What is the worst advice that you have ever received?

Are free advises costly ? A lot of people in their early life get lots of advice from friends , family and relatives regarding money and other area’s of life . Some of those advises are great, but some are disastrous and you might have the “why did I take that advice ?” kind of feeling . Subra has done a post on worst investment advice and I really liked the sharing which happened there . I think a lot of readers here will relate to those worst advises, because the same thing might have happened to many of them . Lets look at some of the worst advises people have got (i am copying it from the comments section on his blog) . Please share your worst advice in comments section here , It would be worth reading and learning for others !

Worst advice in Personal finance

Ashok say –

Making me buy LICs Jeevan Shree in 2001 (36000 premium per year for 12 years). If I had invested the same 3000/- in a monthly SIP in HDFC Equity fund, I could have afforded a BMW now

Bigtimeloser says –

my worst investment advice was people asking me to do engineering. I had to take it up because i knew nothing about anything else..  Coming from a rural background with a good +2 score I had to do what everybody else was doing..

Iarab says

In 2004, I have been sold a ULIP (Rs. 10,000 annual premium), with an asset allocation of 50% each in ‘Liquid’ and ‘defensive’ schemes. I have been told that ‘liquid’ means ‘money is readily available’ & ‘defensive’ means ‘you will not incur any loss’. The result, after 7 years now, is that I am yet to recover my principal invested (Rs. 70,000), where as my ‘financial advisor(!)’ has graduated from a second hand Bajaj Chetak to Santro i10!

Krish says

One guy from the brokerage firm roped me into F&Os. Rosy picture was portrayed that I can earn thousand(s) a day. The lure was somuch that I borrowed money to trade in F&Os. After first three days I realised that it is gambling and addictive. My risk appetite graph was always up on each passing day to reduce loss and ever hopeful of making the kill. The reality dawn after a month into the trading and losing all the borrowed capital. More than losing money, the mental tension was too much to bear.

Jayant says

“Buy LIC, buy PPF. They are safe investments”. This is when I just started earning at age of 21. If I had started SIP that time, by this time I could have god good corpus. I did not know what seems safe is how badly it is being eaten by Inflation. How I rue !

Vimod says

I have been saddled with a lot of useless endowment policies and whole life plans from LIC of india. I pay a premium of Rs 1.4 lakhs per year as premium for the above insurance policies for a total coverage of Rs 18 lakhs. I will be surrendering
most of it in six months. I try to educate people about buying term insurance policies and not to trust these LIC agents blindly.

Rakesh says

My broker made me buy lokesh machines in Nov,2007. He said that the Big Bull RJ is going to buy/increase his stakes in this company. The price then was 140 and now its 40. I wonder will it even reach that levels ever again ?????????

SS Says

I got an advice to buy a ULIP from a so called friend-expert. What did I do…got rid of advice, got rid of friend (so-called) and got rid of ULIPs forver. i hate ULIps for personal reasons: I lost my friend (i dumped him), I realised he was an idiot and I was in no mood to take free financial advises from an idiot friend (most dangerous thing in finance).

Can you share your worst advice ever you got ?

Why HUL has become Hindu Unilever Ltd

Do you know of any stock in India which has not moved in last 10 yrs ? Hindustan Unilever is one of them ! . Successful investors like Warren Buffett always advocate the importance of investing in stocks for the long term and not just getting in and out of the stock. But more than investing and holding for a stock for the long term, it is important to zero down on the right stock. Or you might even hold a stock for more than ten years and still make very low returns.

Hindustan unilever

Let us take the example of Hindustan Unilever Ltd (HUL), a company which used to be the largest company as per market capitalization in India, at a certain point of time. But in the last 10 years the price of the HUL stock hasn’t gone anywhere. The stock price touched an all time high of Rs 314.123(adjusted for bonus) on February 25, 2000. This price was never beaten until September 24, 2010, when the stock closed at Rs 314.65. On November 9,2010, the stock closed at an all time high of Rs 318.9. This price was again overtaken in early January (January 5,2011) when the stock closed at an all time high of Rs 325.65. Currently the stock is moving in the range of Rs 300-310.

So the point is that if you were a long term investor in HUL and had invested in the stock in Feb 2000, and held on diligently for 11 odd years, you would still not have made any money on the stock. What HUL tells us is that the buy and hold strategy may not always work.

