ELI5 Series on r/IndiaInvestments Wiki

Time Value of Money

Mon, 01 Jan 0001 00:00:00 +0000

Time Value of Money

This is one of the most important concepts in finance. It implies that rupees paid or received in the future are different from the rupees paid or received today. It is easier to understand that ₹1000 in your wallet today is worth more than ₹1000 in your wallet 5 years in the future. This is because you can invest that ₹1000 in your savings account and earn interest for 5 years and get more than ₹1000 5 years later.

Inflation

Mon, 01 Jan 0001 00:00:00 +0000

Inflation

Basics

Inflation is the rate of rise in the general level of prices. It is measured by the changing cost over time of a “basket of goods and services” for a typical household. In other words, the rate of rise is calculated for multiple things and services and an average value is provided. Important phrases:

Rate of rise- it is a rate of rise (like in physics, it is rate of change of velocity aka acceleration). So, even if inflation rate is getting down (like in the past few months), the rise may still be there. Only when the inflation is 0% or negative will the actual prices be stable or go downwards.
Basket of Goods – The price of some goods may rise while those of others may fall, so an average weighted value of increase (or decrease) is calculated officially.
Typical household – Presently, there is a typical rural and a typical urban household which have different weightages to individual components.

The weightages in CPI are as follows:

Life Insurance

Mon, 01 Jan 0001 00:00:00 +0000

Life Insurance

Step 1: Whether you need it or not?

Anyone whose death will cause financial trouble for near-and-dear ones should get a policy. In case, you find that you have enough Assets to cover up their needs, as per calculation in the next step, then also you don’t need to have a policy.

Step 2: How much you need?

The Needs based approach:

Income Replacement Needs – What are the annual expenses of your family? Multiple by 20 (this would mean that they can get by a 5% yield).
Debt Repayment Needs – If you have home loan, car loan, credit card debt (=this is really dumb, if you have it), or any other kind of loan, add this amount.
Education Needs for Kids – School and College education amounts (take help of the Time value of money article to have an idea of the Present Value of that goal).
Any other major expenses like marriage of kids or even your spouse (why not!).

Add all of the above values. Subtract your present value of Assets from the above. The final amount left is what you should cover by using a life insurance policy.

ELI5 guide to Selecting an Equity Mutual Fund

Mon, 01 Jan 0001 00:00:00 +0000

ELI5 guide to Selecting an Equity Mutual Fund

Step 1:

Identify the Category of fund needed.

The categories would fall into:

Large Cap fund
Flexicap fund (depending upon the manager’s decision, this fund can become a large cap or a predominantly mid/small cap fund)
Mid and Small cap fund
ELSS

This step is decided by you, the investor. And it is the most important step.

Step 2:

Goto Morningstar.in Analyst Rating Reports section. Link , and select your category of Step 1.

How do I start investing in mutual funds [ELI5 series]

Mon, 01 Jan 0001 00:00:00 +0000

How do I start investing in mutual funds [ELI5 series]

So, you have thought about investing in mutual funds but don’t know how to start. Congratulations, because getting started up is the hardest part .

For investing in mutual funds, you will have the following options:

A. Invest through an agent. They can be individuals, someone living close to you, OR they can be big institutions like banks or Fundsindia.

The advantage is that they will do everything from their own side and you will just have to sign few papers and that is it.
Disadvantage is that you will be investing into regular plans of the mutual funds and lose out on the cost benefit of the direct funds. The regular funds pay back some fees directly to the agent.

Steps: Call your agent and sign the forms.

Mis-selling of Insurance Products

Mon, 01 Jan 0001 00:00:00 +0000

Mis-selling of Insurance Products

This is going to be long. But you asked for details. And you may not be the only one, and some may be newbies. This is meant for absolute laymen. Fire away questions if necessary.

When you start off investing, unless you already have knowledge about various instruments, you are likely to get fooled. And you are more likely to be fooled by the people who already have knowledge about your purchasing power i.e. your bank.