DON'T RETIRE RICH

Wednesday 31 May 2023

START YOUR FINANCIAL FREEDOM JOURNEY WITH AN EMERGENCY FUND

EMERGENCY FUND IS THE PILLAR OF A STRONG FINANCIAL PLAN 


We live in an era where joint family is an endangered species and thus you are left to fend for yourself even in an emergency financial situation.

In a Contingency Situation, the options for you could vary from selling your prized processions to selling your blue chip shares/Mutual funds to taking a Credit Card loan or even borrowing from your friend or the next-door moneylender.

All these could lead to potentially rock your Financial Plan. This is where an EMERGENCY FUND comes into the picture.  One of the biggest lessons that COVID has given all of us is the importance of having an EMERGENCY FUND

Emergency Fund acts as a Shock Absorber of a Financial Plan. The absence of it can make a Financial Plan turbulent. Once you have this covered…. then the mental peace you have is unparalleled.

If you don’t have an Emergency Fund, SET IT UP NOW!!!

 

WHAT ARE THESE EMERGENCIES????

Upgrading from a Maruti 800 to a Mercedes Benz is NOT an Emergency!!!

Medical contingencies, job loss, and salary cuts are some emergencies that you must be prepared for.

A sudden Medical Complication in the family fits in as the best example of an Emergency.

True, Health Insurance will be there and should cover the bill, but Mediclaim does NOT cover everything and sometimes, during a medical emergency, not many will have neither the patience or the time to go through the procedure of following up with the health insurance companies.

Job losses have become a common part of our daily life.  Losing your job without a notice period is another case of an emergency.

Even a Sudden House Repair (due to Earthquake or a Huge Rainfall following Water creeping into your home and damaging interiors) too comes under the category of Contingency.

So, at the cost of sounding repetitive, let me reiterate, Any Unforeseen Expense which can upset your Financial Plan is a fit case for linking to a Contingency Fund.

And even replacing your SMARTPHONE (due to sudden breakdown/repair) is also an EMERGENCY in this age!!

 

 

 

 

HOW TO SET UP AN EMERGENCY FUND:

To set up an emergency fund, you need to create an Emergency BUDGET based on your living expenses.

1. Start with the MOST important expenses like Food, Medical costs, Rent, EMI, Groceries, etc which are uncompromisable. And gradually scale up.

2. Multiply these expenses by a minimum 3 times (for e months) so that you get an idea of HOW much to keep.

3. Divide this money into different SAFE, LIQUID baskets such that is most easily accessible when needed.

4. Give your Emergency Fund contribution the highest priority

 

5. Review and adjust as necessary.

 

 

HOW MUCH SHOULD I KEEP IN THIS EMERGENCY FUND:

 

3 to 6 months of EXPENSES (not income) is to be kept aside as an Emergency Fund.

Of course, this will vary depending on personal circumstances, such as job stability, income level, family size, and other factors that impact financial security.

Having a stable secure job means 3 months of expenses is enough.

But if your income is commission based or where the inflow is volatile, it makes sense to keep a larger amount in the emergency fund.

However, having a target range of emergency funds is a good starting point.

 

 

WHERE DO I KEEP MY ALLOCATION FOR THIS EMERGENCY FUND:

Emergency funds should be kept in Low risk, liquid assets that are most easily accessible whenever needed.

High-Yielding Savings Account

Overnight & Liquid Mutual Funds

Even Cash at home (some part)

 

It seems stupid to lock away 6 months of Expenses in that lowly Liquid fund when your friend is minting money in Day Trading.

 

Some investors do keep a portion of their emergency fund amount in

ARBITRAGE FUNDS

P2P FUNDS

INVOICE DISCOUNTING

All these are good short-term options but not ideal for emergency funds as these are liquid enough to come into the emergency fund option basket.

The primary purpose of a Contingency Fund is the Preservation of Capital and returns should be treated as Bonus, nothing else!

