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2009: Financial resolutions

2009: Financial resolutions

You are in the midst of the first world-wide economic slowdown and recovery seems a long way off for the global markets. So do you need to change your investment strategy? Money Today thinks so.What the Experts hope to do in 2009 How to invest in 20092009: A year of hope

The most important inference from the predictions of our previous cover story, What to Expect in 2009, is that the investment landscape will alter dramatically this year. It is difficult to say how permanent will these changes be, but we are sure that, in 2009, your finances will not be able to survive if you go by the age-old rules of investing. They must also change. As always, Money Today is first on the uptake. Having made the predictions, we now bring you the action plan—nine financial resolutions that will protect your wealth against the dangers of a crisis-ridden financial world.

But this time around, you cannot afford to merely read the resolutions and leave them at that. Nor can you be choosy about which ones to follow. All resolutions are equally important to revive your ailing portfolio. In fact, it will be imperative for you to implement several resolutions at the same time. For instance, if you don’t want to borrow to invest (Resolution 2), you must hold more cash (Resolution 9) and restrain from impulsive expenses (Resolution 3). Remember, any oversight or slip-up can negate the effect of years of disciplined investing. Keeping this in mind, we have packed each resolution with a slew of dos and don’ts. We have also been careful to avoid any conflict in the recommendations.

When you look at them together, the collective message of the resolutions is clear—you can do much to remedy the effects of the 2008 debacle. There is a lot of wealth to be created, and protected, in 2009. So what are you waiting for? Scroll down the page to learn how to do it. Wish you a richer New Year.


Are you waiting for property prices to slither down further in 2009 before you buy an apartment? Or maybe you are not selling that plot of land in the suburbs of your city in the hope that prices will climb up in a year or so? You may not realise it, but such indecisiveness makes you a real estate speculator, though inadvertently.

To counter this allegation, you may point to a list of statistics that justify your decision. The problem is that there are predictions to prove both, a rise as well as a fall in property prices. But only one will hold true. Which one will it be, is anybody’s guess.

For the unintentional speculator, 2009 should be the year of action. Anshuman Magazine, chairman and managing director of CB Richard Ellis, South Asia, says, “If you get a good property at a good location and at a price that fits your budget, go ahead and buy it. End-users of property should especially avoid speculation as they are under a compulsion to buy a house. If you miss out now, tomorrow’s deal may not be as attractive.” Also remember that home loan rates are softening, so an EMI will not hurt your monthly budget as it did when interest rates had touched a high of 14% in November 2008.

Sellers must also be motivated by their personal goals rather than the overall market condition. Real estate prices don’t move in tandem across geographies. Even within the same locality of a city, a corner house may have a higher asking price than the one sandwiched between apartment complexes. If you are getting a price which matches with your profit expectations, don’t wait for a better buyer.

Short-term speculation by investing in more than one property will be suicidal in this year which is likely to witness several flip-flops in prices. Many investors bought more than one apartment in housing complexes last year in the hope of making quick returns. A majority of them are now sitting on huge losses. The prices in some pockets of Tier I cities like Bengaluru have fallen by nearly 42% (see “Prediction hazards”).

If you are one of these investors, then you have two options. First, continue repaying the loans that you have taken and wait for property prices to climb up in the future. But remember, this can take a while. If not, you must sell the property at a loss to prevent the home loans from becoming a huge burden.

However, if you want to invest in a second property, don’t let volatility scare stop you. Magazine says that all you need to ensure is that you have an investment horizon of over five years.

“Gone are the days when the value of a property that you bought for Rs 3,000 a square foot appreciated to Rs 6,000 a square foot in just three months,” he says. You could still get such returns, but after more than three years or so.

The difficulty about suggesting strategies for real estate investments is that what holds true for Bengaluru may be the worst option in Surat. Hence, don’t go by generalisations. Talk to your neighbourhood broker and research on property Websites to know exactly which way the price will move in 2009.
CityLocalityPrice Change* (%)
HyderabadJubilee Hills-25.4
BengaluruSarjapur Road-22.6
*Price change between January and September 2008
Source: Research report by 99

• Let’s assume you booked a property worth Rs 40 lakh in Nerul, Mumbai, in December 2007 with the expectation of good returns in one year.

• You made a down payment of Rs 4 lakh and took a loan at 12% for the remaining amount.

