Musing #69: Modern Monetary Theory

Heterodoxy can usher in amusement and stimulation in equal measure. In the context of economics, I have seen it pop up quite often at the mention of Modern Monetary Theory, to the extent that I have run out of fingers to count on. In the same breath, MMT (not this one) is equated with the license to print as much money as needed with it being a "creature of law". This makes nought sense to anyone having the faintest idea of economics and neither does the zero sum game between government spending and private saving.

Even if the theory has merits, it is often over-simplified by those pushing for its acceptance in the mainstream, which in turn makes it sound quite crazy. After quite some time, I have come across a source that does a simple and good job of discussing it. In general, I would recommend subscribing to the 'After Hours' podcast considering the fact that I ended up binge listening to it the first time I "tuned in".

Considering what happened in Zimbabwe, it will take a lot of effort to convince anyone that "unlimited printing of money by government" is a good idea, all things considered. At the same time, running fiscal deficits is a great idea, assuming there is a limit to it and that you are getting your money's worth. After all, debt makes the world go round. Running a deficit with a manageable debt-to-GDP ratio makes a lot of sense provided the government is getting a positive ROI in terms of social and economic benefits. What makes less sense is turning fiscal and monetary policies on their head without understanding their due impact.

There is no denying that the economic system is a belief and a social construct but there is no turning back the clock as well. Instead, the idea is to bring in meaningful change and MMT can contribute to that in parts, though not as a complete alternative. In the meantime, Calvinball anyone?

Musing #58: Mutual Fund (SIP) Portfolio Overlap Analyser

Being from a finance background, I made it a point to invest in SIPs early on. Over the years, while the investment amount has increased steadily, the number of funds being invested in has remained more or less constant. Hence, I need not emphasis how important it is to know where exactly the money is going.

Too often, the choice of a fund is made simply on returns and diversification is achieved by selecting a different fund class. However, it provides no indication of the extent of value creation. I prefer to keep an eye out on what's happening with my portfolio and it is not only when selecting a new fund but also for keeping tabs on what's going on with the existing investments.

My search for websites/files providing this information yielded a few options that were quite limited in nature, dispensing basic overlap information between two or three funds. Unable to find the requisite information, I decided to go on my own and create an Excel workbook that provides overlap analysis for up to six funds. The other target I had set for myself was to do so without the use of VBA, so the only permission required is to access the external data source -

The workbook is structured in to distinct sheets for input and detailed analysis. The 'Input' sheet is pretty straightforward and is essentially a two-step process requiring the funds and investment amount to be entered along with the selection of the fund that would form the basis of checking the overlap. It would be a good idea to read through the notes prior to using the workbook. The sheet has some safeguards built in to alert the user about inconsistent inputs, like missing investment values/funds and failure to refresh the 'base fund' selection. At the same time, it is robust enough to still function immaculately when any of the selected funds are deleted.

Note that although the sheet includes funds with equity holdings from various classes, some of them do not have their holdings listed on which may cause an error illustrated above. As such, there is nothing that can be done about it. Also, to state the obvious, the default funds selected in the sheet are for illustration and are not suggestive.

The 'Analysis' sheet provides the primary analysis of the portfolio. Besides listing the fund class and the equity holdings of each fund, it provides the percentage overlap of the base fund with all the other funds in the portfolio, both, in terms of the number of stocks and the value invested. The charts in turn provide 'Top 10' visualisations for individual stocks as well as the different sectors.

The 'Detail' sheet provides the tabular information that form the basis of the analysis and lists all the values as against only the Top 10 in the charts.

The 'MFx' sheets list the holdings of each fund, as retrieved from and is subsequently used for the overlap calculations.

Finally, the 'List' sheet is a list of the funds retrieved from and covers the various equity fund classes. It is easy to add any new funds to the list in the specified format and the information can be scraped en masse from the MoneyControl site.

As is often the case, I have created something to primarily fulfil my needs but with the intention of sharing it with other netizens. Consequently, I am open to any suggestions for improvement which you may leave in the comments section.

Link: Download from Google Drive

Musing #54: Impact of standard deduction in FY2019

The introduction of standard deduction in FY2019 lieu of transport allowance and medical reimbursement is unanimously portrayed as being beneficial to employees, at least by HR personnel. To a large extent that is true, even though the mention of the additional 1% education cess is conveniently omitted.

However, I had a query from a lesser financially inclined colleague of mine about the extent of benefit  that this change brings about. Considering my past example of helping out colleagues and my interest in economics and taxation, I decided to get cracking on preparing a spreadsheet capturing the difference in taxation in FY2019 over the past financial year based on these specific changes. It is a simplistic model created in a few minutes for the purpose of understanding. It considers the taxable income to be the income post all exemptions apart from the ones that are part of the subject matter.

