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Thursday Trivia ~ A Review on different Mobile Budgeting Apps

‘How does change happen?’ asked a curious student. Teacher smiled and replied, ‘Two ways. Slowly at first then Suddenly!’

In last week’s Thursday Trivia, we presented a wave of change in recording household and personal budgets. An activity, which we have been used to traditional single entry book keeping method. Over the years, double entry book keeping system has gone through remarkable technological innovation. There are very good softwares for such a system of book keeping. Because of it’s extensive commercial use, it was disrupted before our traditional single entry book keeping budgeting method for households.

Post demonetisation, a wave of being cashless has erupted in India. Going cashless has it’s own economic benefits. But we all know, how difficult it then becomes to keep a record of our expenses. This was the major concern of most people post demonetisation.

Last week, few of our readers asked us to recommend a good mobile budgeting app. Since, we do not engage in recommending one particular app, we decided to ourselves use a few apps and write about it’s advantages as well as disadvantages. However, let’s not look at each one individually but let’s look at what we require our mobile app to do and work it forward from there.

Linking multiple Bank Accounts

A question that was raised by one of our reader was does these apps link our bank accounts? Is it safe? Won’t cyber security hack into it? Isn’t the whole system subject to a great danger?

Bank account numbers are not linked through online banking. Suppose, you swipe a card for a dinner at your favourite restaurant. A message will come on your phone, which mentions the amount debited, account number, date, time and in brackets even your current balance in the account is mentioned. Apps such as ET Money, Walnut, Money View request your permission and collect the information for the same.

However, it was disappointing to see apps such as Qykly, vMoneyTracker and Coin Keeper which are highly rates did not perform this basic function and requires the user to input these details manually. This not only creates a disinterest to use the app but defeats the whole purpose of providing ease to the user.

Statement of Expenses

In Apps such as ET Money, Walnut and Money View the bank accounts are linked, so every time the user swipes his card, these apps appear on your screen and ask you to allocate various heads under which that expense should be put. It’s an easy 5 second job for the user.

However, cash expenses has to be put in manually under different heads. At first it might take some time, but after a while it just becomes a matter of seconds to record the same. Cultivating that habit would be very important. In simply 3 clicks, a cash transaction can be recorded. If this is not ease, then what else is?

In apps that do not link your bank account, an entry has to be manually fed into. This just gets boring after a while and chances of expenses getting unrecorded are high.

User interface to view expenses is much better in Walnut and Money View than most other Apps. Since, every app gives a gamified view of expenses, Money View is found to be very clean while Walnut is just one step behind it. Rest others have a lot of information on those pages which might not be of relevance such as ‘Share’ function in ET Money on platforms such as Facebook, WhatsApp and Twitter. It doesn’t make sense as to why a person would disclose their monthly expenses on social media platforms. WhatsApp still kind of makes sense as to share it the statement as a report format, but then a simple screenshot is available on the phone to do it.

Hence, the common sense behind building such an interface is also compromised.

Set Budget and Reminder of Bills due

This is a plain vanilla function which is available in every App. All you have to do is just set your budget amount. However, budget cycle remains the same ie. starting from first of the month to ending on last date of the month. A reminder of bills along with their due dates is no more a requirement. Utility companies such as, electricity, telephone send their customers reminder messages well in advance. This setting is useful when there is a payment gateway through the app which automatically makes the payment. However, as of now the function is not available while your mobile wallets perform this function.

Again going back to the first point, if your bank accounts are linked then this function will make sense to you. Otherwise, manually feeding every expense will not serve the purpose.

Option to Invest

Only ET Money App allows to make investments while the rest of the apps don’t have this function. At the first mention, this seems like a tempting function. However, ‘investments are subject to market risks!’ speaks our mind. While budgeting for monthly expense, having an option to make investments sounds like a good deal. But having too many things in one app takes the flavour away.

