Things I Learnt in Investing this Year – 2019

1. Credit Card

So far…

When @_sodabottle taught me the basics of personal finance, one thing he said was, “Credit Card and EMI are like the swear words of financial dictionary. We should be at least 10 miles away from where those words are uttered”. I think the advice is one of the best for a person who is about to get his first salary and learning about saving. It inculcated a mentality where I always saved the money required to buying anything.

What changed..

.. this year, is that, I was finding it hard to balance the irregularity of a freelancer’s income and the regularity of monthly bills. The transfers would get delayed anywhere between 3 day to 3 weeks. Credit cards solved that for me by giving interest free credit for upto 30 days. I spend on the credit card, takeout cash on the Debit card. There is always enough buffer in the bank account so I don’t stress about not having sufficient balance for my SIP payments.

What I learnt? Never do cash withdrawals with Credit Card as interest calculation starts from the day you withdraw cash. 30 day interest free credit is only for payments. So,

Payments – Credit Card
Cash – Debit Card

Another bonus of having credit card for payments is that, it shows a healthy bank statement, comes in handy when applying for VISAs to travel abroad.

2. Interest Rates & Gilt Mutual Funds

One of my biggest learning this year was how interest rates, bonds and yields work. I am happy that I converted it into actionable investment strategy.

Disclaimer: Don’t take this as investment advice. I won’t be responsible for unsatisfactory results. I am keeping things vague purposefully so you will read, understand and apply.

Basics

Gilt Mutual Funds are mutual funds that buy Government Bonds with the money we put in them. Govt bonds are the safest way to invest money because governments don’t default that easily (except in rare cases, look up Sovereign Default, it is an interesting topic). But Gilt funds are not. This is because Bonds are traded. So the value of the bond might go up or down based on a lot of things. This is usually tracked by a value called GSec 10 Yr Bond Yield. When the yield is high the price of the bonds are low and vice versa.

gilt_fund_graph

What I learnt…

Because of this the value of the bond might go up or down. If you invest during the wrong time you might get less than what you put in. So, when is the right time?

My thumb rule is – invest when 10 Yr GSec yields spike more than Bank Deposit rates.

I did a simple graph based analysis in this post Investing in GILT funds
. Doesn’t explain much, but if you know what are yields, repo rates and read the comments on the graphs you will get an idea of how to time your investment.

3. Liquid Funds

In 2018 I moved from Bank Deposits to Liquid Funds. Liquid funds use the money we give in short term debt bonds called “commercial papers”, which is a technical name for bonds which mature in 3 months – 6 months..etc,. Maturity is basically the borrower paying back the sum borrowed with interest. Due to their short term nature they are usually very safe and there is almost never at risk of negative returns.

liquid_fund_graph

Notice how the returns is almost a straight line going up.

What I learnt..

The returns vary in relation to Repo Rates. While I get a constant rate in a bank deposit, this allows me to get better rates when repo rates raise. Of course there will be times when it under performs as well.
liquid_fund_performance

Despite a small risk of getting poorer returns than fixed deposit why I prefer Liquid funds:

  1. The risk is actually very small. Most times the returns are similar to bank deposits
  2. There is no maturity period involved. What that means is I get whatever interest has accumulated on the day of withdrawal, unlike a fixed deposit where I have to forgo the interest if I break the FD before maturity.
  3. I have the flexibility deposit any amount and withdraw any amount at any time. Setup an SIP, this becomes a Recurring Deposit.
  4. If I happen to never need this fund and it sits for more than 3 years, then I get indexation benefit. That means, I pay tax on not for the full interest, but for the interest earned after adjusting for inflation.
  5. There is no TDS involved as in bank deposits. And Tax calculation itself is advantageous when doing partial withdrawals as everything is measured in units.
    See this post on how this calculation works.
  6. Some Liquid funds offer same day withdrawal upto 50,000 and full withdrawal in 24 hours. Comes real handy as an emergency fund. So there is never this worry of putting in redemption request and waiting.

I have kind of taken advantage of Liquid Funds to the fullest this year and would continue to use it.