HUL and the Hindu rate of growth

Raj Krishna, an economist, coined the expression “hindu” rate of growth, to express the slow rate of growth in socialist India, when India used to grow by around 3% every year. Krishna was not a great fan of the socialistic model of development being followed in Nehruvian India. He was a believer in free markets. So looking at this secular trend, year on year, and wanting to take a dig at Nehruvian socialism, which he felt was not working, he came up with an antonym for the word secular (Nehru’s other pet peeve), and so called this growth, the “hindu” rate of growth.

HUL has signified this “hindu-rate” of growth over the last decade. Let us look at some numbers here. The annual sales growth of HUL over the last decade sales have risen at the rate of 6.2% every year to Rs 19,987.1 crore.  Profits have grown even slower at the rate of 5.8% every year to Rs 2306.6 crore.

The does not inspire confidence among investors, given that the rate of inflation during that period was at similar levels. So in real terms there has been very little or even no growth in profits and sales. Hence the stock price has been flat.

The main business is facing tremendous competition

Soaps and detergents has been the main stay of the company over the years, and still contributes nearly 75% of the revenues. The company has very little pricing power in this category, given the increased competition that it has been facing. With a slowdown hitting United States, P&G has become aggressive in India. Media reports suggest that P&G is looking to launch its toothpaste brand Crest in India. That should heat up things for Close Up, HUL’s premier toothpaste brand. The cash rich ITC is gradually building businesses similar to that of HUL.

Over and above that there are newer players like Ghadi detergent and older players like Nirma in the lower segment of the market, which have been giving HUL a huge run for its money. To counter this competition HUL  has had to constantly resort to price cuts to keep the revenues going in this segment. This is likely to continue in the days to come leading to a very limited pricing power in its premier business. At the same time it needs to keep its advertising expenses high in order to generate a high brand awareness of its products and hope of increasing sales.

New Businesses not contributing enough

During its glory days, HUL’s strategy was to constantly jack up margins. The management graduates who run the company probably forgot a basic lesson in economics. When a company makes ‘abnormal profits’, new competitors enter the arena and drive away margins.

The margins also came from deteriorating the quality of their products.  What did not help was the power brand strategy the company decided to follow 10 years back, where in the focus was on 30 odd ‘Power Brands’. The ‘power brand’ strategy prompted HUL to withdraw from a large number of small markets. This has given an opportunity to many small players in the market. Some of these brands like Ghadi detergent are now seriously challenging HUL.

To its credit the company has tried to get into new businesses like selling water filters (Pureit). But these businesses will still take sometime to grow. Also the competition in this market has started to heat up with Tatas announcing their entry with Swach.

What do the analysts say?

HUL recently declared its results for the quarter ending March 31, 2011. While it managed to increase sales by around 14% to Rs 5,022.6 crore. But even with this increase in sales the net profit went down by 2.1% to Rs 569.2 crore.  Analysts covering the company came out with reports saying that the results beat their expectations, which is basically a polite way of saying that results were not as bad as we expected them to be.

Given these reasons, those investors who are still invested in HUL, its time they sold out.  This stocks is an excellent example of what John Maynard Keynes, the famous economist, said a long time back, “in the long run we are all dead”.

This is a guest post by Sujata Chhaper and the author can be reached at [email protected]

What are different sectors in stock market

Which one among Reality sector and Banking sector has given more returns in last 5 yrs and 10 yrs with lump sum and SIP way of investing ? Have you ever tried to find out which sectors among indian indices are doing well and which are not ? In this data-oriented article will take you into the world of different sectoral indexes on Nifty, like Bank Nifty , CNX IT , CNX Pharma , NCX FMCG and some more like those . We will see their performances compared with each other with graphs. Note that I have also taken NIFTY as one of the index to compare it with a broader index even though it’s not a sector specific .

Which sectors ?

In this study you will come to know about lump sum and SIP performance of various sectors for 5 yrs and 10 yrs time frame. I have taken the raw data from NSE website and done all the number crunching and graphing to come out with charts which shows you how money has grown in various sectors . I have taken 6 sectors ( Nifty , Bank Nifty , Energy , Pharma , FMCG) for 10 yrs time frame and 8 sectors for 5 yrs time frame (6 mentioned earlier + Reality + Infra ) .  We will see the results of 4 different scenarios and will see major learnings from those .