 

I would recommend that you split your Contingency Fund into

30% in SB Account

30% in Flexi Deposits

30% in Liquid/Overnight Mutual Funds

10% in Arbitrage Fund (yes, I know, I am creating a bit of controversy here.......).

 

Why Arbitrage Fund?

 

Yes, it is quite unlikely that you will be using your entire 6 months of Contingency fund in one go.

And, even if yes, the Contingency could be either 1 month away or even 10 years away (or if you are very lucky), could never happen!

 And emergencies come in all forms and there are some kind of emergencies that allows you the luxury of arranging funds after a few days.

But do remember, having a Contingency Fund, is purely for a Contingency and if you are earning anything out it, it should be treated as a Bonus only!

And, please, for God's sake DO NOT CONSIDER YOUR CREDIT CARD AS YOUR CONTINGENCY FUND!!!

 

PLEASE NOTE:

Emergency Fund also includes a RAINY-DAY fund!

Now...what is this Rainy-Day fund?

The Rainy Day fund is for expenses that occur annually (or bi-annually) but occurs at unexpected times.

For example, Car Repair is an expense that can occur ANY TIME.

It’s not an EMERGENCY expense but not an ignorable one.

For this type of Expense, you can use a fund called RAINY DAY

Many investors keep the Rainy-Day Expense Fund as a part of Emergency Fund itself and it's perfectly all right to do so.

 

 

FINAL NOTE:

It's important to keep emergency funds separate from other investments and savings, as they serve different purposes and require different criteria for allocation and management. By keeping emergency funds separate, we can avoid the temptation to dip into them for non-emergency expenses or investments.

 

IF YOU ARE STARTING FROM SCRATCH AND DO NOT HAVE AN EMERGENCY FUND... YOU CAN GRADUALLY START BUILDING THE SAME.

NO NEED TO RUSH THROUGH. TRANSFER A FIXED AMOUNT CONTINUOUSLY TILL THE EMERGENCY CORPUS BECOMES ABOUT 3 MONTHS OF EXPENSES

 

 

EMERGENCY FUND ACTUALLY HELPS YOU ACHIEVE FINANCIAL FREEDOM:

Having a rainy-day fund can provide peace of mind and financial security, as unexpected expenses can often lead to financial stress and strain. By setting aside a separate pool of money for these expenses, individuals can avoid having to dip into other savings or investments and stay on track with their long-term financial goals.

 

All the Best for a Wealthy Life 

Regards, 

Srikanth Matrubai

Qualified Personal Finance Professional (QPFP)

AMFI Registered Mutual Fund Distributor

Author of the Amazon Best Seller books  

DON'T RETIRE RICH
&
WEALTH OF WISDOM

 

.


All the best,
Regards,
Srikanth Matrubai
MUTUAL FUND DISTRIBUTOR
REBALANCE VOLATILITY CERTIFIED COACH
Srikanth Matrubai, Author of the Amazon Best Seller DON'T RETIRE RICH


You are strongly encouraged to consult your financial planner before making any decision regarding this investment. The views expressed here are the author's personal views and should not be interpreted as a recommendation to invest/avoid.

 
Srikanth Matrubai Author of the Amazon Best Seller DON'T RETIRE RICH

Do read the book and give your valuable feedback and request you to post positive comments on Amazon. https://amzn.to/3cHUM6M/ 

You can purchase the book on Amazon and Flipkart 

For the best of ideas on where to invest to create Mountains of Wealth 
join my TELEGRAM channel
WEALTH ARCHITECT
    https://t.me/joinchat/AAAAAELl4KUnaJzi-JJlDg/

Sunday 7 May 2023

SHOULD I INVEST IN NEXUS REIT IPO?

NEXUS SELECT TRUST REAL ESTATE INVESTMENT TRUST IPO

 

India's Largest Retail Assets Owner NEXUS SELECT TRUST is coming out with an IPO. Nexus IPO opens on 9th May with a price band of Rs.95-100 with a bid in the multiple of 150.