• The value of your property in September: Rs 27.6 lakh.

• If you sell the property now, you will not be able to recover the money required to prepay your loan, leave alone earn any profit.

— Calculations in the story by Sameer Bhardwaj



The axe is no longer just a tool. Nor is it the famous brand of fragrance. The axe, in 2009, is the pink slip. Needless to say, you don’t want one as a new year gift. So, stop bonding with your colleagues. Don’t tell them about the projects you are working on. And never help them when they are stuck. Remember, it is you against them.

It is not just the corporates which are likely to be strapped for cash this year. You won’t find it any easier to lay hands on extra money. If we haven’t reminded you enough, here’s yet another repetition: no possibility of a hike in your income this year; no increase in the value of your equity investments; no standard increase of 10% in rental income, especially if you are living in a city where supply may outstrip demand for housing projects. The cumulative effect: less money in your hand.

But while companies are clamouring for debt options to bail them out, you must do the exact opposite. Avoid bankrolling your investment through credit by any name—personal loans, loans against securities or your credit card. It will only compound your losses in a year when the markets are unlikely to give you any returns. Borrowing to invest increases the cost of investment. You must earn an additional amount—equivalent to the interest on the loan—to make a profit at par with investors who have used up their past savings. Worse, you could be saddled with an EMI that weighs down your budget.

No wonder that financial planner Amar Pandit calls this strategy “absolutely lethal.” He explains, “Your loss is not limited to market prices. The cost of interest and the opportunity cost of the money must also be factored in such decisions.”

So, instead of running to the bank, we suggest that you work harder on your budget to increase your investible surplus. Resolution number 9 (page 54) is also very important—maintain a higher amount of cash in your portfolio for impromptu investments. Consider exiting a dud stock to invest the money in a new instrument. Look out for debt instruments that will mature this year and plan your investments around them. If a financial goal will be fulfilled this year, try to spend less on it and reinvest the excess money.

What if you are carrying forward an existing debt into the new year? If you had used the money to invest in the equity markets, your returns will be nowhere near the expected rate. Foreclose the loan immediately by withdrawing money from such investments that may earn lesser than the interest rate on the loan.

For example, you can break your fixed deposit as its returns will be lower than the existing personal loan rates. Even after factoring in the prepayment charges, you will benefit from the move. This will also plug any unnecessary leak from your cash flow. But if you dip into any long-term investment, do not forget to replenish the deficit in the investment corpus.

It is foolish to even consider borrowing to invest in a fixed-income instrument such as National Savings Certificates. The difference between the rate of the loan and such instruments will almost never be in your favour.

The one clear exception to this rule is real estate. If you aspire to buy an apartment without a loan, you may as well wish for a cat’s nine lives. This year, the time is ripe for buying real estate. Property prices should correct and home loan rates will soften. Borrow by all means, but don’t restrict the down payment to the minimum of 10% of the property price. The more you pay, the lower is your mortgage.

Let’s assume that you want to pay 15% upfront for an apartment worth Rs 10 lakh. If you pay 5% more, your EMI will reduce by about Rs 530 or the loan tenure will shrink by two years (assuming loan rates to be 10% and the loan tenure to be 15 years). This is a huge advantage for your cash flow. So try living as debt-free as you can.

Situation 1
Let’s assume that you took a personal loan of Rs 1 lakh in December 2007 at 22% reducing rate for one year.
Total investment cost: Rs 1,12,313.

You invested the entire amount in an equity diversified fund in the hope of good returns.
The average return of equity diversified funds between 1 January and 10 December 2008: 53.20%

The value of investment on 10 December 2008: Rs 46,800
Your loss: Rs 65,513.30

Had you not taken the loan your loss would be: Rs 1 lakh-Rs 46,800 = Rs 53,200

Situation 2
Let’s assume that you took the personal loan of Rs 1 lakh to invest in a tax-saving instrument.
Total investment cost: Rs 1,12,313.

You invested the entire amount in a five-year fixed deposit at 9% interest rate.

The value of investment on 10 December: Rs 1,09,000
Your loss: Rs 3,313

Had you not taken the loan, you would have actually earned an interest of Rs 9,000.


