Pranamya Financial Services
SEBI Registered Investment Advisor
Pranamya Chronicles
Real Stories, Real Lessons
The short videos share the experiences of our clients and their financial journeys with us. Each story highlights the challenges they faced, the strategies we implemented, and the outcomes they achieved.
These experiences offer valuable lessons that anyone can learn from. After all, financial wisdom isn't just about personal experience—it’s also about learning from others’ successes and mistakes.
Tips for Rational Investment
Tips to Buy Stocks
Before purchasing shares, you must think like a business owner, not a gambler. Buying a stock is buying a piece of a company—and that decision must be driven by analysis, not noise. Here's a comprehensive, no-fluff checklist:
1. Understand the Business
Can you explain what the company does in one line?
Avoid businesses you don’t understand—Warren Buffett’s golden rule.
2. Revenue and Profit Consistency
Look at 5–10 years of sales and net profit trends.
Are revenues and profits growing steadily or erratically?
3. Margins Matter
Operating and net profit margins reveal efficiency.
Compare with peers—higher margins signal pricing power.
4. Return Ratios
ROE (Return on Equity) > 15% consistently = efficient business.
ROCE (Return on Capital Employed) = good indicator for capital-heavy businesses.
5. Debt Levels
Debt-to-Equity < 1 is ideal in most sectors.
High debt = high risk, especially in interest rate upcycles.
6. Cash Flow > Net Profit
Profitable companies should also generate positive operating cash flow.
If not, check for earnings manipulation or working capital stress.
7. Valuation Check
Don't overpay, even for quality. Look at:
PE Ratio (compare with sector)
PB Ratio (especially for banks, NBFCs)
EV/EBITDA for broader view
Use PEG Ratio for growth companies.
8. Promoter Holding and Pledging
High and stable promoter holding = confidence.
Pledged shares = red flag, especially above 10–15%.
9. Corporate Governance
History of fraud, related-party transactions, or frequent auditor changes? Walk away.
Look for consistency in dividend policy, transparency in reporting.
10. Industry Position and Moat
Is it a leader or a laggard? Market share trends matter.
Look for competitive advantages: brand, cost leadership, distribution network, etc.
11. Earnings Visibility
Are earnings predictable or lumpy?
Avoid companies with cyclical earnings unless you're timing the cycle consciously.
12. Peer Comparison
Compare with competitors on key metrics: growth, margins, returns, valuation.
Helps identify underpriced opportunities or avoid overhyped duds.
13. Dividend Track Record
Not essential, but regular dividends signal strong cash flows.
Useful if you're investing for income.
14. Recent News and Management Commentary
Read the latest concalls, annual reports, and interviews.
Sudden top-level exits, regulatory probes, or major capex announcements can be signals.
15. Technical Support (for entry timing)
Even long-term investors can use technicals for better entry points.
Look at support levels, RSI, or simple moving averages.
16. Liquidity
Low-volume stocks = difficult exits. Avoid unless you have high conviction and patience.
Tips to Buy Bonds
Buying bonds may seem “safe,” but that’s a misleading simplification. Bonds carry interest rate risk, credit risk, reinvestment risk, and more. If you're using them for stability or predictable income, you must be sharp about what you’re buying. Here's a businesslike checklist before buying bonds:
1. Type of Bond
Government Bonds (G-Secs): Virtually risk-free, lower yield.
Corporate Bonds: Higher yield, but carry credit risk.
Municipal Bonds: Tax benefits sometimes, but can have liquidity or credit issues.
PSU Bonds / Tax-Free Bonds: Safe and often offer decent post-tax returns.
2. Credit Rating
Look for ratings from CRISIL, ICRA, CARE, Fitch, etc.
Stick to AAA or AA-rated for low credit risk unless you're consciously taking on risk for yield.
Anything below A = red flag unless deeply analyzed.
3. Yield to Maturity (YTM)
This is your expected return if you hold till maturity, accounting for price paid and all future payments.
Don’t just look at coupon rate—look at YTM vs current interest rates.
4. Interest Rate Environment
If rates are expected to rise, long-duration bonds fall in value.
Match bond duration to your investment horizon.
Prefer shorter-duration bonds in rising rate cycles.
5. Liquidity
Can you sell the bond easily in the secondary market?
G-Secs and popular PSU bonds have better liquidity. Many corporate bonds don’t.
6. Tax Implications
Interest income is fully taxable at your slab rate.
Capital gains (if sold before maturity) taxed differently depending on holding period.
Look at post-tax returns, not just yield.
