your strategy is having the emotional discipline not to override it, especially when it is underperforming. Stay in your strategy and let it do its work. That is truly the hardest thing to do. Investors (passive or active) face one real point of failure: reacting emotionally to a market selloff and liquidating their holdings, often near a market bottom. Active investors have to watch out for another factor; selling out of an active strategy that is doing worse than its benchmark, often over periods as little as three years. Most importantly, do not fool yourself. If you lack the emotional fortitude to stick with it through thick and thin, you’re probably better off not trying to do it on your own.

5. Arbitrage human nature. Markets change minute-by-minute. Human nature barely changes millennium-by-millennium. Therein lies your edge. The price of a stock is still determined by people. As long as people let fear, greed, hope and ignorance cloud their judgment, they will continue to misprice stocks and provide opportunities to those who rigorously use simple, time-tested strategies to pick stocks. Names change. Industries change. Styles come in and out of fashion, but the underlying characteristics that identify a good or bad investment remain the same. Each era has its own group of stocks that people flock to, usually those with the most intoxicating story: “new era” industries such as radio and movie companies (1921-1929); new technologies (1950s); the dot.coms (late 1990s); and now Bitcoin. Far from being an anomaly, these are predictable ends to long bull markets. A long view of returns is essential because only the fullness of time uncovers basic relationships that short-term gyrations conceal. History never repeats exactly, but the same types of events continue to occur. Investors who had taken this essential message to heart in the last speculative bubble were the ones least hurt in the aftermath. They understand that today’s events and news are mostly noise, and that only longer periods of time deliver the much more accurate signal. The same is true after devastating bear markets. Investors behave as irrationally after protracted bear markets as they do after market manias, leaving the equity markets in droves, usually at or near the market’s bottom. By the time they gather enough courage to venture back into equities, a good portion of the recovery has often already happened. We are always trying to second guess the market, but the facts are clear—there are no market timers on the Forbes 500 list of the richest people, whereas there are many, many investors.

Credit – Content created by Morningstar

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Six Financial Mistakes

How many of us know that the social security net in India is almost non-existent? And that your EPF is a very poor attempt at creating social security. NPS, a slightly improvised version, is yet to gain acceptance, thanks to its complexity and poor taxation structure. In such a scenario, it becomes imperative that we save enough for our retirement.

However, young people who join the workforce, are not geared towards financial prudence and do not start thinking about savings and investment right away. So here is a list of six mistakes one should avoid making early on in their financial life.

1. Delaying the habit of investing

Having spent our college lives on shoestring budgets, when we get that first salary credited to our bank account, we have a tendency to splurge. But hold on for a minute, this urge to spend now can get you into trouble later on.

The chapter on compound interest you had in school was not just theory. It is now time to see that into action. When you make any investment, your returns get compounded every year. The earlier you start investing, the more time your investments have to compound. The more your returns compound, the more you will accumulate.

Take the case of Ajit and Manisha. Both of them started working at the age of 25. While Ajith started investing right away, Manisha waited till she turned 30. Both of them invested similar amounts, Ajit starting with Rs. 10,000 and Manisha with Rs. 15,000. They increased it by Rs. 1000 every year. However, when they turned 60, this is where they both ended up:

Difference in investment value

A delay of five years caused Manisha to fall short by over Rs. 2 crore. So start early to accumulate a sufficient amount.

2. Spending through credit card

As soon as you open a salary account, you will get a call from your bank to get a credit card. Credit card is just the thing a spendthrift needs. You spend without worrying and pile up your credit. You barely manage to pay the minimum amount every month. And very soon, you find yourself paying huge amounts of interest on the accumulated credit.

Credit cards come with very high interest rates, going as high as 42% per year. Spending money you do not have can get you into a debt trap. You will eventually find yourself spending more money paying the accumulated interest, than you spent for yourself.

3. Spending using personal loans

OK, so credit cards are expensive, but what about personal loans and EMI payments? You will be bombarded with ads offering you pre-approved personal loans at rates as low as 14%. They tempt you into buying goods you cannot afford. You may have only Rs. 30,000 in your bank account, but you take a personal loan for Rs. 40,000 to buy the latest Google Pixel phone. You will take another personal loan and go on a Europe trip with your friends.

Spending on luxuries you cannot afford will only eat into your corpus. Instead, plan for the long haul. Start with cheaper gadgets and trips closer home. This will help you save more in the initial stages of your life. As you move up in your career, you will have more opportunities to splurge.

4. Investing without understanding the product

Another mistake which people make is to not spend time understanding where they should invest their money. A young person tends to receive advice from his parents, uncles, senior colleagues, and these days, knowledge sharing social networks. None of these will understand your needs or advice you properly. Investing without understanding the product can land you into trouble, the kind which people got into last year when they invested huge amounts in Bitcoins.

You should neither rush to put your money in banks, nor rush to invest in equities. Nor should you fall into the trap of Ponzi schemes. So take a couple of weekends to think about your investments. Spend some time understanding the products available and the pros and cons of each. Then make an informed decision.

5. Trying to stay away from risks

While there are people who put their money only in banks, there will be people who swear by equities. Neither of the extremes are good. While you should not take too much risk, you should also not be too risk averse.

Equity and equity related products like mutual funds are risky. But they also come with risk premium. There is a reward for taking ther risk and this reward is higher returns. Over a long period of time, even 1-2% return differential can create a huge difference in your corpus.

Here is a comparison of how much a monthly deposit of Rs. 10,000 grows to in 35 years, at various rates of interest:

Value of investment at varying interest rates

If you stay away from risk, you risk missing out on the huge potential of equities.

6. Buying a home too early

We have a great emotional attachment to our homes. Owning a house is also associated with social status and prestige. As a result, as soon as we start earning, we want to have our own apartments. Within a few years, we find ourselves saddled with a huge home loan, zero savings, and only one illiquid asset that is the apartment. The next few years are spent paying the EMI only. By the time we can start saving, we have already missed the early bus.

Don’t be in a hurry to buy a house. Again, after having saved for a few years and after having made some progress in your career, you will be in a much better position to buy a house according to your needs. Taking a home loan early on not only gets you into a financial mess, it also restricts your career choices.

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