4. Corporate Bonds & Funds

While I am big fan of Liquid funds, the Corporate Bond Funds is another debt fund that which focuses on corporate bonds. One of my friend recommended that I look at Short Term or Ultra Short term Corporate bond fund, because they gave better returns than a Liquid Fund with a slightly more risk.

corporate_fund_graph.png

I was evaluating if I should opt for this instead of Liquid Funds this year. Instead ILFS, DHFL ans Zee all defaulted on their debt sending multiple Debt funds down to dizzying depths – upto 50% down on a single day. This has scared the crap out of me. I have decided to revisit this category sometime later.

Buying bonds directly

Buying Corporate bonds which give 9, 10 even 11% interests have been an enticing thought for a while. But after the default episode and evaluating the amount of money I want to invest in a debt fund, I have decided against this completely.

  1. Buying Bonds directly only increases the overhead in terms of accounting for taxes.
  2. You always have to buy them in lots. So if you are a little short or in excess it is irritating.
  3. Buying bonds of a single company increases risk. Most funds only lost 5-10% when the defaults happened. If I had owned a bond instead of bond fund, it might be a complete 100%.

Maybe I will think about corporates bonds when I am dealing in Crores.

5. Equity Funds

5.1 ELSS Fund Consolidation

ELSS funds require the shortest lock-in period of all 80C Deductible investments. Salaried people might have other avenues to for taking advantage of the 1.5 Lakh deduction, for a freelancer, I find ELSS the best option.
In 2016, I setup SIPs to 3 Mutual Funds because I wasn’t sure which one was better. So I went to MoneyControl.com sorted by returns for 1YR, 3YR and 5YR, and chose 3 names that came consistently in the top 10. This year, I compared the returns and cancelled the poorly performing 2 and setup another SIP to the better performing one for the combined amount.

Good Performance – Axis Long Term Equity
Poor Performance – ICICI Pru Long Term & Franklin Templeton Tax Saver

Note: FreeFinCal says there is no real reason to use ELSS, because there are other ways in which you could deal with 80C deductions. Take a look

5.2 Index Funds

I wanted to invest in something other than ELSS and on my search to find a good Large Cap Equity Fund ended up with this in April.

passive

Around April 2019, all the top Large cap funds were Index Funds. Passive Investing is a big theme in US. As more and more managers struggle to beat the Benchmark indices it becomes a game of luck to invest in the right fund. My personal experience with ELSS is proof to that. Despite all three funds being in the top 10 of ELSS category 3 years ago, now only one remains there. This convinced me to setup SIPs in Nifty 50 Index Fund and in Nifty Next 50 Index Funds.

  1. Index funds despite being called as passive funds are actually actively managed in a way. The growing companies get added, the laggards are removed via Index Rebalancing twice every year.
  2. Index funds kind of puts the investing on an auto pilot. I don’t have to take stock of the returns and see if I am doing better than the Index and adjust.
  3. Point 2 is important because, if an active fund underperforms after 1 year, I have to redeem the units and switch it to a new fund. This would mean, I have to pay taxes on the gains.

Having said that, I think there are really good active funds out there focusing on a variety of themes, company sizes and industries which have been producing a lot more than the Index. It requires a bit of hunting and follow ups once every year.

6. Timing Investments

After I decided to invest in Index Funds, I started wondering if there is something that I can do optimise the timing of my purchases and increase the returns via Index ETFs. I did some analysis to use 50 Day Simple Moving Average to buy lower than average price … long story short, “Just do SIP”.

Here is the full Analysis: Investment Strategy: SIP vs SMA 50

If you are interested in other such optimisation strategies see this page on StockViz. Invariably every one of those will hold up SIP as the best strategy.

7. Annuity Plans by Insurance Companies

A friend got sucked into an Annuity plan in 2018 by SBI Life and another one was about to be last month by HDFC Life, hopefully the reader doesn’t.

Annuity plans are the ones which have a description something like this – Invest X amount with us for 5 – 10 years. We will then give back X for double the period 10-20 years or 2X for the same amount of years. There is usually a cool of period involved after the investment period when neither you pay the insurance company, nor they pay you. It also includes accidental Death cover.