As can be seen by the graph, benefit is a subjective consideration but it is helps to be an optimist. The crossover happens at ₹12,64,000, so I assume a large proportion of the population would be happy about the change, especially if they couldn't produce the necessary medical bills in the past years for reimbursement. The maximum benefit of ₹1070 is, of course, at a taxable income of ₹5,40,000 which would have been in the 20% bracket in FY2018 compared to the 5% bracket in FY2019.

The spreadsheet, formatted for Google Sheets can be accessed here.

Tutorial #17: A batter(!) understanding of dosa economics

Raghuram Rajan has been featuring a lot in the media recently in promotion of his book 'I Do What I Do'. While I am yet to read it, there has been no escaping it as select excerpts and anecdotes have been making their way to the news every day now. Earlier today it was the turn of 'Dosa Economics' on BBC.

On the face of it, it is a simple concept of understanding the real interest rate as against the nominal one. Most people tend to look at interest rate in absolute terms since it is the most visible one and inflation as the silent killer is rarely understood. It was a noble attempt by Rajan at explaining this concept, though how many pensioners received the message even after the simplification of numbers is debatable.

However, I see no reason for Raghuram Rajan to have a monopoly on dosas in economics. Moreover, one would be hard pressed to find a dosa for ₹50 in a city like Mumbai, let alone 1-year fixed deposits at 8% and real-life consumer inflation at 5.5%. So, now you get to create your own realistic dosa economics, provided you have the appetite for it.

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Tutorial #16: The Securities Trade Lifecycle

Trade is one of the basic tenets of investment banking. Yet, detailed information on its lifecycle is not easily forthcoming on the web. There are of course articles available describing the same at a high level, though it seems that few agree on the exact terminologies and sequence to be used. Books on the other hand, even the eponymous ones, divert to discussing trade strategies rather than the lifecycle itself.

They key then seems to be in garnering the details of the process. Having gone through a number of sources, I can recommend the tutorial available on Udemy. It covers the lifecycle starting from trade execution, though some would prefer to start from sale or trade initiation. What's important is that it covers all the steps in sequence and builds up on the details chronologically with illustrative examples. This facilitates a far better understanding than what most words would do.

It is certainly not free, but worth its price or indeed a trial. The tutorial spans over 22 videos (with accompanying PDF files) and may take up to 4 hours of your time, if you are running it an 1x speed. I found it convenient to follow even at 1.6x, so your mileage may vary. While this may sound more of a review than a tutorial, especially compared to my other ones, I found it best to classify it as one since it is aimed at promoting learning more than anything else.

Musing #37: Revisiting the Bitcoin Frenzy

I always thought that I was a bit late to the uptake of Bitcoins when I made my first purchase in 2015, having read about it for a long time as a technology enthusiast. However, I never imagined that the real frenzy would come much later. Along with it, comes the regret of immediately selling off the miniscule number of bitcoins I had purchased. Perhaps the bigger regret should be of not purchasing more of it and just letting it sit idle. If I remember it right, bitcoins were around the $300 mark at that time and what else would have ever provided a 10x return in less than 2 years?

While regrets live and die with the sole purpose of being detrimental, my purpose then was served which was understanding the workings of it. Of course, it came with the added benefit of arbitrage for back then the merchants that accepted it had a lower rate for BTC than for USD when converted from my local currency. My focus and hope for bitcoins was that it would be an effective alternate payment channel. Unfortunately, recent developments have shown it to not be the case.

Throughout this year, bitcoin has been in the news for all the wrong reasons which culminated in the forking of the currency earlier this month. It was this event that made me revisit bitcoins. What is now truly evident is that bitcoin has passed the point of no return in terms of being a viable alternate currency. Rather, it has become an instrument of speculation and greed. Merchant adoption has diminished with the passing of the day as the long waiting times and high transaction fees have made it the antithesis of what an ideal payment instrument should be. The only ones really vested in it are hoarders and miners who continue to thrive with each executed transaction.

For some, it would still make sense to purchase bitcoins even today, despite the fact that it saw a swing of 40-60% just in the past month (or may be because of it). A scarce resource will see appreciation in time as long as the want is there; want since no one really needs it at the moment. The association of idealism, freedom and anarchy with bitcoins has long passed. Now it is only about greed and nothing else. This is precisely the reason why I don't wish to purchase bitcoins again. However, I still see a transactional value for it since the world needs better cross-border instrument than PayPal.

This also gave me a reason to login to my years-old accounts in Indian bitcoin exchanges and see how they have fared over time.

