Let us get it right, the real rich do not borrow. Never ever for personal expenses, buying assets or personal INVESTING. Borrowing and investing is a very foolish thing to do for most people.
Will a Mukesh Ambani or a Kumar Birla take a personal loan to buy shares?
Tough to answer this question? No. Never.
You borrow for doing business – yes, but you do not borrow to invest. That would be foolish. In a market like this it is very tempting to borrow in the US (thanks to the low cost of $ funds) and invest in India, right? well, wrong.
What then is safe leveraging? Is there anything called safe leveraging?
Yes I have a friend who has a Rs. 80 Lakh salary and NO Emi to pay. All his earnings are converted to SIPs. Thanks to his good equity portfolio he also has an equity dividend income of about Rs. 7 lakhs and his wife has an interest income of Rs. 4 lakhs and dividend income of about Rs. 4 lakhs. He also has about Rs. 40 lakhs in 4 ppf accounts.
Extremely debt averse he said ‘I will not want an EMI on my head’. Correct, perfect thought.
I showed him how he could leverage to buy an asset. He wanted to buy a flat worth (second flat, completely unnecessary but his wife does not listen to him or to me!! and her brother was buying – ab to izzat ka sawal tha!!
So I got him to sell some shares (about 3 months ago, and he is happy because the scrips have come down in price (I had no clue that this would happen), he then broke some bank fixed deposits (his wife’s income goes down!), and now his EMI is less than his dividend income!
THIS IS SAFE leveraging! If his income from business falls he can still pay the EMI…from his dividends….right?
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