Goosebumps, Instincts and Investing

Today, while watching the Republic Day Parade, I felt goosebumps as the battalions marched down Kartavya Path, accompanied by their bands. A similar experience struck me when patriotic songs echoed through the neighborhood. This made me wonder—would the Chief Guest at the parade, possibly a foreign dignitary, feel the same way upon hearing these slogans?

For many Indians, hearing phrases like “Jai Hind” or “Bharat Mata ki Jai” evokes a deep emotional response—one that feels almost instinctive. However, if a European were to hear similar patriotic slogans from their country, it might not stir the same emotions in us. These responses are a product of our upbringing, culture, and shared history—something we've learned and absorbed over time.

This led me to another thought: What kind of experiences evoke a universal response? Perhaps music? But even music, in some way, is tied to cultural roots. There is, however, one response that transcends culture and is hardwired into our DNA—the fight-or-flight response.

Hardwired Instincts vs. Learned Emotions

The fight-or-flight response is a primal instinct that dates back to our ancestors in the stone age. It kicks in when we perceive a threat, like a wild animal in the jungle. While patriotic slogans evoke a learned emotional response, the fight-or-flight reaction is an automatic survival mechanism, deeply ingrained in our biology.

In today’s world, this instinct often misfires in situations that don't pose a direct physical threat—such as volatile financial markets. The same instinct that once ensured our survival now compels us to react irrationally when stock prices fall. Fear takes over, rational thinking goes out the window, and we end up panic-selling investments—just like fleeing from a predator.

Behavioral finance experts, like Morgan Housel, have emphasized that managing money is more about controlling emotions than crunching numbers. Recognizing our instincts and biases can help us take a more measured and disciplined approach to investing.

How to Overcome Emotional Biases in Investing

While we can't eliminate our fight-or-flight response, we can train ourselves to respond better to financial uncertainty. Here are a few strategies to stay on track:

• Have a Plan: A well-structured financial plan acts as a guidepost during uncertain times and helps you stay the course.
• Automate Investments: Automating investments reduces emotional decision-making and keeps your strategy consistent.
• Diversify Wisely: Spreading investments across different assets minimizes risk and reduces the feeling of threat during downturns.
• Take a Long-Term View: Markets move in cycles; short-term volatility is not a reason to panic. Focus on long-term growth.
• Pause Before Reacting: Just as deep breathing calms nerves, stepping back before making financial decisions can prevent impulsive mistakes.

So, the next time the market takes a wild turn, take a deep breath and remember—your instincts might not always have your best financial interests in mind.

P.S.: Since the start of 2025, financial markets have been extremely volatile. Experts predict similar behavior for the rest of the year. Consider 2025 the "Year of Patience" for equity markets. Keep accumulating units through SIPs and occasional lump sum investments.

P.S.S.: Please share if you have experienced similar emotions while handling your finances.

Prasad Patwardhan

VittaSiddhi

QPFP®

Expectation Setting in Personal Finance: A Key to a Smoother Journey

If you've ever commuted during peak hours in a bustling city, you'd know how traffic conditions worsen as the clock ticks closer to rush hour. Roads get congested, local trains and metros overflow with people, and the journey can often feel exhausting. But those who set the right expectations—whether it's mentally preparing for the crowd, choosing a different route, or simply adjusting their travel time—tend to handle it better. Some even find ways to enjoy the ride.

Take, for instance, the constant honking on the roads. Drivers honk impatiently, as if given a chance, they would fly over the vehicle in front of them. In Mumbai, it's common to hear someone sarcastically ask the honking driver, “Udke jayega kya?” (Will you fly over?). This lighthearted remark perfectly captures the importance of setting the right expectations—understanding that traffic jams are inevitable and honking won’t magically clear the road. The same mindset applies to personal finance.

Many people set unrealistic expectations when it comes to saving, investing, or achieving financial goals. They hope for quick returns, smooth sailing, and no surprises. But just like traffic and crowded trains, financial journeys come with ups and downs—market fluctuations, unexpected expenses, and periods of slow growth.

Setting realistic expectations helps you stay prepared and avoid frustration. When you acknowledge that financial growth is often gradual and requires patience, you're less likely to feel discouraged by short-term setbacks. Instead of being overwhelmed, you'll focus on long-term progress, much like how a well-planned commute feels more manageable.

Expectation setting isn't about lowering ambitions; it's about being practical. Whether you're planning for retirement, saving for a big purchase, or investing in your future, understanding the potential challenges ahead allows you to stay calm and focused. You learn to adapt, adjust your financial "route," and ultimately, enjoy the journey without unnecessary stress.

