My Passive Income Report for the Year Ended 31st March 2018

I publish my passive income report every year. Passive income is the key to financial freedom and getting rich. Investing is the only way to create passive income for a majority of us who are not gifted with special talents. I write this post to show you how small but regular monthly investments can build streams of passive income

Let me present here my passive income report for the just-ended financial year 31st March 2018.

Let's study the following bar chart. This graphic shows the growth in the passive income.

I also add the following supporting information that makes the chart more readable.

Passive Income Report: 3 Streams of Passive

We can see that there are three categories of passive income here. These three forms are as follows:

• dividend,
• interest and
• profit from the sale of investments.

You can also observe from the chart and the table that the dividend income is steadily growing. This is on the back of increased investments in stocks. It is equally important to note that interest income has fallen drastically from Rs.70,512 in the year 2016 to Rs.38,846 in the year 2017. This is not because of any reduction in the investments of interest-bearing assets but owing to the steep cut in the interest rates on bank deposits. You will appreciate this from the graph showing various forms of investments.

Passive Income Report: Total Investments

We have maintained the bank fixed deposits (FDs) more or less at the level. You can see that direct investments in stocks are steadily climbing. In the financial year ending 31st March 2018, the life insurance company had pre-closed a mutual fund linked life insurance policy for an inadvertent delay in paying the premium. I do not intend to invest in life insurance policies anymore as they are beneficial for those who begin when they are young.

In the year 2018, I have added two new investment products namely public provident fund (PPF), equity-linked savings scheme (ELSS)and special, tax saver bank fixed deposits. I was primarily trying to take the tax deduction under section 80C of the 'Indian Income Tax Act'. This act allows a deduction while computing taxable income to the extent of Rs.1,50,000 a year on certain investments.

ELSS is the only equity-linked mutual fund instrument that qualifies under the section 80C. Though I made a beginning with ELSS I restricted the amount to just Rs.20,000 as the fund managers were investing only in the blue-chip companies which were very expensive. I will increase the allocation when the markets become more reasonable or depressed.

I invested Rs.10000 in PPF this year. PPF offers a higher interest compared with bank deposits and also brings certain legal protections. One limitation is a very long investment lock-in period of 15 years. This is actually not a concern for a value investor, who anyway is a long-term investor. But the real concern is that PPF does not give the kind returns that stocks can. However direct investment in stocks does not enjoy deduction under 80C. Therefore, I will slightly increase the allocation for PPF within the overall eligible investment limit of Rs.1,50,000 in the coming years.

I invested a total sum of Rs.1,05,000 in the tax saver bank fixed deposits. I also had to break and use a sum of Rs.1,00,000 from the existing, conventional fixed deposits, for replacing my old car. So the net increase in bank fixed deposits is a mere Rs.5000.

My Passive Income Report: Small but Uninterrupted Investments

My monthly investments are small but uninterrupted. Please see my investment habit monitoring table below.

The Conclusion of my Passive Income Report

I am glad to see and share with you the steady growth in the passive income in just three years (I created Portfolio 2K15 only in February 2015, virtually the very end of the financial year ending 31st March 2015). My small but regular investments could contribute such good results. You too can surely benefit the same way.

Can We Still Buy Stocks in the present High Market in March 2018?

Can we still buy stocks in the present high market in March 2018? Many people wonder.

Actual Question:

Do you still buy stock in the current market?

Answer:

Dear Friend!

I say yes. But there are a few stocks that are still available at fair price. At the beginning of every month, I write a detailed post on what stocks to buy for that month. I have a list of about fourteen stocks which I have thoroughly investigated. To check whether these stocks are available at a fair price, I subject them to a quick verification under four important conditions laid down by the value investing as follows:

1. 'Price to Book Value (P2BV) Ratio' shall be less than or equal to 1.50
2. 'Price to Earnings (PE) Ratio' shall be below or equal to 15.
3. The result of the combination of the above two ratios (PE*P2BV) shall be less than or equal to 22.50
4. The 'Dividend Yield' shall be above the hurdle rate. Usually, I keep the hurdle rate at 4% but since the stock market is very high I have lowered the hurdle rate to 2%.

The below picture shows which stocks qualify under the four criteria:

Can we still buy stocks? - Criteria for Qualification

You can see that while many stocks qualify under all the four angles, a few pass the test only under one or two conditions. I normally address this such a situation in the following manner. I divide the total investible sum equally among all the four criteria. Those stocks that do not qualify (highlighted by white fonts in the red boxes) will not get any get any allocation under that criterion. I make those that qualify (black fonts in white or green boxes) to compete among themselves and grab the highest allocation based on their merit. For example 'Shipping Corporation of India (SCI)' with P2BV Ratio of 0.44 will get double the allocation of MOIL with a P2BV number of 0.89.

Well did I buy these stocks this March 2018? No. The reason for not buying is not connected to the merits of buying these stocks. The reason is that I wanted to avail tax exemption or deduction under section 80C of the income tax act. We are eligible to make investments up to Rs.1,50,000/- under the various eligible financial instruments. Buying individual stocks does not qualify for the deduction. Only investing in a special mutual fund called 'Equity Linked Savings Scheme (ELSS)' is allowed. The mutual fund manager will invest the money perhaps in the top 50 stocks by market capitalisation. Since the markets are trading high, it is obvious the fund manager will be buying these top stocks at very high valuations. Therefore, I made a token investment of Rs.20,000/- in an ELSS scheme and rest in 'Tax Saving Fixed Deposits' with banks.

So the answer to the question, 'can we still buy stocks under the prevailing high market prices in March 2018' is a definite yes. We can buy the select few stocks listed above.