Most of us understand the word debt — essentially an amount of money that you owe somebody. For a debt transaction, we need a borrower and a lender. The lender will lend money to the borrower and the borrower will pay some interest and return back the principal on a mutually agreed timeline.

Fixed Deposits are the most common form of debt where we are giving a loan to the bank and the bank pays us the interest. This is where many people invest their money as it's considered a safe investment. If the interest rate of FD is less than inflation, you are actually taking a hit at your buying power for the money deposited in the bank. With equity and other investments, you might lose the money so FD is what most people in India prefer even if the interest rates are low.

Just like banks, there are many other borrowers in the market — governments, companies, NBFCs and so on. All of them raise money by floating debt instruments — bonds/mortgages etc. Debt instruments do not allow for pre natural withdrawals generally, unlike FDs. But they can be traded in the secondary markets just like equities.

Debt instruments can be short term( maturity < 1 yr) or long term(maturity > 1 yr). Treasury Bills, Certificate of Deposits, Commercial Papers etc are short term debt instruments. Government Bonds/G-Secs, Corporate Bonds etc are long term debt instruments.

Debt mutual funds will invest in short term/ long term debt instruments. Just like for equities we have NSE/BSE, debt funds are traded on the debt market. Debt funds are ideal for investors who aim for regular income but are risk-averse as compared to equities. If you have some amount that you want to invest for the short term, you can go for short term debt funds. If you are ok with locking in the amount for a longer duration, you can go with longe term debt funds.

Depending on how the funds are structured, debt funds do carry interest rate risk(that the interest rate may go down) and credit risk (delay in payment/defaults). This is why bond ratings/ company ratings are important. All government bonds are safest as governments will not default. Companies with higher ratings will have lower yield rates on the floated debt instruments and vice versa.

Many debt mutual funds will take debt instruments from different rating buckets and the investors can invest in those instead of investing in individual debt instruments. This is similar to equity-based mutual funds where there will be securities with different market capitalization.

As the interest rate goes up in markets, the existing price(face value) of the bonds will decrease. So long term bonds have a higher interest rate risk as compared to short terms bonds as the chances of the interest rate going up is higher for a longer duration. When interest rates are low then long term bonds can give double-digit returns also.

Debt funds cannot beat returns of equity but have a lower risk but give better returns than the fixed deposits for the same duration of the investment, especially if you are investing for 2–3 years.

In general, for diversification, it is recommended to distribute the portfolio across equity, debt, gold and other assets. Depending on your age and risk profile, the % allocation can be decided.

In terms of taxation, there is some difference between equity and debt. For long term bonds, the tax rate is 20% after adjustment for indexation(as compared to 10% in equity) and for the short term, it will depend on the income tax slab you are in.

Further Reading

1. Different between Debt & Equity Markets
2. Debt Instrument
3. Money Market Instruments

What Are Debt Funds? was originally published in Notes From Arpit on Medium, where people are continuing the conversation by highlighting and responding to this story.

Intelligent Investor by Benjamin Graham is one of the most famous books on investing. Though it was originally published years ago, the core principles and guidelines are still relevant.

Some of the principles described in the book may not be relevant in the context of techniques like momentum investing. For instance, as of today, only a few companies will pass the P/E ratio guidelines as described in the book. However, their stocks can still be purchased and sold for profits (short-term and long-term) following momentum investing techniques.

Nevertheless, here are some key points that one can infer from the book

1. When buying a stock consider if you would like to buy a part, howsoever small, of that business.

2. Assess the future value of a business to ascertain if the investment will turn out good in future. Amazon has been making a loss in the e-commerce domain but the stock is prized based on its future value.

3. Never overpay no matter how exciting is the investment. The stock will eventually come to its correct value in the long term.

4. Take emotions out of investing. Emotional decisions will make you go with news or the crowd which might not be correct. Rule-based investing is what works very well in the long term. You have to come up with a set of rules that works for you.

Core Investor Guidelines:

Here are some of the core guidelines for investors that can be inferred from the book

1. Stop Loss is important. Do not allow for a loss above a threshold percentage.

2. Do not invest without proper understanding or just because others are doing it

3. No emotions, follow disciplined rule-based approach

“The Intelligent Investor” was originally published in Notes From Arpit on Medium, where people are continuing the conversation by highlighting and responding to this story.

“Smarter Faster Better” by Charles Duhigg presents several practices to be more productive. If you are a leader in any organization or want to be one, then you should definitely read the book.

1. Motivation: As per the author, motivation comes from giving individuals a greater sense of control. One way to do so is by complimenting others for their hard work.

For self-motivation, make a chore into a meaningful decision and you will be able to take it to a closure. Know why you are doing what you are doing gives the needed motivation.

2. Teams: As per the author, teams need psychological safety to feel motivated. Team members should believe that they can take risks within the group without the fear of any repurcurssions.

Interactivitiy within the team is another factor that impacts productivity and motivation. A team of average performers can do things no superstar could accomplish if they interact well among themselves.

