How to make your first million before 30

How to make your first million before 30

Recently, a friend of mine called me – her voice brimming with excitement. She was only a lakh short of 10 Lakhs in her Scripbox account. She started investing very recently and could not get over the fact that in a fairly short time, she was able to accumulate that amount.


The word millionaire does have a nice ring to it. In the Indian context the big indicator of wealth used to be ‘lakhpati’ but with inflation eating away at the value of our earnings, a million or 10 lakhs is now a good goal to aim for.


But, for a lot of young earners starting out on their first job, it seems impossible to have that much money. This article will show you how you too can be a millionaire. All you need is a simple, easy to follow plan.


Let’s say you are a 22 year old making Rs 25,000 a month, and you can save Rs 5000 to begin with.


Here’s your plan:


Year 1: Save Rs 5000 per month and invest in liquid funds or a recurring deposit. We recommend a debt fund because it has no TDS.


Year 2: Increase your savings by 10% to 5500 per month (We’re sure you’ll get a salary hike!) and invest it in liquid funds.


Year 3-8: Again increase your savings by 10% every year but now start investing it into tax saving equity funds. So Rs 6100 in year 3, Rs 6700 in year 4 and so on.


By the time you are thirty, you can expect to have more than Rs 10 lakhs!

*Equity growth is illustrative. It will never grow at a steady pace as shown. Markets tend to fluctuate and you will see large ups and downs.


On your way to becoming a millionaire, you would also have achieved the following 2 things:


1. By the end of year 2, you would have created an emergency fund of Rs 1.35 lakhs or approx. 4 times your salary. This is why we don’t recommend starting with equity in the first year itself.


2. You would not have needed to worry about tax saving investments every year.


Most important, you would have contributed only about Rs 7 lakhs to get to that 10 lakhs wealth. The rest would have come from earnings on your investments.


Tip: if your salary goes up by 20%, you should increase savings also by that amount – you will get to your goal faster.


What if you can only save half this amount?


The amazing part is that it won’t take you twice the number of years to get there. In only 3 more years (when you’re 33), you can get to your million!


And of course if you save more, you get there faster.


What after the first million?


Just keep saving 20-25% of your income each year in a combination of debt and equity funds and you shouldn’t have to worry about a thing. You could also adopt this simple financial plan.


So, no more excuses. Take your first step towards your first million today.





Note: We’ve assume 8% return on your debt fund investments and 14% on equity funds. The historical returns for equity are higher but assuming a lower return is good for planning as the rates of return are not fixed.


Happy Investing


Source:Scripbox.com

Forget High P/E vs. Low P/E. It Is A “Rubbish” & “Stupid” Way Of Valuing Stocks: Bharat Shah

Forget High P/E vs. Low P/E. It Is A “Rubbish” & “Stupid” Way Of Valuing Stocks: Bharat Shah



Bharat Shah of ASK, one of the great contemporary investment thinkers of our time, has come down heavily on the tendency of novice investors like you and me of obsessing over the P/E ratio when evaluating an investment decision. He calls the P/E ratio “rubbish” and “plain stupid” and has offered valuable pointers on what factors we should really be looking at when evaluating a stock



The controversy over whether one should buy high P/E – high quality stocks or low P/E – low quality stocks is as old as the hills.

While investors like Porinju Veliyath are firmly in favour of buying low P/E – low quality stocks on the basis that such stocks are “value picks”, others like Basant Maheshwari and Prof Sanjay Bakshi are staunch believers in the philosophy that that buying high P/E – high quality stocks is the only way to profit from stocks in the long run.

To this debate, Bharat Shah has now added a new perspective by explaining that the P/E ratio is an entirely wrong method to evaluate stocks. He has made his contempt for the P/E ratio more than clear:

“Price to earnings ratio is a rubbish way of computing value. But unfortunately that is the most prevalent method. Price to earnings is in fact a derivative of value, but people infer value from P/E. I mean, nothing can be more stupid than this. People will have all kind of rational P/E based on current or next year’s earnings. A P/E of 10 or 15 is good because on the past ten years the average P/E is more or so! I do not know how relevant that can be. The value of a business is intrinsic to the business. Price and opinion on it is external to that. The biggest fallacy of P/E is that it is one year’s earnings compared with today’s price whereas the value of a business comes from the future.”