7. Call and Put Options
Callable bonds: Issuer can repay early—risk for you if rates fall.
Puttable bonds: You can exit early—good for you.
Always check call/put dates and conditions.
8. Payment Frequency
Monthly, quarterly, semi-annual, or annual?
Align with your cash flow needs, especially for retirees using Systematic Withdrawal Plans (SWP).
9. Risk of Default
Corporate bonds = business risk.
Look at company’s balance sheet strength, debt coverage ratios, cash flows.
Avoid bonds of companies under stress, even if they offer tempting yields.
10. Inflation Impact
Fixed coupon bonds lose purchasing power during high inflation.
Consider inflation-indexed bonds if available.
11. Accrued Interest and Dirty Price
In secondary market, you’ll pay dirty price (includes accrued interest).
Your real yield depends on that, not just quoted YTM.
12. Reinvestment Risk
If you get frequent interest payments, you need to reinvest at a good rate to meet expected return.
This is an often-ignored risk, especially in falling rate cycles.
13. Regulatory and Structural Protections
For listed bonds, there’s better disclosure and SEBI oversight.
Check if the bond is secured vs unsecured. Secured bonds have asset backing.
14. Match with Your Financial Goals
Use bonds for capital preservation, income, or diversification.
Don’t stretch tenure or credit risk just for a little extra yield
Tips to Buy Insurance
Key Factors to Consider When Choosing a Term Insurance Plan:
Claim Settlement Ratio (CSR): Indicates the percentage of claims an insurer has settled against the total claims received. A higher CSR reflects reliability.
Coverage Amount: Ensure the sum assured is adequate to cover your family's future financial needs, typically 10-15 times your annual income.
Policy Term: Choose a term that aligns with your financial obligations, such as until your retirement age or until major liabilities are settled.
Premium Affordability: Premiums should be affordable throughout the policy term without straining your finances.
Additional Riders: Consider optional add-ons like critical illness cover, accidental death benefit, or waiver of premium for enhanced protection.
Tips to Buy Health Insurance
Before purchasing health insurance, it's critical to approach it like any other financial product—with a clear understanding of your needs, risks, and long-term implications. Here’s a no-nonsense checklist of things you must consider before buying a policy:
1. Assess Your Coverage Needs
Consider your age, health condition, family medical history, and dependents.
For a family floater, factor in everyone’s age and risk profile.
2. Check the Sum Insured
Inflation in healthcare costs is real. Don’t go cheap on the cover.
Urban families should aim for at least ₹10–20 lakh; individuals for ₹5–10 lakh minimum.
3. Network Hospitals
Ensure your preferred hospitals are in the insurer’s cashless network.
Cashless facility beats reimbursement any day—especially in emergencies.
4. Understand Sub-Limits and Room Rent Cap
Policies with room rent limits or disease-specific sub-limits can reduce claim payouts drastically.
Prefer policies without sub-limits for smoother claims.
5. Look at Waiting Periods
Pre-existing diseases usually have a waiting period of 2–4 years.
Some policies waive this faster—check the fine print.
6. Check for Day-Care and OPD Coverage
More treatments are moving to day-care (no overnight stay).
OPD coverage (consultations, diagnostics, medicines) is a bonus but comes at a cost.
7. Compare Claim Settlement Ratios (CSR)
High CSR (>95%) is a green flag, but check Claim Amount Settlement Ratio too.
Review TPA vs in-house claims processing—in-house is faster and smoother.
8. Portability Option
Ensure you can port your policy to another insurer if service deteriorates.
Porting keeps your waiting period benefits intact.
9. Check Co-Payment Clauses
A co-pay clause means you pay a part of the claim—avoid unless you’re insuring seniors.
10. Look at Premium vs Benefits
Low premiums may hide restrictions.
Choose value, not price. A ₹1,000 saved yearly isn’t worth ₹1 lakh rejected at claim time.
11. Understand Exclusions
Every policy has permanent exclusions (e.g., cosmetic surgeries, experimental treatments).
Read them and be realistic—don’t buy on assumptions.
12. Restoration and Recharge Benefits
Good to have: automatic reinstatement of sum insured after exhaustion in a policy year.
Especially useful in family floaters.
13. No Claim Bonus (NCB)
Prefer policies that offer NCB without capping it too low or resetting it after one claim.
14. Buy Early
The earlier you buy, the cheaper and easier it is to get high coverage with fewer restrictions.
Don’t wait for illness to start shopping.
EPS - Employee Pension Scheme
Purpose: Provides monthly pension after retirement.
Contribution: From the employer’s 12% EPF contribution, 8.33% (up to ₹1,250/month) goes to EPS.