So, take a moment to assess your financial expectations. Are they aligned with reality? If not, it might be time to recalibrate and embrace the journey with a balanced mindset—just like a seasoned commuter navigating the daily rush.

Prasad Patwardhan

VittaSiddhi 

QPFP®

Owning Decisions: The Key to Transforming Public Spaces and Personal Finances

Have you ever noticed how a once-bleak underpass or a drab railway station has transformed into a vibrant canvas? Murals depicting our beloved animals, inspiring freedom fighters, and other role models have not only beautified these public spaces but have also sparked a remarkable change in community behavior. 

The secret? Artists from the community—the same people using these spaces—were involved in the process. Their participation fostered a sense of ownership, and defacing these spaces became unthinkable.

This shift offers a powerful lesson for personal finance. Just as engaging people in beautifying public spaces strengthened their connection and responsibility, owning financial decisions can dramatically improve one’s financial health.

Many delegate financial decisions to others—be it family members, advisors, or sheer chance—detaching themselves from the outcomes. But when you actively participate in managing your money—understanding investments, budgeting consciously, and planning for goals—you develop a personal stake. This sense of ownership encourages accountability and builds confidence, leading to better financial choices and, ultimately, a stronger net worth.

In both cases, involvement transforms behavior. Whether it's preserving public spaces or growing personal finances, the underlying principle remains the same: ownership drives responsibility. By taking charge of your financial journey, you’re not just investing in assets—you’re investing in yourself. And just as painted bridges now inspire rather than repel, a well-managed financial life becomes a source of pride, not stress.

Own your decisions. Watch them transform your world.

Prasad Patwardhan

VittaSiddhi 

QPFP®

Personal Finance Lessons from Kung Fu Panda

Kung Fu Panda is an entertaining animated series, but full of lessons to be learned and applied to personal finance. The unlikely hero, Po, is a clumsy, noodle-loving panda with dreams of becoming a kung fu master doubted by everyone including himself. The journey is full of wisdom, especially about embracing who you are, overcoming your past, and staying balanced. Three core financial takeaways from Po's experience:

Emulate Your Personal Financial Style: In the first movie, Po tries to emulate the fighting style of the Furious Five, the kung fu warriors he admires. But he struggles until he starts using his own strengths—his size, agility, and creativity. When handling your finances, don't succumb to the temptation of comparing yourself with others. You may not have the same income, expenses, or risk tolerance as your peers, and that’s okay. Embrace your unique financial style, whether it’s being a strategic investor, a diligent saver, or a thoughtful spender. Authenticity is powerful. Tailor your financial strategy to fit your strengths and circumstances for long-term success.

Let Go of Past Financial Mistakes: In the second movie, Po is haunted by his traumatic past, where he felt abandoned and orphaned. This ultimately makes him learn that to find peace and strength, he must let go of all those burdens weighing him down. Most of us have regrets over past financial decisions, which include missed investment opportunities, debts, or overspending. Learn from them instead of letting these mistakes define you. Let go of your financial guilt and move on. Your past does not have to define your future.

Harness Your Financial Chi: When Po finally becomes a kung fu master in the third film, he learns the concept of Chi-the internal energy that produces harmony and strength. In finance, this represents the harmonious approach of managing your money. Rather than being entirely based on budgeting, build a financial plan that both aligns with your values and goals, such as investing for good experiences, investments in your future, or just good spending-to-investing balance. Financial Chi is utilizing your resources in a way that makes you feel sustainable and empowering, so you are thriving financially without feeling constrained.

By embracing your financial uniqueness, letting go of past mistakes, and finding your financial balance, you can achieve the kind of financial peace and success that will resemble Po's journey to becoming the Dragon Warrior.

Prasad Patwardhan 

QPFP®

Certain and Uncertain

As the financial year has ended most people would be contemplating over the tax deducted or paid. Many would be complaining about the high tax deducted by the employer. Some would have failed to do the required tax saving investment or would have failed to submit the investment proofs before the deadline. Some would have bought new life insurance policies, health insurance policies, ELSS etc. to save the tax outgo.

Whatever might be the case one thing is certain that the next financial year will end on 31st March next year. It is also certain that your employer would ask for investment proofs next year. You would certainly have a fair idea of the income that you will earn from April to March. Still I fail to understand why many taxpayers rush to make investments only between January to March of every financial year.