If Prince William and Prince Harry can be asked by their grandmother, the Queen of England, to rein in their urge to splurge, rest assured that the days of whimsical spending are gone. After all, even royalty is giving up on this luxury. So what makes you think that you can get away with it? In fact, 2009 demands that you spend rationally. Your monthly budget is still recuperating from last year’s surge in inflation. Even if inflation is down in 2009, prices of most essentials will remain high. Combine it with the possibility of no increments in March and you know buying that muchdesired pair of Jimmy Choo shoes can be the bane of your monthly cash flow.

The benefit of intelligent spending is not just limited to how much you save. What you earn on that amount can contribute significantly to your stockpile too (see “Adding it up”). But the lure of more zeros in your net worth doesn’t necessarily have to be at the expense of living in austerity. The trick is to spend carefully. To begin with, hunt for discounts on all items. If you shop for grocery at the discount store instead of a mom -and-pop store, you are likely to be richer by 15%. Many such low-price stores are set to expand their chains in 2009 which means that there are more chances of finding one in your neighbourhood. So you can’t make excuses to skip this one.

This year, the tepid demand should force retailers to extend the sale season. Buy all your branded wear in this period to save about 20% on your annual budget for clothes and accessories. Wait for a couple of months before buying the latest MP3 player or mobile phone and you are likely to get it for at least 10% less. And if you are patient enough, you could benefit from a oneoff scheme like the Honda Civic Hybrid’s price cut of Rs 8 lakh for a fixed period.

The government is likely to announce more goodies such as the recent excise duty cut of 4% to encourage companies to reduce prices. Industries such as automobiles will be waiting for moves that will help them cut prices. You should wait for them too.

Here’s a snapshot of the expenses of a family with two kids with a monthly income of Rs 70,000. The family’s monthly expenses are Rs 35,000. This is how they can save a significant amount through intelligent spending.

Food & grocery186,30020% by supermarts-Rs 7,560
Home expenses186,30020% by supermarts-Rs 7,560
Apparel, etc103,50020% on Sale-Rs 4,200
Gadgets62,10025% after 6 months-Rs 3,150
Entertainment165,60010% by schemes-Rs 3,360
Some expenses like rent and transport have not been included.
Total savings in six months: Rs 25,830
If you invest this amount in a one-year fixed deposit at 9%, the money will grow to Rs 28,154.70.


When Rs 50,000 invested in a mutual fund becomes Rs 1 lakh in two years, who cares about the Rs 1,125 that you paid as entry load? It would be petty to worry about little costs in the face of such returns, right? We bet that this magnanimity did not last 2008. In this year, when Rs 50,000 invested in a fund is close to Rs 25,000, costs seem like giants eating away into your investments. But invest in funds you must. So what is the way out?

Well, don’t pay the entry load. Yes, you have an option of a waiver if you invest directly in funds. This facility was launched with much fanfare last year (read Free Entry on our Website for more details). In 2009, it can work wonders for you. Drive down to the offices of the fund houses or invest online from the comfort of your home to escape the 2.25% charge.

Why restrict yourself to funds? There are possibilities of cutting investment costs elsewhere too. Take the case of Ulips. Even if they do not constitute the core investment, Ulips are present in almost every financial portfolio. Their merits and demerits is a separate argument altogether. But if you have invested in them, or are planning to, why not make it less costly?

Ulips are notorious for their high upfront costs. In the first three-four years, almost 30% of your contribution is never invested—these are the charges deducted by the insurers. This year, beat them at their own game by using top-ups. They attract only 2-6% as charges, provided that the top-ups do not exceed 25% of your total premiums. Just as with the Ulip deductions, the top-up charges also reduce over the years. P. V. Subramanyam, financial trainer, Iris, calls top-ups the “best kept secret by the insurers and agents.” These top-ups are also eligible for the Section 80C exemption if the total premium paid, including top-ups, is not more than 20% of the sum assured.

This is especially useful for new investors. “Say, you want to invest up to Rs 1 lakh a year in a Ulip. Instead of paying such a high premium, choose a Ulip for which you have to pay Rs 80,000. You can use the balance Rs 20,000 as a top-up,” explains Subramanyam. The benefit is that instead of Rs 1 lakh, your loss of about 30% as charges is on Rs 80,000 only. So a greater proportion of your money is invested. The only catch is that it will reduce the sum assured proportionately.

