Shall I send my business and invest in Mutual Funds?

[Anil_from_India]

I am from India.

I have a small hotel, which generates around 70k/average per month. Some months high, some months low. 70k after deducting business expenses.

From this 70k, I have a personal home expense of around 50k to 60k. I have 9 members in my family, and this is the only business I have.

I am planning to sell my hotel, because I am tired of this business and not happy with it. Also some disputes between brothers. So we both mutually agree to sell it. I can get around 1cr if i sell it.

If I invest 1cr, in mutual funds, I am expecting around 15% per annum. Based on my past 3-4 years of experience, which includes the corona stock market crash also.

If I invest 1cr, and get 15% per annum, then
15lacs - income per year from mutual funds
7.5lacs - less personal expense (60k*12 months)
7.5 lacs - net saving after expense WITHOUT DEDUCTING TAXES, which I will invest in mutual fund again

Some point to be noted
1. I have 9 members in my family including me, which includes, 2 brothers (including me), 2 wives of brother, 3 daughters, father, and mother.
2. 3 daughters are of age 3,7,15 years - with education expense included in 60k personal expense.
3. Personal expense of 60k includes school fees also and day-to-day compulsory expenses. It does not include vacation expense or other voluntarily or unexpected expenses.
4. I have my own house and vehicle. No loans.
5. Some savings of around 15lacs I have in gold and bank balance and stock market.
6. My age is 39 years. I don't have the capability or mindset to run other businesses as I am mentally tired and stressed. If you still suggest better alternative, I will try to do it.

My doubts and questions is
1. From 15lacs, what amount of income tax do I have to pay so that I get an idea of my saving
2. If I invest my savings after-tax deduction, will I be able to beat inflation in coming years?
3. Should I sell my hotel and divert to mutual funds or continue with the hotel business?


Please guide, what should I do.

 

[newtrader101]

Somebody with experience in mutual funds should answer
In any case, one should not put all of his eggs in one basket.
I gave up my job and started trading. But it was a bad decision. I should have generated a steady stream of income first from trading for atleast 1 -2 years, and then quit my job.
Also, I've found our trading performance is satisfactory only when we're actively engaged in some other vocation, even if it is voluntary service.

 

[Anil_from_India]

Yes, waiting for reply from experts in mutual funds

 

[Pradeep Narayan]

If I were in your shoes, I would do the following with 1Cr:

a. 10 L each for 3 daughters invested in long term Govt instruments. This is just a protection/cushion in case of any emergency.
b. 30L in stock market/mutual funds (if you please). I would not recommend you blindly do the investments... do your research first and be ultra conservative in approach
c. 25L in real-estate. May be a small house/flat or land that can give rental income of greater than 6% on the amount invested p.a.
d. 5 L in short term investments - business financing (in your earlier business line) for example.
e. 5 L as investment to learn a new trade or pursue your hobby/vocation.
f. 5L as cash in hand for approx. 1 yr of living

Points b & c are to be done with extreme care and good understanding of the risks involved. Point f is required as the other investments avenues need a gestation period before you can benefit from the returns.

I would expect around 60K per month combined from all these investments. There would be no savings for the initial years, but I would have build some assets and also accounted for some contingency in this plan

 

[Anil_from_India]

T

If I were in your shoes, I would do the following with 1Cr:

a. 10 L each for 3 daughters invested in long term Govt instruments. This is just a protection/cushion in case of any emergency.
b. 30L in stock market/mutual funds (if you please). I would not recommend you blindly do the investments... do your research first and be ultra conservative in approach
c. 25L in real-estate. May be a small house/flat or land that can give rental income of greater than 6% on the amount invested p.a.
d. 5 L in short term investments - business financing (in your earlier business line) for example.
e. 5 L as investment to learn a new trade or pursue your hobby/vocation.
f. 5L as cash in hand for approx. 1 yr of living

Points b & c are to be done with extreme care and good understanding of the risks involved. Point f is required as the other investments avenues need a gestation period before you can benefit from the returns.

