Investing in International Markets: Pros & Cons

International investing - whether directly via foreign stock exchanges or with mutual funds FOFs (Fund of Funds) is trending with investors. But sane investors are also vary of certain facts before they go ahead with such trendy stuff.

8 Insightful lessons from 'Jonathan Livingston Seagull: A Story' by 'Richard Bach'

 

A story about passion, learning and humility.

What is Digital Rupee / e-Rupee / CBDC

Digital Rupee is the new buzzword in town. Let us understand what it is, and how it is likely to impact the way you transact in future.

Pre-Ordering available for 'Gujarati Edition' of 'Autobiography of a Stock'

After the rousing success of the English edition of 'The Autobiography of a Stock', we are all set to launch the 'Gujarati' edition.

Positive Pay: A system to enhance cheque security

Positive Pay System for cheques is an enabler, and we all ought to use it for any high value cheques that we issue.

6 Mindset shifts needed to create wealth

Being a millionaire is a rare commodity, because it needs certain mindset shifts rather than smart investing or great entrepreneurship. Lets look at 6 critical mindset shifts without which it is very tough, if not impossible, to create long term wealth.

28 Humbling Lessons from the book 'The Hidden Life of Trees' by Peter Wohlleben

You will never look at trees the same way after reading this book. Trees and Forests will truly feel a magical world to you.

What is Front Running in Mutual Funds

What is Front Running?
Front running is when a broker has exclusive details of a stock being bought or sold in large quantities and trades that stock to benefit from it. Front-running is also called tail-gating. 

Is Front running legal?
The practice is illegal as well as unethical in India, as in most parts of the world. Front-running is illegal and unethical because it leverages private information that is not publicly available. Its a breach of the confidentiality clause that they signed for.

How Front-Running Works?

Here's a straightforward example of front-running: Say a broker gets an order from a major client to buy 500,000 shares of XYZ Co. Such a huge purchase is bound to drive up the price of the stock immediately, at least in the short term. The broker sets aside the request for a minute and first buys some XYZ stock for their own personal portfolio. Then the client's order is put through. The broker immediately sells the XYZ shares and pockets a profit.

This form of front-running is illegal and unethical. The broker has made a profit based on information that was not public knowledge. The delay in execution may even have cost the client money.

Is Front Running similar to Insider Trading?

Front-running is similar to insider trading, with the minor difference in the case of front running, the broker works for the client's brokerage rather than inside the client's business.

Axis Bank - Recent Example

In a very recent news of 6th May 2022 [click here to read news article], Axis Fund house has suspended two if its fund managers. Both the fund managers have been suspended on allegations of front running. However, there was no confirmation from the fund house. 

The seven funds that have seen the management change are: Axis Consumption ETF, Axis Banking ETF, Axis NIFTY ETF, Axis Arbitrage Fund, Axis Quant Fund, Axis Technology ETF and Axis Value Fund.
None of these funds have ever been recommended in the ELITE Program.

Summary
Front Running is illegal and that's why the Axis fund house has taken action. At the moment, mutual fund investors should not make any changes to the schemes. All the funds that have seen the change are managed by multiple managers and hence I don't see a reason to panic right now. Investors should not make any changes to their portfolio till the rumours are confirmed and there is a statement from the fund house.
Even after that, if at all it changes anything for your particular scheme has to be seen, and must be done only in consultation with your financial advisor.

Regards

Manoj Arora

Official Website

7 Checkpoints Before You Lend Money to Your Friend

We may feel obliged to lend, or our values may drive us to go all out to help, but it is very important to consider this 7 point checklist to strike the right balance in this sensitive situation.

8 Strong Reasons why Staying on Rent makes Sense

As with most people of my age, it is always a dream to own a beautiful home - to live a beautiful life, to impress myself, my family and also to impress the world around me, to give my family a comfortable and happy life. 

We were already staying in a relatively smaller ancestral home but the charm of having our own home, crafting it the way we wish to, and living there happily thereafter - was a dream built on lucrative advertisements and teasers. A home is a home, after all. Everyone loves to have their own. We have one of our so called 'dream homes' even today.

But today, my views have changed. Today, I feel that unless age or disease has made one immobile, it is better not to own a home. Yes, and I am going to give you some very strong reasons to start thinking in this direction. But before I give you the reasons to stay on rent, you must know that this is not a new concept at all. Its quite common to stay on rent (in spite of having the ability to buy a house) across the world. Its just catching up in India now.

Its not a new concept

Switzerland has the world’s leading population of home renters in the world. The majority of the population here prefer to rent rather than own their own homes (56% population stays on rent). Hong Kong is second at 49%. Germany comes third in the world leading percentage population of home renters at 48.1%. South Korea has a percentage home renting population of 44.8%. The other countries in which over 30% of their population rent their homes are Japan, Denmark, the United Kingdom, New Zealand, United States, France, Canada, Netherlands, Australia, Ireland etc.

Majority of the countries are experiencing a rise in population of home renters. So, what makes renting a house so lucrative? 

Let me share with you 8 strong reasons why you should start pondering in this direction very seriously.

