1.This is a thumb rule used while buying a car on a loan.
2. 20% of the onroad price of the car should be paid as down payment while booking the vehicle.
3.The EMI should not be more than 10% of the monthly income.
4.The loan tenure should be for a maximum of four years.
5.This rule will vary from individual to individual, according to their monthly income and other liabilities.
When it comes to investments, one should definitely understand the difference between these two.
An absolute return measures an investment’s performance without accounting for the amount of time committed.
On the other hand, annualised returns are annual gains that an investment earns over a specific time period.
For instance, when an investment of Rs 1,000 grows to Rs 1,300 over five years, then Rs 300 is an absolute gain with 30 per cent growth. This 30 per cent return is absolute return. But when annualised, the same gain is 5.38 per cent, which means each year, over a period of five years, Rs 1,000 incrementally grows by 5.38 per cent to become Rs 1,300.
The PE ratio of mutual fund is price by earnings ratio. It simply tells you how much you are paying to earn Rs 1. If the PE ratio is 25, you are paying Rs 25 to earn Rs 1, a 4% return.
This is certainly making things too simplistic as the earnings will keep growing for the companies which are part of the mutual fund.
There is no hard and fast rule but a PE ratio of 20 and less is preferable. The other side is that a high PE atio indicates that people are ready to pay higher price for the fund because the market believes that the fund value can grow faster.
While the P/E Ratio is based on the company’s earnings, the P/B ratio takes its book value instead.
Book Value of a company is the net value of all its assets after deducting all liabilities. In other words,
Book Value = Total Assets-Total Liabilities
It indicates the amount of money an investor has to invest for the net assets of the company. Since the market value of a share is usually higher than its book value, the P/B is typically greater than 1.
A high P/B Ratio is an indicator that investors expect the management of the company to generate more value from the given assets
https://economictimes.indiatimes.com/interpreting-p/b-ratio/articleshow/813397.cms?from=mdr
Rules of financial planning have changed: Sticking to old ones could be disastrous
Never take a loan to invest. Don’t borrow more than you can repay. Spend less than you earn. It is often said that if you stick to these simple rules, you won’t ever go wrong in money matters. In financial planning too, there are several thumb rules that serve as broad guidelines for formulating strategies.
Financial planners believe that significant changes in the past few years have rendered some time-tested tenets obsolete. While these canons of financial planning are still very use ..
1. Rule to junk: Save 10% of your salary for retirement
Rule to follow: Increase the savings rate to 20%
2. Rule to junk: Equity exposure should follow the 100 minus age formula
Rule to follow: Equity exposure should be 110-120 minus age
3. Rule to junk: The 50-20-30 budgeting rule for necessities, savings and wants
Rule to follow: Save at least 30% of your income every month
4. Rule to junk: Contingency fund should be equal to 3-6 months’ expenses
Rule to follow: Corpus should cover nine months’ expenses
5. Rule to junk: Life insurance cover should be 10 times your annual income
Rule to follow: Hike cover to 15-20 times your annual income if you are under 40
6. Rule to junk: A health cover of Rs 3-5-lakh is adequate for metro dwellers
Rule to follow: Look at a total health cover of at least Rs 10 lakh
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