1. Zebpay: The reasons why I had registered for it in the first place were its accessibility on the mobile, purchase price lock-in and vendor offers. Unfortunately, none of it seems to be of any value at the moment. While the main attraction in terms of purchase price protection has been discarded, it would have mattered if I could access my account in the first place. Despite contacting customer service, they haven't been able to unblock my account for over a week. The unblocking from the app fails to work as the SMS is never received (probably being sent from a number on the TRAI DND list) and the call option leads to an app error. While "caveat emptor" applies to any purchase, it seems to be particularly relevant here when you also consider the non-transparent fees and high purchase/withdrawal limitations. Definitely, a no-go for me.

2. Unocoin: You can never be too careful and in my case, it meant having to get 2FA disabled on my account, having long deleted it from my Authy accounts list. The call from customer care came within 24 hours which was a good sign considering that most wallet credits used to take a significantly long time. However, I would put this down to the fact that I did it when bitcoin trading was suspended for the fork and the customer service might not have had anything better to do. The big change that I was looking forward to was the support for PayUMoney which I hoped would finally enable me to bypass the frustrating wait for the amount to be credited to the wallet. Unfortunately, my spirits were dampened the moment I saw the 1.9% transaction fee. It just lobs the ball in my court once again and I can't simply figure out a better use case for considering Unocoin over other options.

3. Coinsecure: Since I only intend to use bitcoins for transactions, time is of the essence considering the volatility of bitcoin. In that respect, coinsecure performs really well even though it doesn't have the same accessibility due to lack of an app. The Material Design interface gets in the way more often than not, especially when there are notifications flying all over the screen like the persistent one about the fork and subsequent closure. However, my deposit through IMPS was registered in a matter of minutes and subsequent withdrawal of the same amount was executed during working hours. The real trouble was finding the matching order volume which in the least was for a few thousand bucks. I remember that in the past I could place a buy order without a matching order volume hoping for it to be fulfilled some time later, but that doesn't seem to be the case anymore. Despite this, I prefer it over the other exchanges.

There are other references that I came across such as bitxoxo but I can't be bothered to test them out for as I said before I am out of the bitcoin bubble for good. It certainly feels odd to not be part of something that is going to appreciate monetarily but then it is a matter of principle and belief, the belief that bitcoin could have been a low-cost, global payment channel. The soaring prices have tilted the scale against currency arbitrage; the high transaction fees would put PayPal to shame and the transaction times are nothing to write home about. Thus, bitcoin has become analogous to gold as a hoarder's asset, only difference being its wild swings lending it to immense speculation. Bitcoin's relative anonymity has tilted more in favour of the dark side rather than the envisaged utopia of freedom and invisible borders.

Bitcoin's lasting legacy would be the blockchain which still has a significant potential in having a real-world impact. Bitcoin itself is now no more than a game of timing and pricing, leaving the scope for the rise of a true nationless currency that is without its pitfalls.

Musing #35: An investor's dilemma

Time is an ethereal dimension. Here on earth, it is imperceptible and yet so vital. None so heed it as the sanguine investor. This is not to say that we shouldn't be optimistic about the current state of markets, which is at an all-time high. However, it comes with its own set of dilemmas that we need to address.

On one side, there are those who can't wait to exit for this is as much faith as they have in the markets. They may be right in assuming so, considering the fact that the market always seems due for a correction when there is a spurt and things seem too good to be true. Doing so however, is dependent on when you entered the market and what your needs are. Too often, the only reason for exiting is that you are finally in to the black.

On the other hand, I have friends who can't bear to see the single digit returns from their fixed deposits and in their desperation, have broken the same to invest in to the market at any costs. For them, is it unreasonable to expect the market to hit 50,000 after the next general elections? I think not. But, does it make sense to do so when you have an imminent expense hanging over your head within the next year? Is it rational to expect your money to grow by double digits before the year is over? The answer to both is no but few would feel the need to justify these decisions.

It is inevitable that for most, judgements are based on the past. History is a great teacher but you need to know which lessons to learn and which to ignore. The financial crisis of 2007/08 was a humbling lesson for many and is bound to repeat itself, for greed will manifest itself in another form. Most of the lessons learnt are also steeped in the past and wouldn't catch up to the future in the way ingenuity would. Hence, the only insurance is to be able to ride through the bumps.

The best investment strategy then is to have a strategy. Setting up a target, time horizon and understanding the means to get there is all that it takes, all of which requires immense discipline. Hence, the oft repeated suggestion of starting out with a SIP at the earliest is still the best one. It relieves you of the most important decision that one has to make - timing the market. Time, the most agnostic of all entities. Yet, it is with time that your accumulated fortune compounds and helps you attain the target that seemed too farfetched in the past.

