Missiles Don’t Stop SIPs

Hi, I'm Monica Hallon and this is my podcast Let's Talk Money. Every Friday a new episode will drop that gives you a snapshot analysis of one money-related topic that has meaning in your life. And then I answer your money questions. My hope is to put you on the path to financial stability and freedom. So let's talk money. Will India be back to Covid times? You know this is a question I'm actually beginning to get asked. The short answer no. Look unless somebody pushes a nuclear button somewhere, we are really not back to Covid times and all that it had entailed then but are we is the world in distress? Yes. So let's focus on a simple truth. Things we get worse before they get better. This is one of those years where all of the money lessons we have said we have understood will get tested. And you know the way that I look at it is decade of 2020s. It began with Covid and it is just refusing to calm down. One crisis rolls into another and each one looks bigger than the last one. It began last year as a trade aggression with Trump, President Trump using trade tariffs as a weapon. That has now spilled into a real disruption of global energy, food systems, global energy security, food security and it's a world which is becoming more and more inward looking and unpredictable. So therefore we in India we have to think really long term about securing both energy and food and not just some short term fix. And for us as householders individuals, we should really prep for a tough year ahead, possibly higher inflation, volatile markets, general sense of unease and it's not something that our government can control. So please stop listening to the political debates which is blaming the government for not dealing with this crisis. Nobody can deal with this crisis. Okay, it's that big. But I think we are still doing well. So first what has changed so quickly? For the country I had come back after the budget announcement and basically I've been saying that look we are looking really good. We are in the right zone. It's called the Goldilocks zone steady growth about seven inflation under control, fiscal deficit improving, strong foreign exchange reserves. We have ticked all the boxes of of macro economic prudence. This is under pressure suddenly because of an external factor not internal. The trigger right now is the disruption in the global fuel supplies and because we import a lot of our oil, this matters to us immediately. So this is again a question which I get asked that what is the relationship of oil prices, rupee falling. So because we import our oil, we need more dollars to buy, don't we? And when the demand for dollars rises, the rupee value falls because it's a trade-off. And when you add to this, we've had foreign investors have been pulling money out of the Indian markets and they've been sending it to places where there are AI led sector returns. They've looked just far more attractive in the last year. That has really that pressure which was building on the rupee really came into effect with this oil shock. If this crisis continues, there is another risk looming. India gets a steady flow of dollars from the Indians who work in the Gulf. So their remittance money really shows up our foreign exchange reserves. If those economies slow down, that pipeline could weaken. So why should you care if there is distress across the world? Because of falling rupee plus rising oil prices usually means one thing higher inflation. An inflation erodes our purchasing power, it's low consumption and then can push interest rates higher. And that in turn will make businesses more cautious. It's a cycle and it's not a good cycle. But what about the bond and the stock markets? They're also in distress. Last couple of weeks back, there were headlines that the 10-year government bond yield has crossed 7%. Look, all these bond yield and all these are technical terms. All that it means is that bond prices are falling. Yeals and prices move in opposite directions. Why are yields rising? Because market expects higher inflation, higher interest rates and more government borrowing. The government has cut fuel taxes to cushion this impact on us. That's good in the short term. But it creates a revenue gap and the estimation is about 1.5 trillion rupees. The bond market is believing that this gap will be filled by the government by borrowing. More borrowing by the government usually translates into higher interest rates, which is leading to higher yields. Stock markets, of course, are forward looking. They react before the bad news fully shows up. We have a 10-month fall over a month to the stock market. As the market is adjusting to this new reality and there could be just more volatility ahead. Yes, there is more risk ahead. One more risk, which is fertilizer. India depends on imports, not just for fertilizers, but also the raw materials, the feed stock, which goes into making them. So if the supply chains get disrupted, this could move from being an input issue to a food security issue, from an energy issue to a food security. But any silver lining and yes, they there are and they matter. Look, we've entered into this huge global disruption from a position of relative strength. I'm calling it, we've entered it with a gym body. We've got healthy reserves, stable macro economic indicators, which gives us policy room to respond. It gives the government breathing space to absorb the shocks. The cut in the fuel taxes is one example. It is softened the immediate blow to households. But remember, this cannot go on forever. And again, what should a government do? Look, short term firefighting will continue. They are doing it. They are managing the currency, interest rates inflation, all of that. But I think the real opportunity here is long term reform. We have to absolutely build our energy security. We have to invest in nuclear alternative energy and use the coal that India has. We have a huge supply of coal just under the ground. We have to find ways of using it. The climate change