1. Enables Career Movements

When we are just into the start of our career, we anyways cannot afford to buy a home. So, the bachelors usually stay in rented and shared accommodations - flexible locations, close to their workplace. If the job involves movement across different cities, the bachelors do not have to think twice. This flexibility in movement, mostly unknowingly, becomes their big strength.

Later in life, it is again likely that their career demands movement across cities for their next progression. In many cases, the movement may be across countries. You would never want to compromise an a fantastic new job or a new role in US or Australia just because you have bought a home in India. The emotion of you having your own home may limit your career growth prospects. A rented home, in such cases, gives choices to you and your career growth. This could be an edge that you may have against your peers in the early stages of your earning life.

2. Enables movement of children

Then comes a phase in life when the parents want to have a house closer to where the children study - their schools or colleges, so that the children's commute time is reduced. Parents again do the mistake of buying a house with such transitionary criteria's, even if that means longer commute to their own workplace. They feel that though they have compromised on their own commuting distances, life is now settled. They forget that children grow pretty fast and they will move out of schools to colleges and then to jobs, much sooner than you think. And where would their jobs be? No one knows this answer in advance, especially in today's globally connected world.  The emotion of your having your own home may limit your as well as your children's career growth prospects. A rented home, in such cases, gives choices to you and your children.

3. Helps get rid of useless stuff

Yes, rented home involves movement, but that's good because every time you will move, you will realize how much needless stuff you have been accumulating. This is an opportunity for you to begin the practice of giving away things. And slowly learn to consume less. The rule is to keep attics clear at all times. You will learn to save a lot from questioning your purchases keeping in mind that you could move. Your furniture will also turn minimalistic as it had to fit into every new house.

4. Strengthens your network of friends

As per one of the bestselling books, Ikigai, the Japanese have the most centenarians in the world (people who cross the age of 100), and one of the prominent reasons is their strong social network of friends.

With movement, you will not only get enriched with cultures of different regions but will also enjoy a good circle of friends. These are people who share our joys and sorrows wherever you will live. They will become part of your lives. You can still return to your ancestral houses, and meet with your friends for a meal and laugh about our times there. The wealth that a diverse group of friends can bring into one’s life is alas so underestimated. In these days of social media, it is strange we call people with whom we have no shared experiences as friends, and in real life, be actually so devoid of friends.

[Recommended Read: 26 Inspirational Lessons from the book: Ikigai]

5. Keeps your portfolio liquid

Investing a huge chunk of money for your 'own' home sucks away most of the liquidity from your portfolio, and liquidity is extremely vital for the long term success of your portfolio. It is emphasized with real examples in the book FOOPS!

Tying up money in chunky assets like a house, also leaves too little to save, invest and spend in smaller happy moments of life. That surprise pizza party, the mobile that your spouse always wanted, the trip that you all will cherish forever - these are some of the memorable moments that liquidity gave us. That little bit extra in your hands can create some of the best memories of your life.

[Recommended Read: FOOPS!]

6. Significantly enhances portfolio returns

A rented house, even with a better standard of living than the one you could own, can not only give you a blissful living, it can help you build you wealth faster, and take you to financial freedom much earlier. 

The financial calculations are not difficult to understand.

Even with the best house that you take on rent, you will pay approximately 3% per annum of the cost of the house you are renting. So, in effect, instead of dumping , say 1 Cr in buying a house of your own, you can stay in a similar or better house for Rs. 3 lacs per annum or Rs. 25,000 per month rent. 

That 1 Cr that you would have dumped in the house, can be wisely invested to easily earn 10% returns per annum. Even if you take out 3% from these returns as your rent, you still save 7% per annum, which is approx. 7 lacs or Rs. 60,000 per month. This extra Rs. 60,000 every month can buy you sweet memories, and can be invested to create massive wealth over a period of time. Now, that's some extra saving every month - for doing what? for staying on rent.

If you are wondering whether the capital appreciation goes to the one who owns the house, remember that you cannot count your own house as an asset. Whatever be its capital appreciation, you cannot use even a penny out of it, since you cannot liquidate the house.

7. Saves on house upgrades

Well, once you own a house, be ready to spend big chunks of money on regular basis - for house upgrades. You change, your family changes, your needs change, and the house has to keep adapting to your and your family's changing needs - almost every 5 to 7 years. If you were in a rented accommodation, it was pretty easy - just move to a new house as per your new needs. But now that you have your own house, you got to spend significant money at regular intervals to keep upgrading it. Not only that, when you own a house, be ready to shell out property tax, home insurance and other regular maintenance to keep the house in a livable state. 

8. Freedom to move

Once you get financially free, you have all the freedom to move around the country, and the world, stay in places you like and move away from places you don't like. In that case, you may or may not want to live in a cramped polluted city. May be you love mountains or beaches. May be you just love the calmness and serenity of sea. If you are on rent, you always have that freedom - to choose life.

Summary

If you can get out of social constraints like your plans to gift your house to your children, if you don't bother much about showing off your possessions, and if you have control on the emotions of owning your own home, then it makes a lot of sense to ponder upon staying in a rented accommodation, than your own. It may just be the flip you need to lead a more beautiful and enriching life.

Regards

Manoj Arora
Official Website