However, investment discipline also involves setting up the right mix of products along with the horizon. Contingencies need to be provided for which the pithy savings account comes to the fore. Short term fixed deposits provide the stability needed to meet near term life goals that cannot be gambled with. Then, there is the safe discretionary investment, the good EMI that you need to forget altogether when putting in to a long-term SIP along with regular bumps that become possible as you move along in life. Lastly, if you are up to it or really have a person dedicated to it, comes the direct investment in the stock market. One must understand that all expert opinions are lagging indicators and hence not the guidance you should take up when doing in alone. Instead, leave it to the experts.

As is the case with life, simplicity and planning is the gateway to successful investment.

Tutorial #12: Converting calendar (CY) dates to fiscal year (FY) and quarter

I had a recent request from a colleague who wanted to arrange a bunch of dates in to fiscal quarters. So, I went about creating an Excel workbook  that would implement the same with the freedom of selecting the starting month of the fiscal year and decided to post it here along the lines of my previous tutorial. The following steps explain the logic behind my implementation.

Note that the steps below refer to the formula in cell C5. Hence B5 refers to the input date whereas the fiscal start month is captured in the cell C2.

Step 1: Input for FY Start Month

The 'FY Start Month" is the only input to this sheet and enables adaptation to any fiscal year. To prevent errors, I used Data Validation to limit the inputs to whole numbers ranging from 1 to 12.

Step 2: Calculating Fiscal Year

To calculate the fiscal year I used the simple logic wherein if the month of the date is equal to or greater than the fiscal starting month then the fiscal year is incremented by one compared to the calendar year or else it remains the same.
This works for all scenarios apart from when the fiscal year is same as the calendar year since in that case we have to create an exception where the fiscal year is same as the calendar year. This is done with the help of the additional IF statement.
Step 3: Calculating Fiscal Quarter

To identify the quarter, I decided to go with the CHOOSE function which makes it imperative that the calendar months are rearranged to fiscal months.

The difference in the numerical value between the calendar month and the fiscal month can range from -11 (1 minus 12) to +11 (12 minus 1). Hence the logic below offsets the value such that it lies between 1 to 12. This is done by adding 13 whenever the difference is negative and adding 1 whenever the difference is positive.
Step 4: Combination of fiscal quarter and year

The final step is to join the two formulae with the fiscal quarter leading the fiscal year with suitable spacing.
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Since Google Sheets supports the same semantics as Microsoft Excel in this case, you can access the same using this link.

Review #32: The Digital Money Game

I will admit that my interest in the book was piqued by the recent demonetization exercise. For most of us, digital money extends to any non-cash means of payment. Thus, in India, digital wallets like PayTM, Mobikwik and Freecharge are synonymous with digital money. However, as the book points out, digital wallets form only a small proportion of digital money which consists of any form of digital value transfer.

A thing to keep in mind before starting off with the book is that it considers its target audience to be those who are looking to enter in to this line of business more than any other subset of people. Hence, the book is not as strong conceptually as it is in helping understand the market through its myriad of case studies. It also uses a gaming paradigm which works really well. Normally, a game paradigm would work for any industry but it fits really well over here since it is an emerging and evolving industry.

Section I (The Game Space) of the book introduces the concept of digital money by dispelling the myths most commonly associated with digital money and gives an indication to the size of the addressable market. Section II (Player Perspectives) focuses mainly on the stakeholders in this sphere of business and this is where the gaming paradigm of the book comes to the fore. The inclusion of past play, current status and future play for each category of player (eg. Mobile Network Operators) puts one on a coherent path that is easy to grasp. Section III (The Endgame) of the book sets up a formal framework and explains the characteristics of digital money in further detail before laying out a future vision.

In terms of the Indian landscape, the book mentions the presence of 8 pre-paid payment providers but the only notable name included is Airtel Money. Aadhar is spoken of as an enabler though recent developments like Aadhar enabled payments don't find a mention in terms of future possibilities. ICICI Bank finds a mention because of its size. A prominent case study from the Indian perspective mentioned in the book is that of FINO which I was not aware of.

Ultimately, the book falls short in 2017 on account of being a victim of time. The latest reference I could find is from July 2014 which is a lifetime in this fast evolving sector. This anachronism is amusing in the way the book speaks of European Unity, the revolutionary Amazon Fire phone and Bitcoin. Consequently, the vibrant Indian payments landscape that has developed since is sorely absent. The book feels like a plug-in for the Shift Thought portal which itself is terribly dated. Hence, while the book is a decent read, it is perhaps worth less of the time it necessitates.