Whenever some approaches you with such an investment plan, do one thing, run. I will actually go one step further:

Whenever an insurance company offers you an investment plan – Run

Here are the reasons why:

  1. If you apply the run of 72 and calculate the interest rate based on the annuity starting period, or do a IRR calculation using an Excel Sheet you will find that the interest rate they are offering you is less than Bank FD Rates. I am yet to see one annuity plan which does better than bank FD.
  2. The reason they are able to double the premium for the same number of years or the premium for double the number of years you invested is because your money would have doubled by the time they start paying back at 6% interest rate. (72/12 yrs = 6%) Almost all annuity plans will have 11-12 years as the cutoff after which they start paying you back.
  3. They gloss over the fact that 4.5% the first year and 2.5% every year will have to be paid extra as GST on the premiums. If you include that, the annuity returns wouldn’t even come to 6%.
  4. You can get better returns by buying Govt of India Bond at 7.4% or 6.9%
  5. You can do better by investing the money yourself in a Liquid Fund for the same number of years. You will have a bigger corpus including what would otherwise go as GST.
  6. If you stop anytime in the middle of the agreed period, you only get back what they call as surrender value which is I have see between 10-80% what you have invested. Yeah. They won’t even give your money back, forget doubling.
  7. The Life insurance they include is just a cover to sell this product and the insured amount won’t matter much and is usually a multiple of your premium. If you want life insurance, get a term insurance separately for a multiple of your annual salary, so your family’s requirement is actually taken care of.
  8. If you are really thinking in terms of 10-15 years, I think allocating a portion to Equity Fund is a smarter thing to do instead of falling for assured returns.
  9. If they claim returns are tax free, kindly remember, paying 40% tax on 12% gains still gives you 7.2% gains which is higher than 6% tax free.

Moving back from Mac to Windows + Linux

Content Warning: Rant ahead

As my Macbook Air is becoming more and more restrictive to the things I could do, due to low memory of 4 GB and 128GB SSD, I decided to buy a new laptop with better specifications. After some filtering and comparison on Flipkart and Amazon, I finally settled on Lenovo S540 14″ with 8 GB RAM and 1TB SSD. It also came fitted with a 2GB Graphics card which I think will help working with ML algorithms easier. While the hardware is great for my requirement, the software is a complete let down.

Issue 1: Windows Font Rendering is Crap

The screen is a full HD 1920×1080 display in 14 inches. One would think the display would try to match that of the display of my Macbook Air (1440×900), but nope. Not in a million chance.

The system recommends a scaling of 150% for good results, anything below that the system font Calibri starts breaking down and there seems to be no anti-aliasing effect.

There are a couple of solutions to this problem, like setting the scaling to 100% and increasing the font size separately. This works to a certain degree, but doesn’t achieve the smoothness of 150% scale.

Now I have an interface that seems to be adjusted for my Grandma’s failing eye sight.

Issue 2: Microsoft loves Linux – My Feet

I think the whole MS loves Linux non-sense started almost the same time I bought a Macbook. So I never experienced what it meant. I now get what it meant, they wanted to sell Linux machines on their Azure cloud and that’s about it. Whatever contributions they must have done, should have centered around that goal. Because installing Linux in a Windows 10 machine is more difficult now than it was 5-8 years ago. Back then, it was just a matter of knowing how to partition disks and ability to choose the boot disk. Now I had to:

  • Create the bootable disk in a specific format for UEFI compatibility
  • Run a command to change the Storage access method from RST to ACHPI
  • Go into BIOS and disable Secure Boot, and change the ACHPI
  • Boot into Safe Mode so that the disk can work with changed storage
  • Finally boot into install disk and install.

What should have taken me 15-30 minutes took me 2 and a half hours.

Issue 3: Windows 10 is a Data Collection Pipeline

I am really horrified at the number of buttons that I had to turn off during the setup process and I still find as I use the system.

Issue 4: Application Management in Windows

Windows Store is a disaster, I don’t know what is installed in my system and what isn’t. There are tiles for games that aren’t installed and there is no way to differentiate between a tile of an installed application and a tile of a shortcut for an application that is recommended for install.

Issue 5: Why are tiles in Start Menu?

With 150% scale, it always feels like I am seeing only a part of the actual screen when the tiles come up. I don’t understand how MSFT understood that they should go back to the start menu but decided they will keep the tiles nonetheless. Either tile or don’t, consistency please, the mashup is nuisance and everybody should just learn to live with it.

