Uncategorized – Ascent Financial Solutions

Beware of Blindly Following Influencers’ Financial Advice

admin — Thu, 19 Sep 2024 13:08:08 +0000

Mr. Abhishek Murarka highlighted an intriguing example on Twitter involving an influencer’s investment recommendations. The influencer had tweeted in December 2020 that 40% of their disposable income was allocated to individual stocks, with 25% invested in U.S. companies like Shopify, Square, Zoom, and Tesla. Abhishek pointed out that, by now, the value of these stocks may have halved. While this loss might not
significantly impact the influencer’s overall wealth due to multiple income sources, it could place those who
followed their advice into a challenging financial position.

The Securities and Exchange Board of India (SEBI) has raised concerns about the risks of following financial
advice from social media without due diligence. Financial literacy remains a significant issue in India, with only
27% of adults—and just 24% of women—meeting the Reserve Bank of India’s minimum standards.
Additionally, a survey by S&P found that over 75% of Indian adults and 80% of women lack a solid
understanding of basic financial concepts.

I recall a Twitter Space in June 2021 titled “Basic Financial Advice,” where the host, despite a large follower
count, demonstrated a concerning lack of financial knowledge. For example, when asked about investing
abroad, he dismissed it as unnecessary and suggested focusing solely on Indian stocks, ignoring the benefits
of global diversification and the long-term performance of U.S. markets.

1. Misunderstanding Market Trends: The U.S. market has experienced a prolonged bull run since March
2009, not just a one-year surge.

2. Limited Perspective: Restricting investment opportunities to the U.S. ignores the benefits of global
diversification. Markets outside India, including sectors not listed locally, offer valuable investment
opportunities.

3. Retirement Planning: Advising retirees to avoid equities ignores the necessity of having equity in a
portfolio to combat inflation and ensure long-term growth. A balanced portfolio, including equities, is crucial
for sustaining wealth through retirement.

Relying solely on social media for financial advice can be detrimental. Platforms like Twitter, TikTok, Reddit,
and Instagram are filled with opinions that may be well-meaning but lack accuracy and depth. Not everyone
who shares financial tips is qualified or knowledgeable.

Before acting on social media advice, consider these questions:
– Am I feeling pressured into making an investment decision?
– Is this investment aligned with my financial goals, or am I reacting to fear of missing out?
– Do I fully understand this investment?
– Has the stock or fund already experienced a significant price increase?
– Does the investment seem risky or like a gamble?
– Are the claims about returns realistic, or do they sound too good to be true?

As Abhishek Murarka notes, many influencers may not possess the in-depth financial knowledge required to
provide sound advice. Ensure any financial decisions you make are informed and aligned with your personal
goals and circumstances.

5 money thoughts I want my child to learn

Prakash Lohana — Fri, 31 May 2024 07:03:37 +0000

Money lessons for children are essential. It makes them responsible in life and in relationships. But it’s a sensitive matter. Parents needs to ensure children don’t become a slave to it. Handling money responsibly and being money-minded or materialistic are two different things. Here are five money thoughts I want to instil in my child and you should do in yours:

1) The purpose of money:

Being independent in financial matters frees you. Every child must aspire to earn money and at the same time save some for future. Money may not be the most important thing but is important enough to live a comfortable life. It enables you to fulfil your dreams. It makes the little and big things in life easier. It allows you to experience moments of joy and avail comfort and ease for people you care for. It serves a real purpose. It lets you access necessities of life and more.

2) Money doesn’t define you:

They say with money comes power. It could be true. But, with money should come humility. Children must learn early in life that they shouldn’t judge people by money but by character. Never let it affect how you are and behave with others because people are more than their bank balance. It shouldn’t affect your sense of self-worth or your confidence either because it has the power to do that. Character matters much more than money. Character defines people, not money.

3) Gratitude for today and vision for tomorrow:

Gratitude is the most important money attitude. You have more than I did, and I have more than my parents did. Each generation works harder to provide a better life to the next one. Appreciate and use what you have to take another leap. Take risks and create opportunities that we never had. You be a better version of your parents and ensure your children to be a better version of yourself.

4) No end to greed:

Greed takes you down. Finance is one of the best paid industries in the world, yet fraught with examples of biggest and best fall-hard stories because of greed. There is no end to greed. Know the value of “enough” and never take a shortcut to earn money. It can never be worth it. Aspire to
make good money but not by wrong means.

5) Manage your talent:

Your parents have earned a living managing money. You don’t have to do the same. Focus on managing your biggest asset – your talent. Rest will fall in place. You are playing in one of the best markets in the world – India. Learn to read, write, think, fall, rise, dream, create and build. It will take you places. So, manage your talent. You can learn to manage money much later. It isn’t that hard. And when you do, mutual funds will help you. I hope you will believe they are Sahi! Money values are equally important as moral values. I want you to pay heed to both.

Financial Planning Essentials: The Significance of Savings Ratio for Building Wealth

Prakash Lohana — Wed, 29 May 2024 15:49:33 +0000

The percentage of income that a person saves is referred to as their savings ratio. A person who saves much of their income is said to have a high savings ratio, while one who spends most of it is said to have a low saving ratio.

Saving Ratio = Savings/income*100

Example:

– Net income after tax = 100000

– All Expenses = 60000
– Saving = 100000 – 60000

– Savings = 40000

– Hence = 40000/100000
– Saving Ratio = 40%

Achieving financial objectives or planning for retirement are just two examples of the many benefits of increasing the saving ratio.