Don’t let laziness stop you from lapping up such ready-made benefits. Say goodbye to your mutual fund broker and don’t sign the cheque for your Ulip payment in a hurry. Generosity is not a virtue in 2009.


Suppose you invest Rs 50,000 every year for 10 years from 2008 to 2018 in mutual funds through an agent.

Total accumulated returns at 12% a year: Rs 11,30,632
Total entry load you pay: Rs 12,375
Net gain: Rs 5,80,632
If you invest Rs 50,000 every year in mutual funds directly for 10 years.
Total accumulated returns at 12% a year: Rs 11,30,632
Total entry load paid: Nil
Net gain: Rs 6,06,657; higher by Rs 26,025*
*This is greater than the total entry load as it compounds over 10 years. For simplicity, entry load is calculated on the invested amount instead of the NAV.



The time when your fund or stock earned 20% or 30% a year seems like a dream and 2008 rudely woke you up from it. Last year, you wouldn’t have cared about real returns because, even after all the possible adjustments, you were left with a bonanza. Not anymore. Nominal returns on your investments will remain very low in 2009. Even deposit rates will move down. So your ‘real’ returns become important. It will be painful to find the difference between nominal and real returns, but you must do it as the results can alter your decisions.

The returns announced on most financial products do not factor in the price of the risk you took and the cost incurred during investments, or account for inflation which will reduce the purchasing power of the money you have invested.

For instance, say you want to invest in an equity diversified fund and expect to earn 10% returns. You must compare this with a risk-free investment such as a fixed deposit that could also earn 9% in 2009. This may make you realise that in the short term, investing in the fund is not worth the risk.

Now, account for the cost of investing that we have discussed in Resolution 4. For a fund that earns under 10%, you are paying an entry load of 2.25% and a fund management charge of 2.5% of the total AUM. This further reduces your real return from the investment.

The buck doesn’t stop here. You have still not included inflation. Experts predict that headline inflation will drop significantly and may even touch 0% in the next few months. But don’t be fooled by such estimates. The consumption basket of an urban middle class Indian is far superior to the one that is used to calculate the CPI. The fact that the school your kids attend has increased fees by 15% will not be reflected in inflation. (Read the story What’s your Inflation on to understand the concept of customised inflation). So you must adjust excess returns (nominal returns minus risk-free returns) to personal inflation.

After all these deductions, the numbers on your worksheet will be far smaller than what you are used to seeing. But don’t be disheartened. If you follow real returns, you are unlikely to be shocked by your long-term investment. Says Kartik Varma, founder, iTrust: “A 2% difference in calculations compounds to a huge value in a span of 10-15 years. So we always advise clients to look at inflation-adjusted returns.” Better safe than sorry.
Going beyond the obvious

Let’s assume you invested Rs 10,000 in Reliance Diversified Power on 10 January 2006.

The value of investment on 10 December 2008: Rs 16,850.7
Total returns: 68.5%
Annualised returns (CAGR): 19%

Excess return: Annualised returns-Risk-free returns (19-7)%=12%

(Assumed return on a no-risk instrument in 2006 is 7%)
Let’s assume annual inflation to be 5.4%.
So, inflation-adjusted excess returns is:
RR = [{( 1 + i )/( 1 + s )}-1]x100

RR = real return; i = excess return,12%; s = inflation rate
= 6.26%. This is the real return.
The difference between CAGR and real returns: 12.74%

Your insurance agent may have become suave and polished his manners but you still can’t trust him. Under that jazzy avatar lies the same guy whose advice is motivated by commissions. Ten to one, the new mobile phone he flaunts is a gift from the insurer whose Ulip you now hold. To protect your money, trust your research.

The string of terror attacks in India has led investors to rethink about their insurance cover. The probability of an untimely death seems higher, especially after what we witnessed in Mumbai in November 2008. The first question that people now ask is whether death in such an attack qualifies for an insurance claim. This has been answered enough number of times. But the more important question for 2009 is—are you insured enough?

There are calculators galore on the Internet which promise to tell you how much cover you need. Unfortunately, most of them are inaccurate. The reason: to calculate the correct sum assured, you must key in your income, your contribution to the welfare of your dependants, the possible increase in your expenses, the future cost of your financial goals and the outstanding balance on any loan or any future loan that you may take. Did any of the Web-based calculators ask these questions for computing your insurance needs?