target set by the global north is very ambitious. But I think it's unfair for a country with the work capital income, which is a fraction of what they have. These are now being called luxury items, even in the West. So we really have to think through what matters more, a future that we really we don't know where we like will we get there. Maybe the idea is halfway there that we use the domestic coal in a responsible manner. But please, we absolutely need to get energy self-sufficient. And we also need to rethink fertilizer subsidy. We have to move from inefficient production subsidies, which we have to direct cash transfers. These are all politically difficult choices. But I think India does very well in a crisis mode. So I have hope that we shall come out of it. But what should we do as individuals? And this is really the most important part for us first. You have to accept that this is a difficult year ahead and it's really not our fault. We are importing this problem. We are not at war, but we are feeling its effects very badly. Second and most important, please do not panic with your money. Do not try to time time the markets. We don't know where the bottom is. We don't know how much worse it gets. If you stick to your asset allocation, something that I tell you week after week, money is safe for debt, some inequity. You are okay. In these times, patience is not a virtue. It's your financial ammo. We can't control these events, but we can definitely control how we respond to them. Stay steady, stay disciplined, and let the plan that you have made do its job. Now, onto questions. I have Ambika Poudar who says, I'm Monica. I am a Mārwāri Indian housewife. I have no role in finances. It is all managed by my husband. Now, at 54 years of age, I want to be financially independent. My husband has a joint family business shared with families of two his two brothers. I want to invest in property, stocks, shares, commodities so that the cash and jewelry I have to keep me secure in my old age, and so that I don't have to depend on my sons. What can I do? How do I get to my goal fast? Ambika, your question. It resonates across so many homes behind closed doors. I'm glad you have asked. Housewives very often feel left out of financial decisions, assets and control. There is no option but to have a talk with your husband that you want to build financial security in your own name, in assets that you own. I know that it's not possible in many homes but I'm certainly hoping that you could do this. What would I ask him? How much do we earn every month? How much do we save? Where are our assets? What is there in my name? Where is the paper work kept? What happens to your share of the family business? Do the sons inherit it? Where do I stand in that? Mostly businesses flow from father to son. So you might want to make your husband understand that it makes you feel vulnerable for your future and this must be answered today. Look, if that is not an option, I certainly understand how difficult these conversations are in households. You really, you need a regular flow of money that comes to you as your own money from the husband. A marriage is a partnership. You're managing the home and the children and everything else. You need to get an independent flow of income every month from your husband. There's no harm in asking for more on a regular basis. Let's assume that you are able to get a regular flow. You need to prepare to invest. The first lesson is there is no fast road. You cannot do this fast. You will lose money. It will be a disaster. You have to begin by reading let's talk money and then move to let's talk mutual funds. These books will just empower you. It'll give you the confidence that you can make the decisions in the right way around your money. And Amika 54 is not that old. Is there no possibility of starting something of your own? A small cloud kitchen or whatever small business you can run from home. Remember, Shashi from English-Minglish, she had her own Lando business that did well. So I'm not saying that you should get restricted to the kitchen related business. But whatever your core skill is, I think you should expand on that and do something of your own. I will wish you a lot of courage and luck on this journey that you're about to embark on Amika. Then I have VR Shrinivas who says, this time my question is not an investment but on health insurance. A sector on which you have expressed for strong opinions. Of course, I have. The context is your book. Let's talk money page 36 second-patter. Okay, for other listeners, the second-patter basically says if you can't get health insurance because of pre-existing or age, you should build your own separate medical fund. This is something that impacts me personally and I have had to follow your suggestions. I do not know if you're aware of this but I came across this recently the Arugya Sanjeevanee policy. It's a policy mandated by RDI which is the regulator and all health insurance companies have to offer it. It's a basic policy low cost with standard conditions. The coverage ranges from 50,000 to 10 lakh depending on eight and includes family floaters. The premium may be one-tenth of the others that are advertised. Other than the usual dental plastic surgery, it seems there can be no permanent exclusions. So there is a waiting period. It covers hospitalization, includes decay, etc, etc. I do not know much more than this. In particular, whether there are still permanent exclusions and how could the claim settlement processes. I asked my agent a dissuaded me saying, "Zada Tignaya sir." Of course, that's what they would say. But it is it not better than nothing. I do believe these policies should be more widely known. So thank you, Shrinivas for pointing this out as a medical cover. For the other listeners, I'll give a small background. So this policy, Arugya Sanjeevanee policy, it's a standard health insurance. It was introduced on 1st of April 2020. The idea was to solve for the complexity in the health insurance space. I have said