Sunday, 29 April 2018

Who Knows How to Cheat ‘Middle-Income trap’


“Great man come out of the middle class.” _Ralph Waldo Emerson

The Economic definition of the Middle Income Trap is, where a country reaches a certain income level and will get stuck at that level. Many scholars have written books and articles on this topic. I’ll try to reflect my understanding of the topic and some consciences.

The middle-income trap to our generation is like, having an iPhone X on EMIs. Everyone wants luxury – due respect to their income class. Robert Kiyosaki said, “The rich buy assets. The poor only have expenses. The middle class buys liabilities they think are assets. The poor and middle-class work for money. The rich have money work for them.”

Prime examples of middle income trapped countries are South Africa and Argentina.

Yet only a few – most notably South Korea, Taiwan, and Israel – have managed to continue right up to high-income status.

India has entered the middle-income position in 2008 and the per capita income is increasing slowly. The Per Capita Income of the country as per the World Bank’s 2016 estimate is $ 1670.


The middle class is becoming the working poor. If they have one tragic event – illness, loss of job – they have need for the food bank.


In India, IT/BPO sector helped many Indians to shift from poor class to middle class – between 2000’s to 2011. Very quickly, these employees’ salary touched to developed countries salaries [in $ terms]. India’s per capita income between 2000 and 2011 was increased with CAGR around 11.5 %, similarly between 2011 and 2016 increment was only CAGR around 3.03 %.

This IT/BPO industry alone can’t take India to the next level. If a country like an India fails to lift per capita income levels, we would be in The Middle-Income trap by somewhere between 2025 to 2035.

To escape the trap Indian needs radical changes in Education industry. Need checklists on Infrastructure projects and manufacturing activities, proper policies to implement Industry 4.0. Government’s initiatives like, Make In India, Startup India, Skill India etc. are to strengthen the ecosystem. India’s reforms also got 30 notches jump in ease of doing business.

We are in 2018, we still have around 8 to 12 years to prepare ourselves to cheat the middle-income trap. Every individual needs to upgrade learning and skills – especially middle-income level employees.


“Progress is impossible without change, and those who cannot change their minds, cannot change anything” _ George Bernard Shaw

Monday, 1 September 2014

The Bird of Gold

I live in a country where most of the people thinks that the Future is prosperous. Indeed Future seems prosperous from this stage where the new government is working with full ‘Josh’.

Human Dream Machines are spinning with full hopes.

India is known as – ‘Sona Ki Chidiya’. The country is going to feel the change it has never felt before. And I decided to postpone the idea to move to The USA – Just because of two gentlemen, Prime Minister and RBI Governor. In next few years (10-15 years) India is going to move beyond your imagination.

But very few Indians are known to it and going to participate in it.

Just wanna to explain simple example, Indian Finance Minister budgeted the amount of more than Rs. 37,000 crore on Infrastructure. But ultimately who is going to get benefits! Companies related in infrastructure industry. These companies are going to expand their balance sheets. But what the common man is getting from this FM’s step. Not Much. He is not participating in progress. Now, to participate in these companies there are two ways. First, be an employee. Second, invest in these companies.

You got the first way, right! The second says, either you become owner of these companies by investing in equity (direct or indirect) or you fund these companies for their projects. 

Now, the very important thing of this example is, if you will not participate either ways, you will not be a part of a new era – you will be drag down to the inequality gap and middle income trap theories.

As an investor and advisor too, I am fully aware about the risk in investment markets, but if we will not take this risk we will be exposed to the much bigger risk - ‘Inflation’.

FII (Foreign institutional Investors) are dumping their money in India and participating with huge margins, but Indians are still unknown. Invest in Equity.

Before Investing you need to get one question outstanding. Till when I need to be invested? Or What is my Future goal? Once this question is clear you need to pick investment products accordingly.

If your horizon is for 10-15 years, and you have decided to go with MidCap Equity funds, you better stick to your goal and investment vehicle. One thing is crystal clear, equity is going to go up and going to fall, but it does not matter - it is not going to stay there. For example a scheme of a Mutual Fund – ICICI Prudential Value Discovery Fund – Regular - Growth fund’s NAV was Rs. 12.88 in 2004, In 2007 NAV was Rs. 37.90. But in 2008 crisis NAV fell to Rs. 17.22 and bounced back to Rs. 40.53 in 2009. Currently, in 2014 Fund’s NAV is Rs. 96.99. [Source: Value Research] If we had withdrawn in 2008 then we definitely made a Loss. But my goal was for 10 -15 years. And currently we are getting a CAGR of 25.35%.