And if they did, are you ready with all the answers?

As your insurance requirement is dynamic (see ‘Triggering a change’), it must be topped up regularly. If you don’t remember the last time you updated your insurance, or worse, if you don’t remember how much you are insured for, put it right up in the things-to-do for 2009. To increase cover, opt for the cheapest insurance available—term plans. You may also consider Ulips, depending on your investment acumen and the asset allocation of your overall portfolio.

Irrespective of your age, buy a family floater health insurance policy. It is not only your parents who will need the cover. As your job worries increase, you could also suffer from stress-related health problems.

Also on the radar should be a review of your retirement corpus. The reason is the change in the assumptions of your earlier calculation of the retirement corpus. As the returns from investments will be lower than expected for a sustained period now, you will fall short of your target. Last year, both inflation and returns were the culprits. This year, it will be your returns alone which may refuse to get into the positive zone. Jaideep Lunial, director of Wealth Gyan says, “It is necessary to review your monthly investments towards retirement if the current inflation or rate of returns is different from the assumed rate by 2% or more.”

Another reason which will hold true in 2009, as much as in any other year, is a change in lifestyle. At 25, you thought that Rs 70 lakh was enough to meet all expenses. Now, ten years and a marriage and two kids later, the figure may grow to Rs 2 crore. So should you wait for your lifestyle to stabilise before saving for your retirement? Not really. P. V. Subramanyam, a financial trainer with Iris, recommends working with a ballpark figure for the nest egg. Just increase investments in existing instruments if you think that you must save more.


Let’s assume that Sumit, a 23-year-old software professional, earns Rs 48,000 a month. He has no financial dependants and has not taken any loans.

His current life insurance requirement: Rs 15 lakh
Assuming that he will pay for any medical emergency for his parents or is already contributing a small amount to his family expenses.

One year later, he takes a two-year car loan of Rs 6 lakh. His minimum life cover should be: Rs 15 lakh + Rs 6 lakh = Rs 21 lakh
Adding the loan amount to his insurance cover.

He gets married at the age of 30. His wife is a home maker. He spends Rs 30,000 on his wife, maintaining his lifestyle, etc. His minimum life cover should be: Rs 50-60 lakh (if inflation is at 6%)
Assuming that in the event of his death, his wife will require 10-12 years to build a career for herself. The money must be enough to meet expenses in this period.

In another 15 years, he will require Rs 12 lakh for the education of his only kid. He has also taken a home loan of Rs 20 lakh. His minimum life insurance cover should be: Rs 60 lakh + Rs 12 lakh+ Rs 20 lakh= Rs 92 lakh
Assuming that he does not change his lifestyle. This means that his income to expense ratio remains constant.

Ideally, Sumit should factor all these changes while calculating his insurance needs in the beginning of his career.


If you want to earn the equivalent of Rs 30,000 today as your post-retirement income after 25 years. The monthly investment required:
Assuming inflation of 5% and annualised returns of 15%
Total corpus: Rs 1.72 crore
Amount required every month: Rs 5,297
Assuming inflation of 8% and annualised returns of 12%
Total corpus: Rs 2.63 crore
Amount required every month: Rs 14,008



William Henry Davies had not invested in a stock market that lost 50% in less than a year when he lamented that we have “no time to stand and stare”. Else, he would realise how frustrating it can be to just ‘stand and stare’ as your portfolio turns a deeper shade of crimson. In 2009, forget what Davies said. In fact, disregard what the majority of experts say—not to touch your stocks portfolio in a market downturn. The markets are slated to be range bound between 10,000-11,500 this year. So aim to cut your losses.

Your first target should be to deal with the ultrarisky small-cap stocks. Historical data reveals that though these stocks have the potential for huge profits, they suffer the most when the markets are down. Worse, compared to the blue chips, they take much more time to recover, if ever, to the prices at which you bought them. Some may also vanish from the trading floors altogether.

The current bear phase in the markets is different as every stock is down and out by almost the same proportion. But their upward journey may follow the same pattern as in the past. So move out of these unknown small-caps and invest in large-cap stocks or funds.