So, what should investors look for when evaluating whether a stock is a worthwhile investment or not? Bharat Shah provides the answers with his customary clarity of thinking:

(1) Look for the size of the opportunity. Don’t look at the size of the fish but at the size of the pond:

Size of opportunity is the mother lode. It is about how big something can be in the future compared to what it is now. Every business can be converted into a tangible template based on the size of opportunity. You need to ask: What is there today? What are the gaps? How practical is the assumption that the gap will be covered? This understanding is the size of opportunity. It is about the size of the pond not about the size of the fish. In a large pond, both, large and small fish are welcome. But if the size of the pond is small, even a large fish will not create value.

Example of size of the pond – the shaving market in India:

Of the 120 crore people in India, half of them are males, so need to shave. Of the 60 crore people, if we exclude the very young and the very old, there are 45 crore potential customers. Out of the 45 crore, based on the affordability you can determine how many will be your customers. Based on their habits; whether they shave daily or four times a week, you can assume an average of 2.5 times a week. If the shaving solution costs Rs. 2 per shave, the weekly potential opportunity is some Rs. 220-240 crore. And multiplied by 52 weeks, you get Rs. 11,000-12,000 crore. You may not have the best razor in town but launching a shaving foam or aftershave or deodorant will expand the size of the pond.

(2) Pay attention to the quality (integrity) of management and their attitude towards capital allocation:

Apart from the size of opportunity, the quality of management is important. It can be assessed in terms of integrity and the ability to convert the future into a rewarding outcome. Management must be wise enough to allocate capital to deserving opportunities and return excessive capital to shareholders.

Examples of poor capital allocation:

(i) When you are unsure about the payoff but still allocate capital you are flirting with uncertainty;

(ii) If a management is unsure of the size of opportunity it will allocate capital randomly;

(iii) Frantic activity (diversification) could destroy value. No management has the capability of managing more than one or at the most two businesses. Trying to do too many things indicates a lack of confidence and an inability to comprehend the opportunity;

(3) High RoE indicates that capital allocation is proper and that the quality of growth is high – low RoE indicates value destruction:

Growth in itself is not enough; it is the quality of growth that creates value. Quality can be derived from the return on capital employed. If the return on capital is higher than the cost of capital being deployed in the business, it will add economic value. The equation is simple, economic value creation is the function of capital efficiency and the cost of capital. The difference between the two is the net value added. The total value add over the period of time discounted to the present is the net present value.

For these numbers to be attractive it has to grow, otherwise it will become like a bond. So if you are generating a return on capital lower than your cost of capital, even if your business is growing nominally, it is actually destroying value and the market price will reflect that eventually.

(4) Valuation is not only about numbers but requires valuing intangible factors:

You have to understand the business and character of the business, which are all intangible. Converting those intangibles into a tangible number is more of a mechanical process. More importantly, this must be looked at in the framework of the size of opportunity, calibre of the management, for what period of economic life you can reasonably forecast, whether the growth is accelerating or decelerating, whether it will be consistent or volatile? What will be the character of the growth in terms of producing return on capital, whether it will be rising or it will be falling? How long can it sustain? All these are judgments you need to ponder a lot. Once you are able to answer in some form of numbers, they need to fit into the valuation model. The model itself has to have robust mathematical and intellectual investment understanding to compute it right.

(5) Discounted Cash Flow (DCF) is the proper method of valuation:

Discounted Cash Flow (DCF) is what you do. Time value of money is critical. How can a rupee today and a rupee three years down the line be equal? Valuation is based on free cash flows. It is the incremental real cash generated over the estimated economic life of a business discounted back to the present. The total of different NPVs is the value.

(6) The Q as to the period for which the stock will be held should be determined by the character of the business and its valuations:

Whether you are going to hold the stock for ten years or twenty years is based on the character of the business. But whether you will prolong that journey or not will be decided by the excess of price over the value of the business. Character of the business is important but how much you are paying for it is equally important.