Following are some suggestions to improve the saving ratio:

Make a budget: Keeping track of your spending will enable you to find areas where you can save more. It helps you keep eye on your financial activities.

Debt reduction: Pay off high-interest debt first, like credit card balances to avoid paying unnecessary interest fees and free up funds for savings.

Life Style Adjustments: Consider making lifestyle adjustments to improve saving ratio, such as reducing your expenses on eating out, cutting back on entertainment costs etc.

What is the Ideal Savings Ratio?

The ideal saving ratio can vary depending on a person’s financial goals, income, and expenses, so there is no standard answer to this question but still for reference we should target savings ratio from 20% to 40% to achieve our goals smoothly. It is important to note that the ideal saving ratio may also change depending on your stage of life.

Additionally, I would like to add not only saving is important but investing your savings after consulting a qualified & SEBI Registered Investment Adviser is also equally important.

Financial planning helps make major decisions in life

Prakash Lohana — Tue, 30 Apr 2024 05:52:12 +0000

When you are at crossroads in life, facing tough choices, how do you decide which direction to go into? Out of two or more options to choose from, which one should you pick up? Is one a better choice or it just looks like that? Does it appear to be a good choice today, but which may lead to regret later?

Many of these questions are difficult to answer. Often, we do not know how to assess the data, in fact we may not know which is relevant data and where do we get it from. Examples of some such choices are:

Can I leave my job to pursue my hobby / interest?
Can I upgrade my vehicle?
Can I buy my own house?
Should I repay the loan now that I have got the annual bonus?
Can we have a second child?
Can I send my child abroad for higher studies?
Can I take sabbatical from the job to study further?

These are important questions. One may face some of these at some stage in life.

These could be turning points in life. There are financial implications behind many such tough decisions. Very often, we are unsure about the consequences of the choices we have to make.

The uncertainty with respect to the outcome makes it difficult to decide and some people go by the default choice (continuing with the job, for example) or with popular opinion (either what others are doing or what others tell us to do). Decisions taken under such circumstances may turn out to be mediocre or compromises.

There is a better way to take such decisions. We may call the process as “informed decision making”.

Financial planning is a process that helps in this matter.

Data collection is the first step in this process. This data helps one assess the situation and understand the possibilities. One is also able to prioritise among various objectives and allocate resources effectively.

At various stages in life, it makes immense sense to check one’s financial plan to be able to take informed decisions.

Absolute Returns versus XIRR

admin — Tue, 19 Mar 2024 12:49:08 +0000

XIRR (Extended Internal Rate of Return) and absolute returns serve as methodologies to evaluate investment performance, such as that of mutual funds, though they vary in terms of the information conveyed and the calculation methods employed.

Absolute Returns:
Absolute returns measure the total profit or loss incurred on an investment over a specific timeframe, expressed as a percentage. This method offers a direct evaluation of the overall performance of the investment. For instance, if a mutual fund records an absolute return of 10% over one year, it signifies a 10% gain during that period.

(Final Value – Initial Value) / Initial Value * 100

Example: Shyam invested Rs. 1,000 for a period of Four years. After four years, he got Rs. 1,500 from his investment. What is the absolute returns from his investment?

=(1500-1000) / 1000 * 100
= 50%

An absolute return measures an investment’s performance without regard to the amount of time committed.

XIRR (Extended Internal Rate of Return):

XIRR stands out as a more comprehensive metric for assessing investment performance, factoring in both the timing and magnitude of cash flows, encompassing investments and withdrawals, throughout the investment duration. It computes the annualized rate of return required to equate the present value of all cash flows (both inflows and outflows) to zero.

Date	Price
01/01/2022	-10,000
01/12/2022	-10,000
01/01/2023	-10,000
01/12/2023	-10,000
01/01/2023	-10,000
01/02/2024	90,000
XIRR	62.65%

The absolute return using the above example would be 80%. Whereas, the XIRR is 62.65%.

XIRR (Extended Internal Rate of Return) is crucial for assessing the annualized return on investment, especially in situations with irregular cash flows. It considers the timing and amounts of cash inflows and outflows, providing a more accurate measure of performance.

On the other hand, Absolute Return represents the overall gain or loss on an investment without considering the time factor. While XIRR considers the time value of money, Absolute Return offers a straightforward measure. Both metrics are vital in evaluating investment performance, providing investors with comprehensive insights into profitability, helping them make informed decisions in financial management.

In summary, Absolute return is a straightforward measure typically used for investments held for less than a year. On the other hand, XIRR (Extended Internal Rate of Return) is more suitable for investments held for over one year, especially in cases with irregular cash flows.

Non-Convertible Debentures (NCD) :How it works in India?

Prakash Lohana — Sat, 26 Jul 2014 08:02:45 +0000

In our earlier article, we had discussed about what Equity is and why share prices move up and down? It is now understood that company offer equity shares to raise funds for the business. But issuing shares leads to dilution of ownership of the company. But in case if the company does not want to raise capital by diluting ownership through shares, the other option is to take loans from public or Bank through different debt instruments. Collecting funds through debentures is one of the commonly used methods to raise funds for companies. Let us first understand what is Debenture?

What is Debenture?

A debenture is an amount of loan taken by a company from the public. In other words debentures are issued by a company when it intends to raise a loan amount from the public. These debentures are listed on the stock exchange and therefore provide liquidity to the holders.

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