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Coffee With Ranjan Varma on Personal Finance

22 May 2008 10 Comments


Its my special previledge to invite one of my “Online” friend – Mr. Ranjan Varma for a special episode on Coffee with Experts. Ranjan Varma has over 17 years of work experience in Insurance, Housing Finance and Investment industry with LIC. He was a topper in Physics Hons. examination way back in 1990s.. Varma went to complete an Executive MBA course, specializing in Finance in 2008. He has also built very informative personal finance portal at PersonalFinance201. Ranjan Varma actively blogs @ RanjanBlog. Its my pleasure to invite Ranjan Varma to talk about a topic.. which we hate to discuss – Personal Finance.. 🙂

Coffee With Ranjan Varma on Personal Finance
Me: Sundar Rajan G S
RV: Ranjan Varma

Me: Why is it that people do a shoddy job when it comes to financial planning? What is the fundamental problem? Is it specific to India or is it a global phenomenon.

RV: I can think of three reasons.

One, there is an information asymmetry in this industry. That means that the seller of financial products knows more than the buyer and he uses it to his advantage and not the buyers advantage. The lack of transparency puts off people.

Two, the sellers use a lot of jargons and number crunching which makes people uncomfortable. Probably that’s another reason why people avoid personal finance.

The third reason that comes to my mind is of a psychological nature. In Mahabharata, the great Indian epic, there’s a story of a Yaksha who challenges Yudishthira to answer his questions.
What is the most surprising thing in the world was one of the questions. Yudishthira answers that the most amazing thing is that even though every day one sees countless living beings that are old and dying but no one can imagine him/herself as old or taking that last journey!
That’s why people have a natural tendency to avoid financial planning. 🙂

Me: That was indeed very insightful.. I am hear this for the first time..

Me:What are the various options available for investments?

RV: There would be thousands of financial products available for investments. Before I tell you about the options, it is important to understand that everyone has different financial goals and risk appetite. So the first step would be to be aware of your own financial goals and your risk profile before you evaluate the options available.

Having said that, the popular categories/options available are Bonds, Stocks, Real Estate, Mutual Funds, Unit Linked Insurance Policies (ULIP) and Exchange Traded Funds (ETF). Equity/Stocks, as you know, give the highest growth but come with the highest risk. Debt instruments are more or less guaranteed but give you a lesser return. Liquid money is your money in your savings account.

Moreover, we must rate them on four parameters of investing. i.e. 1) Growth, 2) Liquidity, 3) Security and 4) Expenses, before investing in them.

I would urge readers to go through this article where I try to answer the question in greater detail

Me: Can you give a brief overview of how should one’s portfolio be at different ages.. Eg at 25 years, 35 years, 45 years etc.

RV: This is a very useful question. What you are asking is known as Asset Allocation strategy of investing. Asset allocation is a useful concept to know. Asset allocation is the percentage distribution of your money into equity, debt and liquid instruments. The thumb rule of AA is that your allocation to debt should be equal to your age. And as you age, the percentage in debt should increase too. In other words, your investments in equity should be (100 – your age).But AA should be much more dynamic than the above thumb rule. I feel that it should depend on your age and your risk appetite. Guys at 20-25 years of age may want to invest everything into equities and I think that is the right strategy.

And if you love ready made formulas, here are some allocation strategies from John Bogle:

Older investor in distribution phase: 50% equity; 50% debt

Young investor in distribution phase: 60% equity; 40% debt

Older investor in accumulation phase: 70% equity; 30% debt

Young investor in accumulation phase: 80% equity; 20% debt

Me: Is it advisable to have a personal finance consultant who maintains ones portfolio? Are there people who do this? If so how much do they charge? Are they really helpful in the first place?

RV: We don’t have many personal finance consultants right now in India. What we have is an Insurance agent doubling up as your Mutual Fund adviser as well as your stock broker. Generally, these agents/advisers do not have a holistic view of your personal finance matters. The agents are paid commission for selling financial products by the companies and this commission rates is not generally disclosed.

What I would recommend is to find a Financial Planner who has a fee based model instead of the commission model. And make an effort to understand personal finance yourself. Because it’s very simple and not rocket science!

Me: What would you like to advise students who are pursuing education? Who don’t have money or portfolio. But if they can learn about all these when they are still studying, they can manage their assets better. What are your thoughts?

RV: Money education should start at school. Warren Buffet started investing at age 14 and he says he was late! If we could appreciate the “Magic of Compounding” we would understand the benefits of starting early!

Let me explain the power of compounding by an example. Starting with Rs 1000 and by investing Rs 1000 every month compounded at 10% amounts works out to Rs 78171 after 5 years. In 10 years it more than doubles to Rs 202457. The figures at the end of 15, 20, 25, 30 40, 50 years are Rs 402621, 724986, 1244159, 2080292, 5595607, 1,47,13,428!! Do yr own toggling here

Me: One last question.. Can you talk about bit about your Blog and your site which you are running? How they can be helpful for people.

RV: My Blog started as an effort to understand my own finances and I learnt many things which I wanted to share on my website on personal finance. The first thing is that it’s not rocket science and can be easily understood by a “paanchvi paas”. I am trying to build a module for a personal finance workshop where people can start taking responsibility for their finance.

Me: Thanks a lot Ranjan for your time. And all the best with your Personal Finance Portal. Hope you enjoyed the show on CWS!

RV: Sure, Thanks a lot!

Readers, hope you enjoyed this episode of Coffee With Experts.. For previous episodes, click here




  • Subhodeep Moitra said:

    That was very insightful. Money matters hardly concern students at all. We somehow assume that it’ll be all right and our parents will take care of it. But right now as i’m living three months in a foreign country on frugal stipends, money does matter…

  • balaji said:

    I am very much impressed by Ranjan. He seems to be very straightforward… it was really a good interview.
    But too bad that his blog deosnt come up right in Firefox.

  • srinivas said:

    thank you sir, very interesting.
    kindly post such articles often for our use.

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  • allet said:

    That was very insightful

  • finanças said:

    seem to be the best advice.
    nice artikel,although i was just able to read it by google translate.
    sorry for my poor english…

  • raj said:


  • Suzanne Keaveney said:

    Spot on with this write-up, I really think this web site wants far more consideration. I’ll in all probability be once more to read rather more, thanks for that info.

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