In India, there are 3 REITs listed on Stock Markets namely.

Mindspace

Embassy

Brookfield

Unlike the above 3 who manage Office spaces, Nexus is the 1st REIT that is focused on RETAIL space.

 

WHAT IS REIT?

REIT unlocks the value of Real Estate Assets and offers ownership of these Rent Yielding properties to retail investors like you and me.

Just like Mutual Funds collect money from retail investors, pool the same and invest in stocks, gold, bond, etc REITs too pool in the money received from investors and invest the pooled money in REAL ESTATE ASSETS (commercial and retail)

HOW EXACTLY DOES A REIT WORK : 

1. A REIT (like a Mutual fund) collects money from Investors.
2. These monies are invested across Rent Generating Properties.
3. The REIT collects the Rent
4. The REIT distributes the Rent to Investors via periodical Dividends.
5. The Capital Appreciation (of the Property owned by REIT) is reflected in the NAV.

 

 

Regulations in India mandate that these REITs must pay out 90% of the distributable Cash Flows to the unitholders. 

 

 

ARGUMENTS IN FAVOUR OF NEXUS REITS IPO:

 

1.    Present in 14 cities with a leasable area of 9.2 million square feet.

2.    Mix of tenants with 1044 brands with international brands being 47% and Indian brands at 53%

3.    No single tenant or asset has more than 18.3% exposure

4.    Besides consumption centres, Nexus has 2 hotel assets and 3 Office Assets

5.    Lease Expiry (weighted) is LOWER for Retail (NEXUS) at 5.7% v/s 9 years in Office space (Embassy, Mindspace, Brookfield)

6.    Committed occupancy of 96.2%

7.    Besides the Rent Escalations for Nexus is 12% to 15% (for 3 to 5 years), a Mark to Market of 20%

8.    For me, this is the BIGGEST PRO point in favour of NEXUS.

Nexus has 88.3% of its leases with a Turnover Rental arrangement with 5% to 25% of Tenant's Sales as Rental Revenue (CLEAR UPSIDE POTENTIAL TO THE OVERALL REVENUE OF NEXUS)

9.    100% of Nexus assets are READY FOR RENT improving yield (unlike, for example, the Embassy which has a 16% area under construction)

10.                   Retail asset space is expected to grow at 25% CAGR.

11.                   Indian REITS have delivered an IRR of 13.4% (since April 2019)

12.                   The offer price is at a good discount of 22% to the NAV of 127.73 (as of 31st December 2022) and can be looked at as a Debt alternative.

13.                   No Lock-In.  You as an Investor can enter or exit the fund as per your wish and convenience, unlike actual Real Estate which has its own problems thus making it very liquid.

14.                   Real Estate is one of the most non-transparent asset classes and this being a REIT is a good transparent  way to have Real Estate Exposure.

15.                   REITs, although listed, do not always move in the same direction as the stock market as the underlying asset is Commercial Real Estate and thus provides Good Diversification

16.                   REITs come in between Equities and Debt and must have a place in All Portfolios.  Low Correlation with Equities, Diversification across Geographies, and Visible Cash Flow to underlying investments make REIT a good investment option.

17.                   Consumption is expected to be a HIGH growth area in India and NEXUS being in the Retail Asset space could be well-positioned to take maximum advantage of this expected boom

18.                    

 

ARGUMENTS AGAINST THE NEXUS REIT IPO:
1. Being in Retail, any slowdown will affect Nexus REIT badly (unlike Office REITs)

2. Interest Rate Hikes could hurt revenues.

3. Typical Real Estate Industry Issues like a Bear Market could affect Capital gains

4. Since the REITs are listed in Stock Markets, the typical demand/supply mechanism could affect the price of the listed entity and it could be quite volatile. The returns WILL NOT BE IN 1 STRAIGHT SINGLE UPWARD LINE!

