credit score

Everything You Need to Know About Your Credit Score.

Hello readers. Many a time, you might have heard that you should keep a high credit score. You should not default that EMI or else it will hurt your credit score.

An obvious question that may come to your mind is what actually is a credit score?  How are they measured? Moreover, why should you care whether your credit score is high?

Today, we shall be covering this hot topic in personal finance which we believe is central to addressing the financial health of any individual.

The topics we shall be covering are as follows:

  1. What is a credit score?
  2. Why is credit score important to you?
  3. How is credit score measured?
  4. Where can you get your credit report?
  5. How can you improve your score and how long does it take?

This is going to be a very interesting post, especially for the youngsters. Therefore, let’s get started.

1. What is a credit score?

Credit score is a metric used by banks and lenders to provide a comprehensive risk profile of a borrower. It is provided by four companies in India namely TransUnion CIBIL, Equifax, Experian and Highmark. The most popular agency of this being TransUnion CIBIL which provides the fabled CIBIL score.

The score is basically a reflection of your monetary habits derived from your transaction history upto three years which banks give these agencies periodically.

Also read:

2. Why is credit score important to you?

Every time you approach a bank for a loan or credit card, the bank tries to gauge the risk that comes along with your loan application. Gone are the days when your branch manager used to engage you in a long and mundane conversation asking about everything from your family background to your parents’ monthly pension before sanctioning the loan you asked for. Nowadays, they just send a mail to the credit agencies asking them for your credit score.

Upon receiving this request, the credit agencies aggregate your transaction data from multiple banks to ratify your profile into a scale of 300-900 to give a simple quantified data point for banks to make a judgment. After analyzing your score, the banks decide whether to accept or reject the application for the new credit card or loan, period.

The score bands used by banks for making an inference about your risk profile are as below

Credit score band Rating Comments
800-900 Excellent You have done great work on your score, make sure it doesn’t dip.
700-800 Good You most likely a couple of hiccups in your payments but that shouldn’t stop banks from rejecting your applications. You could improve your score through minor improvements
500-700 Average Although you may not be able to get loans immediately. You could improve your score within a matter of 2-3 months through planned action.
300-500 Poor You have several missed payments and defaults. Most banks would reject you right away.


Since a lot of things in life is unpredictable like the occurrence of disease or death of a family member, it would be beneficial to keep a healthy credit score so that one can always avail a line of credit when needed.

3. How is credit score measured?

The credit score may vary slightly due to the difference of calculation between each of the credit agencies but they more or less look at the same things to arrive at your score.

The following are the different parameters the credit agencies use to judge your score along with the weightage attributed to each of them.

Parameter Weightage
Credit History 30%
Credit Utilisation 25%
Credit Mix and Duration 25%
Other Factors 20%

Credit History: This is the most important factor in determining one’s credit score. The agencies look at one’s loan repayment data provided by the banks complete with the loan schedules, EMIs, late payments, and outstanding loans.

Credit Utilisation: This basically the percentage of loan one has outstanding to the total loan amount that can be availed. Ideally lower the loan one has outstanding the higher one’s score.

Credit mix and duration: The type of loan you avail also has a bearing on this aspect of one’s credit score, a higher amount of unsecured loan could lower credit score faster than an equivalent amount of secured loans. The reason for this being that secured loans are backed by property or any other asset that the bank can claim in case of default making it less risky than an unsecured loan.

Other factors: These include miscellaneous activities such as the number of hard inquiries made at the bank for loans and credit card applications. The banks often construe this as a sign of a person being under financial stress. This may have a negative impact on the credit score.

4. How can you get your Credit Report?

As per the RBI directive in 2016, every customer is entitled to one free report from each of the credit agencies in a twelve month period. This means that you can get a total of four credit reports from all agencies together. We at Trade Brains advise that our readers avail this every quarter or at least semi-annually from different credit agencies.

You can avail your reports from the websites of the four credit agencies.  (TransUnion CIBIL, Equifax,  Experian, Highmark)

It is advisable that you don’t use a third-party website to obtain your credit reports since your confidential information could be stored by them.

5. How can you improve your score and how long does it take?

A seven-point roadmap to improving your score can be as shown below:

  1. Make all your EMI payments on time and close your outstanding debt as soon as possible
  2. Avoid making unnecessary credit limit extension or loan applications
  3. Reduce unsecured loans such as credit card loans and personal loans and pay them out as soon as possible
  4. Try to keep surplus cash in your accounts so that you can avoid the use of a credit card
  5. Keep checking your credit report for mistakes, if you spot them to take it up with your agency
  6. Avoid accepting settlements for your loans from banks even though your dues may be reduced significantly. The banks report this to credit agency which adversely affects your score
  7. Avoid being co-signee or a guarantor to friends or family who tend to habitually make late payments on their loans.

We believe that if you follow these steps, you should witness your score improve within the duration of three months to a year depending on your past scores.

Also read: #11 Best Passive Ways to Make Money While You Sleep.

Bottom line

Credit Score is the most important metrics banks and financial institutions use to gauge your risk profile. It would be beneficial for an individual to maintain a high credit score so that they can avail a line of credit in times of need.

Although not easy, a credit score can always be improved through planned and disciplined action on the side of an individual. We at Trade Brains hope our readers make the best efforts to maintain a high credit score.

Ways to Save for Your Retirement

3 Simple Steps to Save for Your Retirement.

3 Simple Steps to Save for Your Retirement:

What you earn, i.e. your income is centered, mostly, when it comes to “how much you actually need when you get retired”.  But, are you really sure that the math used here is all correct? I am not.

Suppose if you draw a hefty sum from where you work (monthly) but barely manage to save a dime out of it; would you retire rich? I guess not.

On the other hand, if you get to save even a 30% (roughly) of whatever that you earn in a month, you’d definitely be at a much better place than the former you, right? So, the math here needs to be shifted to “savings and expenditure” and not on the overall income.

You’d be surprised to know that still many are sticking to the former notions of 70% of the income but yes, there are loopholes:

  1. You wouldn’t want to get through an entirely miserable young age just to retire rich, would you? – That, sometimes, becomes the case when you try to save 70% of your income.
  2. You are certainly not including the notion of current taxes and increasing health expenses as and when you grow up.

Strategically, therefore, the 70% rule is a decorated bubble. The question is how much do you actually need in order to retire rich? Let’s answer this question carefully in this article.

3 Simple Steps to Save for Your Retirement:

1. When Should You Start Saving?

The best answer to this question would be: “as soon as possible”. You are 21, well and good! 31? It is still not too late to start. You can always jump start your emergency funds whenever you want to. However, being consistent is the only key.

The best part about starting early is the “power of compound interest” even on low proportions of monthly savings. You can save as less as 5000 INR a month and see a huge difference years later.

However, if you are in your 30s or 40s, don’t worry; cutting back on a couple of things would work well for you to get you a feasible retirement fund. As we mentioned, the power of compound interest on your savings, you need to take your picks on where you should invest your money.

Fixed Deposits, Mutual Funds, or SIP? Different people have different priorities based on their own risk-taking capabilities. Choose your own option!

Also read: What are Assets and Liabilities? A simple explanation.

2. Ask for a Raise:

If you are confused what does it have to do with your retirement savings fund, wait up? We have an answer for you: The net sum of income you earn in your first decade of working makes much more impact on your net total of emergency or retirement fund.

Asking for a raise would balance out the money going directly from your bank account to your savings account. In the best scenarios, you could use the raised amount to go into your retirement fund (fully or partially) which would act as an extra cash for you in future.

Research says that about 37% of the employees who get a significant raise annually are those who ask for it. So, the next time, don’t wait up until the annual records of employees are checked but ask for the raise whenever you feel necessary.

When should you ask for a raise?

Honestly, there’s no strict rule for the same. But if you are asking for the possible options then it could be one of those times whenever you have successfully completed a project or have brought a fruitful result for the business you are working for.

3. Does Fixed Deposit always Work?

According to traditional sayings, you should focus more on keeping your savings in a fixed deposit. These days, it is quite controversial to choose where to put all your stakes on?

The greatest advantage that a fixed deposit offers is that it can be unsealed quite easily in case of an emergency. When you choose any other option to put your money into savings, you don’t actually get this leverage. Moreover, you might have to pay an extra unnecessary sum in order to unseal your deposit in case of emergency. True.

However, the rate of interest provided on a fixed deposit is very, very low. In fact, it is incomparable to other means such as mutual funds. Viewing the other side of the coin, mutual funds investments can be quite risky. They are subject to the market risks and what not.

Also read: Where Should You Invest Your Money?

What is the best way to invest then?

Now, the correct way is to break your proportions into pieces and put them into different means such as fixed deposits, stocks, mutual funds, real estate etc. There is no compulsion or a set of predefined rules to govern the context of retirement savings.

The magic lies in the way how you balance your savings and lifestyle.

what is inflation

What is Inflation and Why you should care?

What is Inflation and Why you should care?

Our grandparents would like to reminisce about the days when they used to buy movie tickets for Rs 5-10. Nowadays it will cost you near Rs 200. In near future, it might be double. The simplest explanation for this increase in prices is- ‘Inflation’.

There have been a number of debates on the topic whether inflation is good or bad for an economy. However, before we discuss this complex question, first you need to understand what actually is inflation.

In this post, we are going to discuss what is inflation and why you should care about it. Here are the topics that we will cover today-

  1. What is Inflation?
  2. What causes Inflation?
  3. Effects of Inflation.
  4. An extreme case of Inflation
  5. Inflation in India.
  6. How is Inflation calculated?
  7. Bottom line

Overall, it’s going to be a very interesting post. Without wasting any further time, let’s get started.

1. What is Inflation?

Inflation is nothing but an increase in the general price of goods and services. It is measured as an annual percentage increase. Inflation can also be defined as the decline in the purchasing power of the currency. In general, a two percent increase in inflation shows a healthy economy.

inflation example

2. What Cause Inflation?

There are plenty of reasons which causes inflation, depending upon the location, type of economy, the status of government in terms of power and influence, and many other different factors. However, broadly here are the factors that are primarily responsible for causing inflation.

  • Problems with Supply

Inconsistency with growth in agriculture due to climate change or a natural disaster like flood, draught can hamper the supply to make the product. Inadequate growth of industry can also lead to less production of supply which ultimately leads to an increase in prices for manufacturing products. And hence price increases.

  • Problems with Demand

This is caused when an overall increase in demand for goods and services, which bids up their prices. It’s like too much money chasing too few goods. This usually occurs in rapidly growing economies. So, when there is more money circulation in the market that can cause inflation.

  • Problems with raw materials

Not all raw materials are produced in one country. In the era of globalization, we depend on many countries for the supply of raw material. So, if the prices of a commodity which we import from other parts of the world increases then it leads to an increase in the prices of the product that is made from it. For example- if the price of oil or corn increase that makes high prices of products that relies on that material.

  • Monetary Policies

In some case when central banks govern interest rates, then demand for services can either increase or decrease giving an invitation to Inflation.

3. What are the effects of Inflation?

Here are few of the major effects of Inflation in a country-

1. Cost-push inflation: High inflation can promote employees to demand rapid wage increases, to keep up with consumer prices. In this theory of inflation, rising wages fuel inflation. In a sense, inflation generates further inflationary expectations, which generate further inflation.

2. Hoarding: People buy durable and/or non-perishable commodities and other goods as stores of wealth, to avoid the losses expected from the declining purchasing power of money, creating shortages of the hoarded goods.