Online calculators are available which help to calculate the tax outgo according to your income. The calculator helps you to decide the investment amount that will be required to save on the tax. What would be required, beyond the inputs to the calculator, would be you embracing the idea that you need to save first and spend later. This saving in PPF, ELSS, VPF etc. or buying of required insurance policies should not be necessary in April. You can stagger it from April to December so that you are not burdened at the end of the financial year. The fact that I have suggested December and not March is to save you from the hassle of rushing at the end of February/March to gather and submit the investment proofs. Also starting early and staggering your investments will help to select products judiciously. My earlier blog ‘Look beyond 80C’ (click here) will help you understand why it is necessary to select right product/products.

To summarize, if you take advantage of these certain things in life, positively you will be benefitted -

1) Better product selection by December
2) Lesser cash outflow in January, February & March
3) Reduced possibility of bigger chunk of tax deduction in January, February & March

This was about the certainty. Now something about the uncertain part of life. Most of us have bought life insurance and health insurance policies. Some will have made fixed deposits, bought mutual funds, company deposits etc. Basically, everyone would have bought and/or invested into some or the other financial product. This could be in digital form or physical form. When you have made these arrangements for your dependents to fight in the uncertain phase of life; are your dependents aware of all of these arrangements?

What if the need arises to raise a claim with the insurer? Medical expenses can be settled cashless through network hospitals. What if a non-network hospital needs to be opted in an emergency situation? How would the bills be settled in such a case? If the breadwinner of a family meets with an accident, how would the family respond to such a situation? What if the sole earner of the family dies an untimely death? Do his/her dependents know about the policy details and the claim settlement process?

All these situations will cause a scare among the dependents. This can be avoided by making the family aware of the insurance policies and investments. It will take some time and efforts to compile all the details and to educate your dependents about these. But it would be worth the effort as it will keep your family ready to face the emergencies.

Following the below steps will help in uncertain situations:

1) Keep your family updated about the financial products you have invested in.
2) Check nominees and share of the nominees in insurance policies.
3) Have a joint account with your spouse/children for emergency fund.
4) Keep details of health insurance policies, personal accident insurance policies handy. 

5) Usually insurers provide cards along with policy documents which can be used for cashless settlements. Carry those cards with you, especially while on a vacation.
6) Maintain a list of network hospitals in your area.
7) Educate your family about the settlement process of insurance policies.
8) As far as possible pay your utility bills, credit card bills, policy premiums using the direct debit mode. This will ensure that those are paid on time in your absence.

Now if your heart has already skipped a beat reading about implications of uncertainty of life, follow me through my upcoming blog.

P.S. One more thing is certain. On your way back home you will buy some groceries, snacks, fruits, milk etc. So please do carry a cloth bag with you.

Prasad Patwardhan

Qualified Personal Finance Professional

Learnings from Google Maps and Google Navigator

You must have come across the new advertisement by Google Maps with the tagline ‘Look before you leave’. For some of you who run with the minute and second hands of a clock every day, this might be a ritual and not just a tagline. Because you know only Google Maps can tell you the actual time of your journey.

Technically, Google Maps gives us the time required, for various commute options, to reach from point A to point B. Let us quickly look at the actual process of navigating from point A to point B. Let’s say Mr. X wants to go from A to B. He will input these into the Google Maps app or web page. Google Maps will display the route options available and the approximate time required. Mr. X can travel from A to B by using his car, his bike, combination of public transport (if available) or walk. Each mode will have different travel time and route changes. The travel time would depend on the traffic conditions at that point in time. Next what Mr. X can opt is to use the inbuilt Google Navigator if he is using his mobile phone. The navigator will prompt directions based on the selected route, track his drive and prompt of the various turns en route. If the traffic conditions change it will assure Mr. X that he is on the fastest route or if needed to reroute Mr. X. If he deviates from that route, the navigator will recalibrate and prompt again. Mr. X can also opt to navigate on his own without using the navigator. While doing so he will have to track his ride and take necessary decisions.

So what were the options available for Google Maps? People would use printed maps or the location of the sun, the moon and the stars while traveling. Some may ask the local people they would meet during their journey. What were the shortcomings of these? It was difficult to use paper maps and exactly determine the location you have reached. Strangers might not give you the fastest route or worse some might totally send you on the wrong path.

So much about Mr. X’s everyday journey. Have you ever wondered how would Mr. X manage his financial journey? Let’s say Mr. X sets on his financial journey to reach planned destinations. The typical destinations would be buying a house, child education, vacations, starting a business, retirement etc. So what options does Mr. X have to reach these destinations?

a) Mr. X would start his journey with the knowledge of the financial products he has. He will have to track his progress all along the journey, estimate the time required to reach the destination and make any course corrections if required. This may or may not be the best method. The success of this would depend on his knowledge and amount of time and efforts he could spare. OR

b) Mr. X would take help of his peers, family members, friends to make the investment decisions. In this method too he will have to track his journey. The success would mainly depend on the knowledge of the people advising him and the intent of those people. OR

c) Mr. X would take help of an online portal to decide the amount and the investment avenues but would invest on his own. Mr. X would be required to review the progress along the path laid down by the portal. This would be better than the above two methods. OR

d) Mr. X would offload the entire work of managing the journey to a financial advisor. Then it would be the duty of the advisor to make the course corrections as and when required. This would be the best alternative but would certainly entail some cost.