The App allows making temporary investment in liquid funds, gold funds to selecting a mutual fund and starting a systematic investment plan with the same. The question is would you trust your money being invested by an App or by a human being who assures to take care of your hard earned wealth? It depends from person to person, however exploring the app would not be a bad idea.

User Interface on Spending Summary

ET NOW                                     MONEY VIEW

Summary

To summarise, Walnut and Mone y View stands out distinctly with a cleaner user interface that makes it easy to record a transaction. However, Walnut is not available for iOS users till now. In the start, it may prove to be a trouble to watch our expenses being recorded on a mobile phone but in time it sort of becomes a habit.

User interface and experience in these apps will improve over time as this vertical has not been explored for personal finance as yet. Once enough people start using it, these Apss will look a lot different from what they are now.

– Jinay Savla

Disclaimer :

Currently, we have limited our review to only ‘free’ versions of these Apps. There maybe a case where “Premium’ version which provides a different experience. Incase, you have in past or are currently using a budgeting App, then please do share your experience in the comment section below.

Also, if you have a specific query on any function of the App which we have not covered here, then please feel free to write it below. We will be more than happy to help.

Thursday Trivia ~ Asset Allocation (Series 3 of 3)

In our previous series of Thursday Trivia, we touched upon the definition of Asset Allocation and three strategies to achieve the same namely, Strategic Asset Allocation, Tactical Asset Allocation and Dynamic Asset Allocation. Following which we got various questions on emails, which we will answer here. Certain questions have been asked twice, so we have consolidated them.

To answer these specific questions, we have requested Mr. Saurabh Mittal, Founding Partner of Circle Wealth Advisors. His rich experience always helps to uncover deeper aspects on the subject of personal finance.

Following are a few questions we have shortlisted.

Question 1 : Hello, I am just starting my career. Would asset allocation matter to me? 

Answer : Asset Allocation is not just a factor of age, but also of the goals you want to achieve. It also takes in to account your risk profile. As a rule of thumb, your equity allocation should be 100 minus your age. But this is just a broad view of how allocation should be. Once you have created an emergency fund (which is around 3 months of your expenses saved in separate basket) and want to start saving for your long term goal of financial freedom then all investment towards this goal can go to equities.

Question 2 : Is there any strategy to Asset Allocation other than the three which are mentioned during the series?

Answer : Yes, there are several other strategies for asset allocation apart from the ones mentioned in the series. In our experience different strategies work for different people. But the safest form of asset allocation is Strategic Asset Allocation which helps reducing the risk and volatility on investments immensely.

Question 3 : My primary investment is in real estate, how can I do Asset Allocation for the same?

Answer : Real Estate by nature in not a liquid investment. Once you have a strategy in place and have decided the allocation in different assets, the only way to execute the strategy is by selling the real estate. This is how it works with not only real estate but any other asset class. To rebalance the asset allocation you would have to sell investments in assets that have become overweight over a period. The only draw back with real estate is that to rebalance the same you cannot sell it partially.

Question 4 : Can we use crypto currencies for Asset Allocation? If yes, then under which asset class it would fall?

Answer : Any asset in which you invest becomes a part of asset allocation. Its desired that you take exposure to that asset to the tune of its requirement as per your strategy. Crypto currency as the name suggest is a currency and a mode of payment. In our view, since it does not have a cash flow of its own, it should be treated as cash equivalent as an asset class.

Question 5 : Which strategy would work for a retired individual?

Answer : It again depends on the number of years left for the consumption of retirement corpus. For people who have recently retired, we advice people to invest through bucket strategy. Where the money required for consumption in next 3 years should be invested in debt funds and balance in equities. This should be rebalanced every year and the debt fund should be funded such that it is adequate for next three years of expenses. This strategy not only helps in having better longevity of the corpus but also brings a more certainty to the cash flow in terms of systematic withdrawal plan from debt funds.

Question 6 : What concerns must be taken in order to switch from Strategic Asset Allocation strategy to Dynamic Asset Allocation strategy?

