My article on ‘The 6 most common Personal Finance Mistakes’ have become very popular among my blog readers. After reading this article, one of my blog readers has suggested me to publish an article on the ‘personal financial mistakes that I have committed ’.
In this post, I have shared about my personal financial mistakes and some of the investment or personal finance lessons that I have learnt over the past 10 years.
I got my first job in 2003. As soon as I completed my MBA, I got selected in a campus placement. It was with one of the top Job Portals in India.
In 2004, I had joined Infosys BPO. The salary which I used to get was sufficient to meet my monthly living expenses. So, no major savings or investments were done during this period.
Later in 2005, I had joined an US Mortgage Processing company in Bangalore with a good hike in my salary. This had resulted in good amount of monthly savings. Like any other employee, I too started worrying about my TDS (tax deducted at source).
I had started thinking – how to save taxes? Where to invest my savings? Which are best investment options? How to make quick bucks by investing my monthly savings? 🙂
In the same year (2005), I got married and my wife too was employed in the IT field. So, double income, more savings, more thoughts about investment planning..
I believe that I have committed most of my Personal Finance mistakes between 2005 to 2007 and took corrective action during 2008 to 2010. Below are the details;
Related latest article : “A comprehensive list of the most common MONEY mistakes!“
Mixing Insurance & Investment
I believe that this is the most and very common personal finance mistake that many of us commit. I invested in an ULIP (Unit Linked Plan) in 2005 for two reasons – i) to claim life insurance premium as tax deduction under section 80c & ii) one of my good friends was a Life insurance agent and wanted to help him achieve his business target 🙂
The ULIPs which were issued before Sep 2010 had very high cost structure. The charges (such as premium allocation, policy administration in ULIPs) are usually front-loaded, which means only a smaller proportion of my premiums were invested in the initial years. So, I was very disappointed looking at the returns generated by my ULIP. Finally, I had surrendered this policy in 2010.
I had also bought one Traditional Life insurance policy (Endowment plan) in my name in 2006. The reasons for buying this plan are same as with the case of ULIP. In 2010, I had realized that all I need is one Term insurance plan and there is no requirement to have high cost – low yielding Endowment plan. I had surrendered this policy in 2010.
(Read : Traditional Life Insurance Plan – a terrible Investment option?)
Short Term Trading & Intra-day trading
My first investment in stock markets was in Ashok Leyland scrip in 2004. I remained invested in this stock for just 3 days only. I would have monitored the price of this stock for atleast 100 times over those 3 days 🙂 . My aim was to get atleast 5% returns on this investment. I had lost patience and sold it for loss on the fourth day.
I lost huge amount of money by doing day-trading also. I have lost money trying to make a quick buck. I used to trade in stocks purely based on tips and recommendations given by the analysts. All this happened during 2004 to 2007. I played short-term investing game without knowing the rules of the game.
I had incurred a total loss of Rs 3,08,129 because of Intra-day trading (during 2005-2007 period).
Invested in lot of Mutual Fund NFOs (New Fund Offers)
I used to buy and sell Mutual fund units very frequently during 2005 to 2008. I had invested in way too many Mutual fund schemes (in total 15 MF Schemes) without any proper research. Also, I had invested in many New Fund offers (NFOs) when I had an option to invest in well performing funds with good long track record.
During 2009-10, I started tagging my financial goals with the investments and redeemed all the unwanted mutual fund investments.
In 2009, I had requested for a consolidated mutual fund account statement from my distributor to understand and quantify the loss that I had incurred. Yesterday, I had spent almost one hour to trace this statement and finally succeeded in finding it. Below are some of the screenshots of my NFO MF investments in 2005-2006.
Not claimed the speculative losses in Income Tax Returns
As shown in one of the above pics, I had incurred huge losses because of intra-day trading. This is categorized as speculative loss. The loss from speculative business can be set off against profit from another speculative business income. Also, un-absorbed speculation business loss can be carried forward for a period of 4 years. I had not set off my speculative losses against speculative profits (had a chance in one of the FYs).