10 yrs performance [Lumpsum Investment]

The chart below shows the sectoral performance + Nifty for a lump sum investment of Rs 1 lac in last 10 yrs  .

 different sectors in stock market


  • Bank Nifty was the clear out performer among all giving a 12x return in just 10 yrs . That’s very good return . Energy sector came second and FMCG and IT sector gave the least returns out of all .
  • Bank Nifty has given 3x return after the crash of 2008-09 . Look at the big spike upwards . Till the crash Energy sector was performing same to same as Bank Nifty , but after the crash, performance of Energy sector deteriorated and it didn’t match up with Bank Nifty.

10 yrs performance [Daily SIP Investment]

The chart below shows the sectoral performance + Nifty for a daily SIP investment of Rs 1,000 in last 10 yrs  .

SIP Sectoral performance 10 yrs


  • The most insight full thing you can see here is that all the sectors other than Bank Nifty has given very close return if one had done SIP regularly . This shows both, the power and weakness of SIP . You can get more returns out of bad sector and less return from the strong sector .
  • IT sector performed very badly after the crash , but in the recent bull run , it has performed very well and gave superior upside .

10 yrs CAGR returns for lump sum and SIP investments

The following chart gives you CAGR return of last 10 yrs for both lump sum and SIP . Note that the values are approx only .

SIP and lumpsum returns of Sectoral indices in 10 yrs

5 yrs performance [Lumpsum Investment]

Now we will look at 5 yrs performance of various indices . The chart below shows the sectoral performance + Nifty for a lump sum investment of Rs 1 lac in last 5 yrs  .

Lumpsum Sectoral performance 5 yrs


  • Bank Nifty still leads the pack , the other sectors too performed good and are marginally poor . Nifty , Pharma and Energy come next best .
  • Reality sector was one of the best performers till 2007 , but then its performance went down and its gave a very high negative return on CAGR basis . When other indices gave above 10% returns on average, Reality index averaged -20% CAGR return .
  • Energy index has not made much movement in last 2 yrs from 2009 – 2011 , whereas Bank Nifty has doubled .

5 yrs performance [Daily SIP Investment]

SIP Sectoral performance 5 yrs


  • On 5 yrs SIP basis , IT sector has clearly outperformed other sectors and it was very consistent in that . Bank Nifty comes second.
  • Reality and Infra sector has performed badly and given close to ZERO return in last 5 yrs .

5 yrs CAGR returns for lump sum and SIP investments

The following chart gives you CAGR return of last 5 yrs for both lump sum and SIP . Note that the values are approx only .

SIP and lumpsum returns of Sectoral indices in 5 yrs

Please share what other information were looking from an article like this . Share your comments about the article .

How did you like the information ?

Silver prices vs Gold Prices in India

Imagined what gave maximum return in 2011 or 2010? Well, was it Gold, Equity or Real estate? Nope! Hold your breath, it was SILVER and it gave huge returns! It is almost unbelievable that the price of silver as on Aug 2008 was around Rs. 20,000/ Kg, and it went to Rs. 72,000 by the end of Apr 2011, which was a 300% absolute rise in less than 3 yrs. But don’t get too excited, Silver in just 1 week has fallen like anything. From the peak of 72,000 in Apr 2011 end, it went down to Rs 52,000 in just 1 week. Can you believe that? A 28% fall in the prices of silver in just 7 days! Let’s explore more on this.

Silver prices vs Gold Prices in India

Gold vs Silver returns ?

Now a days there is a big debate going on different TV channels as well as newspapers that what should a common man buy? Gold or Silver?

In our country, Gold is something which every family buys because of the attraction we have for this metal. On any occasion, gold is the obvious choice. But Silver is not seen the way gold is looked upon. It’s generally limited to not so well off section of the society. This is one of the reasons why middle class or even richer one’s never considered looking at what’s happening in silver and if it can have some potential in future as an investment option. Gold, Gold and Gold was the only option when it came to buying some precious metal.

A lot of people are surprised to hear and see how gold has given fabulous returns year on year in the last decade, but now you would be more surprised to know that for most of the years silver has outperformed gold with good margins in terms of returns. For example, everybody knows that Gold gave 25% return in 2010, but not many know that Silver in the same year gave 80-85% return.

Silver has given 24% absolute return in just one month of April 2011. I don’t think it’s anything other than speculation because that rise was short-lived and in just 1 week (May-‘11 first week), all the gains made in Apr disappeared and prices fell by 25%.