5. Real Estate is subject to lots of Govt Regulations

 

IN A NUTSHELL

Owning Real Estate is a challenge both financially and in legal hassles, REITS is an easy simplified asset class to own the same without owning it Physically.

Investing in REITs fund for the long term is a good way to have exposure to REAL ESTATE

Investing in REIT is like investing in a combo of Equity and Fixed income.

REIT is an alternative to investing in Real Estate, especially for those who cannot afford to invest in direct real estate.

Though it has more or less a stable return in the form of regular dividends, it also has price volatility in stock markets too.

 

 

STANDARD DISCLAIMER applies.

REQUEST YOU TO PLEASE CONSULT YOUR ADVISOR BEFORE TAKING ANY DECISION ON INVESTMENT

THE DETAILS SHARED ARE OUR OPINION ONLY AND SHOULD IN NO WAY BE TAKEN AS A RECOMMENDATION

 All the Best for a Wealthy Life 

Regards, 

Srikanth Matrubai

Qualified Personal Finance Professional (QPFP)

AMFI Registered Mutual Fund Distributor

Author of the Amazon Best Seller books  

DON'T RETIRE RICH
&
WEALTH OF WISDOM






All the best,
Regards,
Srikanth Matrubai
MUTUAL FUND DISTRIBUTOR
REBALANCE VOLATILITY CERTIFIED COACH
Srikanth Matrubai, Author of the Amazon Best Seller DON'T RETIRE RICH


You are strongly encouraged to consult your financial planner before making any decision regarding this investment. The views expressed here are the author's personal views and should not be interpreted as a recommendation to invest/avoid.

 
Srikanth Matrubai Author of the Amazon Best Seller DON'T RETIRE RICH

Do read the book and give your valuable feedback and request you to post positive comments on Amazon. https://amzn.to/3cHUM6M/ 

You can purchase the book on Amazon and Flipkart 

For the best of ideas on where to invest to create Mountains of Wealth 
join my TELEGRAM channel
WEALTH ARCHITECT
    https://t.me/joinchat/AAAAAELl4KUnaJzi-JJlDg/

Thursday 4 May 2023

SHOULD YOU GO FOR HIGHER CONTRIBUTION TO EPS ?

 

 

 

The EPFO (Employees Provident Fund Organisation) has now allowed contributions towards Employees’ Pension Scheme (EPS) at 8.33% instead of the earlier 15,000 ceiling.

 

The higher Pension (that too for life) looks very tempting but as we all know FREE FOOD IS AVAILABLE ONLY IN MOUSE TRAPS and hence this needs to be dug deeper before committing your hard-earned money.

 

I WILL NOT GO INTO NITTY GRITTY OF ENTIRE EPS EPF working.

Let’s focus here only on WHETHER HIGHER AMOUNT SHOULD BE CONTRIBUTED TO EPS OR NOT...

========================================================

 

Contributing a higher amount to EPS will result in a LOWER corpus of your EPF.

The NO.1 Priority in Financial Planning must invariably go to RETIREMENT PLANNING Nobody gets a Retirement Loan.

When you build a bridge, you insist that it can carry 50000 kgs weight, but you only drive 15000 kgs weight truck across it. That is the way you want your bridges to be.

 And that same principle works with your retirement planning. You must make sure that your fund lasts as many years as it can. It's better to have MORE rather than less, especially when it comes to RETIREMENT CORPUS & RETIREMENT INCOME.

India doesn’t have too many ASSURED return products stretching for longer duration and hence EPFO presents a useful, suitable, stable solution for those planning for retirement.

Peace of mind is of primary importance and a stable pension post-retirement definitely fits the bill for post-retirement financial security.

 

But...

Should you go for a HIGHER contribution?

Does it make sense?

 

 

LET’S DEEP DIVE

 

If you are a person who is not well versed in equities or does not foresee a REGULAR income in the form of either an Annuity, Rent, or Pension then a HIGHER EPS contribution is a MUST for you.