In current scenarios Indians are earning far better incomes. But please do not put them lying in worthless investment products [investment products giving return less than 8% or Inflation].

Be Savvy for your Own Hard earned money. Park it in a right manner with right investment vehicle.

Choice is Yours!



Saturday, 5 July 2014

#Risk and its Future

I surprised many times when I came across special situations. It’s not about the events but about its unexpected time.

In this blog, I have psychologically calculated risks of future and more importantly actions and motions about that uncertain time. This could be easily understood.. if you rewind your memory and look into the rear view mirror.

When I was in a high school, I used to hate study and book the most. At that times my mommy used to say, if you’ll not grab decent grades you wouldn’t get admission in graduation and later on you might find hard time to find a decent job.  I understood why it was very important to score well, even if you don’t like. It is because the world has become very competitive.   It’s a simple logic, if everyone is working hard and creating competition, you must – at any cost – need to work hard to survive. Now the situation is not created by you, but by the people.

Same way if you are a computer engineer, and you don’t argue on buying a new computer, you do probably slowdown than your peer group. In this case no matter where the technology moved or knowledge about latest technology, but you need to understand the competition and should support with its balance. The logic is same; urgency of compute may not be created by you, but by the people and competition.

In near future same situation would be there in an investment.  If everyone around you is exposed to higher risks, you should not afford to take less risk. If people are taking more risk by investing in equities, no matter your risk attitude level, you would also be forced to take higher risks. I know it’s quite difficult to understand the situation..  But the situation is not created by you, but by the people.

Something is already in motion, it’s is difficult to understand. But, the future we are talking could be anytime. And it’s human mentality not to act till the very last moment – Change It.

This race is never going to finish, we are bound to flow – heard behavior.

At the present moment you have an option to change you future, at very next moment it would not be.


Put a reminder.  Read this after 10 years and you’ll surprise. 

Saturday, 26 April 2014

Nothing Else Matters

No matter how much you are earning, you going to find it difficult. Because, Bcos! You are not putting that earned income at the right place.

Now, what this right place could be?

First, decide your need. What are your goals for future? And then, according to that decide the right place to park your money. There are lots of financial vehicles where you can invest your money, like Mutual Funds – Debt, Equity, Balanced, Bank Fixed Deposits, Direct equities, Bonds etc.

 One thing you need to care more than all these financial products is INFLATION. If you will fail to beat inflation then it doesn’t matter what you are earning, anyhow it is going to fail in long term. Let’s take a small and simple example; In India on average inflation rate is 8 to 10 per cent. Return from bank saving account is only 4 per cent, which simple mean your real rate of return is in negative 4 to 6 per cent.

You decide to put 1 Lac in bank FD at rate 9 per cent and in the same year Inflation index CPI was around 10 per cent. What progress you hard earned income made? Nothing. Negative. Really! After 1 year, original value of 1 Lac becomes around 99 K (inflation adjusted), Loss of 1000. Now after 30 years same 1 Lac would be around 74 L (inflation adjusted), Loss of 26,000.

My Friends, it is your hard earned income, not mine. This is a right time to start. You afraid of equity, Okay.  Chooses financial vehicles – at least which are able to beat inflation. If you will fail to do so, You would be intelligent Monkey. Don’t fool yourself, we are human. 

Nothing Else Matters – if you are able to beat inflation. Not even your small monthly incomes, which might counts in few thousands. Only things you need to do it is by choosing right investment vehicle.

So close no matter how far
Couldn't be much more from the Heart
Forever trusting who we are
And nothing else matters

                                                        _Metallica 

Tuesday, 22 April 2014

We All are Owners

I am a computer engineer. I was rejected by Infosys on the interview day. Yes, of course I thought there is no life ahead or maybe it’s going to be very tough. Life actually becomes tough when we have expectations.
Few days back I bought Infosys shares and I became its owner. Yes, my ownership is small but I can proudly say that I am a shareholder in Infosys.

Why I took this move?

Simple reason, I lives in India. Now why that makes sense? I live in Emerging countries. Okay. Are experiencing change in our living standards and spending – Every Sunday Cinema and McD, Yeah. Here in India Inflation would be high, let’s say around 6 to 8 per cent.  To beat this inflation Bank savings and your piggy bag is not at all good choice. To stay ahead you must look towards equity, like Mutual Funds and Shares.

Now I know it would not come easily, why should I put my money in share market where all losses it’s money. Let me tell you one secret, Nobody losses money in equity, intraday traders and greedy people loses money, Not Investors. But I also aware you that not to choose random funds or stocks, before choosing your investment, sit with your financial planner or advisor.

Let me share one more example to enter in Equity.