earlier, you need a degree in finance, law, futureology to understand health insurance policies. This was supposed to be a standard policy which has the same features across every company. It's almost like an index fund in investing, isn't it? So it's a baseline product that every player in the market must offer. So that the consumer, they could always have one comparable comprehensive option. So every company must have this Arugya Sanjeevanee policy with their company name. So expires that company. Arugya Sanjeevanee policy. So then when you want to compare, it's the same features you're just comparing on the prices and other details. Like you said, there's a copay of 5%, which means you pay the first 5% of the claim and the rest, the insurance company pays. There are sublimits. All of these are aimed to reduce the liability of the insurance company. And in return, those who could not get insurance earlier, due to pre-existing diseases do at least get some cover. So this policy actually works for those who either face rejection for a comprehensive plan and for those who are onboarding from a smaller Indian city because the coverage is not very large. The other issue with this policy is that the agents are not incentivized to sell because the premiums are lower, right? So the commissions are lower. So like your agent, they try and steer you away. But you know, if you're not getting a comprehensive cover due to whatever reason, then at least this gives you some cover. The other option is to buy a super top-up if you want a larger cover, if the insurance company will give this to you. So it's been a great idea, but for some reason it's not been super successful on the ground. We just have to see how the regulator deals with this product category. But I think you are doing the right thing by trying to provide for your own medical emergencies on your own. And then there's anonymous from Bangalore who says thank you for writing. Let's stop money, let's stop mutual fund. I have read the first book and half it through the second. For a financially illiterate person like me, these books are a boon. I also listen to a podcast while on my way to work. I am a 40 year old man working in the IT industry in Bangalore, living with my wife and six year old daughter. I need your advice on becoming financially independent in the next five to 10 years. I ran the numbers on a few fire calculators, the target numbers anywhere between six to 16 hundred crore. And I don't know how to reach that. I like what I do at work and I plan to work for another 10 years till the age of 15. And after that I would continue working if I still have a job given the situation to AI. I am the sole owner. My take home salary is around three and a half per month and my average monthly expenses is a lack and a half. We invest one and a half like monthly in funds. We have no loans. We live in a fully owned flat. We have no other property. I have a family floater health insurance. Our savings are FTs is one crore, PPF is 50 lag. So can you, somebody, we just started 45 lag in mutual funds. There's some sovereign gold bonds. So he's got many questions. I'll take them one by one. So I have an employer provided insurance, do I need a separate insurance cover? The anonymous, yes, please you need your own life insurance cover. You have just said how AI is threatening jobs. The older you get, the higher is the premium that you get locked into. Please buy a life insurance cover for yourself immediately. This is priority. Second, given our PPFs, do I need to invest in debt? Look, you are over invested in debt. In your thirties and forties, this is the decade that you can take on the risk of equity and really push the pedal on growth. So if you do your asset allocation, you will see that you're overextended in debt and your equity part is very, very small. I would keep the PPF and roll it forward but I won't reduce the fixed deposits, split it into emergency fund and another two to three years of living cost or short term goals and stagger it into equity investing. You need the growth for your retirement. And as I see your numbers, you actually do not have the money to retire at 50. So even if that job loss does come, you should begin prepping at age 40 for a second career elsewhere. Look, there's a very long runway. We can work well till our seventies. So I wouldn't let these decades just go empty. And you had another question on your car whether you should take a company loan because you're replacing your 15-year-old car. If your company is giving a low or a zero interest loan, please just go ahead and shovel the money that you're going to go do cash down for the car into funds for growth. You have a question on your NPS contribution. So look, the increase is fine because you are building your future corpus but choose the higher the higher return equity funds. The potentially higher return equity funds do not put this money in more debt and you must remember that 20% of the final corpus at Westing will go to buy an Anavity. So that is the money that you don't control, which is fine but remember to get an Anavity option which really maximizes your income. You have a good start but this is the decade which really will decide your future. You have to pull hard, you have to increase your savings and you have to get them to work harder. And that's a wrap for today. I enjoy answering your money questions. Remember, I don't look at individual portfolios, I don't recommend products. Look upon the space as a place to ask strategy questions doubts and just basic things that you might not understand. Each time you have a good money outcome, I feel that I have one. To make sure that you don't miss an episode, press follow and help your friends get money smart by sharing a link with them. You can reach out to me at [email protected]. That's Monica with a K tag my social media handles at the rate Monica Hallen and finally remember that you should have money and money should not have you. So let's talk money again soon. Bye. (upbeat music)