How to become wealthy...

India is top growing economy as per IMF and surpassed china on growth front. The major villain to our current account i.e. oil is trading at historically low level, Our forex Reserves are all time high, WPI inflation negative and CPI in RBI’s targeted zone. Government is trying to push major reforms at home although not very successful in this front. Stock market touched a new high in 2015 but with a year it is trading at pre BJP era government. So how these things are affecting investments in short term yes there will be lot of volatility but when we talk about long term investments will they really matter or there are some other important things we should looks for. Lets see what matters most when we talk about investments especially for long term:

1   1.  How much we save: Obviously this will be the major factor for the investments. Normally we save the leftover after our monthly consumption i.e. saving = Income - Expenses. However the actual way should be Income-Saving= consumption. So we should first takeout our savings and only after that remaining part should be consumed.

The questions arises how much should we save?  As savings is very crucial to our financial well-being. Well, actually it would be difficult to put down a number, but it is determined by several factors like your age, income level, number of dependents and financial goals.

It's the amount of savings that matters for our future net worth. Our savings should translate to proper investments because if left (like in banks saving account) idle they would lose their purchasing value over time.

2. How long we remain Invested: As the saving amount is very important for investment, the value of these investments grows according to the length /time period we kept those savings in the investments. Compounding is the eighth wonder of the world. For example Rs. 5000/- per month for 5 years @15% gives Rs. 4.48 lakhs on total investments of Rs. 3 lakhs, but if we keep investing Rs. 5000/- per month for twenty years the future value of these investments grows to 75.8 lakhs i.e. 16.91 times whereas our investment amount increased by 4 times only. So the early we start we get more benefit out of the same amount of investments.

3. Where we keep our savings: The proper allocation of investments is equally important factor to determine our future wealth. Investments should be properly diversified across various asset classes so as to minimize risk on any particular category. Savings should be properly allocated among mutual funds, shares, bonds, real estate and gold etc. The proportion may depends upon various factors like age, risk appetite, income level, no of dependents, source of income and financial goals. Further building an asset allocation is not the end of the story but rebalancing from time to time is equally important.

4. How much Taxes we Pay: Taxes are another important factor to determine the class of assets. Like Income from Equities and Equity mutual funds is tax free after one year and in Debt Mutual funds there is long term capital gain tax benefits after three years. Whereas in Fixed Deposits we pay TDS on the income accrued even if it is not paid. By selecting the proper financial products and going for the right options (growth/dividend payout/dividend reinvestment) and holding investments for adequate time periods can minimize the tax outgo and shold be kept in mind.

5. Which of the Schemes we invest: As we all know that over a longer duration equities will out beat inflation, however in equities also there are various options like to invest in blue chip stocks, or mid-caps go for some specific sectors etc. or invest through mutual funds. In debentures and bonds also there are various options based on maturity, credit profile and tradability etc. Right scheme selection based on our specific requirements and risk appetite is equally important.

BSE sensex started in 1979 at 100 and today is is around 25000 i.e. 250 times return in 36 years which means if a person remains invested and keep the money for longer duration chances of negative return/ losses are very rate. To summarize market may keep moving up and down based on various factors but if we talk about long term investments what matters more is amount we are investing where it is being invested and for how long we keep this money to earn along with proper tax efficient choices to earn more in honest and ethical way.