Answer : Dynamic Asset Allocation is more focused on the current market conditions as compared to Strategic Asset Allocation. We advice that, Dynamic Asset Allocation should be done with the help of experts. Also it can be applied only to a particular asset as well. For example, as a strategic allocation if you decide to have equity allocation of 70% in the portfolio. This 70% portion can be dynamically managed.

Question 7 : What role do current market conditions play in the Asset Allocation decision-making process?

Answer : Strategic Asset Allocation process helps in ignoring market movements and conditions. While taking important decisions with our money, usually a strong reliance on given on market and it’s past performance, however with implementation of the above mentioned process, such actions are not to be taken into consideration. It’s just important to stick to risk profile and goal profile which has been charted out and rebalance the portfolio on particular time frame which is pre-decided.

Question 8 : Can we do a sector wise Asset Allocation? If for a certain period of time, infrastructure as an asset class is doing well, then can we build our portfolio around it?

Answer : Sector wise allocation can be done through Dynamic Asset Allocation strategy. However, it’s important to note that sector wise allocation would be a part of overall strategy which would include exposure to other asset classes as well.

It has to be understood that, targeting a particular sector is like timing the market. It is a riskier alternative and will need an expert’s advice from time to time. Additionally, it will bring more volatility into the portfolio and increase the transaction costs. Strictly playing the sectors through direct equity or mutual fund is absolutely not recommended.

Please find the link to our previous articles

  1. Thursday Trivia ~ Asset Allocation (Series 1 of 3)
  2. Thursday Trivia ~ Asset Allocation (Series 2 of 3)

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– Jinay Savla

Thursday Trivia ~ Asset Allocation (Series 2 of 3)

Previously in Thursday Trivia, we discussed about what Asset Allocation is and touched upon Strategic Asset Allocation. In a nutshell, it’s important to look at what an individual’s money is doing at an overall level rather than merely checking the stock prices everyday and wondering whether enough money could ever be saved. Many a times, in our profession as Wealth Managers, we meet investors whose only concern in equity market. When asked for other investment avenues, a standard reply is fixed deposit which most of them are not worried about unless the interest rates go low, in that case there is a strong urge to jump in the equity market. Not to discredit an important fact, that technology has eased entry points into the capital markets.

In this Trivia, we will look at Tactical Asset Allocation and Dynamic Asset Allocation.

Tactical Asset Allocation

As the name suggests, it is an active portfolio management strategy that shifts the percentage of assets held in various categories to take advantage of market pricing anomalies or strong market sectors. This strategy allows for taking advantage of certain situations in the market place to create some additional value. It can be termed as moderately active strategy than Strategic Asset Allocation. However, there is always reversion to original asset allocation mix once the short to medium term value is added to the portfolio.

5 brief characteristics of Tactical Asset Allocation are:

  1. It is a view based strategy in which asset allocation is based on views of relative asset class performance.
  2. It involves tactically increasing a portfolio’s exposure to those assets that are relatively attractive and reducing a portfolio’s exposure to overvalued assets.
  3. Short-term adjustments in asset allocation are frequently made so that the portfolio can earn higher returns and beat the performance of benchmark indices.
  4. Timing and active management of risk are key components of tactical allocation. Entry into asset classes and exits from investments have to be timed correctly.
  5. Factors that impact asset class performance are continuously monitored and assessed to take the correct calls.

Let’s simplify the concept using an example:

Aman and his wealth manager decided to carry out Tactical Asset Allocation. Since, Aman was keen on taking advantages on strong sectors in different asset classes. Once the advantage was taken care of, they would return to their original asset allocation mix. With Investment Capital of Rs. 1 crore, they mutually decided to keep 40% of their money in equity market, 30% in fixed income securities, 20% in commodities – gold and balance 10% was kept as cash.