3. Social unrest and revolts: Inflation can lead to massive demonstrations and revolutions.

4. Hyperinflation: If inflation becomes too high, it can cause people to severely curtail their use of the currency, leading to an acceleration in the inflation rate. Hyperinflation can lead to the abandonment of the use of the country’s currency

5. Allocative efficiency: A change in the supply or demand for a goodwill normally cause its relative price to change, signaling the buyers and sellers that they should re-allocate resources in response to the new market conditions. But when prices are constantly changing due to inflation, some agents are slow to respond to them. This results in a loss of allocative efficiency.

6. Shoe leather cost: High inflation increases the opportunity cost of holding cash balances and can induce people to hold a greater portion of their assets in interest paying accounts. However, since cash is still needed to carry out transactions this means that more “trips to the bank” are necessary to make withdrawals, proverbially wearing out the “shoe leather” with each trip.

7. Menu costs: With high inflation, firms must change their prices often to keep up with economy-wide changes. Changing prices is itself a costly activity as it will lead to the need of printing new menus, or the extra time and effort needed to change prices constantly.

4. An Extreme case of Inflation-

In 2008, Zimbabwe had the second highest incidence of hyperinflation on record. The estimated inflation rate for Nov 2008 was 79,600,000,000%.

zimbabwe hyper inflation rate

The daily inflation rate of 98.0%. Roughly every day, prices would double. It was also a time of real hardship and poverty, with an unemployment rate of close to 80%.

Also read: #3 Best Ways To Save Money- That 90% People Are Not Using.

5. Inflation in India-

The situation in India has far been stable as far as the inflation rate is considered. Here is the inflation rate in India for the past few years:

Quick Note: The above statistic shows the inflation rate in India from 2012 to 2017, with projections up until 2022. The inflation rate is calculated using the price increase of a defined product basket. This product basket contains products and services, on which the average consumer spends money throughout the year. They include expenses for groceries, clothes, rent, power, telecommunications, recreational activities and raw materials (e.g. gas, oil), as well as federal fees and taxes. (Source: Statista)

6. How is Inflation calculated?

Part1: Finding Essential Inflation Information

1. Look up the average prices of the several products across a few years: – Inflation is calculated by comparing prices of standard goods across time.

2. Load the Consumer Price Index: – This is a breakdown, by month and year, of the changes in inflation based off of the averages mentioned in step 1. Any time the CPI is higher than the current month, it means there has been inflation. If it is lower, then there has been deflation. Inflation is calculated with the same formula in each country. Make sure the same currency is being used for all numbers in the calculation.

3. Choose the period of time for which inflation will be calculated: –Months, years, or decades can be used. 

Part 2 Calculating Inflation

1. Learn the Inflation Rate Formula. This formula is simple. The “top” find the difference in the CPI (rate of inflation), the bottom finds out what ratio of the total inflation that difference represents.

2. Plug the data into the formula. For example, imagine that we are calculating the inflation based on the price of bread between 2010 and 2012. Assume the price of bread in 2012 is $3.67 and the price of bread in 2010 is $3.25.

Inflation calculation 2

3. Simplify the problem through an order of operations. Solve for the difference in price, then divide it. Multiply the outcome by 100 to get a percentage. Here, the inflation rate is 11.4%

4. Know how to read inflation. This percentage means that, in current time, your money is worth about 11.4% less in today’s dollars than they were in 2010. In other words, most products cost on average, 11.4% more than they did in 2010. If the answer is a negative number then it is deflation, where a scarcity of cash makes money more valuable, not less, over time. Use the formula just as in case of a positive figure.

Also read: The Best Ever Solution to Save Money for Salaried Employees

7. Bottom line:

Most people complain about the fact that prices of the day-to-day products are increasing too fast. However, they ignore the part that their salaries are also increasing at a similar pace.

Moreover, a little inflation can be sometimes as dangerous as a high inflation. In other words, a modest inflation is always a good sign as it reflects the growing economy of the country. However, the problem arises when the inflation is rising too fast when compared to your wages.

Habits To Overcome Poverty and Become Rich

3 Simple Habits To Overcome Poverty and Become Rich.

“You are the master of your destiny. You can influence, direct and control your own environment. You can make your life what you want it to be.” ― Napoleon Hill, Think and Grow Rich

We all have heard numerous stories about people who started from scratch and with empty pockets but turned out to be millionaires and billionaires.

What makes these people different from us? Have we really accepted our so-called “pre-written” mediocre fate? Sadly yes. Like it or not, but these behavior and habits do play a life-altering role. To be in a much better place, financially, we have to stick to a previously written set of rules; don’t worry, there are very easy to follow. We can always look for inspirations from those who have gone through similar phases.

In this post, we are going to let you know about some life-altering habits that will make you have a tighter grip on your financial aspects. However, some pieces of advice work for some people while they don’t for the other set of people. In that case, take your pick wisely!

Who’s actually poor?

The notion of being poor is actually quite subjective. But moving forward, we have to establish who we are considering poor?

A person having insufficient wealth to meet the necessities or comforts of life or to live in a manner considered acceptable in a society. (Quick note: Being poor is different than being broke. Poor is a long-term situation. While broke means that you have no money, but it’s a temporary situation.)

Needless to say, nobody prefers to be poor or would want to live a life of misery. But this world is full of terrific examples of people who were born poor but ended up becoming super rich. Fancy!

Nonetheless, if you are not satisfied with your financial mobility/stability right now, you can always move past this phase and search for better opportunities. Always remember; good things come to those who fight for them.

Quick Note: There was a famous survey posted by the Wall Street Journal regarding how to get rich. Here’s the result of the poll. Carefully observe the manner by which people think they can get wealthy.

rich vs poor

3 Simple Habits To Overcome Poverty and Become Rich

Let us now see what all habit you need to incorporate into your daily life in order to make financial stability follow you.

1. Change Your Mindset:

“The starting point of all achievement is DESIRE. Keep this constantly in mind. Weak desire brings weak results, just as a small fire makes a small amount of heat.” ― Napoleon Hill, Think and Grow Rich:

After a while, you’ll definitely understand that life is nothing but a game of mindset. If you are considering your situation to be the end game then sorry to burst your bubble there, it is definitely not. Even if you have a chance to tilt-shift your mindset, why not focus on positive aspects then? Your financial position is not fixed, it never will be. There’s a simple rule in life that follows everywhere and hence in the financial world as well: change your mindset and see things rolling back to you quickly.

Changing your mindset also does relate linearly to changing your environment. If you are stuck in a toxic environment filled with alcoholics and gamblers all around, you already know where you are lacking. Looking for a solution? Change your location by choosing a better surrounding and environment around you. Simple, right?

Also read: 3 Amazing Books to Read for a Successful Investing Mindset.

2. Be a little Analytical about Your Financial History:

We understand how long a chain of debts can become roadblocks when it comes to having a grip on your financial status. That’s pretty normal even. What’s not normal is not analyzing where your money is going or how long has it been going. The solution is both simple yet tricky; use analytics as an end game.

Every repetitive history has a loophole if it doesn’t seem to work out. Find yours. Keep looking for better investment options while considering the safety factor, of course. Moreover, make sure that you don’t get trapped in the web of “easy money” through illegal sources. It is never, I repeat, never an option. If you look up to someone who manages his/her financial structure quite tremendously, don’t feel shy about striking a conversation with them.

Unload your pressure of debts and other faulty saving scheme and drop out the traditional ways that don’t work well in the current scenarios.

3. Live Within Your Means

Interestingly, if you notice the survey mentioned earlier, luck ties savings in the poll.  “Getting lucky through an inheritance or winning the lottery.” tied with “live frugally and save money.”

Earning millions of bucks wouldn’t matter if you wouldn’t know how you can actually put them to use. Let’s statistically give you a harsh reality check; more than 65% of your salary goes into your housing and food expenses. While these two things are certainly the most important things in life, you can save a lot more here. Swear to yourself to not spend more than 25% on your housing and 15% on your food. I know it is more of a rosy picture but you certainly can do it.

Adding to the list never be in one of those never-ending credit card debt loans. No matter how tempting it feels at first, it is going to get your financial account crooked for the longer term. Out of all your expenses, primarily shift your focus to your emergency fund. You can always buy that extra piece of cloth or that extra piece of footwears later.

Also read: The Best Ever Solution to Save Money for Salaried Employees

BONUS: 50-30-20 Rule

Till now we just covered the theory. However, this rule gives you a practical formula for spending to avoid poverty. Here is the straightforward 50-30-20 rule.

  • Spend 50% of your income on your needs: For example- Housing, food, utility, necessities etc.
  • Limit your wants to 30%: For example- dining out, vacations, entertainment etc.
  • Save remaining 20%: Final twenty percent should go towards financial goals like an emergency fund, retirement fund, debt repayment, investing etc

50-30-20 rule

This rule of 50-30-20 can be very beneficial if you are just starting out to budgeting. Breaking down the basics categories (percentage-wise) can help you create a balance between your obligations, goals, and extravagance.


Being rich is a goal of the majority of the population. However, most people never get there. Many of us are just one paycheck away from becoming poor.

The hacks discussed in this post are solid and proven methods for overcoming poverty and becoming rich. Nevertheless, there’s a reason why these strategies are called personal finance. Well, personal finance is ‘personal’ and totally depends on how you deal with it. Good luck.

Should You Use Credit Card

Should You Use Credit Card? Mystery Explained.

Should You Use Credit Card? – Pros and Cons of Using Credit Cards:

The credit card also bears the name of “debtless debt” which makes your catching up with your needs and requirements quite easily. In fact, this is the bottom-line for those who recklessly use credit cards for purchasing things.

The debate that revolves around the propaganda of using a credit card is endless with different opinions associated with different sets of people. Let’s break this rationally by seeing the possible alternatives of using a credit card:

  1. Paying cash – going the old school way,
  2. Using your debit card with instant balance deduction from the bank – a kind of digital money method.

In countries like India (the developing ones), we still have a way to go before we can use credit card everywhere. I am not talking about the online stores or any other huge retailer’s stores but at places like a parking lot or small stores, one can’t possibly choose to pay via a credit card. Therefore, using hard cash is the only way around. But we won’t only stop here stating this argument; let’s objectively view different pointers, pros, and cons of using a credit card as a payment method.

What is a credit card?

A credit card can be acted as a payment option which allows you to buy or purchase things or service on credit until a specific period of time. To put it in simpler words:

If (or not) one doesn’t have cash available at a specific point of time, one can make use of credit card to use the credits to pay at a later date. 

The keyword(s) to pull out of here is to “pay at a later date”. For revolving accounts, a minimum balance statement is due on every month end. On the other hand, for a charge card, the full balance to pay is due on every month end.

Various stores and merchants are now dismissing the use of cash as a mode of payment already. In fact, they only accept their fee through credit cards due to obvious security-related concerns. However, unlike the US, there is still a lot of scope remaining with hard cash in India. In fact, one can totally live without a credit card in India.

Also read: What Would You Rather Have: Rs 10 Lakhs Right Now or 1 Paise Doubled Every Day For 31 Days?

Credit Card – A kind of free cash? Or Not?

If you want to steer clear out of troubles, you must never consider credit card as a form of free cash. Remember, whenever you ask a bank for a loan, your credit history is checked thoroughly and it better not be bad to get your loan cleared. The amount you are using your credit card for has to be paid back in time to the bank or else you will be charged with heave penalties.

Thus, contrary to popular beliefs and no matter whatever people say, a credit card is not free money. If you don’t have the money right now, you should never charge your credit card then. Otherwise, it would be very tough for you to repay the amount in time.

Now that you have understood the basics of the credit card, the next big questions- Should you use credit card? Before jumping to any conclusion, first, let’s discuss the pros and cons of using a credit card.

Also read: An Income Tax Basics Guide for Beginners -Understand TDS, Section 80C & More.

Should You Use Credit Card?