I would expect around 60K per month combined from all these investments. There would be no savings for the initial years, but I would have build some assets and also accounted for some contingency in this plan

Thank you for Suggestion

I already have around 20lacs in Stocks and Mutual Funds

My XIRR in self stock trading is 24% since April 2019 - is this considered good enough?

And in Mutual funds investment it is showing 17%

 

[TracerBullet]

I am from India.

I have a small hotel, which generates around 70k/average per month. Some months high, some months low. 70k after deducting business expenses.

From this 70k, I have a personal home expense of around 50k to 60k. I have 9 members in my family, and this is the only business I have.

I am planning to sell my hotel, because I am tired of this business and not happy with it. Also some disputes between brothers. So we both mutually agree to sell it. I can get around 1cr if i sell it.

If I invest 1cr, in mutual funds, I am expecting around 15% per annum. Based on my past 3-4 years of experience, which includes the corona stock market crash also.

If I invest 1cr, and get 15% per annum, then
15lacs - income per year from mutual funds
7.5lacs - less personal expense (60k*12 months)
7.5 lacs - net saving after expense WITHOUT DEDUCTING TAXES, which I will invest in mutual fund again

Some point to be noted
1. I have 9 members in my family including me, which includes, 2 brothers (including me), 2 wives of brother, 3 daughters, father, and mother.
2. 3 daughters are of age 3,7,15 years - with education expense included in 60k personal expense.
3. Personal expense of 60k includes school fees also and day-to-day compulsory expenses. It does not include vacation expense or other voluntarily or unexpected expenses.
4. I have my own house and vehicle. No loans.
5. Some savings of around 15lacs I have in gold and bank balance and stock market.
6. My age is 39 years. I don't have the capability or mindset to run other businesses as I am mentally tired and stressed. If you still suggest better alternative, I will try to do it.

My doubts and questions is
1. From 15lacs, what amount of income tax do I have to pay so that I get an idea of my saving
2. If I invest my savings after-tax deduction, will I be able to beat inflation in coming years?
3. Should I sell my hotel and divert to mutual funds or continue with the hotel business?


Please guide, what should I do.

1) Mutual Funds or even trading does not give you assured short term income. That is very important to understand. 15% annualized you might get, but it could be less too, for long time it was around 10-12. At time of crash it was much less. Its a moving number. Some years are negative. Don't assume market will bounce back quickly after crashes. And we can have many years of no returns.

2) You have to assume that money in Mutual funds wont be touched for the next 10 years. 5 might be too low in rare cases, and then you will need luck. So in the meantime you will need to have some way of making money to pay for your expenses.
So, it would be best to have some sort of alternative income before making a large change like this. Especially since you have so many dependents.
You can dip into your savings or perhaps invest say only 50L in Equity. But as time moves on, if things don't look favorable in the moment, you will have to face the pressure of dwindling savings.
Having some income could help alleviate that. Its ok to take a break for a year, but don't assume you are financially free.

3) If you can have alternate income then investing surplus money in the market makes sense as long as you do not touch it when market falls ( it can fall 50-60% !, imagine your 1cr becomes 40L temporarily ) and keep holding/buying.
Yes some people can do better by being active - but MOST will not - they will lose/get worse returns. So unless you have proof, dont time the markets. Invest in Index or diversified mutual funds. Using direct funds to save on expense. Use SIP to avoid initial timing risk. We had a good year, future returns can be muted.

4) For timing/stock/sector selection you need to have proven edge/track record. For most, that does not exist. It takes time to build up skills to do that, but it is possible.

My doubts and questions is
1. From 15lacs, what amount of income tax do I have to pay so that I get an idea of my saving
2. If I invest my savings after-tax deduction, will I be able to beat inflation in coming years?
3. Should I sell my hotel and divert to mutual funds or continue with the hotel business?

1) Equity - no tax until you sell. LTCG ( held over 1 year) 10%. else 15%.
2) Equity can beat inflation - but you must hold for many many years. It is volatile.
3) 8.4L from 1 cr before tax does seem mediocre - but its better than debt and better than nothing. And property value can increase with time ( yes real estate seems to have struggled for long time..). You have some reasonable guarantee of this income in short term. You have no guarantee of any income from Equity in short term.
Only money you don't in near future need should be in equity. Equity is one of best ways to beat inflation, but only over long term.