Anil Chopra, CEO and director of Bajaj Capital, agrees with this strategy, but with a few caveats. “Most investors do not have targets for individual stock prices. Neither do they invest in stocks with a particular goal in mind. In such a case, it is best to get off a sinking ship,” he says. This advice becomes a must-do if you are one of the ultra-aggressive investors who have more than 5-10% in risky stocks. But if you are sure that the unknown company will turn out to be a gem, and that you have not bitten off more risk than you can chew, then don’t do anything. If you turn out to be right, these stocks will climb up again after 2009.

A comparison of how large-cap IT stocks recovered faster from the technology-led bear phase (1 February 2000 to 30 September 2001) than small-caps.

DataPro Info Tech64.250.5NA
Uniport Computers29.60.55NA
Maars Software5387.251.91
Pentamedia Graphics2,27224.21.89
Aftek Ltd4,90075.614.13
NA means that the company is no longer listed
Financial Technologies3537.5542.05
Polaris Software2,989.950.6543.75
There were several stock splits, bonuses, etc, in these companies which are not reflected in the current price.
I will be miserly
Haggling with your vegetable vendor is distasteful, especially if you live in a swish apartment complex. But this year, there is no option. You must do it. Here’s another tip: try out those dingy shops that do a wonderful job of stitching brand logos on non-branded clothes. Yes, you can fake it, and flaunt it.

Nightmares turned pink in 2008. Everyone is apprehensive of that slip of paper announcing a layoff. If you managed to escape the axe last year, congratulations. But don’t think that you have sailed through the choppy seas. The Hay Group’s Global Pay and Staffing Survey reveals that 48% of organisations across the world are reducing or freezing the existing staff level.

Is there anything that you can do besides pray? Yes. This is the best time to introspect about your career trajectory. If you want to change your career, talk to counsellors and identify the courses that will help you to get a new one. If you want to climb up the ladder in your current job, talk to seniors and exemployees to know what is required to make it to your dream job profile.

Also, on priority, is retaining your current job. Cut down on the coffee and smoke breaks. Don’t wait for the company to tell you to travel cheap, do it yourself. Improve your efficiency by streamlining your work. Set yourself harder deadlines and stick to them.
I have many new challenging projects in my hand.YN
There is scope for moving to a new job profile.YN
I am excited about my work.YN
I am so good at my work that I can do it half-awake.YN
I am uncomfortable with my colleagues (or my boss).YN
I don’t get salary increments that I deserve.YN
If your answer to the first three questions is No and to the last three questions is Yes, you are stagnating in your job. Start looking for a change.




Stocks are available at an incredible sale. Tell your wife that you have accepted a pay cut so the monthly visits to the mall must end. Instead of buying another dress or cosmetics, invest the money. If you feel guilty, remind yourself that the investment is for her benefit (Oh yes!).

The stock market crash of 2008 has spawned a breed of Nostradamuses trying to predict how long the fall will last. Frankly, you needn’t care much. If you are in stocks for the long term, you have to simply let this phase pass (unless you have a reasonable exposure to small-cap stocks for which you must act on Resolution 7). More importantly, you must prepare to invest in shares that are now available at attractive valuations. Who knows, after due research, you may want to invest more than what you usually do.

This is why we suggest that you increase the cash component of your portfolio. Money Today has always advised investing everything except your emergency fund, but the possible opportunities in 2009 have forced us to tweak this strategy. A stash of cash is very handy when you want to invest at a particular price. Swapnil Pawar, co-director, PARK Financial Advisors agrees, “Risk-averse investors can hold 20-25% cash while 15% of liquidity is ideal for the moderate risk takers.” Where do you park this cash? Don’t even look at savings accounts with their measly 3.5% interest. Liquid funds give better returns. But the best bet in 2009 is sweep-in accounts.The money earns a high rate of interest and remains accessible at all times.
Easy parking
Using the wrong investment to hold more cash can lead to huge losses. Here are some options:
InstrumentInterest rate (%)LiquidityMin. Amt. (Rs)
Savings account3.5Highnil
Sweep-in account*9.5Medium25,000
Liquid funds
* Details are based on the SBI Premium Savings Account. Minimum balance for the savings account is Rs 25,000 of which Rs 10,000 gets swept into an FD.

Published on: Dec 26, 2008, 10:13 AM IST
Posted by: AtMigration, Dec 26, 2008, 10:13 AM IST