Mutual funds.. Are they really diversified

I spent a lot of time with my financial planner last week trying to find or rebalance my portfolio.

We went down to the details of which stocks or themes my money was actually invested.

As we went into more and more details I found to my surprise (and his)  that a lot of the money even though it was in diversified funds was mostly in banks.

Most of the funds had around 20% of their money invested in banking sector and because the banking sector really jumped up by almost a 100% over the last 12 months all of these funds gave stellar returns

I was actually planning to buy some banking funds but having gone through the details we decided not to.

Banking  will definitely do well if the country has to progress and gdp growth needs to pick up.

But the question was on overexposure..  Hence the decision to avoid taking any further banking sector theme fund.

Over the last week one has seen that the bank nifty has come down by 2000 points.  The NBA of the sector (especially the public sector banks) have grown significantly.

So the learning I had and I want to share with my readers is not to only look at funds but also consolidate the shares owned by the funds to understand your financial exposure.

It's simplefinancialsense

High on life, low on savings

It was an interesting article in the toi about financial plans. They showed a survey done for a family of dual income spouses and where they are spending their money.

If you take a look at their overall plan they are only putting 4% of their income into some sort of saving instrument or asset creation.  This is the life insurance premium.

A lot of people say that even paying for a car is creation of an asset... and I would say to them that it is not true. A car loan is not an asset... and neither is a car. As soon as you buy a car its value immediately depreciates.

Unfortunately the chart below is a lifestyle that most families have today.  Both spouses are earning and splurging. Not creating a nest of potential savings for themselves for retirement.

I will in my next few blogs go back to basics and talk about some key concepts on financial planning... health covers,  emergency funds and as I learn more .. estate planning

Getting carried away and spending more than what you can afford to is NOT simplefinancialsense.

Looking at the fine print-- Dont look at the discount-- but at the absolute

This is a really important post-- real life experience discussion.

Over the last few weeks I have been trying to negotiate a home loan for myself. I had two- three companies in mind and wanted to evaluate what each of them were offering.

Mostly the rate of interest were the same -- 8.25% for a period of 2 yrs-- then floating. However no one was clearly mentioning what the floating rate was potentially going to be or how it was going to be calculated.

Each of the lenders used their own benchmark rate--- ICICI called it FRR , HDFC-- PLR. Each of them gave a no  from their Benchmark rates. ICICI said it would be FRR- 5.5% ( WoW!) and HDFC -- PLR- 4.75%

From the first cut-- it looked like ICICI was going to be where i would take my mortgage from. However on further analysis and probing with the banker , I understood

ICICI-- FRR- 5.5% = 9.25% rate presently

HDFC- PLR- 4.75%= 8.,75% presently

So now-- which one would you go for? HDFC is the right answer..

on a Discount basis ICICI looked great-- but on an absolute no-- HDFC was 0.5% cheaper!!

Now HDFC charged me a good processing fees ( which i asked for a discount -- but did not get) while ICICI was willing to charge half the processing fees ( discount which i got)

However on a longer term basis --- HDFC will prove to be less costly for me.

So HDFC it is.

The moral of the story-- look at the fine print-- Understand the terms -- if you dont understand it-- ask the questions ( after all its your money!)

as a friend of mine says... "Poochne mein kya harz hai " -- " whats the harm in asking"

Happy investing...