Lent money to a Friend
A friend in need is a friend indeed. We generally approach our friends or close family members when we are in need of any financial help.
In 2005, one of my office colleagues (my immediate boss) had requested me to lend him money. He had told me that his mother was seriously ill (kidney related disease) and borrowed Rs 85,000 from me (I later came to know that it was a lie).
All I could get back is Rs 12,000 only. I tried all possible ways to get back my money but all proved to be in-vain.
Below are his hand-written agreement (got it in 2007) on plain paper and post-dated cheques (which I couldn’t en-cash).
I might have lost money doing share-trading but this mistake of mine has hurt me the most till date. He is now working for an Indian IT Company as a Senior level manager.
You can find similar cases like mine in the comments section of my article ‘What is Promissory Note?‘.
As Shakespeare wrote, “For loan oft loses both itself and friend.” If you lend money to a friend or family member, beware that you may not get your money back and your relationship may never go back to normal. So, you lose both friendship and money. Think twice before lending money to a friend. Sometimes its better not to lend money to a friend keeping their best interests in mind.
Below are some of the Investment or personal finance lessons that I have learnt over the last few years;
Did you make any personal finance mistake(s)? What are the Investment lessons that you have learnt in your financial life? Kindly share your views. Cheers!
(Image courtesy of Sira Anamwong at FreeDigitalPhotos.net) (Post published on : 12-Aug-2016)
This post was last modified on September 27, 2023 3:28 pm
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View Comments
Hi Shrikanth
I have invested in SBI-LIFE smart performer ULIP . paid a premium of 50k for 5years from 2011 - 2015.. Sum assured is Rs.5 lakh on maturity or Highest NAV (10years).
Current fund value is nearly Rs.325000
would you suggest to continue it or surrender? I have read many articles suggesting ULIP is a poor option for investment. please advice
thanks
Tara
Hi Sreekanth,
Keep up the good work. I am a chartered accountant by profession and very much interested in financial planning.
I want to start investing around Rs.10,000/- per month in SIPs so can you suggest some good funds to choose from..
This would be a long term investment of around 15 to 20 years for my son's higher education.
Dear Pradeep,
Kindly go through below articles;
Kid's Education goal planning - calculator.
Best Equity funds.
How to select the right mutual fund scheme?
MF portfolio overlap analysis tools.
Hi Sreekanth,
I had taken an endowment plan from a neighbor who is an LIC agent when he had visited my house casually. I was looking for some investments and totally blank on products available in market.
I took this endowment plan for which premium was Rs.55,000/- per year & this would go on for 30 years or so.
When time came to pay premium for 2nd year, I kept away. My instinct said don't go with this plan. I know there is no option of policy surrender too.
Can you confirm if by any chance I could get some money. Was my decision wrong by not continuing? I feel too guilty for having made this bad decision to start endowment policy.
FYI, I started PPF with about Rs.40,000 per year.
I must say you are doing an excellent work through this site by educating youngsters. Kudos SREEKANTH!
Thanks,
Vivek
Dear Vivek,
You can surrender the policy only if you had paid the premium for three years.
Do you have term insurance plan? If you do not have, kindly buy a term plan.
You may have to book losses on Endowment plan and move on.
Read:
Traditional Endowment life insurance plan - Why is it a terrible investment option?
How to get rid off unwanted life insurance policy?
If life is unpredictable, insurance cant be optional!
Term insurance plan + PPF Vs Endowment plans.
Hi Sreekanth,
Thanks.
I forgot to mention. Yes. I took an ICICI term plan soon after dropping this endowment plan (which I paid for 1st year only) + started a PPF account.
I still can't think of loss of Rs.55,000/- by stopping this endowment plan. Too much it is :(
I don't blame LIC but blame myself for being not clear on investment. One of my financial mistakes but I try to move on.