(7) So, investors should look at the size of opportunity, quality of management and its “economic” value when evaluating a stock:

In a nutshell, size of opportunity plus management gives me growth, growth plus quality of growth creates economic value and buying economic value at a discount creates an investment return higher than the economic value itself.

Happy Investing

Source:Moneycontrol.com

World economy teetering on edge of recession: Citi's Buiter

World economy teetering on edge of recession: Citi's Buiter

The bank cut its 2016 global growth forecast to 2.7 percent from 2.8 percent and slashed its outlook for the US, UK and Canada, plus several emerging markets including Russia, South Africa, Brazil and Mexico.

The global economy is on the brink of a recession, with central bank stimulus less forthcoming and growth weakened by the slowdown in China, Citigroup warned on Thursday.

The bank cut its 2016 global growth forecast to 2.7 percent from 2.8 percent and slashed its outlook for the US, UK and Canada, plus several emerging markets including Russia, South Africa, Brazil and Mexico.

Citi held its growth outlook for China in 2016, but cut it by 0.2 percentage points to 6.0 percent in 2017.

"China has been slowing down for years and will continue to slow down. The official data greatly overstates the actual growth rate, but whatever it was last year, I think we will lose another percent, a percent-and-a-half of growth," Willem Buiter, the chief economist at Citigroup, told CNBC on Thursday at the World Economic Forum in Davos, Switzerland.

"So while this isn't a full-scale recession, it is definitely a growth recession and it will mean continued downward pressure on commodity prices and it will also mean continued weakness in demand for the exports of countries in the supply chain to China and indirectly for the rest of the world. So it is bad news; it is entirely avoidable with the right policies, but the Chinese authorities are not yet ready to implement these right policies," he added.

Global economic growth at current exchange rates slowed to around 2.3 percent year-on-year in the fourth quarter of 2015, according to a Citi report out on Thursday. The bank said this was roughly equal to 2 percent year-on-year, "adjusted for the probable mis-measures of China's GDP growth rate.

" Chinese official economic data is often said to be exaggerated, although the magnitude is a matter of contention. The country reported growth of 6.9 percent in 2015.

Citi said that global growth would rise slightly in the coming quarters, as the collapse in oil prices was likely to support consumer spending in advanced economies.

Oil prices stabilized near 2003 lows on Thursday, having dipped below USD 27 per barrel on Wednesday.

Russia and South Africa suffered the worst cuts to 2016 growth forecasts by Citi. The Russian economy is seen shrinking by 0.5 percent, struggling with low oil prices and international sanctions, while South Africa is expected to post anemic growth of 0.3 percent.

"The global outlook is at a critical point of vulnerability. The last few years have seen an uneasy equilibrium between repeated disappointment in global growth and offsetting monetary policy stimulus. That balance is now at risk," economists led by Buiter said in the report.



"Risks to our growth forecasts probably remain to the downside, especially for emerging markets. Risks of global recession (which we define for current purposes as sub-2 percent global growth, China-adjusted) are rising," they later added.

Happy Investing

Source:Moneycontrol.com

This is how you can save tax this year

This is how you can save tax this year

You can use various deductions enlisted in the Income Tax Act to save your income tax liability.

With the end of financial year just around the corner, it is time to save certain amount of taxes by investing in prescribed instruments which are eligible for deductions. Chapter VI-A of the Income-tax Act primarily provides for deduction on certain payments and deduction on certain incomes. Individual taxpayers are eligible to claim these deductions and have a wide range of tax preferences available to them.

Details of deductions which are available to an individual not carrying out any business or profession are as under:

Deduction under section 80C (Maximum upto Rs.1.5 Lakh per annum)

Deduction under section 80CCC The limit of deduction on account of contribution to a pension fund of LIC or IRDA approved insurer is Rs. 1.5 lakhs.


Deduction under section 80CCD


•Under section 80CCD (1) of the Income-tax Act, 1961 if an individual, employed by any other employer (other than the Government), has paid or deposited any amount in a previous year in his account under a notified pension scheme [only the National Pension System (NPS) has been notified by the Ministry of Finance], deduction is allowed up to 10% of his salary.


