MoneyVedam

Assets could be classified in three ways based on their nature, returns and liquidity as cash & capital assets, appreciating & depreciating assets and movable & immovable assets. It is important to understand assets from each of these classifications so as to build a right asset mix that is unique and suitable to each investor. Cash assets Cash assets primarily help to meet present needs in the short and medium term, up to 3 years. Cash is regarded as “King” because it helps us buy things for our essentials, comforts and luxury. It helps to immediately satisfy one’s needs in the present, be it our food, health, education or travel. Some of the popular cash assets are bank fixed deposits, post office savings schemes, money-back insurance policies etc. Cash assets are generally regarded as safe, offers moderate returns and are taxed based on your income slab. In your income earning years, you may not need to hold more than 2 years of expenses in cash assets. How...

In the previous article, we sought to explore if there is any magical number to measure good return. And yes, that magical number is based on your real return. To understand real returns, it would be good to begin understanding inflation. There are two types of inflation, wholesale and retail. The retail inflation (a.k.a CPI) measures the price rise of a common basket of 460 commodities primarily used by indian households. Wholsesale inflation is used for national GDP accounting, while retail inflation is adopted by RBI for determining interest rates in the country. It also forms the basis for wage rise. Inflation-adjusted Income to meet Cost of Living Senthil, a professional is 43 years of age. Let us say 20 years ago, in 1998, Senthil earned Rs.8000/- and at that time, his family’s expenses were about Rs.5000/- p.m. At an average wage rise of 12% p.a and an inflation rate of 6.5% p.a, today his income rises to Rs.77k p.m and basic expenses rises to Rs.17k. However, due to h...

We know that when we invest our money, we get returns, measured either in absolute amounts or as a percentage of our investment. But what exactly is a return? We part/lend our savings to someone, who borrows it and pays us a small sum until they return our entire money back. This small sum is called return, which could be periodic or single lumpsum repayment. How do we decide if a return is good? Before we attempt to answer this question, lets look at some returns that we're familiar with. Kala lends her savings to a bank as Fixed Deposit & the bank returns her 7% Ram invest in stocks & the company pays him a dividend of 1.5% Mangai buys gold & gets no return till she sells it Siva rents his Rs.60 Lacs apartment/house and gets Rs.15,000/- p.m, i.e, get rental yield of 3% Arul buys a plot of land & gets no return till he sells it If we compare the percentage returns of the above people, we would be inclined to conclude that Kala’s...