What lessons can be drawn from the similarity between Google Maps, Google Navigator and the investment journey of an individual? I have categorized this into mainly two sections – lessons for an investor and lessons for an advisor.

Lessons for an investor:

I believe when Mr. X chooses the first option he would be in the same position of the traveler who uses paper maps. I know you must be thinking why on earth anyone would use paper map today. But there are many who start their financial journey with option a) i.e. buying the financial products based on own knowledge. So similar to any paper map user, Mr. X would not know how far he is from his goal. He would be completely unknown about the difficulties in his route. At the same time, Mr. X would also have to focus on other tasks (read his job, family responsibilities). No doubt it would be difficult for Mr. X to achieve all goals with this approach.

What would happen if Mr. X chooses the second option? As stated earlier the success of this option would depend on the financial competence of his family members/peers/friends. Also, the intent of these people would matter. The products suggested would be based on the personal experiences of these people. The risk tolerance of the investor, the product suitability would not always be the same. Even though many start their financial journey in this way they end up feeling cheated due to wrong product selection or loss of opportunity in some other investment avenue.

The third way is where Mr. X becomes the “Do It Yourself” (DIY) type of investor. He would take help of online portals to work out the investment required based on the goals. Why don’t people always use the Google Navigator? The probable reasons are lack of knowledge about its use, lack of trust on the technology, to save on the internet data costs, save the battery from draining. Similarly, an investor opts to manage the investments all by himself to save on the advisor costs. Here Mr. X has to review his investments regularly, increase/decrease his allocation to various assets classes, track the effects of alteration in tax rules etc. He can always go back to the same portal to track his progress. Also, he would have to keep a check on his insurance requirements (life, health, home, personal accident, motor) all by himself. And Mr. X has to do all these while managing his regular job. Will he be competent enough to do all these? That is a totally different issue.

The last option is where Mr. X engages with a financial advisor. What Google Navigator is to a traveler is the financial advisor to an investor. Google Maps locates Mr. X with the accuracy of few meters. Similarly, the financial advisor will need to know the exact location of Mr. X in is the financial journey. Else the results would be erroneous. The financial advisor will check the income, expenses, assets, and liabilities of Mr. X. He will check the insurance coverage requirement. Then he would decide the investment options based on the risk profiling of Mr. X and the goals. This will be purely based on the return assumptions, tax rules, inflation levels, risk capacity, income levels, liabilities etc. at that point in time. With so many variables there would be a need for periodic reviews and recalibration of the plan which of course is taken care by the Financial Advisor. Ultimately Mr. X gets to focus more on his core job without having to worry much about his financial journey.

Lessons for a financial advisor:

When Mr. X approaches a financial advisor, similar to Google Navigator, he would be doing this with his prior experiences (good and bad) and biases. He might have been the paper map traveller or guided by his family or DIY kind. He would have an affinity to a certain product/asset class (like real estate) and/or would be wary of another (like equity). So the advisor has to make Mr. X as well himself aware of these experiences and biases. Some would approach the advisor only to review their goals and current choice of investments. These type of investors would eventually remain as DIY investors.

Whatever the type of investor, the advisor has to guide him/her with the ‘client first’ approach. Mr. X would be trusting the advisor with his personal information and money. The journey would typically be somewhere ranging between 10-30 years. So the advisor ought to be process driven. Google Maps has built a considerable moat with its offerings. Still, it keeps on adding new features. It has introduced new features like bike mode for Indian roads, in-app ride-hailing service selection. Similarly, an advisor will have to constantly upgrade his knowledge to keep up with the ever-changing product landscape, regulations, and tax rules. An advisor will have to add offerings to his service. Also, he needs to embrace technology in the profession to serve the investor better. Else Mr. X would go back to his way of investing. And this would be an injustice to the investor, to the advisor and to the fraternity as a whole.

Please share ideas, experiences and alternate views.

Prasad Patwardhan

Qualified Personal Finance Professional

Emergency Fund

In the last blog on Investment Planning I had mentioned about creating an emergency fund. The size of the emergency fund should ideally be equal to 3 to 6 months of one’s monthly income. While liquidity should be given utmost importance, one can also try to earn decent returns from the emergency fund. Today we will explore the various options of maintaining an emergency fund.