Below is the chart which shows you the monthly price movement in silver for last 30 months. You can see how silver prices exploded in last 4-5 months (2011)

Silver Price in India

Factors affecting price of gold and silver

1 . Supply and Demand

One of the biggest and obvious reasons behind the price movement for anything is its demand and supply in the market. It directly impacts the movement in price. It is estimated that in 1950, the reserves of gold was 1 billion ounces, but by 2010 it increased by 700% to 7 bullion ounces (see the video below)

However on the other hand it is totally different with Silver, in 1950s there were 10 billion ounces of silver, but by 2010, it dropped by huge 95% and its current reserves are only 500 million ounces worldwide. A very obvious reason for this is that gold is mainly stored in form of bars, jewellery etc and its recycled again if required. However silver is also used widely in Industry in very smaller and thin parts which get lost and never reused. In fact, it is not possible to use it again because of its used in lesser quantity and in small parts.

Gold and Silver

2. Practical use in life

Gold and Silver are very different when it comes to its usage in real life. While both of them are precious metal and often used as jewellery, Gold has a very different image and can be considered as the undisputed king in this area. From millenniums Gold stands the most favourite metal for jewellery, in fact there is some kind of unseen connection which humans have with gold, which cannot be explained. May be it’s the way it has always been and it can’t be changed. But if you see gold as a useful metal, it does not have much to show off. It’s literally not used anywhere other than at a few places.

Silver on the other hand is also used in various industries and holds a very important position. In fact you can see it as “gold” for industrial use. Let me give you more info on this. Silver is used in Bandages, batteries, soldering process, cell phones, computers, satellites, high-tech weapons, laser and digital technology, electronics circuit board, solar cells, water purification, RFID chips and the list goes on.

Silver has more industrial applications than any other metal. A recent report by Hinde Capital says: “It’s the best conductor of both heat and electricity, the most reflective, and second-most ductile and malleable element, after gold.” The white metal is also being put to several new uses like-water purification, air-handling systems and a natural biocide.”

In last couple of decades, Silver is so extensively used in Industry that it’s reserves has drastically gone down. Just to give you an example, in the decade of 1990 – 2000, around 2 billion ounces of Silver was consumed. That’s a lot of silver!

3. Role as alternate currency

Precious metals are always considered as the alternate currency and wealth in pure form in any emergency situation. Gold is a universal currency and not dependent on country or any community.

In times of war, people fear that their assets may be seized and that the currency may become worthless. They see gold as a solid asset which will always buy them food or transportation. Thus in times of great uncertainty, particularly when war is feared, the demand for gold rises. That’s exactly what happened in Zimbabwe lately, where currency is worthless now and people are using gold as alternate currency to buy bread

Recent rise in Silver Prices

You might have heard lately about rise in Silver prices and definitely you might have felt that you “missed the bus”. Let me talk a bit on that. You have already read about the reasons of price rise in silver above. One of the biggest reasons is fundamentals of silver, it is a valuable asset and over a long-term, it’s going to be much valuable because of its use in industry, every industry requires silver!

But other than fundamentals, there are elements of speculation also involved, otherwise I don’t see any reason for 150% rise in its prices in just 1 yr and then a 25% fall in just 1 week. It’s going to be volatile.

To know why the price of silver fell recently , read this article . Please share your comments on Gold and Silver as an investment .

Pune Readers Meet & Workshops in Different cities

Did you miss meeting other jagoinvestor readers and our team ? I am sure many did in Pune, where we did an offline readers meet recently. On 30th Apr (Saturday) we conducted an offline readers meet in Pune and it was well attended by 20+ readers . There were some last-minute cancellations, buts its part of the game, we need to accept it . In this article I would like to share 3 things . First, I would share what we all did in the event and what kind of things we discussed . Second thing would be the two things which participants experienced and its truely amazing I can guarantee you ! . At last, the last thing I want to share with you is our offline paid events which we are planning to do in various cities some time soon now . Lets start !

Pune readers meet

Last week,  my team travelled from Ahmedabad to discuss some new and exciting things we are building and planning to launch by next year . And as the whole team was there in Pune, we thought why not have a readers meet and share some great things with them ! . We decided to have a readers meet at my residence and give a talk on what are the key reasons most of the people are stuck in their financial lives and how they need to change the way they are if they want to make things work .

No data cruching, no product talks ! , the whole talk was only focused on how we as human beings make mistakes in our financial lives which we have inherited from various other parts of our lives ! .