What did you mean by saying "You may have to book losses on Endowment plan and move on"
Your website gave a lot of ideas on investment. THANKS!!!
Thanks,
Vivek
Can you speak to your LIC agent and see if this Endowment plan amount you paid can be treated as a Single Premium payment for any of the policies. I remember doing that once, but that was within the 2 months of purchase (not sure if that makes any difference)
Dear Manja..I am not sure if this is possible and allowed.
Dear Vivek,
Book losses..meaning.....accept the mistake & losses and do not repeat the same mistake again.
Dear Sreekanth,
Really impressed by your blog . All your articles are written with so much research and personal expiriences.
I would like to know how do i start investing in mutual funds.
I want to start through elss first with around 2-3 k investment and then build portfolio going forward as per growth in my career.
Dear Sagar,
Kindly go through below articles, if you need more details then do revert to me;
How to compare and select the right mutual fund scheme?
MF portfolio overlap analysis tools.
What are large/small/mid cap funds?
My MF portfolio.
How to create a solid investment plan?
Best ELSS tax saving mutual fund scheme.
Sreekanth,
I want to know if money invested and the interest earned through mutual fund are taxable while redemption.
Dear sagar,
Kindly read this article : MF taxation rules.
Dear Sreekanth,
I hold a Whole Life Participating Plan from Max Life. I have paid 5 annual premiums as on date. Is it advisable to surrender this policy ? I have a Term plan to cover life risk.
The policy details are as below:
Start date: 27.03.2012
Premium : Rs. 10,154/-
Dear Loyd ..You may surrender this policy.
Read: How to get rid off unwanted life insurance policy?
Dear Sreekanth,
Thanks for your reply.
I also have LIC - Jeevan Aanand policy ( start date 30.12.2013 & premium Rs. 20,517 annually).
What is your suggestion on this ? Do I need to surrender this as well ?
Dear Loyd,
You may surrender this policy as well. Kindly invest the saved premium in other better investment alternatives as per your financial goals!
Thank you Sreekanth.
I would like to know your opinion on LIC's Jeevan Labh ( retirement plan) and Jeevan Tarun (child plan). I heard bank FD interest rates may reduce further in future and investing same money in Jeevan Tarun will fetch you compatibly good returns ( plus insurance factor).
What are the best ways to plan corpus for Retirement as well as for child future?
Dear Loyd,
Kindly do not repeat the same mistake again.
Do not mix insurance with investment.
If returns are your priority for long-term goals, there are better investment avenues.
Kindly read:
Retirement planning & calculator.
Kid's Education goal planning & calculator.
List of investment options!
Dear Sreekanth,
Thank you for your suggestions. I am not going to invest further in insurance. That question was on behalf of one of my friend.
Your page is very helpful and keep on sharing your thoughts.
Keep visiting and kindly share the articles with your friends. Thank you!
Hi Srikanth,
I am investing in SBI Pension Plan "Retire Smart" for Past two years @ 37.5k quarterly. PPT is 10 years and Maturity is after 20 yrs. Not sure if this is a good product to invest. Kindly advice
Also i am investing in the following SIP
1. Franklin India Smaller Companies Fund - Direct - Growth (5k Monthly for 5 yrs)
2. ICICI Pru Value Discovery Fund - Direct - Growth (5k Monthly for 5 yrs)
I am planning to leave the SIP for 18 yrs untouched.
Kindly advice if this is a good investment plan.
Regards,
Deepak
Dear Deepak,
I am not a great fan of Pension oriented plans (due to liquidity, transparency, tax implications, returns etc factors).
Both the mutual fund schemes are good ones.
Hi, very informative article.
I am 28 years old and I am searching for good investment options. I just came to know about peer to peer lending as an emerging platform in India and wanted your views on that.
Sometimes we make mistakes due to ignorance, laziness, poor planning or haste! Here are some of my mistakes:
1. I put a few lakhs of rupees in an FD in my own name. I had to pay 30% of the interest as tax. My major son is studying. If I had transferred the money to his account through net banking and made the FD in his name, I could have saved that money as the interest was less than 2.5 lakhs.
