Mutual Fund is a Smart Investment option, So use it Smartly

Mutual Funds are for everyone and for anytime, here we can invest for one day (in liquid funds) to 20 years (in equity funds) and from as little as Rs. 500 to as much as Rs. 1000 crores. However investors still get confused sometime like: when to invest or when to redeem or what is the best time to start a SIP or should one stop the SIP when markets are not good. Some investors have doubt regarding the category of funds, like – Why not invest in sectoral or small cap funds (as their past performance is quite attractive) in lieu of Diversified Equity Funds or Large Cap Funds. Some investors are curious that is it wise to start SIPs in schemes with large corpus as they doubt that the current performance may or may not be sustainable in future due to the size of the fund. Let us try to fund out the rationals and logics to make this smart investment options work smartly for us.

Mutual Funds are simple investment products and best for long term wealth creation yet we find that investors track stock market movement and take hasty decisions about their Mutual Fund investments. People invest in  ELSS investments at the end of the financial year, and most of the investments are made at the peak of the market and generally the redemptions are done when markets are not doing good, Sticking to schemes not doing good in anticipation that it will do good in future, is another common mistake. Investors tend to follow herd mentality and thus make investments based on so called hot tips. These are some of the common investing mistakes, lets us now see what these common mistakes are and what one should do or do not.

SIPs are for long term and to achieve specific financial goals don’t stop when markets are uncertain

Systematic Investment Plan route is the best way for long term wealth fact and can be seen by all past data/records. But are we really able to create wealth through SIPs , past data shows that large number of SIPs get closed when markets fall. It is a fact that the investors think long term when they start SIPs but get unnerved with little fluctuation and start thinking short term and stop it as they feel that the market will go down further. In fact, volatility is good for their long term investments as they benefit from rupee cost averaging. We accumulate more units when the markets are down and less when it is up. SIP is nothing but a disciplined way of investing in equities for long term wealth creation. Therefore, tag our existing SIPs with future financial goals, like – Retirement planning, higher education of kids or a world tour and track them. Once we tag our SIPs with specific financial goals we will not redeem them, just keep investing and enjoy the investing journey till such time we achieve your goals.

Equity mutual funds are for long term don’t sell it in emergency

Many people redeem their equity mutual funds when they need funds which is not correct. Mutual Funds especially Equity based mutual funds are for long term, and therefore, should not be redeemed before we get the desired returns or your goal is achieved. So, how to get money in case of an emergency situation? For emergency purpose we should keep money in liquid or short term funds. The way we build long term wealth by investing in equity mutual funds, similarly by investing in liquid or short term debt funds we can build the emergency corpus. In fact, while starting a SIP in equity mutual fund, we should also start a SIP in a liquid fund or short term debt fund. Returns from liquid funds vary between 7-8% and can be redeemed without exit load in T+1 day. Therefore we will get the funds one next working day of redemption and can use it for emergency. There are some funds who provide debit/ATM card also by which (upto certain limit) funds can be withdrawn immediately also.

Market is over smart don’t try to time it

Some time we tend to hold the investments waiting for an opportune time to start with. This opportune time is nothing but the levels of the market. For an Investor the Sensex level of 21,000 may not be the right level to start as he feels that the market may go down further while another investor feels that 28,000 levels is a good time to start as he feels that markets will go far off in the future.

So, how to avoid this? Well It is difficult to answer as this has less to do with investing and more related to our own behavior. When it comes to investing, that too equity investing, investors are not as rational as they think they are. Majority of the Investors get optimistic when the markets are on upward move or doing well and assume that it will continue to do so. On the other hand, many investors become extremely pessimistic during volatile periods. We tend to place too much importance on current market events while ignoring past performance of equity as an asset class. Also, investors show a different degree of emotion towards profits or gains than towards the investment losses. They are emotionally more stressed by prospective or booked losses than they are happy from profit or gains.