I cannot imagine to be in your place, but i would be careful before making a large change like this abruptly, perhaps based on recent returns. If i have alternate income in place, then it makes a lot of sense to have decent portion of net worth in equity - but you need to handle the volatility. You can consider have some debt component too, but these days returns are low.
Best to consider money in mutual fund as equivalent to provident funds. You cannot touch them until retirement.

 

[Pradeep Narayan]

T



Thank you for Suggestion

I already have around 20lacs in Stocks and Mutual Funds

My XIRR in self stock trading is 24% since April 2019 - is this considered good enough?

And in Mutual funds investment it is showing 17%

Frankly, I do not give much importance to XIRR etc.
2017 till now has been a period where anyone could have easily made money in the market. It would be more prudent to assess one's capacity in stock trading in the coming 5 yrs.
My only suggestion would be - Do what you really love doing. If you love trading, then enter the stock market ring - else stay away!
And akin to wooing your love - you need patience, innovation and sincerity in this endeavour.

 

[newtrader101]

I am from India.

I have a small hotel, which generates around 70k/average per month. Some months high, some months low. 70k after deducting business expenses.

From this 70k, I have a personal home expense of around 50k to 60k. I have 9 members in my family, and this is the only business I have.

I am planning to sell my hotel, because I am tired of this business and not happy with it. Also some disputes between brothers. So we both mutually agree to sell it. I can get around 1cr if i sell it.

If I invest 1cr, in mutual funds, I am expecting around 15% per annum. Based on my past 3-4 years of experience, which includes the corona stock market crash also.

If I invest 1cr, and get 15% per annum, then
15lacs - income per year from mutual funds
7.5lacs - less personal expense (60k*12 months)
7.5 lacs - net saving after expense WITHOUT DEDUCTING TAXES, which I will invest in mutual fund again

Some point to be noted
1. I have 9 members in my family including me, which includes, 2 brothers (including me), 2 wives of brother, 3 daughters, father, and mother.
2. 3 daughters are of age 3,7,15 years - with education expense included in 60k personal expense.
3. Personal expense of 60k includes school fees also and day-to-day compulsory expenses. It does not include vacation expense or other voluntarily or unexpected expenses.
4. I have my own house and vehicle. No loans.
5. Some savings of around 15lacs I have in gold and bank balance and stock market.
6. My age is 39 years. I don't have the capability or mindset to run other businesses as I am mentally tired and stressed. If you still suggest better alternative, I will try to do it.

My doubts and questions is
1. From 15lacs, what amount of income tax do I have to pay so that I get an idea of my saving
2. If I invest my savings after-tax deduction, will I be able to beat inflation in coming years?
3. Should I sell my hotel and divert to mutual funds or continue with the hotel business?

Please guide, what should I do.

This post by Smart trade seems to be relevant in your situation:
https://www.traderji.com/community/threads/day-trading-stocks-futures.89068/post-1450903

 

[TracerBullet]

T



Thank you for Suggestion

I already have around 20lacs in Stocks and Mutual Funds

My XIRR in self stock trading is 24% since April 2019 - is this considered good enough?

And in Mutual funds investment it is showing 17%

Ok, so you are not a complete novice as i assumed. You probably need to judge it yourself. 24% is good enough, people can do much better than that, but that does not mean its bad.

But it depends on how you trade too.
For intraday, 2-3 years with lots of trades may give reasonable indication that you have an edge.
But as an investment it can be very hard to separate skill/edge from luck. You must have survived the virus fall, so that's good.

This is a question that every trader/investor has to deal with - do you have an edge?, will it persist? Diversification of income can give some comfort in dealing with this. Or a very large capital base to absorb the blows. Markets are uncertain.

 

[Anil_from_India]

Thank you, everybody, for your suggestion and detailed explanation.

After reading all suggestions, I am planning to continue my hotel business. As there, I can increase daily rent, as inflation rises. But in Stock Market my income will be fixed at 15% to 20% of 1cr only. In long run 15 to 20% of 1cr will not be enough.

Once again thank you for suggection