Issue 6: Application Management in Ubuntu

So everybody has been bit by the centralised application distribution model. But tell me which serious software actually gets published? At least none of the ones I seem to use, even in the Mac OS ecosystem which started the stores concept. MS Office, Adobe Creative Suite, IDEs like PyCharm, Android Studio, Eclipse, Browsers… everything is package download from vendor sites. But that hasn’t stopped Canonical from creating Snap store. Now I seriously don’t know why there is a software centre and also a Snap Store and there is good old apt package manager.

The Good Bits in Linux

It’s been 24 hours of hell with the new system. Yet, not everything is bad.

  • Once up and running, I haven’t encountered Wifi or Bluetooth driver issues.
  • The Kernel seem to be pretty stable.
  • Grub has themes and OS selection is stylish.
  • Memory usage is pretty low
  • Font rendering and antialiasing is spot on. I think I just need some time to get used to 16:10 to 16:9 aspect ratio
  • The drivers for the Graphics card are in place
  • Tap to click and Natural Scrolling keep my UX is same across both my machines

Conclusion

After a frustrating 24 hours of the setting up the system. I have completely given up on Windows. As ususal Linux will be my primary OS. Will turn to Windows for recording tutorial videos or when collaboration required MS Office, or maybe games. If money wasn’t an issue, I don’t think I would have moved from Mac to PC at all. Things like 3 finger application switching, desktop switching are still etched in me. So, personally I prefer

  1. MacOS
  2. Ubuntu
  3. Windows… I would try my best not to boot this thing.

Beautiful and clean diagrams with Keynote

Look at this flow chart like diagram. It is a really nice representation for explaining the concepts of Iterators and Generators.

Relationships
By Vincent Driessen

If you use git, then there is a big chance you might have come across this article A successful Git branching model by the same author. There are more pretty diagrams in that post as well. For a very long time I have wondered how those diagrams are made. I decided to find out today and it turns out it was done with: Keynote – the powerpoint equivalent in Mac.

Keynote.png

Pretty good.

OSM Mapping with AI from Facebook

Facebook and HOT OSM have come together to use machine learning to make maps better. It looks like a mutually beneficial collaboration that will help OSM

“AI is supercharging the creation of maps around the world” is a very interesting development in OSM mapping. It perhaps will reduce the number of hours required to map areas by at least a couple of orders of magnitude.

Automatic feature extraction is nothing new of course. People have been doing it for decades. I should know, I spent two years mastering (supposedly) on Remote Sensing, the domain that deals with capturing information about the earth using satellites and extracting useful information from the captured data. The traditional remote sensing workflow uses techniques like Supervised Classification and Unsupervised Classification for feature extraction. The beauty of machine learning algorithms is that models can be built which can merge these two classification techniques and automate the process.

OSM community AFAIK stayed away from automated data generation mostly because the work involved in cleaning up bad data is more difficult and tedious than in creating new data. It looks like the collaboration from HOT OSM and the development of RapID (enhanced ID), the process put in place ensures that only quality data goes into the system preventing the issues of bad data from happening.

While it is all colourful for the OSM community, the question with profit seekers like Facebook is always what’s the catch? I tend to think there is no catch for the OSM community and that FB has decided to invest some money in the OSM so that they can use the fruits of community work for their benefits. It looks like a mutually beneficial arrangement. The community gets the resources from FB to create a better dataset and FB gets the data for its usage. I am sure FB will extract more value out of their investment in the long run and reap more benefits than the community. They will obviously have their own data layers on top of the OSM data, they will overlay all sorts of tracking data and enhance their capabilities as a surveillance machine. But all that is left to them and their corporate interests.

For now this is a good thing and doesn’t seem to do any harm to OSM.

Internet Dot Org

Yesterday one of my friends posted a message on Facebook saying he supports in InternetDotOrg initiative of Facebook and pointed to a post by Mark Zuckerberg. I had some free time and wrote a eloborate explanation so as to why it is not really a good solution for bringing internet to the unconnected masses. The following text is a repost of the same.