Credit Card Pros – The Green Signal

1. Security and Convenience – There’s always a dilemma of “how much to withdraw from ATM?” No matter what, either the money you withdraw is going to be huge that there will always be a fear of theft or else it would be very inconvenient to withdraw money from ATM time and again because you ran out of money. Enter, Credit Card – a convenient mode of payment. You could always leave your money in the safer hands of the bank and can use your card for your purchases.

2. With Credit Card comes Big Rewards – As much as you use your credit card, the points on your card keeps increasing. Additionally, you can get other cash backs on several purchases, gas rewards. Many credit cards offer you free insurance on your air ticket, bus ticket, and hotel payments. Whatever that you save on your hefty payments can be considered as “incoming money” right?

Credit Card Cons – The Red Flag

1. The Free Money Dilemma – With a privilege of having to pay back later, we always end up spending way more than we should. That is where the banks are earning. Always remember, the exciting cash backs, reward points and other benefits that come with credit cards are always issued while keeping the profitability factor in mind.

2. Hurts your Credit Score if Abused – If your credit score is abused, you won’t be able to earn many credits or rather, it would be difficult. This brings your heavy responsibilities of balancing the use of credit card to a normal extent. Moreover, there are times when the credit card issuers don’t clearly state the terms and conditions and trap the users. Be the smarter one and ask for it in the beginning to specify all the terms and conditions.


Obviously, there’s no free meal in this world. If you are using a credit card today, you have to pay back later. However, the use of credit cards provides a lot of convenience to its users. Further, it can be handy in case of a tight budget where it’s better to use credit than to ask for debt/loan.

Also read: #11 Best Passive Ways to Make Money While You Sleep.

Tags: Should You Use Credit Card, credit cards, credit card pros and cons, should You Use Credit Card instead of cash
Right Amount to Invest

What is The Right Amount to Invest?

Whenever you ask any financial expert/advisor that what’s the right amount to invest, they will divert the question back to you saying it depends on your financial goals, risk appetite, investment time period etc..

But most people in India do not have much idea regarding their risk appetite or financial goals. They are just planning to invest because they want to make some additional money from the money they already have. Most Indians do not invest on the basis of their financial goals (like children’s education, buying a new house, retirement etc). They invest just because they need to make more money.

In this post, I’m going to give you a simple answer to the right amount to invest. (And no, I won’t ask your risk appetite or financial goals.)

What is the right amount to invest?

The Traditional Rule

As a rule of thumb, people should invest 10% of their earnings.

Therefore, if you are making an annual income of Rs ten lakhs (after taxes), you should invest Rs one lakh.

An important point to notice here is that you have to keep this percent constant (or increasing). For example, let’s say you got promoted next year and start getting an annual salary of Rs 15 lakhs. Then, from the next year, you should invest Rs 1.5 lakhs.

This is the general rule for the right amount to invest. If you read any popular personal finance books like ‘The Richest Man in Babylon’, you can find this 10% investment rule as the right amount to invest.

“Gold cometh gladly and in increasing quantity to any man who will put by not less than one-tenth of his earnings to create an estate for his future and that of his family.”
The law of Gold, Richest Man in Babylon

richest man in babylon

The Modern Rule

Although the traditional rule of investing 10% of your earnings is widely popular and effective, however, the modern rule disagrees a little with this rule.

According to the evolved modern rule, you should invest as much as you can afford to invest.

Maybe it’s lower when you’re just starting, say 5%. However, with time you should increase this amount… 5%, 7%, 10%, 15%, 30% & more.

Let’s understand why this rule makes more sense.

If you’re a boy/girl who just graduated from a college and you’re starting your new career, you might have a lot of things to take care first. For example, you’ll be settling in a new city and there will be initial expenses. You might also have to get rid of your educational loans, buy basic amenities-materials, send some money to family/friends etc.

Here, the right amount to invest is as much as you can -without affecting your life. You do not need to invest 10% if your first month (or even first few months) just for the sake of investing. First, get the things settled. You can start to invest with 4%, and then move to 7%, 10%, 15% … in future.

The modern rule says that the right amount to invest totally depends on how much you can afford to invest.

On the other hand, if you’re in your 30s, 40s or above, then the chances are that you already have accumulated a large money to invest and you might have a settled life. Here, you can invest 20% or higher of your monthly/annual earnings (and further increase it with time).

An increasing investment amount and a long time horizon is a powerful combination to create wealth.

Also read: What Would You Rather Have: Rs 10 Lakhs Right Now or 1 Paise Doubled Every Day For 31 Days?

The big question- how to get money to invest?

The easiest solution to this problem is to live below your means. It simply means that your expenses should be less than your earnings. If you’re making annual earnings of Rs 10 lakhs, do not buy a Mustang priced Rs 65 lakhs.

Moreover, living below your means doesn’t mean living a miserable life. It simply means saving some amount (here and there) when it’s not necessary to spend.

For example, if you’re not earning in lakhs, maybe you can have a Motorola phone instead of iPhone X. Further, instead of dining out every day, you might wanna dine with your friends only two or three times a week. Also, instead of buying a new car on EMI, maybe you can opt for an Ola share or uber pool.

Even saving a little money in few small and big areas can help you save 10-15%- which you can invest.

Also read: The Easiest Asset Allocation Method- 100 Minus Your Age Rule

Quick Tip:

Automating your investment is the best alternative if you’re not a ‘Saver’. A monthly SIP directly deducted from your salary/savings account at the start of the month is a good option for those who are ‘Spenders’. You can’t spend the money which you don’t have, right? (Unless you take a loan or borrow money from your friends just to spend recklessly…). Automating your investment will help you to both enjoy your life now and have a secured future.

Final Note: Don’t forget the emergency fund

It’s always advisable to have an emergency fund… like next 6 month expenses or more.

Investing in stocks or any other financial assets has little risk associated with them. An emergency fund will help you take care of any unexpected expenses. Further, it can also act as your freedom. If you don’t have an emergency fund and you’re fully invested with no savings in the bank, you’ll have very less freedom to take immediate actions.

Besides, the amount in your emergency fund depends on your personal financial position. For example, if you’re planning to start your own business or startup, then you might want to have an emergency savings worth 9-12 months.


There is no correct answer to the right amount to invest. The best answer is that the higher you invest, the better it is. Most people invest 10% of their earnings (as a thumb rule).

Nevertheless, a better alternative is to start with the percentage you’re comfortable to invest and then keep increasing the amount. Always invest the highest amount that you can afford to invest. Here, time and increasing contribution amount will help you build great wealth to secure your future.

Also read: What are Assets and Liabilities? A simple explanation.

5 Things You Should Know Before Getting Your First Credit Card

5 Things You Should Know Before Getting Your First Credit Card.

5 Things You Should Know Before Getting Your First Credit Card:

Contrary to popular beliefs, the credit cards are not to be mistaken with “free cash” or else be ready to fall into the trap of endless repayment and paying penalties.

A Credit Card, if used rationally and in a balanced way, can be a huge gift for mediocre spenders as it allows you to spend on your necessities even if you are practically broke. However, be sure that you will be able to earn cash to repay the amount in time or else there will be penalties in your name. Looking for benefits associated with credit cards? Let’s help you out with a few scenarios:

#1. Benefits Associated With Credit Cards:

  1. If you are not earning (or will not be earning) for a while, you can always pay your bills and pay for your necessities using a credit card assured if you can pay for the amount later.
  2. There are multiple rewards and cash backs that come with the use of credit cards on bill payments and even for shopping.
  3. Various credit card issuers provide you with insurance on your flight tickets and bus tickets.
  4. With a good credit history, you can apply for loans easily in any bank.
  5. Convenience is the middle name of a credit card as it allows you to pay for anything through a card and without requiring you to withdraw cash from ATM every now and then.

But with benefits, there come responsibilities and in this case the wisdom of rational spending. Let’s know things about credit cards to know more about it.

#2. Credit Card Interest Rates in India

The interest rate varies from bank to bank in India. However, ICICI Bank is the leading issuer of credit cards in India. The interest rate keeps falling in the range of 1-3% for almost every bank that issues credit cards. Apart from the interest rate, there are other benefits associated with credit cards which have to be kept in mind before purchasing a credit card. For example:

Some banks offer free insurance on ticket bookings through credit card and others provide various cash backs on bill payments. These are a few factors that influence the mind of a buyer. The interest rate depends on the following factors:

  • Repo Rate: Repo rate is the rate at which the RBI lends money to the commercial banks of India.
  • Reverse Repo Rate: The rate at which the RBI borrows money from the commercial banks of India.
  • Repo rate directly influences the interest rate on credit cards whereas the reverse repo rate inversely influences the rate of interest.
  • Prime Lending Rate: Various banks fix the interest rate on a credit card keeping in mind the current prime lending rate.

#3. Fees on Credit Cards:

There are times when a credit card issuer (bank) does not clear the terms and conditions for a credit card. The terms and conditions specify various fees that are to be charged before issuing a credit card to the holder. The fee structure is as follows:

  1. Joining Fees: These days, many credit card issuers are issuing credit cards without associating any joining fee to it which means that a holder can gain access to a credit card without having to pay any fee in the beginning.
  2. Annual fees: The free (or paid) credit cards issued are associated with an annual fee which has to be paid on a per year basis. Again, the annual fee to be paid varies from one bank to the other.
  3. Interest Rate: The main pointer through which a bank earns on credit cards is the interest rate that it charges on these cards. Generally, the interest rates vary from 1-3% in India.

Also read: An Income Tax Basics Guide for Beginners -Understand TDS, Section 80C & More.

#4. Minimum Payment on Credit Cards:

In layman terms, the Minimum Payment is a scheme which allows you to settle a minimum amount on your overall (monthly) credit card bill if you are not able to pay the entire bill at once. However, the remaining balance which is carried forward for the next month is associated with a higher rate of interest.


  • Save you from a penalty in case of “partial payment”.
  • Saves a bad mark on your credit history.


  • Interest-free credit period is not provided in case of Minimum Payment
  • Keeps you trapped in an endless loop of repayment.

#5. How Credit Cards Affect Your Credit Score?

The credit card can hugely determine your credit score as it defines your immediate decisions and management of your debt. If you plan to balance out your spending every month, credit cards can have a huge positive impact on your credit score.

  • Your Credit Mix accounts for 10% of your FICO score
  • Closing Credit Card Accounts can hurt your credit score
  • Your Payment history (or late repayment) can hurt your credit score up to 30%
  • The amount of debt you carry can affect 30% of your FICO score.

Also read: How to Invest in Share Market? A Beginner’s guide

An Income Tax Basics Guide for Beginners

An Income Tax Basics Guide for Beginners -Understand TDS, Section 80C & More.

An Income Tax Basics Guide for Beginners -Understand TDS, Section 80C & More:

Often people cry out for Income Tax deductions but a few out of them literally understand the whole concept. Started a new job? Does Income Tax worry you so much? Don’t worry; it is no rocket science to understand. All you have to do is to sink in a few basics of Income Tax to get things clear. Some would ask:

Why is it even necessary to know about Income Tax?

To attain a financial stability, you would definitely need to understand the income tax basics. To help you out further, we are going to un-knot the complications of Income Tax and put it in a simplified manner for the beginners to understand. So, if you are just starting out with a new job, take the informed first step towards your new financial journey. Let’s start – shall we?

An Income Tax Basics Guide for Beginners:

Figure out your Salary:

Head over to the HR department in your company and ask them for the salary slip. The salary slip would contain a few pointers in which your salary would be divided. Another document known as “tax statement” could also be asked from the HR department to know how much tax is deducting from your payout.

Key Note: Companies that give HRA which allows you to save tax if you are living on rent. It is one of the ways through which you can save easy bucks on the tax.

Further, you should mark the major components in which your salary is divided to know the overall scenario better.