3. Focus: Charles Duhigg describes some techniques like avoiding cognitive tunnelling, creating mental models and avoiding reactive thinking as ways of ensuring better decisions. “To become genuinely productive we must take control of our attention, we must build mental models that put us firmly in charge”.

4. Goal Setting: Setting smart goals and striving for cognitive closures also helps with enhanced productivity. Some proximal goals(short term) can be set up to keep yourself motivated for the long term goals.

5. Managing Others: As per the author, if you are managing teams, the best way to increase productivity is by managing the how not the who of teams.

6. Decision Making: As per the author, Bayesian decision making and thinking through multiple futures are some techniquies that will ultimately result in better decisions.

7. Innovation: As per Charles Duhigg, in order to keep innovating one should embrace creative paid and be sensitive to their experiences. Keeping a distance form what one creates will also boost innovation as it allows for constructive criticism.

8. Absorbing Data: Another way to increase productivity is to avoid informational blindness — a condition where information exists but cannot be used/leveraged to make sound operational decisions. One should strive to create disfluency — review everything from different viewpoints and be ready to change decisions based on new data points.

“Smarter Faster Better” was originally published in Notes From Arpit on Medium, where people are continuing the conversation by highlighting and responding to this story.

As all great investors say — one should hedge the risks by allocating a part of the capital in different asset classes. While bank F.D.s, P.P.Fs are okay for those who have a low-risk appetite and those who are not much concerned about inflation, equities are for those who want higher returns with some risks(unless you play with options and without a Stop Loss). In the last couple of years, crypto and alternate investments have boomed a lot. Angel investments are not considered in scope for this article. We briefly touch upon the metal asset class too.

Share Market

My second innings with active share market investing started post-2020 lockdown after the market boomed a lot. A lot! Passive investments via Mutual funds and NPS have been on for some time. In this article, I am sharing the tools/apps that have helped me in the past year or so.

One of the major mistakes that most people commit in the share market is ‘selling their winners early and keeping their losers for long’. Without any technical analysis or fixed set of rules, it’s very difficult to decide on what to buy, how much to buy and when to exit. Tips based investing can get some short profits or losses but does not work in the long term. This is where the below tools/apps come in, to help set some rules for disciplined investing. On the weekends, I do spend time with these tools/apps for deep diving into the markets and to learn more about investing in markets.

Crypto

The traction that Crypto has got in India in the last year is phenomenal. After having used 3–4 apps for crypto investments, I have shortlisted 3 that I use/ plan to use.

Alternate Investments

Some of the recent fintech startups allow alternate investments. Better than bank FD but having a lower risk than markets. At least this is what they say. So I have experimented with 1–2 investments through these apps.

Gold & Silver

Silver ETFs will be available soon in India. Looking forward to the same. Buy physical silver and gold works best however storing them securely is a mess at times. So digital gold and sovereign gold bonds are a good option.

Here’s an infographic for current tools/apps I use:

Tools/Apps to help with Investing was originally published in Notes From Arpit on Medium, where people are continuing the conversation by highlighting and responding to this story.

As the author Dale Carnegie says — this is an action book. Skills in human engineering contribute to around 85% of one’s success. And this book defines the rules to become better at human engineering. If you are a people manager or work with a lot of people on a daily basis, I highly recommend that you add this book to your reading list.

Key Principles

Here’s a summary of the key principles that will help you win over people

1. Instead of criticizing people, we should try to understand them. Figure out why they do what they do and empathize with them.
2. Appreciation and encouragement can bring out the best in people. “Be hearty in your approbation and lavish in your praise”
3. The only way on the earth to influence other people is to talk to them about what they want and show them how to get it.

Be a Leader

Can you change people without giving offence or arousing resentment? The principles (from the book) mentioned below will help you with the same.

1. In case of any argument, always start on a positive note instead of criticism. After the person is comfortable point out the points subtly. This allows you to convey the right message without offending the other person for the rest of their lives.
2. If you want to criticize and not be hated for it, then never point out the mistakes of the people directly. Let them realize it on their own as you convey the criticism indirectly.
3. Setting the right tone before any indirect criticism is very important. The best way of doing that is by talking about your mistakes first.
4. You can get the work done by giving direct orders (bossy) or ask the person a few questions to slowly push him/her to conclude that the work you want to get done is important for them. They should feel that they are the decision-makers.
5. Always keep space to let people save their faces after they have committed some mistake. Direct and public criticism will hurt their dignity. A few considerate words and an opportunity to let the person save face will allow us to end the conversation on a good note
6. Be “hearty in your approbation and lavish in your praise.” Praise as much as you can whenever you can.
7. Project onto others the virtue you wish they had. If we give others a very reputation to live up to, they will most likely put all the needed efforts. No one wants to ruin a reputation they have gained.
8. If people have committed mistakes, make them feel that it’s very to correct, however difficult or bad it might be. With a little encouragement and motivation, most people will get the needed results.
9. Offer things that you want to get done as suggestions. Make people feel that it was their decision and they will do almost anything happily.

Notes from “How to Win Friends And Influence People” was originally published in Notes From Arpit on Medium, where people are continuing the conversation by highlighting and responding to this story.