Comment #1:

Hi. First, the issue behind InternetDotOrg is not about internet. It is about control and flow of information.

Let me break it down one step at a time:
Solving last mile internet penetration as you imagine is being done at various levels currently including fibre laying for e-Governance initiatives. This report http://www.indiatelecomonline.com/telecom-penetration-in…/ says 91% of the rural India are connected by at least one mobile operator.

Comment #2:

Next is affordability: Now that is a question we all can ponder. I will take my operator Airtel 2008-09 unlimited 2G data for one month was @98rs, then it was 2GB for 98, then 1GB for 98, then it started climbing up 125, 145 and now it is 175 for 1GB of data. Who is driving the cost up? Is there more demand than supply? Why is 2G data cost rising when Airtel is rolling out 4G?

Comment #3:

I will try to answer them, but I don’t have all answers. Demand – Supply: Yes with smart phones demand has increased comparatively and that too drastically, but instead of moving the users to a higher bandwidth platform like 3G or 4G, telcos are trying to make use of the situation best by increasing prices in a congested bandwidth (is it really congested is a debate in itself :)) If properly billed urban masses can be migrated to 3G networks pretty easily, again due to crappy phones that most buy, 3G battery draining is a bottleneck for such an expansion. So everything is caught up in a muddle, and telcos have chosen the easy way out of charge more on what people use more

Comment #4:

Due to this muddling the once easily available internet has moved farther from the ‘poor and unconnected’ masses that InternetDotOrg says it wants to connect. The actual reality is everyone is connected already, only people don’t know it.

Comment #5:

Now let us talk about this “disadvantaged people of the society who are deprived of opportunity” and how IDotOrg is positioning itself. Disadvantage – Technologically there is none. Economically – YES. So IDotOrg says, it is going to give free access to NOT INTERNET but “..offers free access in local languages to basic internet services like …”, the key difference being internet and internet services. So anyone who partners with FB gets a path to reach the population. If you don’t partner you don’t get a customer. Simple. Personally I am not much worried about this at this point from business stand point and don’t talk Net Neutrality here. At the end of the day, it is a choice, even I might use it, because all I care about internet in my mobile is Whatsapp. Everything else I have my house Wifi.

Comment #6:

What bothers me is the things that we don’t see, while giving a selection of internet services is one way to solve the problem, there are surely many other.

  1. Use public corp like BSNL to provide cheap or free internet in rural areas.
  2. Why not repurpose barely used resources like EduSat satellite?
  3. Why not create a whitespace in the mobile spectrum and leave it free for hyper-local non-profit telcos like a Community Radio?
  4. Use other white space solutions like the ones Microsoft Proposes http://www.business-standard.com/…/govt-to-test-white…
  5. Use something like Google’s Project Loon with a more stationary setup.

All these solutions are driving at providing affordable internet connectivity, not just Internet Services. Nobody owns airwaves, it is not some exhaustible resource. All of the above won’t happen because there is NO MONEY in it and nobody really cares about a sustainable long term solution for affordable internet.

Comment #7:

Facebook is doing it because, user acquisition has plateaued. It is not a startup but a listed corporation. It needs to make shareholders happy, one of the key metrics is user base. The next billion users of FB are not going to come from America or Europe, but from South Asia and Africa. So there needs to be a way to tap into this potential user base, this cannot happen because of the bottleneck – affordability. So by IDotOrg FB is trying to acquire users. You might say it is a win-win situation for both the users and FB. At this point I should agree. But I won’t. Because I am going to apply a simple test here, imagine the most vulnerable person who has zero idea about online privacy, data tracking, focused advt, behaviour tracking, face recognition and other technology used by FB. Now can IDotOrg collect enough data to make this person’s life miserable? Does the person have any idea of what he is giving up for what he is getting? Is it the right price to pay? Are YOU willing to be that person? Are you willing to live in a flat with the perfect view of the garden, but never being allowed to enter the garden? I cannot. I am not willing to be that person. I don’t want my idea of internet, my access to information, and my choice of using a particular web service decided by a for-profit corporation which makes money based on people’s choices and behaviour.

Comment #8:

I would request you to reread Zuckerberg’s post again and really see has he anything to say except marketing crap. I suppose he is doing nothing but selling.