Assessment Year: 

Assessment year is termed as the “financial year after the previous financial year”. According to Indian standards, the financial year (tax year) starts on 1st of April every year and closes on the 31st March of the following year. It doesn’t matter when you’d start your job, the financial year or the tax year would close on 31st of March, every year.

1st April – 31st March (of the following year) = 12 Months. 

In the assessment year, one files the return of the previous financial year. For example, the period 2018-19 will be the assessment year for the period 2017-18 (12 months). Suppose if you start with your new job sometime in February, 2017. In that case, you’d have to fill the return for the period 2016-17 (active months from February 2017 to march 2017) until 31st of July, 2017.

To simplify it further, see this example:

Active months of working – 1st February, 2017 to 31st March, 2017
Tax Year – 2016-2017
Assessment Year – 2017-2018.

Please note that the last date to file your return is 31st of July every year (for the assessment year).

Also read: Where Should You Invest Your Money?

Income Tax – More than the “Income” You Earn?

Your salary might not constitute the entire income you earn monthly/annually. There are other sources through which one earns his/her income which we are going to list down below. Make sure to note that the components divided might not even suit your case.

Where else do you earn an income from?

  • Salary – The amount that you receive daily/monthly/weekly as per your employment’s agreement constitutes the income from your salary. This also includes the leave encashment and other allowances you get.
  • House property related Income – The income that is gained from a house property which might be either self-occupied/rented/owned. The gain of income from any other building would also be included in the same.
  • Capital Gain – Whenever you sell your asset/property, there’s a gain in your income. A tax is deducted from the gain.
  • Income from Business – If you run a side business other than your “regular job”, the income earned on the same is also tax deductible.
  • Other Sources – Income that arises from the savings bank accounts, FDs (fixed deposits) and other sources of saving are deductible of tax. (This does not include the amount invested in mutual funds).

Also read: The Best Ever Solution to Save Money for Salaried Employees

Section 80 C – Your Best Friend!(?)

Basically, the income taxable amount is calculated by the following formula:

Gross Income (sum of all the pointers mentioned above) – deductions = taxable amount.

Here’s what the elder generations preferred to do in order to increase the deductions and lower the taxable income – “Open a PPF Account”.

If you want to raise the amounts of deductions to lower the taxable amount under 80C, you can open a PPF account. A PPF account can be easily opened by depositing a minimum of 500RS. On the other hand, one can deposit a maximum of 1,50,000 INR in a year. The interest gained on the PPF account constitutes the income gained from the other sources under the section 80C. Thus, every year, you can claim the deductions and can save your income tax money.

Finally, a tax slab is applied on your net taxable income to calculate the final Income Tax amount you are liable to pay.

Income Tax Slab for Individual Tax Payers & HUF (Less Than 60 Years Old)

Income Tax Slab Tax Rate
Income up to Rs 2,50,000* No tax
Income from Rs 2,50,000 – Rs 5,00,000 5%
Income from Rs 5,00,000 – 10,00,000 20%
Income more than Rs 10,00,000 30%

for FY 2018-19

Surcharge: 10% of income tax, where total income exceeds Rs.50 lakh up to Rs.1 crore.
Surcharge: 15% of income tax, where the total income exceeds Rs.1 crore.
Health & Education Cess: 4% of Income Tax.
*Income tax exemption limit for FY 2018-19 is up to Rs. 2,50,000 for individual & HUF.

Read more here: Income Tax Slab & Rates- ClearTax

TDS (Tax Deducted at Souce):

TDS is the tax deducted at Source which gets automatically deducted from the income you gain from various sources such as the interest on your savings account. Employers estimate the net annual income and deduct (as per the tax slab) the tax payable from the salary (if the taxable amount exceeds Rs 2,50,000 annually).

Quick Note: If you need help in e-filing your income-tax return, feel free to check out this site– ClearTax. It’s Quick, Easy & Free!!

clear tax

Tags: Income tax basics, Indian income tax basics, Income tax basics in India, learn income tax basics
How to Meet Your Investment Objectives with Income Funds

How to Meet Your Investment Objectives with Income Funds?

Mutual Funds is not only an investment or a onetime business, it goes on and gets managed professionally on a large scale. And when it comes to professional management, the best example of the type of mutual fund to invest in is the “Income Funds”. The risk involved in Income Funds differs from a fund to fund. It can be highly volatile or it can be pretty stable too. While talking about the Income Funds, the important question to ask is:

Why does one need to invest in Income Funds at all?

Answer – As the name suggests the word “income”, income funds can be chosen to diversify your portfolio. Generally, diversification helps in mitigating the risk to a larger extent. Income Funds are diverse i.e. there is a lot to choose from these funds. Moreover, the funds can invest in both equity and debts as well. Even the investment can be merged up into the combination of both equity and debts. Income Funds are also known to invest globally and thus have a greater reach. Having said that, let’s explore more about the income funds in this article. We will also delve into details about various kinds of income funds to clarify the case further.

Let’s answer this first: What is an Income Fund in simple terms?

Income Fund falls in one of the many categories of Mutual Fund that strongly focuses on the “current income” (which can be considered as a dividend or interest) on the current income. The investors can either choose to go for divided short-term capital for short-term spending or can go for long-term funding distribution. Example – Retirement Funding. As we see, the prospect of income fund is very flexible.

Any investor has a choice to choose in between individual securities and managed investment funds.

Also read: What is Mutual Fund? Definition, Types, Benefits & More.

Types of Income Funds:

1. Fixed Income Funds:

As the name suggests fixed, we can figure out that the strategy or funding has a fixed rate of interest along with a fixed maturity. Since the types of security vary widely in the case of income funds, an investor usually has a wide spectrum of choices to choose from. As there’s a fixed amount of interest rate involved, it’s pretty easy to calculate the annual and hence total return with which, the total of maturity amount can also be calculated easily in the case of fixed income funds. This kind of funding is preferred by both stable and aggressive investors differing on the quotient of the type of security.

2. Bond Funds:

Another kind of funding is introduced as the bond funds which is considered as the most common type of funding. Bond Funds offer varying risk as they further can be invested in various places. Considering the safest case, the Government Bond Fund is considered as the most conservative one. Since the Government Funds invest in the treasury (US Based) a slightly safer option. On the other hand, some prefer to invest in Government Security Agencies which generally turn out to provide a higher return than the former choice.

One thing to keep in mind while making an investment in the Bond Income Fund that the total maturity amount is never fixed. With the fluctuations increasing in the secondary market, the amount keeps on changing.

Tax-Free Returns: The municipal bond-funded investment offers a tax-free return to its investors which actually saves a lot more money than other investment options. On the other hand, the corporate bond-funded investment would deduct a tax on the matured amount but on the positive side, it gives a better return on the investment.

3. Specialty Fixed Income Funds:

Not all the income funds invest in Government Bonds and Municipal Bonds. The Specialty Fixed Income category of Income Funds is the one that invests in the senior secured loans which are fully and completely collateralized I.e. the loan is secured by the asset pledged by the borrower. Such kind of fund investments falls on the safer side of the scale of risk.

The liquidity is also high in these funds. In fact, the funds are available to access on a monthly or quarterly basis. Another example of a Specialty Fixed Income Fund is the Mortgage Backed Fund. What happens, in this case, is that the investor becomes a shareholder whenever a borrower borrows loan amount from banking institutes against the mortgage. The mortgage put forward by the borrower acts as a security for his loan amount which makes the specialty fixed income to fund further freer from risk.

Also read: What Would You Rather Have: Rs 10 Lakhs Right Now or 1 Paise Doubled Every Day For 31 Days?

4. Stock Income Funds:

The Stock Income Funds are different and somewhat lesser risky than the bond fund investment type. In the Stock Income Fund, the investor gains a steady dividend on a monthly or quarterly basis which is mostly 1-2% higher in terms of interest rate than the government bonds.

It all comes falling to one question again, the requirement of the user. Having said that, a proper research on the risk associated as well as the methodology of the professional management is very much needed before making any kind of investment. It takes just a couple of minutes to get updated on the current news which is the key to be a smart investor.

Nonetheless, the bottom line for an income fund investment is the conservativeness you’d prefer in your return. The rest does depend on what you pick.

How to Pick a Mutual Fund?

How to Pick a Mutual Fund? A Beginner’s Guide.

How to Pick a Mutual Fund?

Are you a financial newbie and just learning to pick things piece by piece? Don’t worry; you are in the right direction. Considering you are here, reading this article, you are one step ahead.

Now, let’s quickly clear all your queries associated with picking the best deal out of many. Needless to say, investing in a mutual fund is a matter of lacks of rupees and sometimes a matter of crores, one needs to be very deterministic while picking out the best suitable option. When we say “best”, we are doing two things, mainly.

  1. Evaluating different options for mutual funds.
  2. Comparing those with their past (historical) records.

A good head start, therefore, can be done by self-evaluating the needs. In layman’s terms, what are you planning to achieve after you get an access to your matured fund?  – Housing? Marriage? Home Development? … Or Education? 

While the reason can vary from a person to person, the risk-bearing also does.

To explain it better, if you’re planning to clear your debts with the matured amount, you can’t tolerate greater risks associated with your fund. That’s the reason for taking the end goal into clear consideration. Further, in this article, let us know what all you need to know to pick the best possible option for a mutual fund. Stay tuned!

1. Get Acquainted with Risk Tolerance:

Clearly, the objective or end goal does alter the consideration of “Risk Tolerance” moreover; it helps you know how much risk you can sustain in your portfolio. Personally, if you can’t toleration too much of underperformance in your portfolio then picking out highly volatile mutual funds is not an option for you.

What exactly is risk tolerance? – It is explained as the amount of deviation (negative) associated, from the expected returns on an investment which an investor can withstand.

Since mutual funds are influenced by the movement of the market, one can’t accurately predict the happenings but estimation never hurts. However, there’s a quick math for you to remember “maximum risks = maximum returns”. But the question is again, “can you sustain it?”

Pro Tip: Aggressive Risk Tolerance (ART) understanding can help various high scaled investors to put their chances on portfolios with super high risk.

On the other hand, Conservative Risk Tolerance (CRT) does give a little to no scope for a risk to penetrate into a portfolio.

Also read: How to Measure Risks in Mutual Funds?

2. Know about Different Fund Types: 

There are several types of Mutual Funds in the market. In fact to count in all 4 directions of the world, one has 8000 choices to make for mutual funds. But it again comes down to one single point – the end goal.

  1. If your needs are for the longer term and you can sustain risk, you can choose the capital appreciation funds. As mentioned, the risk associated is on the higher side but given that, the growth of return is also magnificent.
  2. If your needs are to be catered for a shorter term with minimal risk, you can go for the income funds. The income funds give you a stable return with a realistic percentage. What’s the advantage? – Minimal to no risk.
  3. If your needs are for the longer term, however, you don’t want any risk to be associated with your portfolio, balanced funds are the best choice you. Sure, the return wouldn’t be magical but you can get the benefit of “long-term investment” and can minimize the question of risk as much as possible.

There are several more types of funds to be explored in the market. Choose the one that you think is best suitable for your end goal.

3. Know about the charges and fee structure: 

When you purchase a mutual fund, you have to pay a charge or fee initially or when the shares are sold. In both the cases, the fee is known as a load.  

The load can be further classified into

  1. Front-end load – When you have to pay the fees initially while starting a mutual fund for yourself.
  2. Back-end load – When you have to pay the fees when you sell your shares in the fund. (Generally, a Back End Load is applied if you decide to sell your shares before a specific time period, say 7 years of purchase). This limits your activities of “share selling”.)

Administrative charges are another kind of charges that are associated with an investment. The administrative charges are charged by an insurer mainly for record keeping or t=other important administrative facilities given on an investment.