The question is how to handle these emotions? In reality it is impossible to time the stock market and thus there is no sure shot way to “buy low and sell high”. The best way to ride the volatility is to invest in a discipline manner by investing regularly i.e. SIP. The other way to arrest the volatility is to invest according to your asset allocation, based on your needs, risk taking ability and by linking the investments with your future goal.

For example –

If your risk profile indicates that 50% of your investment should be in equities than you must consider an investment horizon of 5-7 years to reach to that level. You should invest your monthly surplus through SIPs and link this to one of your long term goals. In case you also have lumpsum amount in your hand then you may put it in a liquid fund and do a weekly/monthly STP to an equity fund for the long term. We can also keep certain amount in balanced funds which are normally more inclined to equity funds. This will ensure that you are not investing all your money in one go and ensuring maximum averaging by investing weekly. On the other hand you earn superior returns than your savings bank account by investing in liquid funds.

For the rest 50% investment (which you can not keep in equities due to your risk profile) you may keep a part say 25% of it in liquid and short term funds to meet any emergency fund requirement. Another part can be kept in long term/dynamic debt funds with a view of 1-3 years or Capital protection funds. In case markets remain choppy and do not generate any positive return during these three years, you will still have positive returns from your debt, liquid and capital protection funds. Needless to mention, your equity investment will continue to acquire more units at lower prices during this period and shall earn much superior returns when the markets start doing good.

The above simple solutions, if followed, will ensure that you spend more time in the market than timing the market.

Do not hold over- diversify by too many Mutual Fund schemes

I know one person who selected 10 schemes for doing a monthly SIP of र 15,000. He has chosen one equity fund each from different equity categories and selected the top performing fund from the respective category based on 5 years return. What the investor failed to understand is that each category has a different objective which may or may not match with his risk profile. Moreover, over diversification does not mean more return or less risk. In fact, it can be more risky and possibly generate lesser returns.

Investing in too many schemes is most of the time overlapping of investments in the same kind of portfolio or companies. Investing in same stocks through different schemes is meaningless. Moreover, if you keep more schemes then tracking their respective performances could be cumbersome and may take more time.

Mutual Fund invests in diversified portfolios of equities and debt etc. Therefore, the investor should choose a fund from a category which is best suited to his risk profile. For example – a young investor can put entire money in equity funds and choose to invest in small and midcap funds. A person with medium risk profile may choose to invest in Balanced Fund and a conservative investor might invest in debt funds only. So once we know your risk profile, we should choose 1 -2 funds from each category and invest. Generally speaking, if we are investing in equity mutual funds and want peace of mind than Diversified Equity Funds are the best investment option. If we can select two or three good diversified equity schemes your investing objective will be fulfilled.

Don't love the scheme but the performance

Investing in Mutual Funds may be simple but selecting a good fund and monitoring the performance of the fund is not easy. To get the maximum return or also to know if our scheme is performing in line with its peer group, it is suggested that we should review our mutual fund portfolio at least once every year. Based on our experience we find that investors hold on to the underperforming schemes with the hope that it will start performing when the markets recover. But most of the time it may not be the case.

First indicator to monitor mutual fund scheme’s performance is that if the scheme is continuously beating the benchmark and also how it is doing in comparison to its peers. We should not get emotional with our investments. Check the performance atleast once every year and replace it with a good scheme if it is not performing well.

To conclude

Unfortunately, in our country, equity investing is hugely influenced by common mistakes and myths. By this post we tried explaining the benefits of investing through SIPs, how asset allocation and setting goal is the most important aspect of equity investing, how one should not get carried away with ones investment and how to overcome some investing behaviors in order to get the desired returns from our investments with much less efforts and no stress. 

Right Asset Allocation is equally important for wealth creation:

For good health we should take balanced food. We need all important ingredients like protein, carbohydrates, vitamins, minerals calcium etc to live a healthy life. Similarly for creating a good wealth a proper Asset allocation is one of the most important factors. Various studies have shown  that major portion of the returns can be attributed to asset allocation. Still most of the investors don’t focus on  asset allocation. In this article, we will try to find out some common asset allocation mistakes that investors should avoid.