•Further, with effect from Financial year 2015-16, under section 80CCD (1B) an Individual employee can claim additional deduction up to Rs.50000 by contributing towards NPS.


•Besides, under Section 80CCD(2) employee shall also get deduction in respect of employer's contribution towards his NPS account up to limit of 10% of his salary.


•For this purpose, ‘salary’ includes dearness allowance having regard to the terms of employment but excludes all other allowances or perquisites.

•Limit of deductions under sections 80C, 80CCC and 80CCD(1) is restricted to Rs.1,50,000. Please note that the Individual’s contribution under section 80CCD(1B) and employer’s contribution under section 80CCD(2) is not subject to the overall limit of Rs.1,50,000.

Other Deductions

Exemption from Capital Gains Tax

Individual may also earn income by way of capital gain arising upon sale of any long term capital asset on which taxes are applicable at the rates 20% (plus applicable surcharge and education cess). Income tax law allows taxpayer to claim certain exemption from paying such capital gain tax provided certain conditions are fulfilled.

List of exemptions available in relation to Capital Gain is as follows:

The aforesaid deductions are provided under the existing law and the tax payer can opt based on facts, circumstances and their risk appetite.

Happy Investing
Source:Moneycontrol.com

Utilise Volatility Start Accumulation

Utilise Volatility    Start Accumulation


Indian markets have witnessed sharp correction since the start of the year 2016 and are down by around 9% on the back of extremely weak global markets. From the all time high levels in March 2015, BSE Sensex, Nifty 50 is down by around 19%. Many of the bluechip stocks have corrected far higher than headline indices and are trading at or near 52 week low levels. Currency devaluation by Chinese government to support their declining exports and unprecedented fall in commodity prices particularly crude oil prices are the main reasons for the global capital market volatility


The correction has provided an excellent investment opportunity for long term investors to start building equity portfolio. Historically it has been observed that investment in equity markets post correction of more than 15% has yielded handsome return in subsequent period.

Exhibit 1: Returns in subsequent rally post market fall of more than 15% since 2005








We believe that the recent breather in the last one year forms part of the larger bull market which began since mid 2013 and provides an attractive incremental buying opportunity for long term investors. We expect the markets to embark upon the next up move after conclusion of the current corrective phase. Good quality stocks which have corrected significantly or largecap biased diversified portfolios or funds should be considered for investment in a staggered manner over the next 2-3 months.

Happy Investing

Source:Moneycontrol.com

This fiscal, PF may fetch highest interest in 5 years

This fiscal, PF may fetch highest interest in 5 years; EPFO suggests 8.95% interest rate

Stocks carnage: what it means for you

Stocks carnage: what it means for you

It's official, the stock market's just had its worst ever start to a year. But apart from causing the odd heart palpation on trading floors, the carnage doesn't necessarily spell doom for the average UK citizen. 

Who are the winners?

Shares, in part, are being driven lower by a sharp downturn in oil prices, hurting the profits of some of Britain's biggest and best-known companies, such as BP and Shell.

But the oil-price rout is also slashing costs at the petrol pump. That's helping UK families save and perhaps even spend those savings on other goods and services – supporting the overall economy.

"Low oil prices are a good thing," Michael Hewson, chief market analyst at CMC Markets in London, said via telephone. "They make up for the weak wage growth that we're seeing in the UK at the moment."

Rock-bottom petrol prices help businesses, too, by bringing down the cost of carting everything from heavy machinery to fruit and vegetables across the country. Shares in International Consolidated Airlines, the owner of British Airways, are actually slightly higher today than they were a year ago.

And things could get better. Some analysts predict oil will fall as low as $10 per barrel, which could mean petrol as cheap as 86p per liter – below the cost of a bottle of water.

Who are the losers?

The most obvious losers from shares crashing are investors and the financial services firms that do their bidding. More broadly, anyone with a pension is hurting because a large proportion of pension fund investments comprise shares. 