What do you need to keep in mind? – Make sure to read the literature of Mutual Fund before & after purchasing it to keep track of administrative charges, management expense ratio, and other charges. This will help you clear all the hidden complexities about the return on investment.

Also read: Best Mutual Funds in India -Policy Bazaar

4. Evaluate Past Trends and Fund Manager’s Activities:

The final but very important step is to bring in the case of historical data. When it comes to a prediction, historic data helps in backing up the decisions.

When it comes to evaluation, let’s quickly know what pointers to keep in mind:

  1. What are the previous results that a Fund Manager has managed to deliver without a fail?
  2. Does the past trend show that the portfolio is extremely volatile under specific conditions?

Peeking into the literature of a fund manager can help you with this case, mostly. Also, taking an expert advice is always recommended for better decisions.

Lastly, you must know that in the market, the history does not (read never) repeats itself. That is, don’t rely blindly upon the past data without bringing in the possibilities for future prediction. Both the cases help in their own way when it comes to mutual funds. A little research with a proper guidance can take you one step forward to your end goal (high return on your investment) – that’s the bottom line.

Also read: What Would You Rather Have: Rs 10 Lakhs Right Now or 1 Paise Doubled Every Day For 31 Days?

What Would You Rather Have: Rs 10 Lakhs Right Now or 1 Paise Doubled Every Day For 31 Days?

A few days ago, I was having a conversation with my brother regarding the power of compounding. He’s an assistant manager at Bank of India and brilliantly understands how compounding works.

During the conversation, here’s the question that he asked-

What would you rather have: 

  1. Rs 10 Lakhs right now or 
  2. 1 Paise doubled every day for 31 days?

By hearing the question itself, I understood that it is a trick question.

Although Rs 10 lakhs (right now) seems a huge amount and sounds very tempting. However, getting your money doubled every day for next 31 days is even a bigger deal.

I chose option B. I was confident that the total amount would be greater than Rs10 lakhs. However, by how much, that was something that I was looking forward to.

When I calculated the total amount that I will get on day 31 if I choose one paise option, the result turned out to be something like this.

How much is- 1 Paise doubled every day for 31 days?

  • Day 1: Rs .01
  • Day 2: Rs .02
  • Day 3: Rs .04
  • Day 4: Rs .08
  • Day 5: Rs .16
  • Day 6: Rs .32
  • Day 7: Rs .64
  • Day 8: Rs 1.28
  • Day 9: Rs 2.56
  • Day 10: Rs 5.12
  • Day 11: Rs 10.24
  • Day 12: Rs 20.48
  • Day 13: Rs 40.96
  • Day 14: Rs 81.92
  • Day 15: Rs 163.84
  • Day 16: Rs 327.68
  • Day 17: Rs 655.36
  • Day 18: Rs 1,310.72
  • Day 19: Rs 2,621.44
  • Day 20: Rs 5,242.88
  • Day 21: Rs 10,485.76
  • Day 22: Rs 20,971.52
  • Day 23: Rs 41,943.04
  • Day 24: Rs 83,386.08
  • Day 25: Rs 1,67,772.16
  • Day 26: Rs 3,35,544.32
  • Day 27: Rs 6,71,088.64
  • Day 28: Rs 13,42,177.28
  • Day 29: Rs 26,84,354.56
  • Day 30: Rs 53,68,709.12
  • Day 31: Rs 1,07,37,418.24

If you chose option B, at the end of 31st day, you will get Rs 1.07 crore. This amount is greater than the first option by over 97 lakhs (even more than 10 times).

Rs 10 Lakhs right now or 1 Paise doubled everyday for 31 days

Till 27th day, Rs 10 lakhs as a lump-sum amount seems as a good option. However, on the 28th day, one paise option would have surpassed Rs 10 lakhs and by 31st day, it would have crossed the 8-figure mark.

Big difference between Rs 10 lakhs and 1.07 crores, right?

Also read: #6 Portfolio Management Hacks That Every Beginner Should Know


It might be little difficult to grasp the fact that Rs 0.01 doubled every day can turn out to be Rs 1.07 crores in 31 days.

Anyways, if you choose one paise doubled for 31 days, the result might seem low and disappointing in the initial days. However, if you keep on going, the final amount will be worth the patience. This is all because of the power of compounding.

In the end, here is an amazing quote once said by Albert Einstein regarding the power of compounding:

“Compound interest is the eighth wonder of the world. He who understands it earns it … he who doesn’t … pays it.”

risks in mutual funds

How to Measure Risks in Mutual Funds?

How to Measure Risks in Mutual Funds?

Before you jump start your monthly-SIP or lump-sum equity plan, let’s get this clear that these investments are subject to market risk. Now when this statement pops up or scrolls by on the big fat TV Screen, what do you think it means? To put it in layman’s term ‘You cannot expect a fixed return on your fund invested.’ There’s always a risk of market volatility gawking on your funds.

Fret not; you can always research better to invest better and make sound investment decisions when it comes to mutual funds. Let’s quickly come to risk measuring.

Yes, it’s possible and within your means to delve into the true basics of indicators; alpha, beta, and r-squared that tells you what risk is associated with your fund portfolio. Other statistical measures such as calculation of standard deviation and shape ratios are important to calculate or estimate the risk.

Sure, all backs up the estimation values as when it comes to the volatility of the market, no one can put a word to it. Market volatility is altogether a sensitive scenario which depends upon several factors including politics. Let’s know learn how can we calculate/measure risks!

Also read: What is Mutual Fund? Definition, Types, Benefits & More.

Modern Portfolio Theory:

Or should we say a bible for expert investors? Although there are various “SIP-Calculators” and other calculators that track “Mutual Fund’s Growth and Return” but without considering the omnipresent risk factor, one cannot take his pick. Let’s tell you why!

MPT or Modern Portfolio Theory is a theory defined as:

For a given market risk level, the maximization of investment return is supported by the theory of Modern Portfolio. 

The objective of these portfolios is to maximize the return (profit) on a fund investment while considering (and hence minimizing) the level of market risk.

As mentioned, the market is not static, it is ever changing. Therefore, to make an estimation of how the market will deviate and how will it affect your own fund. For a desirable return, it’s possible for an investor to construct a portfolio such that he/she could minimize the whole lot of risks.

The question is, how? The answer lies in the introductory part of this piece. There are a handful of indicators and other statistical measures that help us calculate the risk involved. Once we track down the possible risks (in numbers – thanks to the statistical measures), we can find ways to minimize those risks.

One thing to keep in mind is that return of your portfolio is calculated as the weighted sum of the return of the individual assets in your portfolio.

For example, (6% x 25%) + (4% x 25%) + (14% x 25%) + (10% x 25%) = 8.5%

The portfolio is divided into four parts (assets) for which the return is expected as 6%, 4%, 12%, and 10% respectively. The total becomes 8.5% and the risk associated with the assets giving 4% & 6% return is mitigated or balanced.

modern potential theory

How to Measure Risks in Mutual Funds?


Risk-adjusted calculation on a fund can be done using the alpha measure.Alpha uses a benchmark index which is the center of calculation for this indicator.

Basically, alpha takes the risk-adjusted return (performance) of a fund investment and compares it with the benchmark index. This comparison yields out the possible value for alpha which specifies the performance or underperformance for a fund.  

Alpha is commonly a measure that specifies the security of a fund as per the benchmark index. Let’s say, after the calculation, the value of alpha is 1.0. It means that the fund has outperformed as compared to the benchmark index by 1%.

On the other hand, if the value of alpha is -1.0 – it means that the portfolio fund has underperformed as per its benchmark index (mostly due to the volatility of the market).

Also read: The Best Ever Solution to Save Money for Salaried Employees


The next indicator to measure the risk associated with a mutual fund is beta. Beta talks general i.e. it takes the whole market into consideration and analyzes the systematic risk associated with a specific fund portfolio. Just like alpha, the values of beta or “beta coefficient” also tell us a “market-compared” result.

However, the value of Beta can be calculated using advanced statistical analysis technique known as “Regression Analysis”. Beta is affected by the movements in the market. By the standards, the market has a value of 1%.

If the value of beta comes out to be less than 1, the volatility of the fund will be lesser than that of the market. Similarly, if the value of Beta is captured to be more than, say 1.1% then the volatility of the fund is 10% more as compared to the volatility of the market.

What’s favorable for the fund with least risk associated? – Low beta. 

Standard Deviation:

The calculation of Standard Deviation has a plethora of applications around the globe in various sectors. And luckily, one in the sector of Finance. Standard Deviation graphically shows how scattered a particular distribution is. In plain and simple words, SD or Standard Deviation makes use of the historical data to put an analysis over the current funds.

Generally, an SD-graph would tell how deviated is your “annual rate of return” from what it is expected from the historical sources. Using this calculation, the future predictions can be made most naturally.

A volatile stock has a higher Standard Deviation.

Mean is a measure of central tendency which holds an importance while calculating the values of Standard Deviation. SD tells how much dispersion of data is there from its mean. Various expert investors make use of this indicator to minimize the risk factors in a portfolio.

standard deviation

Also read: Where Should You Invest Your Money?


As we have seen, there are various possible ways through which one can estimate the risks in mutual funds.

A portfolio consisting of different assets would have different risk factors associated individually. Therefore, to make the best decision and to minimize the individual risks in your portfolio, the indicators mentioned above can lend you a helping hand.

For a finance newbie, these things might be no less than a rocket science right now. However, eventually one can get a hang of it. After all, a good investment is most naturally important for a good return.

Life Expectancy - The Most Important Variable in Retirement Planning

Life Expectancy: The Most Important Variable in Retirement Planning

Life Expectancy is a crucial variable to monitor when calculating the needs for a retirement fund. The age which you are expecting to get retired in and a calculated life expectancy (obviously, keeping all the health aspects into consideration). Often while scrolling through the Google results for “how much should you save for your retirement”, the two major bars you have to set are:

  1. At what age, you are expecting yourself to get retired?
  2. What is the estimated life expectancy of yours?

Frankly speaking, the second bar to set is quite tough if not impossible. Precision is something which is quite hard to gain on life expectancy or your projected age. However, to stabilize a fund that’ll keep you going well for such and such years, you need to determine how much monetary fund you would require that will keep you active for dash years of inactivity. Needless to say, the calculations can’t be made accurate or 100% precise but you can always put a good analytical game to use and then act accordingly.

In this article, let’s read why “Life Expectancy” factor becomes important while you calculate retirement funds.

Why Is Life Expectancy So Important?

Whenever the question arises, there are basically two kinds of fears that develop in people’s minds:

1. What if one gets to live more than he/she expected?

I.e. the possibility of an underestimated life expectancy. In this case, your funds might meet a shortage in the later years. For example, suppose if you decided to retire at an age of 58 and you estimate your projected age to be “70 years”. You will have to manage your funds such that you get to stretch your living for 12 long years without an active income.

Please note that it also includes all the health check-up, rents, travel, and other miscellaneous expenses.

2. What if one overestimates his/her projected case?

The matter of life and death is probably the most unpredictable notions in the world. One does not actually know what might come the very next moment. In this case, overestimation can cause inconvenience. Suppose, if one is predicting his/her survival age to be 68 years. Now, suppose if one gets to live for 60 years, wouldn’t the money in the savings fund go completely wasted?

These two reasons make financial experts believe that “life expectancy” and its accurate prediction is actually an important variable to consider.

Also read: #11 Best Passive Ways to Make Money While You Sleep.

How to Determine Life Expectancy?

We have already established the fact that calculating one’s life expectancy is not an easy task, is it? But, there’s always a way out. We can predict a bit accurately with a few tricks that you must read.

1. Consult generic tables:

Researchers have worked hard to finally be able to present to us a normalized table with which we can predict our estimated life expectancy. The table is based on a generalized current age scenario through which you can actually predict how many years you are left with (according to statistics, of course).