Eligibility: Minimum 10 years of service required to receive pension.
Pension payable after age 58 (early option at 50 with reduced pension).
Pension Amount depends on:
Years of service
Average pensionable salary (last 60 months)
Taxation: Pension received is taxable as income.
The Employees' Pension Scheme (EPS) contribution is 8.33% of your basic salary, but there's a cap. Here's how it works:
EPS Contribution Details:
Employee Contribution:
0 — Employees do not contribute directly to EPS.
Employer Contribution to EPF (12% of Basic):
Of the 12% your employer contributes to EPF:
8.33% of Rs.15,000 = Rs.1,250 goes to EPS
The remaining 3.67% goes to your EPF account
Note: The EPS contribution is capped at Rs.1,250/month, because it is calculated on a salary cap of ₹15,000/month, even if your actual basic is higher.
🔍 Example Calculation:
If your basic salary = Rs.25,000/month, then:
Employee EPF contribution: Rs.25,000 × 12% = Rs.3,000
Employer total EPF contribution: Rs.25,000 × 12% = Rs.3,000
To EPS: Rs.1,250 (fixed)
To EPF: Rs.3,000 – Rs.1,250 = Rs1,750
Important Notes:
EPS is meant for pension after age 58.
You become eligible for pension after 10 years of service.
EPS does not earn interest like EPF does.
If your basic salary is less than Rs.15,000, the 8.33% is calculated on the actual basic.
EDLI – Employees’ Deposit Linked Insurance Scheme
Purpose: Offers life insurance cover to employees.
Contribution: Employer contributes 0.5% of basic salary (up to ₹75/month).
Benefit: In case of death during service, nominee gets a lump sum payout.
Max payout: 7 lakh (based on last drawn salary + bonus formula).
No employee contribution required.
Coverage: Automatic for all EPF members (no need to opt in separately).
SUPERANNUATION
Contributions are typically made to a superannuation fund, managed by LIC or other approved insurers.
The aim is to provide a pension or annuity after retirement (typically at age 58 or 60).
Who Contributes?
Primarily employer-funded. The standard contribution is 15% of basic salary (not mandatory under law).
In some cases, employees can also contribute voluntarily.
Taxation Benefits
Employer’s contribution up to ₹1.5 lakh/year is tax-free under Section 80C (within overall limit).
Interest earned is tax-free until withdrawal.
On withdrawal:
1/3rd of the corpus can be commuted (lump sum) tax-free.
Remaining 2/3rd must be used to buy an annuity, which is taxable as income when received.
Types of Benefits on Superannuation
On Retirement: Pension paid monthly via annuity.
On Resignation Before Retirement:
Can withdraw the accumulated amount (taxable).
Or transfer to a new employer’s superannuation fund if available.
On Death: Nominee receives full accumulated amount or death benefit (as per insurer policy).
Comparison with Other Retirement Schemes
Feature Superannuation EPF NPS
Contribution Mostly employer Employee + Employer Voluntary (also employer)
Tax Benefit Sec 80C (₹1.5L limit) Sec 80C (₹1.5L limit) Sec 80C + Sec 80CCD(1B)
Liquidity Restricted Partial withdrawal allowed Tier-I restricted, Tier-II flexible
Returns Insurer-declared 8–8.5% (fixed) Market-linked
Retirement Benefit Annuity Lump sum + pension (EPS) Lump sum + annuity
Final Thoughts
Superannuation is a useful corporate benefit for retirement, especially for salaried professionals in large organizations. However, it’s less flexible and less transparent than EPF or NPS, and the annuity returns are usually low (5–7%). It works best as a supplementary retirement vehicle, not a standalone one.
EPF - Employee's Provident Fund
1. Current EPF Interest Rate (FY 2024–25)
Interest Rate: 8.25% per annum (announced in March 2024 for FY 2023–24)
This rate is reviewed annually by the EPFO and approved by the Ministry of Finance.
2. How EPF Returns Work
Interest is compounded annually, but credited at the end of the financial year.
Contributions:
Employee: 12% of basic salary + DA (dearness allowance)
Employer: 12%, but only 3.67% goes to EPF (the rest goes to EPS and EDLI schemes)
Interest is earned only on the EPF balance, not EPS (pension portion).