2. I made a single e-STD for 6 lakhs. When I had to send my son 1 lakh for his fees, I had to break the entire FD. There was a penalty for breaking the FD prematurely. But more important, when I tried to reinvest the remaining 5 lakhs in FD, I found that the interest rates had been reduced by 0.5%! I should have made 6 FDs of 1 lakh each and avoided breaking the remaining 5 FDs.
3. Instead of breaking the 6 lakh FD, I could have simply requested the bank to give me a 1 lakh OVERDRAFT, keeping the FD as security. This is possible in net banking itself with a few clicks of the mouse!
4. I transferred 1.5 lakhs from my SB account to my online PPF account on 8th April. If I had transferred it before 5th I would have got 8.7% interest for one month. Not only that. I lost SB interest from 8th Apr to 1st May also. If I had DELAYED the transfer till 1st of May, I would have earned at least 4% SB interest for that period. The net loss would have been 4.7% instead of 8.7%.
5. To transfer 1.5 lakh to the PPF account, I had to break a 1year eSTDR prematurely since its maturity date was beyond 1st April. Suppose I had initially selected the maturity date as 1st April, I could have avoided the penalty for breaking the FD since it would have matured naturally.
Thank you dear Bhagwan for sharing your real life experiences.
May I know if you invest heavily in FDs? (even for long-term goals)??
I used to, before getting educated by articles like yours. Now I am systematically converting my FDs into balanced mutual funds. Thanks for your concern.
Friends sometimes ask me this question: Is it wise to apply for home loan in order to avail tax benefit even when one has sufficient money to buy the house directly? What is the answer?
Dear Bhagwan,
If one has sufficient money and is ready to invest in better investment avenues where he/she can get returns over and above the Loan rate + tax benefits, then it is better to go home loan.
Better to go or Not go ?
Sir,
Very informative and transparent article. Thanks for sharing your investing experience which identifies with my own blunders in life. Today I am 65 years of age. Main concern is surviving on interest when Govt is reducing interest on FD without bothering for the senior citizens. This is enabling banks to dole out loans to interested parties like Mallaya's of this country on soft terms.
Kindly advice how and where to invest to receive an amount of Rs.50k per month without risk and also to take care of inflation @ minimum 8% per annum (to take care of medical needs and inflation). (1) The investible amount is Rs.20 lacs besides a rental receipt of Rs.30k per month. (2) Alternatively disposing a property which will give any investible amount of Rs.100lacs + plus Rs.20 lacs = Rs.120 lacs
Question 1 : Kindly suggest which of the model is better ( 1) or (2)
Question 2 : Where and how to invest.
Regds / sunny
Dear sunny Ji,
Kindly note that to beat inflation, one has to take some amount of risk.
Is this property self-occupied cum let-out property? Do you have any family member who is financially dependent on you? (or) have an financial commitments?
May I know if you have Health insurance cover & maintain Emergency Fund?
Dear Sreekanth ji,
Tks for your immediate response. This is currently self occupied and I have the choice of renting or selling it as I have an alternate arrangement for stay at a measly cost of Rs.30k per annum with wife. Both Children are currently independent . A Ulip for 10 lac has an outflow of Rs.1.01 lac per annum and a mediclaim for us for 10lac at 30k premia is also in vogue. Thus the 50k per month I am seeking currently is to cover all this ( Rs.8500k + 2500k +2500k + 36500 ) . Emergency fund of about 3 lacs can also be available. Looking forward to an early reply.
Regards / Sunny
Dear Sunny Ji,
Instead of selling the house, you may consider opting for 'reverse mortgage' ??
and invest Rs 20 Lakhs in combination of MIP MF fund with SWP option in Growth plan.
Read: Best MIP MF schemes.
Dear Sreekant ji,
Thank you for your kind advice . Will do as suggested.
Regards / Sunny