For example, if Mr. X is 45 years old, he can expect another 38 years to live. Moreover, 0.4167% chances say that he could die this year.

Needless to say, these predictions are not including lifestyle scenarios and other health-related concerns.

Also read: The Easiest Asset Allocation Method- 100 Minus Your Age Rule

2. Online Life Predicting Applications (More accurate):

As we have noticed that the former means of calculation wasn’t considering some of the crucial aspects that could alter a standard result. The variables include the family history of a specific disease, eating habits, and lifestyle scenarios. The online applications that predict life expectancy such as Living to “100 life expectancy calculator” (available on Apple Store and Play Store) can accurately estimate one’s life expectancy.

There are certain bars which can be manually adjusted as per the real-time scenario which helps in backing up the predicted result.

Not only that, but these applications have incredibly easy interfaces to work with. Moreover, these applications suggest you ways or two with which you can stretch your life expectancy. Adopting a healthier lifestyle always helps financially for all the health-related costs it saves I future.

Here is the link to the two popular online life expectancy calculator:


(Source: World Life Expectancy)

Your Own Life

There are more than 50% of the people in the world who plan for the future. No matter how interesting those pep talks seem that say; “live in the present, let future come as a surprise”, no sane person would “actually” follow the advice.

Us humans being rational thinkers always plan in advance which is quite great actually. Other than being able to make rent, pay for food, and commute freely, you too might have a list of long aspirations you want to fulfill in “future”. Keeping everything in mind, you need to save accordingly.

Let’s hope for the best and let’s prepare for the worst.

best ways to save money

#3 Best Ways To Save Money- That 90% People Are Not Using.

#3 Best Ways To Save Money:

Monetary freedom, isn’t the whole world revolving around it? Generally, you, I, and others have this notion in our minds that in order to retire rich, you need to earn millions. Earning a decent remuneration is definitely certain but is this the whole picture? I am afraid not.

Where does the trick lie? – Well, the trick lies in the power of saving.

We personally know a ton of those people who have earned below par for their entire lives but have managed to retire rich. If you are diligent enough to know how this works for people with a median wage, you need to rely on the power of religious savings.

Moreover, you also need to know how to put a full stop to reckless spending in order to save money. With the title, the picture gets a little clearer but we have barely scratched the surface yet.

The best ways to save money is by cutting back on the big stuff. However, cutting on big kinds of stuff doesn’t even remotely point to living in misery. No, it doesn’t! Then what does it mean in its true form? Let us all know in this article.

1. Maintain a Ritual:

Consistency always works out. For your monthly expenses, you need to maintain a ritual to save your income. You might perhaps save 100 bucks a month by choosing a cheaper alternative to your monthly errands but if you do it consistently, you will definitely see a positive change in your savings account.

  • Revise of Dish/Cable plans and switch to a cheaper monthly plan.
  • Cancel unnecessary monthly subscriptions.
  • Remove your saved credit card details from your most used online stores.
  • Cut down on your food expenses by cooking meals yourself instead of ordering them online.

Such rituals individually wouldn’t reflect a significant amount but collectively such rituals manage to save a heck load of money.

Also read: The Best Ever Solution to Save Money for Salaried Employees

2. Validate your needs:

Not validating your needs is one of the major causes of reckless spending. You’re smart enough to back up your own choices to shop.

You know, there aren’t going to be enough clothes, gadgets, footwear, and what not in your wardrobe no matter what the number of such stuff you purchase.

Us humans being rational thinkers have this capability to justify each of our purchases. We can start this by asking these questions whenever we pick something up from a shelf:

  • Do I really need this?
  • What was the last time when I made the same purchases?
  • What purpose am I purchasing this for?

Validating your needs make sense whenever you are going to put a significant amount of money on a commodity. If you really need it, you can purchase it by all means. However, if there is no specific need for the same, you can always use the saved money to something significant and crucial – say, your rent.

Also read: What are Assets and Liabilities? A simple explanation.

3. Optimize your “big expenditure”:

It is quite clear that 1. Housing and 2. Transportation is the two most “fund-eating” necessities we have to pay for every month.

No matter how big you are earning, you’d have to pay for rent and transportation costs unless you are of course living in your own house. If your savings are actually taking a toll on you, you need to reconsider your choices.

All you have to do is to carefully monitor better options. If you can, switch your high rented apartment and move into a cheaper one. However, saving money shouldn’t be corresponded to living out in misery. On the other hand, for transportation, switch to the means of public transport.

Walking more often to run regular errands also helps not only in saving your income but also helps in maintaining your body shape.

BONUS (For students and recent graduates): 

4. Consolidate your Student Loan:

Putting all your eggs in one basket is never considered a better option.

However, when it comes to something like education, one doesn’t think twice about doing so. We must tell you that opting for an education loan is a commitment for a longer duration. If you have a student loan on your head, we have a couple of life-saving tricks – one of which is to consolidate your student loan.

Statistics say that it takes anything from 15 to 20 years on an average for a student to repay his/her loan. 

Consolidation means to merge multiple loans into one single frame which makes sense to save interest amount. There are various consolidation options available all over the internet to explore. Private Federal Consolidation options still prevail in the market which sometimes is quite beneficial as well.

We know how it sometimes gets difficult to cut down on your regular expenses but you must realize that there is always more than one way to get through with things. This holds true for the financial sector as well.

We wish you all the good luck saving!

Also read: #11 Best Passive Ways to Make Money While You Sleep.

Tags: 3 ways to save money, save money, how to save money, ways to save, how to save money each month


#11 Best Passive Ways to Make Money While You Sleep.


Passive income” certainly sounds like an interesting and appealing idea, but making money while you sleep is certainly not that easy. Majority of passive income ideas won’t really work (either limited or minimal financial returns or will need a great degree of efforts from your side), certainly not like making money while you sleep.

So, the question is what really works? What are the ideas that can actually get the money ball rolling for you?

Here are some top picks that can help you leverage some real basic factors for that continuous stream of passive income.

#11 Best Passive Ways to Make Money While You Sleep-

1. Sell your art:


You might be a skilled designer, a graphics expert or someone who just picks up the paint-brush as a hobby. But what if those raw pieces of your art can ensure you a continuous flow of money. There are several websites like Etsy, Zazzle, etc. that will pay you a nice amount of money for sharing your artworks with them.

These websites use your artworks to create patterns for their branded t-shirts, mobile covers, posters, mugs etc. Whenever these products are sold, you will be given a fair share of commission from the product price.  

2. Express your skills via video channels [Youtube]:


Got some special dance moves, singing skills, the art of mimicry, stand-in comedy or detailed workout sessions? Showcase your talent to the world using YouTube videos from your own channel. YouTube is an immensely popular and exciting medium for earning a decent flow of passive income for yourself.  

You will be paid higher as per the number of views, likes, subscriptions, and popularity that your channel will get across different user groups.

Bdw, you can subscribe to Trade Brains youtube channel here.

3. Online educational courses:

courses online

Since the introduction of the digital age, online learning platforms and resources have gained a lot of popularity. There are certain web portals like Udemy, Coursera, Edx that offer digital certifications and classes to students across the globe. If you have specialization in any academic, technical or non-technical subject then you can structure your own educational courses on these websites. You will be paid for every subscription or registration that a user makes for your course.

Also read: #11 Simple Ways to make money online in India [No spam/surveys]

4. Sell-Stock Photos:

stock photos

Are you someone who is amazing with a camera in his hands? If yes, then there is a good scope for earning a decent flow of money with your stock photos. There are several websites like Shutterstock, Alamy or iStockPhoto that need photography enthusiasts or experts who can deliver some really amazing and high-quality images from different niches.

5. Rent your vacant property:


Renting your own vacant property can also be a good way to earn some easy passive bucks. Some working professions even prefer moving in shared apartments and houses in order to save their hard earned money.

6. Start your own blog


Got some really exciting cooking recipes, life hacks, astrology tips or interesting hacks to share with others? Just go on and set up your web-blog. Once your blog gains popularity, you can use services like Google Adsense or AdWords to earn a considerable amount of money by displaying corporate or business advertisements on your blogs. Additionally, you can also set subscription fees for the users who want premium access to your content. 

There are a number of bloggers who are making tons of money enjoying their life on a beach or travelling by setting passive ways to make money on their blog.

Learn how to start a blog within 20 min here.

7. Sell your Ebooks:


Fond of writing? Great! This can be one big opportunity for you to earn. Convert your passion for writing into some easy money. You can fetch 5-10$ easily with short write-ups of 70-80 pages, but make sure you choose the trending titles and themes. To sell your ebooks, you can choose various platforms, Amazon and iBook are two of the best once.

Market investments:

8. Mutual Funds:

mutual funds

What if you can earn regular income on your basic savings?

Mutual funds are the best passive ways to make money in India. You do not need to spend much time, knowledge or even money to start investing in mutual funds. These funds are managed by professional fund managers and there are several low-risk investment schemes that offer high returns compared to the interest amount that banks pay for your deposits with them. Nevertheless, you will need to select the mutual fund smartly to reduce the risk of financial loses.

Learn more about mutual funds here: What is Mutual Fund? Definition, Type, Benefits & More.

9. Stock Market Investing:


If you are willing to invest some time, then investing directly in the stocks offers the highest returns and can easily be considered the best passive ways to make money with even limited investments. You can make money in stocks through capital appreciation and dividends. If you have a good working knowledge of stock market and shares, then it can ensure high returns for your basic investments, but such investments are always subjected to risks of market fluctuations.

New to stocks? Want to learn how to invest in Indian stock market from scratch? Here is an amazing online course: INVESTING IN STOCKS- THE COMPLETE COURSE FOR BEGINNERS. Enroll now and start your share market journey today.

10. Real estate Investments:

real estate

Investing in the Real-estate market is another way of ensuring a continuous income stream on a part-time basis. You can either buy a rental property to ensure a monthly fixed amount or look for those perfect deals at the perfect time (when you purchase properties at a low price and then sell the same when the market hits a high.) In both the cases, you will be getting a decent amount of income on regular basis with minimal efforts.

11. E-commerce service outsourcing:


An e-commerce portal that bridges the gap between the local retailers and customers can be a handy way of earning a continuous stream of passive income. Your e-commerce portal, website or app can be structured to serve the requirements of a locality, zone, town or a whole city.

Who knows it might develop into a fully-fledged business venture in future?

100 minus your age rule- best asset allocation nethod

The Easiest Asset Allocation Method- 100 Minus Your Age Rule

The easiest asset allocation method- 100 minus your age rule:

It’s always difficult to decide how much you should save and how much you should invest. The answer varies on the different stages of life. The investing strategy of a 22-year-old need not to be same as that of a 60-year old.

But, how much you should actually invest in different assets at the particular stage of your life?

There is no single answer to this question and there can be multiple correct answers.

However, it this post I’m going to suggest you one of the easiest asset allocation method, known as the 100 minus your age rule.

Also read: The Best Ever Solution to Save Money for Salaried Employees

100 minus your age rule:

This rule is quite old and is based on the basic principle of investing which says that you should reduce the risks as you get older.

The logic is simple. When you are old, you will have lot more responsibilities and expenses compared to when you’re young. For example, if you’re at 58, you might be worrying about the retirement fund, retirement home, higher education of your kids, marriage of your daughter/son etc.

On the contrary, when you are young, you do not have much expenses or responsibility. That’s why it is said to take more risks when you are young.

100 minus your age rule is based on the same principle of minimizing risks as you grow old and simplifies the asset allocation depending on the stage of your life.

Also read: 

How ‘100 minus your age’ rule works?

100 minus your age rule states that the percentage(%) of allocation of your wealth in equity (stocks or mutual funds) should be equal to the 100 minus your age.