In an increasingly uncertain and unstable world, a stable pension in the form of EPS would give you PEACEFUL Sleep even before you retire as the feeling of SAFETY is paramount for any human being.

EPS is a defined benefit plan meaning that the amount you receive post-retirement is GUARANTEED and Pre-determined and thus NOT DEPENDENT ON THE STOCK MARKETS

 

 

PLEASE NOTE:

 

1. Post Retirement, you will NOT get any LUMPSUM but only a monthly pension through EPS

 

2. Contributing a higher outgo could result in a liquidity squeeze for the present. Are you okay with that?

if you have other financial priorities, such as paying off high-interest debt, building an emergency fund, or saving for short-term goals, you may want to prioritize these before increasing your contribution to EPS.

 

3. If you require funds before retirement for whatever purposes (kids’ marriage, starting own venture), this EPS will be of no use to you as it is illiquid

 

4. The more service period you have, the better will be your gains when going for Higher EPS

 

5. With Interest rates going down over the last 2 decades and also in the foreseeable decades, the high returns that are now visible MAY NOT BE SEEN GOING AHEAD

This could lead to RE-INVESTMENT risk for the LUMPSUM amount that you receive on retirement.

In this scenario, a higher monthly pension will help you LOCK-IN rates for life long.

 

 

6. The corpus in the EPS pension will not be given to you.

And on your death, the monthly payout to your spouse goes down by a massive 50%

 

 7. 
The amount of pension you get will be FLAT throughout the retirement period

The amount will not increase as per INFLATION
and we all know how Inflation keeps eroding the value of our rupee

Rs.50,000 monthly pensions at the age of 60 will make more sense

but if you continue to get the SAME amount of Rs.50,000 even after 15 years (at age 75), you will actually have a LESSER amount in hand due to INFLATION 

 

MOST IMPORTANT,

The Monthly pension that you get will be TAXED

whereas the LUMPSUM you get is TAX-FREE!!

&

THE HIGHER THE SERVICE PERIOD YOU HAVE, THE HIGHER WILL BE YOUR GAIN

In simple terms, you have a shorter period to retire.... don’t go for higher EPS (of course, you should take a VRS or something!)

 

 

 

 

IN CONCLUSION

If your present liquidity needs are taken care and you can afford a higher outgo

AND AT THE SAME TIME

if you are okay with a HIGHER Monthly Pension but less LUMPSUM post-retirement. only then GO FOR HIGHER EPS

FINALLY,
While planning for retirement, remember you are not 'saving for retirement”.

in fact, you are actually investing for *SPENDING AFTER RETIREMENT*

And of course, with a prudent investment approach, you can create your own pension by investing in Equity Mutual funds suiting your Risk Profile.

Post Retirement, start an SWP and get regular income at a frequency of your choice and create your own pension!

 

All the Best for a Wealthy Life 

Regards, 

Srikanth Matrubai

Qualified Personal Finance Professional (QPFP)

AMFI Registered Mutual Fund Distributor

 

Author of the Amazon Best Seller books  
DON'T RETIRE RICH
&
WEALTH OF WISDOM





All the best,
Regards,
Srikanth Matrubai
MUTUAL FUND DISTRIBUTOR
REBALANCE VOLATILITY CERTIFIED COACH
Srikanth Matrubai, Author of the Amazon Best Seller DON'T RETIRE RICH


You are strongly encouraged to consult your financial planner before making any decision regarding this investment. The views expressed here are the author's personal views and should not be interpreted as a recommendation to invest/avoid.

 
Srikanth Matrubai Author of the Amazon Best Seller DON'T RETIRE RICH

Do read the book and give your valuable feedback and request you to post positive comments on Amazon. https://amzn.to/3cHUM6M/ 

You can purchase the book on Amazon and Flipkart 

For the best of ideas on where to invest to create Mountains of Wealth 
join my TELEGRAM channel
WEALTH ARCHITECT
    https://t.me/joinchat/AAAAAELl4KUnaJzi-JJlDg/

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