We started at 10:30 am and we ended around 2:00 pm. For all these 3.5 hours, there was a wonderful session on topics which were truly unheard of for almost everyone . It helped the participants to understand the real reason of what stops us from having a great financial life and why we are stuck in our financial life and not able to move forward ? We also did something called as “Money exercise” in between the session with all the participants (not in great detail , but just a small part of it) which we do with our clients as a “warm up” exercise. We knew that it would be something which would give some additional life to the whole session. Then we chose one of the random participants answer and discussed her answer in detail.

Nandish Desai, my teammate did most of the talking (mind you, he is an amazing public speaker and you dont want to miss listening to him if you get a chance). The event was full of real life incidents and fun-filled one liners which really helped participants to understand the topics in an easy way . The simple examples made sure that they can connect what we were talking to their own financial life ! . It was not at a heavy session at all ! . It went better than what we planned  and the feedback was great . Most of the participants really felt that some part of them has changed after the event and they are ready to go and implement things in their life from that same moment .

Nandish talking on session

The best part was that we also had Jayant, one of our clients in the group who shared with all how his life has accelerated and he has truely taken charge of his financial life. He shared how he took some tough decisions in his financial life which were pending from years  and he completed them. He had weekly/monthly targets and we were after him to make sure he does not deviate from his promise of completing them .He shared how he is almost close to be “debt-free” and his financial life is now restructured . He feels his financial life has become more simple and easy for him to handle and understand too. He also have more clarity on how he has to move in his financial life from this point of time .

Group sharing and its power

Group is powerful, because the sharing and experiences is manifold in a group. I would like to share two things which I am sure would add a lot of value to your life and that comes directly from the group we had in the event .

1. How shock therapy changed Dhananjay’s Health Life

Dhananjay, one of the participants shared a very powerful thing with all of us . Here it goes in his own words –

Few years back, I had to go for a medical check-up provided by my employer and I hesitantly went for it because it’s a headache in Mumbai to travel . As it was a benefit for free, I finally went for it , but not with full enthusiasm ! . I did all the tests and checkups which was to be completed.

Next day I had to collect the reports and I was finally out of Doctor’s room. Doctor was suppose to tell me the “results”

Doctor : “Welcome to the world of Diabetes” – Doctor said with joy, the moment he saw me and smiled at me !

Dhananjay was shocked ! , he had a blank face and truly speaking he had no words. How can he have diabetes at the age of 30 ? He was devastated ! . It all seemed like a dirty joke played by life on him.

Doctor : “So Dhananjay, what all plans do you have for next 4-5 yrs ? Because that’s all you are left with ! , you have no time 🙁 ”
Dhananjay : But Doctor, I am just 30 , how can I be diabetic and I want to ask you, are you really sure I just have 5 yrs left in my life ? There might be some mistake in my reports ! .

Doctor :  I feel sorry for you , but I can’t do anything . You have ignored your health to an extent that fixing it is out of question now ! . You want to see more ! , See these blockages forming in your heart , they will kill you much earlier , forget 5 yrs ! .
Dhananjay (almost crying now) : Doctor , I can’t believe all this , how it can happen to me ! , this is just not done ! , I don’t deserve this , my family needs me . I have not done anything in my life yet ! .

Silence ….

Doctor : Ok Dhananjay , Calm down ! . Can you share with me how are you feeling ? Can you tell me whats going on in your mind ? What is that one thing which you really want to happen at this moment ! .
Dhananjay : umm .. What can I say 🙁

Doctor : Ok Listen , The conversation I just did with you, Its not for the today ! , but future ! . You will hear exactly the same things from me ,  if you don’t take care of your health from now-onwards . Please do something about it and dont ignore your health . If you continue the way you are and ignore your health , believe me things will get more ugly then what they are right now !  So please go and start taking actions .

Now, you can imagine how the next day started for Dhananjay ! . It was 7:00 am next day, Dhananjay was wearing a sport shoe worth Rs 5,000 (which he considered total waste at one point of time) and he was running in morning . That first day, it was accidently raining heavily in Mumbai , but to hell with rains ! . He was running ! . He was now committed to change things and improve this health .

After that event, even though he gave excuse in other areas, but he never missed exercising each day without excuse. Not matter what ! .  After an year, when he went for a medical checkup again, there were no traces of any problem and he was 100% healthy. He went to meet the doctor personally to really thank him to change his life , but doctor was not in India . He was abroad now, but Dhananjay really thanks him from the core of his heart ! .