The rest amount should be allocated in safe funds like savings, fixed deposits, bonds etc.

For example, if your age is 45,

Then, your percentage allocation in equity = (100- 45) = 55% of your net worth
Percentage allocation in safe funds= 45% of net worth

asset allocation

You can notice here that as you approach an age of 100, the risks are totally zero.

Moreover, please do not argue what about those whose age is above 100. Do you really think that they will be in a position to make investment decisions at that age?

The drawback of using ‘100 minus your age rule’:

Although this ‘100 minus your age rule’ make quite a sense for the asset allocation, however, there are few drawbacks of using this rule.

For example, from the last few decades, the life expectancy of the people are increasing. This means that you can stay invested in the equity (and take more risks) for few more years now.

Further, at any time, the asset allocation by an individual depends on the person’s financial situation. For example, if you have a large family with dependants on you, then you might not be willing to take many risks, even if you’re young. The ‘100 minus your age rule’ doesn’t takes care of the financial situations of the people.


100 minus your age is a simple, yet effective way to easily allocate assets depending on the particular stage of your life.

However, while deciding the asset allocation, you should also keep in mind your priorities and financial situation.

Also read: How to Invest in Share Market? A Beginner’s guide

That’s all. I hope it post is useful to the readers. Happy Investing.

The Best Ever Solution to Save Money for Salaried Employees

The Best Ever Solution to Save Money for Salaried Employees

The Best Ever Solution to Save Money for Salaried Employees:

Not having enough savings in the bank account is one of the biggest problems that majority of people are facing in India. Especially the youth.

Living on pay-check to pay-check and relying on the credit cards to pay even for the basic amenities of life is a common scenario nowadays.

But how can we solve this problem? How can a salaried employee save enough money to buy his dream car or dream house, without being a cheapskate or without cutting money on coffees?

The answer is simple. I’ve been implementing this solution for a long time since the pocket money’s in my college days to the paycheck that I get from my first job.

And the solution to save money for salaried employees is:

“Pay your self first.”

Now, this is not a new concept and in no way, I want to take credit for sharing this notion. I read this concept for the first time in the book ‘THE RICHEST MAN IN BABYLON’ by George Clason. Then I found the same concept of saving money in Robert Kiyosaki’s book ‘RICH DAD, POOR DAD’.

If you haven’t read the book ‘The Richest Man in Babylon‘, I highly recommend you to read this book. It is one of the best classic personal finance book that I have ever read.

The idea is simple.

Keep a fixed part of your salary for yourself. Say you keep 3/10 or 30% of your salary for yourself only.

You are not giving this to your landlord, or to the automobile company for your bike/car EMI, or to Dominos to eat a pizza or to anyone else. You keep this money only to yourself.

Nonetheless, you can spend the rest 70% of your salary in any way that you want.

I am not asking to not to go to a party or to eat in the cheap restaurants or not to renew your Gym membership. Enjoy your life. Saving few bucks by not drinking a cup of tea/coffee won’t make you a millionaire.

Just do not party with your 30% share of income that you kept for yourself. You have earned this money after a lot of hard work and you deserve to pay yourself first.

Keep this money with you only. It’s not your liberty, it’s your right.

Quick note: Saving money is just the beginning. If you want to become a millionaire, you have to start investing in the right way. Nevertheless, how to invest is a topic to discuss in another post. In this post, I just want to focus only on the first step to get rich. And this can be done by saving money. You can’t invest if you do not saved first.

save money

(Please do not be this guy ;p)

That’s all. I hope this solution to save money for salaried employees is helpful and you can also start saving from today.

If you liked this idea, please share this post with at least one of friend who needs to learn the concept of paying yourself first 😉

Also read: 10 Must Read Books For Stock Market Investors.

Tags: How to save money for salaried employees, how to save money from salary every month, how to save money for salaried employees with small salary
What are Assets and Liabilities

What are Assets and Liabilities? A simple explanation.

What are assets and liabilities?

In this post, we are going to discuss what are assets and liabilities. Although these words might sound a little complicated for the non-finance guy/girl, however, once you understand the basics, it’s won’t be complex anymore.

Typically, assets and liabilities can be defined as:

Assets: It is a value that a person holds with an expectation that it will provide future benefit. For example- cash, property, gold etc.

Liabilities: It is an obligation that a person has to pay in future due to its past actions like borrowing money in terms of loans, bills, credit card debts etc.

In short, assets are the value that the beholders hold and liabilities are the obligations that he has to pay off.

Now, this is the definition of assets and liabilities that we are traditionally taught.

From the above definitions, we can consider our house, cars, washing machine, fridge etc as assets as they have a value and can provide benefits in future.

However, the definition of ASSETS & LIABILITIES varies a little according to Robert Kiyosaki.

Also read: 10 Must Read Books For Stock Market Investors.

What are assets and liabilities?

The concept of what are assets and liabilities are beautifully defined in his book ‘RICH Dad POOR Dad’ which I’m going to describe here.

In the book ‘Rich Dad Poor Dad’, Robert Kiyosaki had two fathers. The Poor dad was his real dad and the Rich dad was his friend’s dad. At a very young age, Robert Kiyosaki decided to listen to his Rich dad if he wants to become successful in future.

Here is how the RICH defines assets and liabilities which his rich Dad taught him.

  • An asset is anything that puts money in your pocket.
  • A liability is anything that takes money from your pocket.

Assets can be a business, real estate, paper assets like stocks, bonds etc. Anything that brings money in your bank account.

For example, if you buy stocks and its price appreciates, it will bring money to your pocket.

If you have a business and it’s growing, then again it will bring money to your pocket in future and hence, can be termed as an asset.

On the other hand, liabilities can be your expensive car, a big house bought on the mortgage with excessive maintenance and running charges, expensive phones etc. These are those materials that take money from your pocket.

assets and liabilities

The concept of ‘money in’ and ‘money out’ is good enough to define assets and liabilities.

Easy, Right? 

Now, the trouble is, anything can be an asset or a liability, depending on whether it brings money to your pocket or takes it away.

For example, in the book Robert argues that ‘Your house is not always an asset’.

your house is not always an asset

Let us understand what he means by this.

If you own a house and you pay excessive expenses for running the house like electricity bill, water bill etc, then it is a liability. The house is taking money out of your pocket.

However, if you own a house and you are making thousands of rupees a month by renting it, then it is an asset. The house is putting money in your pocket.

Overall, it depends on how you are using your house. Your house is not always an asset.

This is something that most of the traditional people of India won’t agree with. To be honest, even I didn’t like this idea of Robert Kiyosaki in the beginning and argued with myself a lot about it. Nevertheless, after considering a lot, I concluded that his definition is correct.

The problem is that most people do not understand the concept of assets and liabilities. They buy expensive watches, shoes, sunglasses etc considering them as an asset. However, it turns out to be an expense.

The only thing that separates the poor and rich is how they spend their money.

Poor invests in liabilities that they cannot afford and consider them as an asset. Whereas, rich invest in assets.

If you haven’t read the book ‘Rich dad Poor dad’ yet, I would personally recommend you to read it. It’s one of my favorite books on personal finance and I have read it multiple times. You can order the book using the Amazon link here.

That’s all. I hope you have understood what are assets and liabilities.

Do comment below what is your view on – Whether your house is an asset of a liability? 

Happy investing!

What is Bitcoin? How to buy bitcoin in India?

What is Bitcoin? How to buy bitcoin in India?

What is Bitcoin? How to buy bitcoin in India?

From $800 USD to $18,000 USD in just 1 year. An appreciation of over 2250%. Wouldn’t you want to make such investments?

This is BITCOIN!!

By now you all might have heard about it. Even the terms ‘cryptocurrency’ and ‘blockchain’ are consistently in news a lot lately.

However, people are still confused about its real purpose. What is a bitcoin? Is it a currency, asset class (to invest) or simply a transformation factor from the old monetary system to new one.

I am going to answer all the important questions regarding bitcoin in this post.

Here is what we will cover:

  • What is bitcoin?
  • How does bitcoin works?
  • How is bitcoin generated? (What is mining)
  • What are the advantages of bitcoin?
  • Few facts and data related to bitcoin.
  • Is bitcoin legal in India?
  • How can you buy bitcoin in India?
  • What is the capital gain tax in bitcoin?
  • Other cryptocurrencies to watch out.

bitcoin meme

Source: The 10 Funniest Bitcoin Memes Ever

It’s gonna be a long post. But will definitely worth reading. So, let’s get started.

What is bitcoin?

In simple words, bitcoin is a virtual currency made by people with no central authority.

Huh, what does it mean? To understand it better, let’s compare it first with the normal currency.

In India, we have a fiat money.

Fiat money is a currency without intrinsic value established as money by government regulation. It has an assigned value only because the government uses its power to enforce the value of a fiat currency. Source: Wikipedia

The Indian currency is printed in the name of RBI and people believe in this currency because of it and exchange in the name of the government.

On the other hand, bitcoin is not generated by any government or authority. People exchange bitcoin only because they believe this as a kind of money (no central authority to implement it). It has no physical value.

Therefore, we can define bitcoin as a new form of digital currency that does not require any bank, government agency or a third party to operate.

People inside the system carry out transactions among each other over a decentralized network.

Now, let us understand bitcoin in details.

Bitcoin is a purely peer-to-peer version of electronic cash that would allow online payments sent directly from one party to another without going through a main institutional institution.

It is the first and the most popular cryptocurrency. However, it’s not the only one as there are a number of other cryptocurrencies available in the world.

Bitcoin was invented in 2008 by Satoshi Nakomoto. However, no one knows who is Satoshi Nakomoto. It might be a dummy name used by the creators of the bitcoin.

Bitcoin is a decentralized currency, which means that no central bank or government is controlling it.

In India, we have a fiat system. This means RBI decides the number of notes to print. They have their own rules on how much notes can be printed and when to print next notes.

However, for bitcoin, there will only be 21 million coins (This restriction is imposed by the creators to limit the bitcoin that can be generated).

Hence, it can be considered similar in attribute to gold (which is also finite). As there is fixed number of bitcoins, hence it’s worth will be more over time.

Didn’t understood? Let me explain.

The current fiat system leads to inflation. The currency notes can be printed more in future. Hence, their number will keep on increasing an, therefore, the currency notes value will worth less in future.

On the other hand, bitcoins are limited in number. It cannot be created more once a fixed number of coins has been generated. Hence, this will lead to ‘deflation’ which means that the bitcoins will worth more in future.

Also read: Where should I invest my money?

How does bitcoin works?

Source: SciShow

To understand how does bitcoin works, you first need to understand what is cryptocurrency.

A cryptocurrency is a digital asset designed to work as a medium of exchange that uses cryptography to secure its transactions, to control the creation of additional units, and to verify the transfer of assets. Source: Wikipedia

The bitcoins are generated and stored in a form of mathematical code called cryptography. This is the private encoding of the data.

Similar to bank accounts, wallets are used to store bitcoins. Wallets have a unique address which is a personal crypto address that only the individual can access.

This unique address helps to confirm that the money has been sent/received to the right address. Further, the transactions can be checked but cannot be altered or tempered.

Now, if there is no central authority, how to confirm that the transaction happened between two people? What if one lied?

Can’t a person just lie that he didn’t receive the coins if there is no central authority to check and the transaction happened peer-to-peer?

Or he can just say that he sent the coin (although he didn’t in actual). If there is no central authority, how will one proof the transactions between people-to-people?

Well, all the transactions are recorded in ledgers which you (or anyone) can see. 

When you perform a transaction, you send this information to a number of people. Although there is no single centralized authority, however, this group of people maintains the transactions record. The best point is that anyone can become one of these people who keeps the track of transactions.