3. Historical EPF Interest Rates (Last 5 Years)
Financial Year EPF Interest Rate
2023–24 8.25%
2022–23 8.15%
2021–22 8.10%
2020–21 8.50%
2019–20 8.50%
4. Taxation on EPF Returns
Tax-exempt under EEE (Exempt-Exempt-Exempt) status:
Contributions: Tax-deductible under Section 80C
Interest: Tax-free up to Rs. 2.5 lakh contribution per year (Rs. 5 lakh for non-contributory employers)
Withdrawal: Tax-free after 5 years of continuous service
5. Effective Real Returns
If you compare to post-tax returns of other fixed-income options (like FDs or PPF), EPF usually offers:
Superior effective returns (due to tax-exemption)
Stable and predictable growth, ideal for long-term retirement savings
6. Limitations
Illiquid until retirement or specific conditions (e.g., home purchase, marriage, illness)
Interest rate can be revised down during economic downturns (it has trended down slowly over years)
Not market-linked, so no equity upside
Conclusion:
EPF is a low-risk, tax-efficient long-term savings instrument with stable annual returns (~8.1–8.5% historically). Ideal for conservative investors prioritizing retirement corpus preservation and predictability over high growth.
NPS - National Pension Scheme
The returns from NPS (National Pension System) are not fixed; they depend on the underlying market performance of the pension fund managers (PFMs) and the asset allocation (Equity, Corporate Bonds, Government Securities, and Alternate Assets).
Historical Returns (As of FY 2024–25 estimates):
Asset Class 5-Year Average Returns (Approx.)
Equity (E) 10–12%
Corporate Bonds (C) 8–9%
Government Securities (G) 7–8%
Alternate Assets (A) Varies, less common
Realistic Expected Returns:
Active choice with higher equity (up to 75%): ~9–11% CAGR
Auto choice (lifecycle fund): ~8–10% CAGR depending on your age bracket
Conservative allocation (more G and C): ~7–8% CAGR
Key Points:
Returns are market-linked, unlike PPF or EPF.
Equity portion is capped: 75% max till age 50; reduces gradually afterward.
Different PFMs give different returns: You can switch PFMs and asset allocations if needed.
Tax benefit adds indirect returns: ₹50,000 additional deduction under Sec 80CCD(1B).
Forward-looking Insight:
If you're 35–45 years old, with a growth-oriented allocation, expect around 9–10% CAGR over the long term (20–25 years). After annuitization at retirement, the annuity portion may yield only 5–6%, which lowers your effective post-retirement return.
HOW TO CHOOSE BEST MUTUAL FUND
To decide which mutual fund is best for you, you need to align the fund's characteristics with your financial goals, risk tolerance, investment horizon, and return expectations. Here's a practical, no-nonsense approach to making that decision:
1. Define Your Goal
Decide what you're investing for:
Short-term (<3 years): Capital preservation/liquidity
Medium-term (3–5 years): Moderate growth
Long-term (>5 years): Wealth creation
2. Choose the Right Fund Category
Based on your goal:
Investment Horizon Risk Tolerance Suitable Fund Category
< 1 year Low Liquid or Ultra Short-Term Debt Funds
1–3 years Low to Medium Short-Term Debt or Arbitrage Funds
3–5 years Medium Hybrid Funds or Balanced Advantage
> 5 years Medium to High Equity Funds (Large/Index/Multi-cap)
3. Evaluate Key Metrics
Once you know the category, shortlist funds based on:
Metric What to Look For
Past Performance Consistent returns over 3, 5, 7 years (vs benchmark & peers)
Risk Measures Look at Standard Deviation, Sharpe Ratio – higher Sharpe is better
Expense Ratio Lower is better, especially in debt and index funds
Fund Manager Track Record Experience & performance across market cycles
AUM (Assets Under Management) Too small = less trust; too large = potential drag
Portfolio Composition Sector/stock allocation or debt credit quality
4. Check Fund House Reputation
Go with AMCs known for:
Stable fund management teams
Transparency and compliance
Track record across different cycles
5. Use Tools (if needed)
If you're not confident evaluating manually:
Use platforms like Morningstar, Value Research, Moneycontrol, or Kuvera for fund comparisons.
Use SEBI Registered Investment Advisors (RIAs) if your portfolio or goals are complex.
6. Avoid These Mistakes
-
Chasing recent top performers blindly
-
Ignoring risk metrics and fees
-
Constantly switching funds
-
Investing without understanding
Example
Goal: Retirement in 20 years
Risk Profile: Moderate
Fund Type: Equity-oriented
Shortlisted Fund: Axis Bluechip Fund (as example)
Check: 5-year performance > benchmark, low expense ratio, consistent fund manager, high Sharpe ratio.
If everything checks out, it may be a good fit. But still, don't skip diversification — one fund rarely does it all.