Almost all of us have bank account, Right? Now, in that we all are having our saving and Fixed Deposits etc. Why you put it in the bank? For safety of course! My Bank is not going to default on my savings.

My friends, if you know and you are confident on your bank, then why not to buy same bank’s equity which gives far better returns.

Even let’s assume that you have 6 Lacs in your bank account. And somehow bank collapse. Then you will receive only 1 Lacs on those 6 Lacs. NOT entire fixed amount of 6 Lacs.   


By this blog my motive is not to make you chase towards equity or share market.  My goal is that we must consider equity while investment. This is going to be a game changer. But I also aware you that not to choose random funds or stocks, before choosing your investment sit with your financial planner or advisor.

Sunday, 30 March 2014

A letter to my Friend

I understand that it is too expensive to live in 21st century. These are about those few things which I learnt from my experiences and observations, things keeps on changing, you plan for something and when you reach near to that goal, actually that goal might have been shifted. But, I do sincerely understand that it doesn't mean we should stop planning.

As we do day to day planning – the time we wake up till we go to bed, why shouldn’t we plan for our future expenses?

I am very risk averse person. And I am not looking for very high returns in small periods. But Yes, I believe that we can built big corpus by small savings – Like it’s said that the journey on thousand miles starts with a single step.

I have drawn my own portfolio with small investments. I am in Personal Financial Planning and advising spectrum, it is imperative that the first experiment should be on me. That is how I can become confident in advising my investors and my clients.

This is how my first portfolio looks like,

I am going to start SIP (Systematic Investment Plan) with

ICICI Pru Banking and Financial services fund – Rs. 1000 with tenure of 3 or 5 years.
HDFC Midcap – Rs. 2000 for 5 years.
Axis Long Term Equity (ELSS) – Rs. 1000 for 5 years
Tata Ethical Plan A – Rs. 1000 for 5 years

Apart from this I would also invest in National Saving Certificate – Rs. 3000 in 5 year scheme.

I would also put my surplus in Birla Sun Life Floating Liquid scheme – Rs.  5000. Liquid funds have been considered as emergency funds. After six months I would divert strategy for liquid funds.

I will also keep on looking these funds performance in periods. If it doesn’t perform well on certain parameters I would prefer to change it too. Including this I would strongly follow to do rebalancing in a year. All the four funds are Equity funds, which would be eligible for tax benefit after 1 year under Long Term Capital Gain (LTCG).

I am not investing in Public Provident Fund (PPF) at this point. I do have account.  

As per my bank balance I am not eligible for big investment like real estate or gold.

Now the journey of thousand miles which was started with single step let us see where we are after five years.

After five years the corpus would be 1.7 L more than if you have just put in your bank savings account.

Now, If I use same strategy for the same next 20 years – till age of 50 – the corpus would be 2.4 crore, where I have not calculated real estate investment and other bonuses and commissions.

Simple conclusion is that if I start small investments like Rs. 8000 per month, we would end at 2.4 crore after 25 years.

This is the power of compounding and benefits of starting investment early.


Thursday, 27 February 2014

Investment advice from an Artist

In Finance there are more than one sub sections under one word, like Banking finance, corporate finance, Accountancy, Investment finance and so on.

Since the beginning of my professional finance course at PG class, I was passionate to choose Investment finance over other finance fields. It is not only about numbers and profits; it’s beyond numbers - more I dig in more treasure I earn.  

The most difficult hurdles in investment profession are NOT technical knowledge, or valuations, or inflation & tax adjusted returns from particular instruments. The most difficult hurdle for an investment advisor is, How to convert her understanding about financial markets and related products into very simple language so that client can understand about her next investment move.

In today’s investment market I have seen, investment advisors are not very much trustworthy for only one reason. And the reason is that they have failed to communicate with their existing or prospectus clients in layman language.

How can a professional advisor expect, a client having three to four timber factories would understand that when the interest rate goes up and market finds hard times in liquidity positions, ultra liquid funds are going to fall – which could be used for working capital etc. Or how can a professional advisor expect, a retired school teacher would understand that falling rupee is good sign to add export oriented funds into a portfolio – which could be used as monthly income from high dividends.  

I sincerely believe that if we as professionals would not adapt new ways – especially creative ways to make our clients understand what they are investing in and why it is important. We need to remove technical jargons and fancy talks covered with finance phrases.

I tried to come up with a story in my blog [Why my batchmate should know this money management secret?] and tried to explain retirement concept of Personal Finance. In one of my other blog [India needs second wind phenomena] I tried to explain inflation and debt issues with my personal experience examples.  

Talk to your client in its language. Put it very straight and simple.


And above all, it’s time to use our right brain. Investment is an Art.