After a year, on a periodic review, Aman’s wealth manager suggested to increase the allocation towards gold as data suggested a very good opportunity for the next 2 years. More than Aman, his wife was thrilled with the idea. Gold is always special, whether it’s physical or kept in a demat format through Exchange Traded Funds. However, as per their planning, original asset allocation would enable Aman to reach his goals in a very sound and smooth manner, Tactical Asset Allocation provided him an area where he could tap an opportunity.

With this opportunity, Aman’s portfolio now had 40% in equity, 20% in fixed income securities, 35% in commodities and 5% in cash. 15% of the portfolio now shifted from fixed income securities (10%) and cash (5%) to commodities – gold.

Had Aman strictly followed Strategic Asset Allocation, he would not have been able to capitalise on the opportunity present. Hence, Tactical Asset Allocation provides flexibility to take market calls as and when needed.

With this, now we head to third strategy of asset allocation.

Dynamic Asset Allocation

This particular strategy, may involve several portfolio adjustments over the short term to respond to market conditions. There is no target asset mix because allocations can be changed based on their assessments of current and future market trends. For example, if global market uncertainties result in sharp losses in the equity markets, investment managers may sell stocks and buy bonds because fixed income instruments, especially government-issued bonds, are considered low-risk and safe investments.

Wealth / Investment managers analyses market and economic trends to select and trade investments within the portfolio. They would aim to sell top preforming investments and buy undervalued assets (following the buy low, sell high principle of investing).  The goal is to achieve the best returns possible with the aim of out preforming the benchmark. It is considered more risky compared to other strategies as with more risk comes more returns. However, dynamic asset allocation could underperform market averages, especially in volatile markets, because of high trading costs associated with frequent portfolio rebalancing.

However, the key difference is asset allocation here depends on market conditions rather than risk profile of the investor which is the very case of Strategic as well as Tactical Asset Allocation.

Let’s take the example of Aman in this case, what if he chooses Dynamic Asset Allocation strategy over Tactical Asset Allocation strategy. How would the process differ?

With his original asset allocation of 40% in equity, 30% in fixed income securities, 20% in commodities – gold and 10% in cash. Aman and his wealth manager decide not to rebalance the portfolio unless there is a major shift in the market conditions.

After 3 years from original allocation, Aman’s portfolio now stands at 55% in equity, 30% in fixed income securities, 10% in commodities – gold and 5% in cash.

Aman’s wealth manager advises him, according to the market conditions it is better to sell equity and gold and buy fixed income instruments. Since, equity levels have gone up, his wealth manager wants to be safe and protect his money incase of any equity market correction. Also, since the gold is held in demat form, it can be sold and be in instruments that are not extremely market linked.

One of the major characteristics of Dynamic Asset Allocation is to completely shift the original allocation and tailor make it to suit the current market conditions. Now Aman’s portfolio has just 10% of equity, 80% of fixed income instruments, 5% of commodities – gold and 5% of cash. As per the logic of the strategy, when the market will correct, Aman will be able to buy more of equity and gold without having any substantial effect on his investment portfolio.

In our next Thursday Trivia, we will cover specific questions which we have encountered over the years. Till then, in case you have any query please do write in the comment section below.

Please find link to our previous article – Thursday Trivia ~ Asset Allocation (Series 1 of 3)

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Disclaimer:  This particular series of Asset Allocation is only meant for educational purposes. We do not in any ways recommend it, as the case may differ for investors per se. These are simply model strategies of asset allocation, hence modification is required for each investor.

– Jinay Savla

Thursday Trivia – Difference between profit booking and asset rebalancing

Buy sell hold

 

Is this the right time to book profits and exit?

How should I play the markets?

How much profit should I book?

Where should I deploy the profits booked?

 

Many equity/Mf investors are dealing with these questions. Well, there is one simple answer to all the above questions that is Asset allocation.