Employees of energy companies are also feeling the pinch. So-called Big Oil spent billions of dollars investing in massive projects when oil was fetching more than $100 a barrel. Now, those companies are laying off thousands of workers as those projects struggle to break even.

"Many jobs in the oil industry are highly paid, so there's concerns oil-company layoffs could have significant trickle down effects into broader consumer sentiment and the broader economy," said CMC's Mr. Hewson.

To be sure, share-market corrections like the one witnessed now can be healthy because they prevent the formation of asset-price bubbles. 

Britain's FTSE – although entering a so-called 'bear market', where stock prices are 20 percent below their most recent peak – is still some 60 percent above its low-point in the aftermath of the global financial crisis.  

Of course, though, a prolonged downturn would never be a good thing because it would indicate the global economy is weakening.

Could there be another financial crisis?

China is at the root of the current problem in global markets. A dramatic slowdown in its economy is partly behind the fall in oil prices because the country is the world's biggest energy consumer.

Among traders, the jury's still out on whether China's government can successfully navigate a transition away from being an economy simply driven by manufacturing, to one that's driven by domestic consumption and services. 

“China has a major adjustment problem,” billionaire investor George Soros told an economic forum in Sri Lanka earlier this month. “I would say it amounts to a crisis. When I look at the financial markets there is a serious challenge, which reminds me of the crisis we had in 2008.”

Not everyone, however, is panicking. China's economy, while slowing, is still growing at 6.9 percent at a time when the U.S. and U.K. economies are recovering.

"The banks are in better shape than in 2008 and 2009, so I'm not concerned at this point about another global financial crisis, but that's not to say it can't happen," said CMC's Mr. Hewson. 

"China has still got reserves in place to deal with the economic transition they want to bring about, although that doesn't mean there won't be bumps."

Happy Investing

Source:Moneycontrol.com

Got your first job? Should you buy a home now?

Got your first job? Should you buy a home now?

If you are contemplating to buy a home after getting an appointment letter in hand, here is some help for you.

Getting the first appointment letter is a blissful feeling. With the letter in hand one's aspiration in life changes altogether. With the income-assurance, comes an expenditure-planning and if home is topping your chart, then you might like to read on to know the matter in deep.

If you wish to buy the first home with a home loan, then you must know that every credit facility in India has a policy-maker's thought-process behind it, and amongst all asset-lendings, mortgage is the toughest borrowing for a person. Not because it's a difficult process to acquire it, but for a lesser-known reason. It might be news to many that unless you have a three-year work experience, almost all lenders do not encourage housing loan for an individual.

Reasons as follows:

1.The tenure:

Unlike a credit card, personal loan or a car loan, home loan is a long-term lending. A credit card gets renewed each year, personal loan can be for maximum five years and a car loan for seven years. But a home loan for a first time buyer-cum-borrower who is in his 20-s, is minimum of 20 years and to a max of 30 years. Commitment for this long a period calls for a background of work-experience coupled with industry references.

2.The rate of interest:

Home loan is the cheapest credit facility in the market. Obviously the credit policy around it will be tougher than other "high risk-high gain" products like credit card and unsecured lending, where a higher default rate is largely covered with high interest-rate borrowings.

3.The job-stability:

Without a confirmed and stable job, no lender would want to extend a credit for a 20-30 year term and it is completely understandable. Many, after joining a job too, leaves it in-between to pursue higher studies etc. which makes the credit appraisers wary about lending right at the beginning of the career of an individual.

4.No credit score:

Having a history of credit worthiness is important for a housing loan borrower. That gets developed in the first 2-3 years when a person takes a few credit cards, takes personal loan for small expenses and buys a car on credit. By the time they think of a home loan, their credit history is already written which makes an appraiser confident of lending.

5.The Loan amount:

In case of a home loan, the amount lent, is not in thousands. It is in lakhs of rupees and may even go to crore plus in major cities. Naturally the risk involved in lending against a home requires higher scrutiny. Hence, the caution.

However, do not lose heart. There are ways to get an early credit for home loan under few circumstances:

(a) Having a professional degree which may indicate that the person is capable of practicing his professional degree if becomes unemployed.

