Tuesday 18 April 2017

The Indian way of living - Personal Experiences

We all never miss opportunity to say that we are proud Indians, do we? We are really proud of our culture, our way of living and how we manage everything somehow despite all odds. Indian way of living has helped each one of us one way or the other, in one situation or the other though we might have never realized.

Now to start with most common thing, it is in Indian culture to wake up early and there are many assumptions written about benefits of waking up in Brahma-Muhurata ( 1.5 hrs. before Sun rise). I might not have read what those documented benefits were but when I started applying it from my 11th standard in college, I was thrilled to see change in myself. It helped me in being energetic for whole day and also helped me in managing my studies much better. The power of spending 15-20 mins in peace before sun rise with cool breeze blowing is immense and it helps you to feel good about life and makes you realize importance of being a human. Try it for one week whole heartily and I can assure that you will start to feel changes in the way you think or the way live your life. Since that day I didn’t have to wait for my parents to wake me up forcibly in early morning as I was doing it myself for my own selfish reasons explained above.

The next thing which I embedded into my daily routine was prayers and chanting of few mantras. It came more or less from being from a Brahmin family in North India but I didn’t start doing it just because I was a Brahmin, I did it because I felt the magic of doing it. Chanting of "Om" every day 5 to 7 times made me realize how relaxing feel it gives and since that day I never looked back. I have been practicing it almost every day as part of my daily routine. I am not a religious person but yes I think chanting of few mantras and praying in peace for few minutes gives one immense calmness and time to realize about oneself. I don’t do prayers to ask for something, I do it just to feel the peace within myself in those few mins.

Benefit on the spot: 

Now apart from these somewhat serious values of Indian system there were many times when one belief system or the other helped me to come out of a tough situation and trust me I am not making it out just for sake of it. Here is one such incident which took place when I was travelling from Allahabad to Delhi in night train to catch my early morning flight to Bangalore and that was my first ever flight. It was winter time so heavy fog caused trains to be late and though I had anticipated for 5-6 hours delay, it turned out to bit more than that. I can’t recall the timings precisely but I guess around 1 hour before flight departure time I was still in train somewhere in outer part of Delhi. While I was in all this anxiety of losing my flight booking money and wasting my day, I saw a beggar in the compartment and guess what?? I gave him 10 Rs 😃. This might sound normal but before that day I never gave money to beggars or never even donated in any temple thinking that was waste of my hard earned money. Somehow in few minutes train reached to station and then I started searching for my cab driver as I was not much familiar with Delhi. After few mins of zigzag running I found the driver waiting and he dropped me to the airport 30 mins before flight departure time ignoring all the speed warning popping out in his cab speed control system and then thanks to Airlines staff I managed to get the flight just in time. All these things happened so suddenly that I didn’t get time to realize what was happening and why. I had lost all hopes of getting flight when I was in train and was trying to cancel the flight to save whatever bucks I could save but as there is a phrase in Bollywood derived from Indian value system of compassion that “If you give 1 paisa, you will get 10 lakh back”. I believe this is exactly what happened with me that day and saved not only my hard earned money but also my day getting wasted.

In our everyday life we follow values of our Indian belief system, many times unknowingly. Indian culture is so vast with so many values that it has answer for everything happening. Unfortunately when the West is coming to understand and adopt some of the best values of our cultural system, we are trying to ignore what is rightly ours. This TVC from Lufthansa says it so beautifully that world is trying to replicate the way we live our life after seeing the growth we as a country are making and they have realized that to win over us world has to be like #MoreIndianThanYouThink .

Be proud of our belief system doesn’t matter how old it is. If it made sense thousands of years back, it makes sense today and it will make sense in years to come.

Sunday 2 April 2017

Dividend Mutual Funds Or Growth Mutual Funds ??

In my previous post related to mutual funds, I have given details about Mutual funds options like Growth, Dividend and Dividend Re-investment. Just to summarize those details here:

Growth funds keep investing the profits made on investment, so if your investment makes 10 Rs Profit on 100 Rs in certain time, that 10 Rs will be invested in same fund so here your unit NAV value increases and not the count of units.

Dividend Funds share partial profit with investors and invest remaining profit, so if your investment makes 10 Rs Profit on 100 Rs in certain time, that 3-5 Rs will returned to as dividend and remaining will be invested in same fund.

If we see Growth option, expert say it gives compounding return because your profits are getting Re-invested. Note that it is not compounding interest that banks give, it is compounding return which might be uncertain. If we think bit pessimistically, what if there is a crisis in market or mid-term negativity at a time when you are already sitting on ‘supposed to be good’ profit? The profits accrued in that amount of time might get wiped out or get reduced. Assume if you keep making 10% annual return for 3 years on your investment that you did at start of 1st year, as per rule of compounding return, fund will be at 33% return at end of 3rd year. Now what if market goes down due to some issue and fund gives 15% negative return for 4th year? In this case after 4 years return will be around 13% as profit.

If we take Dividend option of same fund with exactly same scenario viz. what if there is a crisis in market or mid-term negativity at a time when you are already sitting on ‘supposed to be good’ profit? The profits accrued in that amount of time might get wiped out but you must have already got good part of that profit in form of Dividend in previous 3 years. Say on 100 Rs investment, fund gave 10% return in 1st year and you got 50% of profit as dividend, so on 10 Rs Profit you would get 5 Rs as dividend and 5 Rs will be Re-Invested. If this process is continued for 3 years, after end of 3rd year, you would have got around 16% as dividend back and 15% profit in portfolio. Now what if market goes down due to some issue and fund gives 15% negative CAGR for 4th year? after 4 years you will still have had 16% profit in pocket as dividends (as there will normally be no dividend in 4th year because of negative return) and your existing portfolio would have had 1% loss,so over and all 15% as profit.

So to summarize the case above, in exactly same scenario, Growth option will give 13% profit while Dividend option will give 15% profit, most importantly with less risk in long term.

Now things that I have mentioned might sound hypothetical but that’s how market runs. I think it is better to have Growth option when you have no worry about uncertainty of market, can wait for really really long time and have less worry of money you are putting in, but if you have little bit worry about uncertainty, go for Dividend option. With Dividend you will not only get money back on regular intervals, your risk will always be in balance. Remember that if you want great corpus after 15-20 years then always go for Growth option as you won’t be taking out any money from fund until 15-20 years in any case.  

Pessimist way:
If fund is giving consistently negative returns, Dividend and Growth option both will give same negative return.  

Optimist way:
If fund is giving consistently positive returns with very rare negative return in any year, Growth option will give better return than Dividend option.

Balanced way:
If fund is giving fluctuating returns with few years of positive return followed by negative return in any year, Dividend option will give better value than Growth option.

Keep in mind that all afore mentioned scenarios are for Equity Mutual funds as for Equity mutual funds there is no long term capital gain tax, no tax on Dividend received and also no Dividend Distribution tax ( unlike for Shares). Relevance of these options change for Debt Mutual funds as for those funds even dividends gets taxed.