Do you see a link between what happened with what happened with Dhananjay and what happens with most of the people’s financial life ? Most of the people I talk to have ignored their financial life to such an extent that things become too tough to repair at times , I hope they get some shock therapy and can see a future picture of what all can happen with them ! .

2. How Soumya feels more responsible and an equal participant in her families financial life

On of our client and his wife Soumya were present in the event. At the end of the session, Soumya was sharing with us (not the whole group, but to us personally) that how connected she feels with her financial life soon after they have taken those actions which were long pending . Earlier she was not bothered about whats happening in their financial life and it was just the husband who cared and thought about it. But once they have taken charge of their financial life, Soumya now feels more responsible and a strong relationship with her financial life . She is now an equal partner of her husband in area of money. Now each aspect of their financial life is discussed jointly and they come to a decision together . I think this is real financial planning and at a different level than what we hear everywhere else .

It was great hearing Soumya’s experience and her feelings as they are unique and not so common in our indian families (read this) where only one partner is bothered and responsible for financial life and the other person with “Not-my-cup-of-tea” and “Not-interested” kind of attitude !

Offline workshops in different cities [Paid]

Now, I am fulltime on jagoinvestor and we have a dedicated team with each one of us having a unique area of expertise, we feel that we can now take our jagoinvestor movement to next level. Hence one of the things which we decided was that we will soon do value-for-money paid seminars and workshops in different cities in big groups which really adds value to participants and also help them in taking actions right then and there. We would like to understand first that how many people are looking forward to some thing like these workshops which would be a full 1-2 day event depending on the level of deliverables.

Hence we are capturing the data of those readers who are willing to pay a fee and participate in these serious events designed for changing financial lives . We are thinking of doing the first event by this June-July 2011. Note that this is going to be a high value , extremely relevent and action oriented workshop which will literally move you from that comfort zone and activate things in your life. You can literally consider these events as events which will plan your financial lives and help you move forward, if you were stuck from years !

What you can expect from the workshops ?

If you ask me – “Manish, Can you tell me in 1 line that what can I as a participant can expect from these workshops? ” .

My answer would be “Once you complete the workshop, you will leave the room with complete clarity about your financial life and you will be clear on the next steps to be taken” .

Apart from that we will also share many resources, tools and calculators, and many more action oriented exercises. This is what we have in mind right now, but we are yet to design it fully ! , so there will be much much more ! .  Take my words !

Please note that these will be paid events and not a free one.  Once we have many of people interested from a city, we would be sending details of fees , the program deliverables and what participants can expect out of it and many other information. Feel free to give your suggestions and ideas on these events .

Readers on email can find the registration form here

So are you ready ? Please share if you have participated in such personal finance programs already and what was the experience ?

How RBI rate hike impacts your financial life ?

Few days back, there were some changes announced in repo rate and saving bank account interest rates by RBI. Do you want to know how you as an investor would get impacted with the recent changes done in interest rates by RBI? I have seen that a common man always ignores this kind of news because it looks too complicated to him or he can’t understand how his life will be affected by such fluctuations. In this article, I will touch two most important changes that were recently disclosed by RBI and show you in simple manner how it’s directly related to a common man. Note that this article is limited in its scope by looking at the two changes from the point of view of its direct impact on a common man.

Interest rate hike by RBI

Let me quickly go through two main changes which RBI recently changed and explain to you how it impacts common man. Note that this article is limited in its scope of looking at these two changes only from a viewpoint of how a common man is affected directly.

1. Increase in Repo Rate by 0.5% (6.75% to 7.25%)

Repo rate is a rate at which Bank borrows money from RBI, which was increased by 0.5% by RBI and is at 7.25% right now. So now what are the effects of it on a common man? Let’s understand this concept. Banks offer loans like Home loans and Auto loans to someone at an interest rate which is directly proportional to Repo rate (interest rate for common man = repo rate + X %). Now change in repo rate has a direct impact in the interest rates offered to customers for loans by the same or by more magnitude.

Now with the increase of 0.5% in repo rate, this increase will directly be passed to a common man (in case of floating interest rates). In fact some banks like IDBI bank and Yes Bank have already increased their interest rate for loan takers. In fact, Chanda Kochar (Managing Director of ICICI Bank) has already said that this repo rate increase can increase the interest rates for end consumers in the range of 0.5% – 1.0%. So if your interest rate for home loan or Auto loan was 10% p.a, it will now increase to 10.50% at least. This has direct impact on the EMI which you pay for your house.