(b) Having an earning parent as co-applicant in the loan where his income stability helps.

Both the above conditions are a credit appraiser's call and he/she need to be convinced about the stability beyond the risk they perceive.

Happy Investing

Source:Moneycontrol.com

6 Essential Habits of Financially Healthy People

6 Essential Habits of Financially Healthy People

Ever wish you had more financial success? Laura reviews six key habits of financially healthy people that you can use to transform your life and create a more secure, happy future.

The Greek philosopher Aristotle said, “We are what we repeatedly do. Excellence, then, is not an act, but a habit.” In other words, the small things you do every day are surprisingly important because they add up to transform your life.

In many cases, habits make the difference between having a financially healthy life or a poor one where you never seem to get ahead.

People usually don’t reach their financial goals by getting an unexpected windfall. They accomplish them by developing the right behaviors over a long period of time.


6 Habits of Financially Healthy People

Here are six key habits of financially healthy people that you can develop or take to a higher level to achieve more success:

Habit #1: Financially healthy people have financial goals.

To be financially healthy, you need a plan to turn your dreams into realities. While one person’s definition of success might be to retire early and sail around the world, another’s might be to have a fulfilling second career and work as long as possible. No two people want the exact same things out of life.

No matter your age, you need to have your own set of personal goals. Do you want to be a homeowner, pay for college for your children, become a real estate investor, or take a year long vacation? Financial goals don’t have to be complicated, but each one requires an action plan that breaks it into bite-size pieces that you can work on over short periods of time.

For example, if you want to save $30,000 for a house down payment over the next five years, you’ll need to put aside $6,000 a year or $500 a month. If you want to retire in 30 years with $1 million, you’ll need to invest approximately $800 a month.

Knowing what you’re working and saving for helps motivate you to move in the right direction when you’re tempted to spend your money on something else. Having financial success really comes down to being focused on the long-term and making sacrifices today that will pay off handsomely in the future.


Habit #2: Financially healthy people control impulse spending.

Controlling spending is a struggle for most people, including me. Financially healthy people are simply more aware of the dangers of impulse spending and actively resist it. They don’t care about “keeping up with the Joneses” or buying things to impress other people so they can appear rich. Instead, they want to be rich and wealthy.

Controlling spending is a key to living below your means so you have plenty of money left over each month to save and invest.

Controlling spending is a key to living below your means so you have plenty of money left over each month to save and invest. That’s how you build wealth over time and achieve your financial goals.

Here are some effective strategies to control impulse spending:
Create a spending plan that accounts for your bills, loan payments, and goals. I’ll give you a great resource that will help in just a moment.
Don’t shop as entertainment and stay away from malls and your favorite stores.
Shop online instead of in local stores when possible. Being surrounded by physical items can be more tempting than shopping from a computer or phone. To get discounts, always start online shopping at sites like Ebates or Giving Assistant.

Unsubscribe from retail newsletters that offer promotions and sales that you can’t resist.
Wait at least 24 hours before buying anything over a certain amount, such as $50 or $100. That allows time for your impulse to settle down so you can decide with a clear mind if you really need something.

Go on a 30-day spending fast, where you don’t buy anything except dire necessities for an entire month.

Shop your recurring expenses, such as cable, Internet, phone, and insurance to cut them when possible. And get rid of your landline if you’re already paying for a cell phone.
Calculate what an item costs in time. For instance, if you earn $25 an hour after taxes, buying a $250 pair of shoes costs you 10 hours of work. Are the shoes really worth a long workday? Only you can decide.


Habit #3: Financially healthy people align their values with spending.

Successful people know that money is a tool that can either enslave you or give you freedom. They know that we have limited financial resources, so every cent is valuable.

If I reviewed how you spent money over the past 30 days, I could tell you exactly what you value. Is it clothes, nights out with friends, and fast food? Or do you value paying down high-rate debt, saving for a vacation, or investing for retirement? You get my drift.

Values are the things you believe are most important. They influence the way you live, work, and relate to other people. Only you know what your values are—like family, community, health, learning, self-reliance, faith, generosity, patriotism, creativity, or ambition—and they can change over time.

