Financial Independence India : Update 2017

First salary of FY 2017-18 is in and invested. It sure isn’t very interesting when you do one transaction and all of your investments are done for the month. There is no real thrill of researching and reinventing as you go along once you narrow down on a strategy to Financial Independence.
We started last year on shaky legs still learning to walk the financial planning bit of our lives. We were clueless about direct investing in mutual funds, zero brokerage trading (affiliate link) and more importantly the real long term game.
As we put first of our saved money, into various mutual funds we learnt we might want to change our approach to what we thought would suit us better. As the year went on we realized these early years are the best time for us to experiment with the investment strategy.

Financial Independence
Asset Breakup

Below is an account of how we decided to save our money and how it went for us.

Index funds

Most investors in Indian markets would advise to put your money in something which has high growth potential and it is still possible to beat the market. Why? Because we are still growing as an economy and a lot of measures are being taken to take us from a developing to developed nation.
With the urge to beat the market there is the need to know what will let you achieve the beating. We have no clue (like most around us) and we know we are in it for the long term. We know that the market will go up in the long run however the share or sector we bet upon may completely vanish the other day. You can easily ask those who lost money of kingfisher airlines or on businesses which are redundant today.
It was surprising for me to know that SENSEX and NIFTY change every day in how they weigh the stocks in the index and which company should be a part of the index.
With the uncertainty which accompanies making specific choice and our need to keep the money alive for as long as we can, index funds become the best choice.
Lower expense ratios are just added bonus and with the (late) discovery of direct funds we are paying as less as 0.3% for majority of our funds in expenses. This might not be a valid point for many but we don’t believe in sharing the returns of our money unless we have to.
We have thought of adding a few sector specific funds to the portfolio going forward but have not been able to justify the purchase. We own a few other funds some from before we decided to take charge of our finances and others as an experiment.
I am sure you can see where we believe our money is best invested.

Financial Independence
Fund Type Breakup

 

 

The Dividend Gamble

In last November we started another experiment to see how dividend stocks would work for us. We started small and we have been keeping our holdings within 10% of our net worth. The reason for this is twofold one it keeps more of our money in other long term safer holdings and secondly we accept we are no stock picking experts.
We are still at the experiment and did pump a decent sum around March. However we are probably not buying a lot more individual stocks in near future and definitely not making individual stocks a majority sector in the portfolio. Since we bought the stocks in last few months on the FY it is not fair to judge how much dividend we got out of them. That analysis I would hold back for the next FY.

The Real Estate Factor

It would be stupid to not talk about real estate as a major contributor to our net worth. We do get a monthly rent but we do not include value of the house when we talk about our net worth because we don’t own it outright and because that value is never absolute.
Currently we are landlords for the only flat we own and additional money sure doesn’t hurt. We have gone back and forth about whether we want to add more properties to our portfolio. Over multiple discussions we have gone back and forth about our decisions to buy but the answer for now is – no. This stems not just from our desire to keep our lives simpler but also because we don’t really have spare money to put into a non liquid asset.

The Home loan

As said above and in multiple posts here and here we own a flat. We also own a home loan to go along with it and it is more than what the rent covers. Last year in April we equated our home loan, using the overdraft facility offered by our loan provider. That meant we would not be paying any interest at all and our loan would eventually end earlier. At that time it felt like the best use of our money and a guaranteed way of ensuring we do not default on our loan.
Around June we had started challenging our financial beliefs with something known as maths, which told us this was not the best approach. We ran multiple scenarios which helped us determine the best ratio between offsetting the loan and investing in other heads. We have since reduced the amount we maintain in the OD account and have invested remaining.
The OD account is our emergency fund account which allows us to travel (replenished by us) dole out money when needed for family emergencies or invest in bulk. Currently we divert rent collected to this account which allows us to take money out without making a huge permanent dent in the account.

NPS

We had been following NPS for sometime but it wasn’t till late February that we seriously looked into what this instrument can do for us. We found that it is a good way to both save today as well as let our money grow without any interference from us for a good time. We have opted into the aggressive plan which invests 75% of our money into stock market using funds and remainingn is split in debt instruments. This is in line with what we intend to do with our money anyways.

Before we invested in NPS we were aiming to max our contribution for PPF. PPF in its own right is a great instrument to let your money grow but being an interest based option it does not provide the benefits that NPS does. We are currently aiming to put 50K each in NPS to get the extra tax saving we can and keep on contributing 1Lac to our PPF.

In our tax bracket we are able to reduce our tax liability 20K while investing which makes it a double benefit deal.

Side gigs

We are blessed with a profession which allows us to earn some on the side without flouting company policies. Even though with increased workload we have not been able to grow the revenues we have however been able to support a big chunk of our travels through it. That has allowed us to build our stash and not feel trapped into the grind completely.
As we work towards re-balancing our lives and learning how to say no to unfair requests at work we both hope to achieve better quality of life and time to increase our side gig earnings.