• First thing first:  Have definite Goal Planning:

The first mistake we normally do, that we start a journey without knowing where we want to go. Similarly most of us start investing without having clarity that for what purpose we want to invest. We sometime start investing because one of our friends has made money and we also want to achieve it. There are others who want to invest in equity because the market rose by nearly 50% last year and they feel they have missed it. There are some who have excess funds that they do not know where to deploy and want to evaluate options like fixed deposits, mutual funds etc. Lack of clarity on the objectives results wrong investment decisions. Unless we have clearly defined financial goals and time horizon we cannot determine the optimal asset allocation.

• Fear or Greed results into a wrong asset allocation  

    

Due to fear we don’t invest in certain asset classes and similarly out of greed we put on more than required money in one asset class. If we are not investing in the desired asset classes in the right proportion the result will be sub-optimal returns from the portfolio. Allocating a sub-optimal portion of the investment portfolio to equity is a common mistake most of the retail investors make. We should not forget the impact of inflation and taxes in their investment planning. There are several broad asset allocation guidelines that can help investors determine suitable asset allocation for their individual needs. We have discussed some of these in our post on 2^nd June 2016 regarding Asset Allocation strategies for different age groups. We should also note that while asset allocation is commonly used to refer to the allocation between debt and equity, it also includes other asset classes like real estate, gold, cash etc. One should consider all these asset classes, when determining their asset allocation.

• Think Long:

We always crave for assured returns while our important goals are long term in nature without realizing that assured returns this reflects a short term focus, which in the long run can leave investors short of their financial goals. While we prefer risk free high assured returns, we should also understand that there is no such thing as assured returns in the long term. Let us take the case of risk free fixed return products in India. 15 – 20 years back risk free assured return products were giving returns, as high as 14 – 15%. Now, it is almost impossible to find any risk free fixed return product that will give anything higher than 9% pre-tax return. Extreme risk aversion also makes investors oblivious to factors like inflation and taxes that negatively affect their risk free returns. The investors in highest tax bracket get the shock of their lives, when they come to know that they have to pay a large amount of tax on their fixed deposit interest, even after the 10% tax deduction at source. The truth is that taxability of fixed deposit interest is nothing new. We are either uninformed or deliberately choose to ignore it because of our short term focus.

• We want the moon:

We want to get as much as possible but not ready to take any risk. Unrealistic return expectation is another common mistake in asset allocation which reflects the human’s greed and this often leads investors compromising on their financial objectives. Lack of awareness and human’s greedy nature is a root cause. Just because a stock price doubled in a year, it does not mean that it will double next year also. Some mutual funds gave 50% returns in the last one year, but expecting them to give 50% returns this year is unrealistic. Real estate is one asset class, where investors often have unrealistic expectations and this leads them to make the wrong investment decisions. While lot of real estate investors made very handsome returns, there are lot of investors who have lost and are still losing money on their real estate investment. Possession delays, interest cost, market dynamics, litigations and infrastructure delays can have a huge impact on real estate investment. From being one of the most favoured investment sectors in the hey days of the 2007 bull market, real estate has now become one of the most unfavoured sector. The stock prices of real estate companies are just reflections of the underlying problems the sector faces. It does not mean that real estate will not be a good investment. But we need to make a well researched investment decision with the appropriate time horizon. In order to determine an optimal asset allocation, we need to have realistic return expectations.