Getting clear about your priorities is so powerful because it turbocharges your financial will power. Every action you take, including your spending, either builds up or breaks down your values. When your financial life doesn’t align with your core values, you know it deep down in your soul and feel unhappy.

Getting clear about your priorities is so powerful because it turbocharges your financial will power. Every action you take, including your spending, either builds up or breaks down your values.

So, don’t be influenced by what other people spend money on. Identify your values and closely align your financial life with them. Cut back in areas that don’t give you lasting fulfillment so you have more money to achieve meaningful goals and financial satisfaction.

Habit #4: Financially healthy people automate financial goals early.

Since it's easy to go off the financial rails, we have to anticipate our imperfections and create solutions that keep good habits on track. In other words, you have to outsmart yourself when it comes to your money.

Financially healthy people protect their goals by putting them on autopilot as quickly as possible. Here are some ways to automate your finances:

Participate in a retirement plan at work, such as a 401k, 403b, or 457 plan. They work so well because contributions must come out of your paycheck before you ever see they money.
Set up recurring transfers from your bank account to a traditional or Roth IRA.

Open up a 529 savings plan to pay future college expenses for yourself or a family member.
Use direct deposit for savings by having a portion of your paycheck, benefits, or tax refund sent to a bank savings account. By the way, this is a great strategy to build your emergency fund or to save for short-term goals like holiday gifts or a vacation.

The earlier you start saving and investing, the more financial security you and your family will have. You’re never too young to begin planning for your future.

Did you know that there’s no age restriction on having a traditional or Roth IRA? Even teenagers who get their first job can have one. Let’s say you earn $3,000 working a summer job. That qualifies you to contribute up to $3,000 in either type of IRA.

If you invested just $3,000 per year or $250 per month from age 15 to 65 (or over any 50 year period) with an average moderate 6% return, you’d amass $1 million dollars to spend in retirement. Investing even small amounts pays off when you start early.


Habit #5: Financially healthy people have regular money checkups.

Just like you should have annual medical and dental checkups, you should do the same with your finances. If you don’t review your financial plan and goals, it’s easy to lose track of your progress.

Financially healthy people know that they need to accomplish tasks like adjusting spending plans, tracking net worth, reviewing retirement investments, and reevaluating insurance needs.

You need to know exactly how much you make, how much you spend, and how much you save. You simply won’t succeed if you don’t have a clue about your monthly income and outgo. Another key money checkup is to monitor your Personal Financial Statement (PFS), which tracks your net worth. chapter is jam-packed with information including:

Habit #6: Financially healthy people protect their ability to earn.
Our current and future financial security hinges on our ability to earn an income. Successful people know that without good health, you won’t have the mental or physical energy to create a healthy financial life.


While it’s important to reduce expenses, you simply can’t grow wealthy clipping coupons. There’s a limit to the amount of costs you can cut—but there’s no limit to the amount you can earn! So stay focused on big wins that could dramatically improve your finances.

Always have the mindset that your job or business income could end right away. While that might seem depressing, it’s a great prompt to improve your personal network, look out for new opportunities or responsibilities, learn new skills, and improve or add new revenue streams.

Financially healthy people don’t wait for opportunities to fall into their laps or rely on luck. They help themselves by staying sharp, seizing opportunities that others might miss, starting a side-hustle, trying a new career, or negotiating for a raise.

When you take the initiative to improve your health, your mindset, and the value you can provide to the world, you also take charge of your financial success.


How to Handle Financial Failure

Financially healthy people have a success mindset that prevents them from getting discouraged. We all take financial hits to the gut from time to time, like losing a job or having massive unexpected expenses.

Be prepared for hard times and keep your chin up no matter what. If you make a big financial mistake (and who hasn’t), learn from it and never let it happen again. Failure can teach us important lessons if we allow it.

Don’t be afraid to turn to a professional—such as a retirement planner, tax accountant, credit counselor, or insurance agent—when you need help. Successful people usually seek advice and rely on pros who specialize in different areas. They cost money, but usually pay for themselves quickly.