Cash: Cash is king in emergency fund. One should keep some cash at home. This is necessary in the event of ATMs running out of cash or during natural calamities like floods where reaching an ATM or bank is not feasible.

Pros: Cash-in-hand can come handy in case of natural calamities or events like demonetisation. It is the most liquid option especially in case of ATMs/banks not available in the vicinity of your residence.

Cons: Cash at home does not earn any returns. Also there is risk of losing the cash in case of theft.

Bank accounts: Bank accounts with net banking facility and debit cards are also a good option. Some banks also provide fixed deposit with sweep-in facility. Sweep-in FDs can be instantly redeemed. There is no lock in period for these FDs.

Another interesting option is of Payment Banks. Payment Banks (PB) accept deposits up to Rs. 1 lakh. In the view of lesser infrastructure costs, these banks offer interest around 7% on the account balance. Airtel Payment bank, PayTM are two operational PBs among the 15 approved PBs. While Airtel pays 7 % interest, PayTM pays 4% interest.

Another option that one can consider is Digisavings bank account by Development Bank of Singapore. Even though this is not a PB, it still offers 7% interest on amount up to Rs. 1 lakh. The only downside of DBS is that it doesn't have any branches and in case of any technical issues it will be difficult to access your funds.

Pros: With most merchants, hospitals adopting the digital payment methods of swipe machines, PayTM etc debit cards, virtual cards are the way to go. Also the underlying balance earns returns.

Cons: Interest earned through FDs is to be added to your income and taxed as per your tax slab. Interest earned through Savings Account is exempted up to Rs. 10000. Income in excess of Rs. 10000 is to be added to your income and taxed as per your tax slab. So plan the amount that should be maintained in the savings account in the view of taxation.

Gold: The yellow metal is all time favorite in the Indian household. Gold is usually bought & stored as gold coins, bars or in the form jewelry. Gold can also be bought in the digital form of Sovereign Gold Bonds issued by Government of India, Gold Exchange Traded Funds (ETFs), through online platforms like Riddhi Siddhi Bullions Limited (RSBL), PayTM etc. While RSBL & PayTM offer the option of converting E-gold to gold coins, Sovereign Gold Bonds and ETFs cannot be converted to physical gold.

Pros: Gold has universal acceptance unlike currency. It can be easily used as collateral to raise funds. And in the rare event of displacement due to war, natural calamity gold can come to the rescue.

Cons: Like cash even gold is prone to theft. Also to safeguard gold one might have to buy safety lockers or rent lockers in bank. Both these options entail expenses.

Debt Mutual Funds with instant redemption: The duration between redemption from mutual funds and amount actually getting credited to your account depends on the type of mutual fund. For debt mutual funds this duration is T+1 where ‘T’ is the business day on which the order is executed. Few mutual fund companies usually known as Asset Management Company (AMC) have come up with option of mutual funds with instant redemption. These are basically Liquid Mutual Funds categorized under debt mutual funds with lowest risk. The returns range from 7-8%. Currently Birla Sunlife and Reliance Nippon Capital provide the instant redemption facility. Reliance AMC provides facility of debit card which is linked to your liquid fund.

Pros: The duration of redemption to transfer is about 30 minutes. This even works on non-business days that are weekends, bank holidays. The rate of return is also slightly higher than FD rates. In case of Reliance fund, redemption order can also be placed using the App of the AMC. More AMCs are expected to follow the suit. 

Cons: Redemption within 36 months of investing are treated as short term capital gains. These are to be added in your regular income for taxation. So each swipe or ATM withdrawal which essentially leads to redemption will be a taxable act.

Arbitrage funds: The meaning of arbitrage is to buy a commodity from one market and sell in other to earn profits due to the price difference. Arbitrage funds are equity funds which spot and exploit the price differences in a stock in various markets to earn profits. They also invest in short term deposits, in absence of arbitrage opportunities, to earn returns.

Pros: As they invest at least 65% of the portfolio in equities, they are treated as equity funds. Redemption within 1 year of investing are short term capital gains and are taxed 15%. Long term capital gains (the gains if the redemption is after 12 months) are tax free.

Cons: For equity mutual funds the duration for redemption is T+3 i. e. 3 days from the order getting executed. So the funds would not be available at short notice as in case of cash. So this option could be more beneficial for people in the higher tax brackets.

So these are the options to maintain the emergency fund. One should use the best possible combination of the various options mentioned above. This will serve the purpose of liquidity and earn decent returns.

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