 

As defined by Wikipedia “Asset allocation is an investment strategy that attempts to balance risk versus reward by adjusting the percentage of each asset in an investment portfolio according to the investor’s risk tolerance, goals and investment time frame.” In simple terms it means that one pre defines the percentage of exposure one should take in various asset classes, as per his risk profile and stick to it by rebalancing it periodically.

 

Asset Rebalancing V/s Profit Booking

 

In today’s scenario both these terms may result in same action, where you would sell some equities and invest in other asset like Gold or Fixed Deposit. But there is a fundamental difference between both these terms and Circle Wealth Advisors recommends that one should embrace Asset Allocation as the basic investment strategy. Here are the basic differences in these terms

 

Profit Booking Asset Rebalancing
Profit booking is the result of huge returns generated in a particular asset class Asset rebalancing is selling assets to bring them to the original allocated levels 
Can happen at any time at any interval Happens at the pre define periodic intervals 
One may need to seek expert view every time one wishes to book profits Expert view is required at the time of creating allocation depending on the risk appetite
Selling of a particular asset happens only if a huge profit is made In asset allocation one might have to sell assets without returns or may be even with negative return
One needs to decide where to deploy the profit booked after every transaction While rebalancing assets it is already decided what to sell and what to buy

 

Taking cue of one’s current asset allocation and deciding the desired asset allocation is the biggest step in financial planning for achieving your goals. Once you decide the right asset allocation it will not only ease the financial decisions but also help in generating consistent returns.

Thursday Trivia – Market Basics understanding BSE and NSE

Bse & Nse

The BSE and NSE

Most of the trading in the Indian stock market takes place on its two stock exchanges: the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). The BSE has been in existence since 1875. The NSE, on the other hand, was founded in 1992 and started trading in 1994. However, both exchanges follow the same trading mechanism, trading hours, settlement process, etc. At the last count, the BSE had more than 5000 listed firms, whereas the rival NSE had about 3100. Out of all the listed firms on the BSE, only about 500 firms constitute more than 90% of its market capitalization; the rest of the crowd consists of highly illiquid shares.

Trading Mechanism

Trading at both the exchanges takes place through an open electronic limit order book, in which order matching is done by the trading computer. There are no market makers or specialists and the entire process is order-driven, which means that market orders placed by investors are automatically matched with the best limit orders. As a result, buyers and sellers remain anonymous. The advantage of an order driven market is that it brings more transparency, by displaying all buy and sell orders in the trading system.

All orders in the trading system need to be placed through brokers, many of which provide online trading facility to retail customers.

Settlement Cycle and Trading Hours

Equity spot markets follow a T+2 rolling settlement. This means that any trade taking place on Monday gets settled by Wednesday. All trading on stock exchanges takes place between 9:15 am and 3:30 pm, Indian Standard Time, Monday through Friday. Delivery of shares must be made in dematerialized form, and each exchange has its own clearing house, which assumes all settlement risk, by serving as a central counterparty.

Market Indexes

The two prominent Indian market indexes are Sensex and Nifty. A stock index or stock market index is a measurement of the value, of a section of the stock market. It is computed from the prices of selected stocks (typically a weighted average). It is a tool used by investors and financial managers to describe the market, and to compare the return on specific investments. Sensex is the oldest market index for equities; it includes shares of 30 firms listed on the BSE, which represent about 45% of the exchange’s free-float market capitalization. It was created in 1986 and provides time series data from April 1979, onward.

Another index is the S&P CNX Nifty; it includes 50 shares listed on the NSE, which represent about 62% of its free-float market capitalization. It was created in 1996 and provides time series data from July 1990, onward.

Market Regulation

The overall responsibility of development, regulation and supervision of the stock market rests with the Securities & Exchange Board of India (SEBI), which was formed in 1992 as an independent authority. Since then, SEBI has consistently tried to lay down market rules in line with the best market practices. It enjoys vast powers of imposing penalties on market participants, in case of a breach.

 

Inputs from www.investopedia.com