To sum up, financially healthy people stay focused on what’s important, use their time wisely, and build habits into their lives that get results. No, it’s not easy.

But if you’re willing to stop procrastinating, take stock of where you are today, and make some small changes, you can set yourself up for a rewarding and secure financial future.

Happy Investing

Source:Moneygirl

Affordable Housing Finance – The Next Big Opportunity?

Affordable Housing Finance – The Next Big Opportunity?


Housing Finance sector has seen one of the most secular bull runs in the past, with loan book of banks and Housing Finance Companies (HFCs) growing at CAGR of 20% and 24% respectively over the past 10 years. Prospero Tree had also written on Housing Finance Stocks – Will the Dream Run Continue? This boom was led by accelerated urbanization and increasing affordability of the salaried class. It’s only recently that we are seeing early signs of saturation in large metros like Mumbai, NCR, Ahmedabad, etc.

However, the housing boom is far from over and we believe that over the next 10 years, activity will shift towards the affordable housing space – mainly in smaller towns and peripheries of large cities. HFCs such as Gruh Finance, Repco Home Finance and Shriram City Union Finance remain well positioned to capture this impending boom.

Opportunity Size and the Addressable Market

 The new Government at the Centre has unveiled its Big Bang vision of “Housing for All by 2022” in which it aims to provide 60 million affordable housing units by 2022 at an approximate cost of Rs. 108 trillion. This will translate into an additional financing opportunity of Rs. 800,000 crores, almost equivalent to the current size of housing finance sector!

Housing for All – Targets for 2022


Source: Budget 2015


The rural opportunity may not be material for HFCs as they do not have adequate presence in those areas, nor would they be comfortable with the limited credit appraisal that can be done in rural areas. Within the urban opportunity, 56% of demand stems from the Economically Weaker Sections (EWS) category which is again difficult to appraise. The other 44% of the demand originates from Low Income Group (LIG) category where small HFCs like Dewan Housing, Repco Home Finance, Gruh Finance and Shriram Housing are active.

Housing Finance Landscape – Banks and HFCs

 As of FY14, banks have 60% market share while HFCs account for the remaining 40% share. The HFCs can further be sub-divided into the large HFCs which have models similar to banks and niche HFCs which have a unique business model. The table below highlights the subtle differences between each of these categories

Housing Finance Landscape – Diverse Business Models of Banks, Large & Niche HFCs



 Source: Company filings


Banks – They are by and large focused on highly competitive salaried customer segment in the urban areas. These are typically low risk customers as formal income documents are available and therefore, credit appraisal becomes simpler. The DSA is the primary sourcing channel and ticket sizes of loans are relatively larger by virtue of loans being disbursed to urban areas.


Large HFCs – The business model of large HFCs like HDFC and LICHF is similar to that of banks except that because of their focus on a single product (housing finance – home loans, LAP, developer loans), they are able to offer faster and superior service quality vis-à-vis banks.


Small/ Niche HFCs – Niche HFCs like Gruh, Repco and Shriram Housing have a relatively differentiated business model. Unlike banks and large HFCs, they target self-employed customers in semi-urban (tier-1 outskirts, tier-2 & tier-3 towns) areas which are under-penetrated markets with little competition. They have developed capabilities and systems to appraise this relatively difficult self-employed segment without putting their asset quality to high risk.

Prospero Tree View

The next 10 years will belong to players that can operate in the affordable housing space, just as the past 15 years belonged to players who financed housing in large cities. HDFC, LIC Housing Finance and certain private sector banks were the leaders in urban housing finance boom of 2000-2014 while players like Repco, Gruh Finance and Shriram Housing could be the leaders of the affordable housing boom.

While there are multiple challenges in the affordable housing space such as land acquisition and lack of adequate policy incentives for developers, the new government is slowly trying to address them. Players mentioned above have developed expertise in this segment and stand to benefit from any positive steps taken by the government.

We have recommended Repco Home Finance and Shriram City Union in the past and we continue to like them. These reports can be accessed here – Investing. We will try and point out attractive opportunities that may arise in the due course of time. Watch out our Investing section for stock specific updates.




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Source:Prosperotree.com