Let’s see the calculations. If you had bought a house worth 30 lacs @10% interest, 15 yrs tenure, then the EMI would be Rs 32,238. With an increase of 0.5% in interest (10.5%), your EMI will rise to Rs 33,162. That’s an increase of Rs 924 on every EMI. However if the interest rates rise by 1%, in that case your EMI will increase by Rs. 1,860 (calculate yourself). Now imagine if you took the loan at the time of low-interest rates and over the years the interest rates keep rising every quarter, your EMI can shoot up so much that it would make your cash flow very uncomfortable. For example, just last year in Mar 2010, the repo rate was 5%, and then RBI increased it up to 7.25% today. This means there was a 2.25% increase in the last 14 months. You can understand the impact of this on EMI rise over the last 1 yr!

Hence, now you understood how change in repo rate directly impacts a common man, because that change in repo rate is passed on to common man and his EMI’s are affected in the case, the person has opted for floating interest rate option while taking the loan.

Interest rate hike by RBI

2. Increase of saving bank interest from 3.5% to 4% .

The second change which RBI has done is to increase the saving bank interest rate. Till now it was 3.50% which was set long back, many years ago and was never revised. But finally with this year’s credit policy, RBI increases it to 4%. Now you must be thinking how does this impact common man? It’s a good thing for account holders.

Well, in a way it’s a good thing that a person will get higher interest rate on his cash lying in the saving bank account, but let’s see how it impacts a bank. A bank that was paying 3.50% interest on the money will now have to pay 4% interest. That means now, it would directly impact Bank’s profitability. Suddenly a bank which was able to add up that 0.5% interest in its profits has to pay it to customers and that would hit their margins. Bank’s profits will come down by that much amount. This is not a good thing for the bank. That’s a simple reason why you should have expected a big fall in banking stocks and that’s exactly what has happened on the day when this news came in that saving account interest has been raised.

Banking and automobile stocks anchored the broad-based selling. While the hike in saving rates is expected to hit the net income margins of the banks; muted sales numbers in April, high fuel prices, and likely rise in auto loan, diminishing outlook for automobile space.

Among banking stocks, Bank of India, PNB, SBI and Yes Bank tumbled 6.47 per cent, 5.07 per cent, 4.03 per cent and 4.03 per cent, respectively. ICICI Bank and HDFC Bank dropped 2.76 per cent and 2.40 per cent.

Note that around 22% of the money in banking system lies in normal savings bank account and that’s approximately 10 lakhs crore in all the banks. Taking a hit of 0.5% on that kind of money is Rs 5,000 crore. That’s a direct impact of the bank margin of profits. The worst affected will be those banks where saving account ratio (the amount of money lying in bank accounts vs. total money with bank in all forms) is very high. Clearly banks like ICICI bank, SBI bank, Punjab National and HDFC banks are the names I can think because their saving bank deposits stand in range of 30-35%, much higher than the average of 20% across all other banks.

Now how does this impact the common man? Again this move of increasing the interest rates for saving bank is going to affect banks profitability and banks are going to pass this burden to those people who take loans from them, which means those who only put money in bank will stand to gain and the people who took loan will be losing out.

S Raman, cha­irman and managing director of Canara Bank, said, “There was a need to increase savings bank rate. It will lead of cost of funds going up but how much will it affect the margins of banks will depend on the extent of pass through of these rate hikes to consum­ers in terms of len­ding rates. Le­n­ding rates can go up by 50-75 basis points.”


Repo rate fluctuations which come from Banks in the form of increased interest rate for loans will directly impact common man. Knowing this can help an investor in many ways. The biggest benefit a person can from such fluctuations is if he time’s his decisions based on where the interest rates are inclined towards.

Let me know what do you think about this rate hike in repo rate and how is it going to impact your life?

Conversation with a Financial Coach

Today I am going to share with you a financial coaching tip called “Opportunities in your financial life” , which intends to show you that there are already opportunities in your life which at times you dont look at and feel as if its not there and you have to work hard to find one . I will also share with you a short sample conversation between a person and a financial coach and I am sure you can relate it with your financial life . Lets start with a story  –

Financial Coaching Conversation

The perfect Women

There’s a wonderful Sufi story about two friends who are catching up after not seeing each other for some time. One is married, the other single. The married man asks his single buddy about his love life. The single friend explains that a few months ago he thought he had found the perfect woman. “She had a gorgeous face,” he says. “Her looks were incredible.” “So why didn’t you marry her?” his friend asks. “Well,” explains the single friend, “she wasn’t very intelligent.”