In this way, no one can cheat. If one people changes the transaction record, then it won’t match with the remaining other’s record and the dissimilarity will be found. Hence, this makes bitcoin one of the most secure currency.

And this is also the core concept of the blockchain.

What is Blockchain? The blockchain is a decentralized peer-to-peer system.

In simple words, millions of computes agree to keep a global record of the history of all the transactions that have ever placed in the system. This is called ledger.

How are bitcoins generated? What is mining?

When you transfer bitcoins, everyone knows about the transactions and writes it in their ledger. Hence, it is impossible to cheat.

The people who use their computer to look after the ledgers and keep the system running are called miners. They solve complex problems to put together all the transactions.

But why will anyone use his computer, pay the electricity bill and solve complex mathematical problems to keep the records of all the transactions taking place in the world?

This is because miners are awarded BITCOINS for their efforts. Each time they solve a complex problem to keep track of transactions, they receive few bitcoins.

And this is how bitcoins are generated.

Moreover, these miners also receive a small reward/concession per transactions for keeping the record alongside newly generated bitcoin.

Therefore, mining helps these people to generate new coins.

This is way similar to mining of gold. Both are limited in number and both are mined so that the miner will get the benefit.

What are the advantages of bitcoin?

Here are few of the advantages of bitcoin:

  1. There is no middleman involved in the transactions and hence the fees are lower.
  2. Bitcoins are hard to track. Although the records are maintained by the miners, however, the transactions are recorded in the form of cryptography.
  3. Bitcoins are global with no barrier to join: Anyone can buy/sell bitcoin. There’s no fee, no government permission required and no bank account required.
  4. The transactions are fast and transferred directly from person to person without going through a bank or clearing house.
  5. Accounts cannot be frozen (unlike bank accounts)
  6. Transparent and secured.

Image source: 99bitcoins

Few facts and data related to bitcoins:

Here are few important facts and data related to bitcoins that you should know:

  • There will be total of 21 million bitcoins only that can be generated. Currently, over 16.8 million bitcoins have been mined.
  • To limit the total number of coins being generated by the miners, the creators of the bitcoins made a rule that after every 210,000 blocks, the number of the bitcoins generated will be half of the last time.

In the starting, 50 bitcoins were rewarded to the miners every time they solved a blockchain problem.

Then it reduced to 25. Currently, 12.5 new bitcoins are created and awarded to the miner’s account after solving a blockchain puzzle.

  • By 2140, all the bitcoins will be mined.
  • The market capitalization of bitcoin has crossed over $300 USD (by December 2017), which is more than that of Visa, Wal-mart, Intel, Coca-cola etc.
  • There are over 14 million users of bitcoins worldwide.
  • Price chart of Bitcoin: Here is the price chart of bitcoin since inception:

Price of bitcoin in 2011: $0.05 USD
The Price of bitcoin in Jan 2017: $800 USD
Price of bitcoin (Dec 2017): $18,000 USD

bitcoin price chart

Source: Coindesk

  • Bitcoin can be divided into smaller parts. It is named after the creator and is called ‘Satoshi’ (1 Satoshi= 0.00000001 Bitcoin).

UPDATE: Bitcoin Price (June 2018) – $6108 USD

bitcoin june

Is bitcoin legal in India?

Yes, bitcoin is legal in India.

Can you make ‘internet’ illegal? The internet is also decentralized which means it is not authorized/regulated by any central government/authority. And that’s why the government has no control over it. The same goes for bitcoin.

The government of a country can restrict it but cannot make it illegal.

Bitcoin is not regulated by any authority in India. This means that nor government or any authority makes rules, regulations or guidelines for resolving any disputes regarding bitcoins. You cannot approach the government if you have any mis-happenings while dealing with bitcoins.

rbi india guidelines for bitcoin

Source: RBI Press releases

In March, RBI Deputy Governor R Gandhi warned against crypto-currencies such as Bitcoin. “They pose potential financial, legal, customer protection and security-related risks,” Gandhi said. 

“Payments by such currencies are on a peer-to- peer basis and there is no established framework for recourse to customer problems, disputes, etc. Legal status is definitely not there,” he added.

Nevertheless, Bitcoin is legal and there are no restrictions on the transactions of the bitcoins. There is no ban or regulation on bitcoins.

Moreover, many developed countries like Japan, Russia etc have already legalized the use of bitcoin.

How to buy bitcoin in India?

You can buy the bitcoin against real current price from digital currency exchanges. Just pay the price and get the quantity of bitcoins that you want.

You can use your credit card to buy bitcoins from coinbase or coindesk. Further, there are few mobile apps that you can use in India to buy/sell bitcoins:

Mobile apps to buy bitcoin in India:

  • Zebpay —>

Source: Zebpay

  • Unocoin —>

Source: Unocoin

How are gains from bitcoin taxed in India?

The taxes for the capital gains are decided differently depending on generating factor:

  • For the miners, who get the bitcoins directly from mining, there are no capital gain taxes.
  • On the other hand, those who get bitcoins from the exchanges, they have to pay a capital gain tax of 20% for long-term and tax according to their income slab for short-term gains.

Read more here: Cleartax

Other cryptocurrencies to watch out:

Here are few other cryptocurrencies (besides bitcoin) that you should watch out:

  • DASH


It’s logical to consider cryptocurrency as the currency of the future. Bitcoin is certainly one of the most popular cryptocurrency and has played a big role in creating space in the hearts of the people against the traditional currencies.

The transaction of bitcoins are definitely legal in India and you can buy/sell bitcoins using the mobile apps like Zebpay or Unocoin.

However, bitcoin is not regulated by the Indian government. Hence, invest at your own risk.


Tags: What is bitcoin, how bitcoin works, what is bitcoin India, what is bitcoin and how does it works, what is bitcoin and how to buy it
Where should you invest your money

Where Should You Invest Your Money?

Where should you invest your money? This is one of the most popular questions for anyone new to the investment world.

Everyone has their own living style and financial dreams. Some people are frugal while many are spendthrift.Some people live their life below their means and save money. While there is another group of people who spend a lot of money every weekend in parties and outings. They do not care about savings and have a huge credit card debt.

However, there are not only two kinds of people in this world. There are also many people whose spending habits lies between that of the extremes.

Anyways, when it comes to investing, all these kind of people are confused and have the same question- “Where should I invest my money? Where can I get the best returns on my investments?”

In this post, I am going to give a simple answer to this question- ‘Where should you invest your money?’ So buckle up and plan your financial journey ahead.

Factors affecting your investment decision:

Before discussing the various investment options available in India, first, we are going to understand the factors that can affect your financial decisions. Here are the four pillars for making a sound investment decision:

1. Investment goal:

Before you decide where should you invest your money, you need to define your investment goal. Your investment amount will depend a lot on your goals.

Your goal can be anything like buying a new car, buying a new house, savings for marriage, to fund your higher education, retirement or even just for fun.

Now depending on your goal, you will have to adjust your investment amount. If you are investing to fund your higher education (after 2-3 years), then you need to ‘save more’ and ‘invest frequently’. Here the time horizon is small and hence the power of compounding will not be that helpful.

On the other hand, if you investing for your retirement, then even the small investments will add up to a huge sum when compounded over a large period of time.

2. Risk appetite:

This is the amount of risk that you are willing to take. Not everyone believes in ‘high risk and high reward’. Many people want minimum risk for their investment so that they can a sound sleep.

Your risk appetite will decide your investment style. We will discuss the risks involved in different investment options later in this post.

Also read: 3 Amazing Books to Read for a Successful Investing Mindset.

3. Current financial situation:

If you have a huge debt like education loan, car loan, house loan etc, they pay it off first. There’s no point getting returns from your investment and directly giving it back to your lender. Therefore, get rid of your debts first.

Next, your investment decision will depend a lot on your financial situations. If you have dependents, then you might first need to have insurances, LICs etc. If you are single with no dependents, then you can invest without any worry.

Moreover, you will also need emergency fund so that you can have some financial flexibility.

4. Time Horizon:

The longer you remain invested, the greater will be the returns. The time horizon of your investment will vary with your age. If you are in your 20s you will have long time horizon compared to people who are in their 40s and just starting to invest.

There is a famous thumb rule of asset allocation while investing. This is called ‘100 minus your age’.It says that the total percentage of your investment should be equal to 100 minus the age times of your net worth.

For example, let’s say that you are 28 years old, then you should invest (100-28)= 72% of your net worth and keep the remaining in your saving account.

This rule is based on the philosophy that as you grow old, your needs will increase (like children’s tuition fee, children’s marriage, house debts etc) and hence you won’t be able to invest much. Therefore you should invest more when you are young and have minimum liability.

Where should you invest your money?

Now that you have understood the different factors affecting your investment decisions, here are the few of the common investment options available in India-

1. Fixed deposit (FD):

This is a low risk and low return investment. You can expect a return of 6-8% per annum by investing in FDs. The capital invested in FDs are considered to be safe if you do not count inflation and taxes.

2. Stocks:

Investing in the stock market involves high risk and high returns. You can expect a return of 15-20% per annum by investing in stocks.

Investing in stocks has been a life changer for many people. Although a number of people have lost money in stocks, however, many of the billionaires in India created huge wealth by investing in stock market.

New to stocks? Here is an amazing course on the stock market for beginners: How to pick winning stocks? Enroll now.

3. Mutual funds:

This is a moderate risk and high return investment. You can expect a return of 10-14% by investing in mutual funds. These funds are managed by highly qualified fund managers and hence it doesn’t require much involvement of the investors. However, these funds are also subjected to market risk.

4. Gold:

This is one of the conventional ways of investing which has been followed over thousands of years. This is a low risk and low return investment. The best part of investing in gold is that- it will always retain its face value.

Moreover, it is easily acceptable and highly liquid. You can sell your gold jewelry, gold bar or gold coin to any of your neighbor jewelry shop. The only disadvantage of investing in physical gold is its safety.

Nevertheless, after coming of GOLD ETFs, even this problem has been solved.

Also read: Getting Smart With Investment in Gold.

5. Real estate:

This is a low risk and high return investment. One of the best option available in a growing economy like India.

If you buy a property and hold it for 10-15 years, your initial investment can give multiple times returns. In many developing cities, the prices of a flat double itself just in 2-3 years.

Overall, the returns from real estate investment are tremendous.

However, the two big problems with real estate investment are high initial investment amount and liquidity. You cannot find a seller for your property in a day and it takes time for the paper works.

Nevertheless, don’t stop yourself from investing in real estate just because of these two reasons. The return on this investment is amazing. Moreover, if you do not own a house, it can be one of your biggest investment.

Few other points to know:

Stocks and real estate investment are the ones which have given the best returns in the past.

You can find a number of millionaires who made their fortune by investing in stocks and real estate. However, you will hardly find anyone who created huge wealth by investing in FDs, mutual funds or gold.

Also read: 3 Insanely Successful Stock Market Investors in India that you need to Know.

The other options available in India for investments are currencies, commodities like silver, metals, crude oil etc.

In addition, it’s better to invest in more than one option. You can own a property and remain invested in stocks at the same time.

Like the elders say -’Do not put all your eggs in one basket’. This is one of the best advice of all time.


Risk Reward
Fixed Deposits LOW LOW
Real estate LOW HIGH

No investment is completely risk-free. However, the severity of the risks is different in different investment options. Select the investment option carefully depending on your investment goal, risk appetite, time horizon and current financial situation.

Take advice from your financial advisor or knowledgeable friends. But make your own financial decisions. Remember, no one cares more about your money than you do.

That’s all. I hope this post on ‘Where should you invest your money?’ is useful to the readers.

Also read: How to Invest in Share Market? A Beginner’s guide

Please comment below if you have any questions. I will be glad to help you.

Happy Investing.

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