 

The Life Changes

Apart from what financial changes we made including reining in our expenses last year led us to multiple personal changes as well. We are now much more conscious of both spending and consumption. We have always known how much we spent past month but how that relates to our overall goals was never clear. This was perhaps because we had no goals we were aiming for except for finishing our mortgage.
Our life has much more clarity now and we have far more discussion about where we plan on being in next decade and decades after that. There is a certain amount of satisfaction in inching our way to the goal.
Before this we were usually looking at our expenses and the amount left from income as potential expenses. Now every penny we make is a way for us to get out of mandated working and allows us freedom to choose how we wish to spend our lives. I feel much more at rest mentally about our way forward and running multiple scenarios has led us to for the first time settle into our current job. As we said here we firmly believe saving is more of a mind game than a money game.
We are always open to better opportunities but knowing even in current job with its job security we are on our way to ensuring a far better and relaxed life than many around us. We get frustrated every now and then but know we are not in deep trouble with where we stand today.
The desire to be able to work on our own terms has reduced our desire to own more stuff. We have been actively purging our belongings and have reduced a lot of clothes, plastic ware and small knickknacks which have been gathering dust in various storage locations.
This is also the first time in years that we have a household which we run completely and it has taken us over a year to realize we can finally grow some roots. We can choose to retire from this city if we want or swap to another once we have the chance. Like I said above we know even while living in this expensive city we can get our numbers to work.
Even if you are not looking to actively save or retire and would rather spend every last penny you earn, take the time to think and decide where you want to be in five or ten years from now. If you are worried about what you can afford or how much you can save in your current situation running a few numbers can help you reach answers quicker.


How do your investment breakups look? What category of investments do you believe are best for you?

12 Comment

  1. Awesomeness. I still have to read quite a few links you have . Here is what I am doing for my financial Independence plan

    # save 50% of salary
    # 80 percent going to direct mutual funds ( 5)
    # 20% spread across ppf, debt funds etc
    # no home , no rental income, I pay rent

    I will start evaluating NPS but as of now happy with my decision to invest for my child education and retirement target .

    1. Hey Abhishek,
      Thanks for taking time out to read and give your inputs. We currents are DINK and have wondered multiple times how much that will impact our FI amount.
      You have a much better saving rate than what I have heard from multiple people over the years, Congrats!
      What is the age you are looking to retire? Do you aim to reach a comfortable FI amount and then keep on working or just call it quits and spend time on personal pursuits.

  2. Hi,
    I am amazed by your target of cutting down monthly expenses to 14k per month (excluding rent) in Bangalore. Similar to you, we are DINK couple planning FI. No liabilities as of now, but our expenses are very high in Bangalore. We use Walnut app to track our expenses and after one year of collecting data, it is extremely infuriating to see unplanned expenses.
    Will love to discuss in detail with you if you are comfortable sharing your email.

    Ravi

    1. Thanks Ravi,
      We have been trying to get our costs down last year and we are not there either. There have been months where we were able to keep them below 16K and months where they shot up because we finally bought a bed or had to get passports made.
      We averaged somewhere around 21K pm last year and to be true we believe that was quite good especially compared to 30K we were spending without those one time expenses and with a far smaller salary.

      Feel free to write to us at royallyfrugal (at) gmail (dot) com. We are trying to put together a series of posts to condense our experiences in cutting costs

  3. Hey DINK couples, a personal question – just don’t answer if you are not comfortable. Are you planning a baby or two in future? That really changes the whole equation of FI. I have one 4 years old, and we are planning another one 🙂

    1. We do plan to have one kid (unless fate throws us a curved ball) in near future.
      We have accounted for 10K in today’s rupee for child care and know it can vary hugely depending solely on which city we live in. We are however also conscious of the fact that we will have to support baby S for a limited amount of years.
      We really think that we have started with very little data on our own habits and we relook at our figures every year. The year we do procreate will require us to look at this really really hard.

      1. thanks! education is the bulk of the cost I believe. researchers say today it costs about $250,000 to raise a kid in USA, from birth to college. which is just insane, but daycare cost+college tuition is indeed through the roof here. How is it in India? I hear a lot of people prefer expensive private school back home! hopefully the college cost is still under control, especially if one goes through entrance, etc. obviously if it medical, law school, etc thats a different ball game all together.

  4. […] kept us pretty busy this past year and we aim to do much better. Our goal to get better covers our investment decisions, consistency, health and definitely our spending. We had stopped publishing expense reports because […]

  5. Nice blog, I am a FI aspirant from India.
    Are you looking at 25 times of yearly expenses for achieving FI?

    1. Subbu,
      We have done our calculations with year on year expense and gains on a spread sheet. It comes out to be more than 30 times of our current expenses. The reason is our pessimistic assumptions. We have assumed 6% inflation and 8% returns. Have a look at this post.
      http://royallyfrugal.com/early-retirement-india/

  6. Recently found you blog and it’s a great read. One question…
    Almost all managed funds beat index funds in India on a regular basis (Completely different story in USA) but you have 72% of your portfolio in index funds. Is there a specific reason for that?

    1. Hey John,
      Thanks for the complement.
      It might sound like managed funds beat the markets a lot in India and it might be true in many short term investment scenarios.
      We own SBI Bluechip as a trial managed fund for which we pay over 1% in fee. It has returned 22.75% in returns in last 1 year. In the same time UTI Nifty index has returned around 22.74% with an expense ratio of 0.13%.
      Both the funds own similar stocks as NIFTY 50 comprises of the mostly same companies like ITC, SBI, HDFC, Sun Pharma etc. There are a few other companies but we are happy to have the no worry version of funds.
      I also believe if we were chasing high returns with managed funds then we would have to monitor how the fund is performing regularly since a lot of managed funds go up and down with time and leadership. Index funds however go up and down with the market which is far far easy to keep track of and also once you invest in Index funds you only need to find a fund which would charge you least expense ratio.

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