He goes on to explain that a few weeks later he found another woman he thought was perfect. “She was as beautiful as the first woman and brilliant as well.” “So why didn’t you marry this woman?” his friend asks. “Well, she had a voice that sounded like nails on a blackboard” . The married friend nods, but before he can say anything the single friend continues: Then, just last week I finally met the perfect woman. She’s beautiful, she’s intelligent, and her voice is soothing and relaxing.” “So when’s the wedding?” the married friend asks. “There won’t be one,” the single friend explains. “It turns out she’s looking for the perfect man.” The single friend remained single, he had various opportunities to get married but kept missing them.

Opportunities in your Financial Life

When you visit your bank, you see the opportunity to open a PPF account in front of you, when you see insurance advertisement, you see that it is important to have adequate life cover. Many such things come in front of your eyes each day and you don’t pay much attention to it. This story is staring you in the face. It’s knocking you on the head. It’s so obvious; you can’t believe that you never thought of it. But you did not and someone else did- and they are creating wealth.

The key learning to be taken in your financial life is that investment opportunities come in your life every single day, month and year and most of the time you find faults in them and stop them to get into your financial life. We see most of the people blaming insurance agents, brokers for selling wrong products to them. It happens sometimes but that does not mean you have to become a fault finding machine. Coaching conversations helps you see what you are unable to see right now. Each conversation makes you present to the existing wealth creating opportunities you have in your life.

Our mental energy needs to be invested and focused on these opportunities rather than spending time on finding faults. If you find faults you are creating a wall between you and available investment opportunities.

Coaching Tip : Stop being a fault finding machine and focus on wealth creating opportunities. It is never late, what you are seeking in your financial life is seeking you.

A basic financial coaching call

We would like to share a sample financial coaching session with you. I am sure you will love the conversation and can also relate it with your financial life . Here a Financial coach talks to a person

Coach : What do you want to create in your financial life?
Client : hmmmmmmmm (a pause)

Coach : I got your answer, It is loud and clear to me
Client : Hey, but I did not say anything

Coach : Your silent pause had an answer inside
Client : What answer you could hear, can you share ?

Coach : I could hear a sense of no clarity in what you want, this no clarity is running your current financial life. You      want to do a lot of things in your financial life but don’t know what exactly you want.
Client : Oh yes I can relate to that, I really don’t know the first step, I think it is a mess

Coach : I see, Can I ask you something
Client : Yes go ahead.

Coach : Why do you earn money?
Client : aaaaaa for a good life, for getting all the comforts in life, for my family.

Coach : ok good. A daily wage worker goes to work every day to earn his daily wages. His focus is on getting two meals a day. Buying food for his family and that’s all. His focus is on wages and not on financial freedom.
Client : Oh , This has made me think, I am not focused on financial freedom but on basic things like that daily wage worker.

Coach : What is financial freedom according to you?
Client : It is having lots of money and a day comes when I never ever have to work for money.

Coach : Good. There are various definitions of financial freedom. The one that I want to share with you is “You are financially free when your passive income is equivalent to your desired lifestyle”.
Client : Good one.

Coach : So now do you want to play for financial freedom or basic needs. If you achieve financial freedom the basics will be automatically taken care off.
Client : Oh yes yes I got your point. I don’t want to be like that worker any more. I want to play for financial freedom.

Coach : On the scale of 1 to 10 how much would you rate your financial life?
Client : I would rate it to be at 4

Coach : Thanks for being authentic. The gap is to be seen as scope of improvement
Client : Ok.

Coach : What is a one thing you can do to increase your rating
Client : I guess making right investments.

Coach : Think deeper, what will help you make right investments
Client : I need to have proper knowledge

Coach : Excellent. Knowledge is the power. Make a commitment to spend uninterrupted time for reading about personal finance. Make a commitment to send me your questions and really learn how to get in control of your financial life. Don’t just have your coach in getting a financial plan , use the coaching such that you get in control of your financial life, use the coaching to convert your financial vision into a reality.Use the coaching to simplify your financial life. On the next call we will define your personal finance as a project. I will also share some of the ebooks that will help you learn transform your relationship with money.

Client : Wow. I am excited to read. Thanks for your time
Coach : All the best. Stay in action, stay committed.