• Moving from one to another won’t make you faster:

We try to time the market and keep on changing asset allocation based on market conditions, but is this the right strategy. It is like changing your trains at every stop so as to reach your destination faster. This is another common mistake many of us tend to make. One of the basic tenets of equity investing is buy low and sell high. However most of the retail investors often tend to do the opposite. Investors sell their equity mutual fund units or stop their SIPs in a bear market. Whether it is to prevent further losses or waiting for the market to correct further, investors should note that it is almost impossible to time the market. Many investors who exited the market in 2008 and shifted to fixed income, invested again in equities when the market was 3.5 times higher than the 2008 lows. On the other hand investors, who continued their SIPs throughout the bear market and into the bull market created wealth. There are some investors who shift their asset allocation, when some other asset classes catch their fancy. There are investors who shifted from equity to gold, when gold was rallying. Now, when gold is giving negative returns over the last 2 years, they are regretting that, they did not get into equities at the right time. There are other investors, who sold their mutual funds to buy multiple properties because their friends or relatives bought in some hot projects. Many of these properties did not take off as anticipated and now these investors are complaining that they have been left with these illiquid assets while having to service the home loan debt at a high cost. Asset allocation comprises the right mix of equity, debt, gold, real estate and cash. One should ensure that they maintain the proper mix so that they can get consistent returns.

• Sitting idle is equally dangerous:

Although changing asset allocation frequently is a mistake, not changing it at all is also a mistake, especially if we are nearing our financial goals. A person  know to me, wanted to take an early retirement from his job in 2010 and start his own business. He started planning for it from 2000 onwards and based on the guidance of an excellent financial advisor had the right mix of investments. By 2007 he was well on track towards his retirement goal and plan of starting his business. Unfortunately in 2008, his investments, which were heavily in equities, lost nearly 50% of in value. His employee stock options, which he was hoping to exercise to invest in his business, was 30% below the strike price and was worthless. What was worse that, he lost all confidence and made several wrong investment decisions after that. Today he is still working in the same company where he was working before. He is bitter about what happened in 2008, but much wiser. His plan of early retirement definitely had a setback, but he still plans to retire in the next 5 years. Over the last 3 years he has started investing in equities again, only this time he plans to shift his investments systematically to income funds through systematic transfer plans (STP) two to three years before his planned retirement. It is important that you shift your asset allocation to less risky assets when you near your financial goals.

So what we learned?

AS discussed above there are few things which we should keep while making investment decisions. There are few common asset allocation mistakes that can be avoided if planned properly. Proper education regarding asset allocation and risk profiling will help to . We should also educate ourselves about the various factors impacting the returns of your assets. It is always prudent to seek the guidance of an experienced financial advisor to make sure that we are on course towards our financial goals.

Checklist: The things we should do before Investing

A: Do we have a Goal in mind: Why we want to invest?

Generally we start investing by force either to save taxes or just because we have some surplus in our bank accounts. Most of the investments are made with no particular goal in mind and therefore get redeemed as and when there is a need of money. If we are starting a SIP just because some of our friends are doing it, then it’s like starting a journey without knowing the destination. That’s why determining the goal is the most important factor. It is important to know why we want to start the SIP – Is it for our retirement or for the higher education of our kids or the bunglow we want to build or maybe the big car we thought of to buy after 5 years or so. Once we are clear about what is the goal then we should start the SIP. We all know that with our current or even possible future income it will not be enough to fulfill all these goals. Therefore, an accumulation of investments over a long period of time through SIP route powered with compounding could generate the desired results. Hence, if we have a list of financial goals then we know our destination and may want to start a SIP.

B: How Much Money do we need: Current Value is not Sufficient

Once we are ready with the goals we want to achieve the next step is to determine how much amount would be required to fulfill them.  First we have to find out the current cost of these goals and then what is likely to be the future cost of this goal which may be higher due to inflation and other costs involved. For example - If we are planning to purchase our own home after ten years which is presently valued at 50 lakhs what amount do we need at that time? However we have planned to buy it after ten years the future value will be approximately 89.5 lakhs assuming inflation at 6%. Therefore, we have to start the SIP with the goal amount as 89.5 lakhs and not 50 lakhs. Knowing the money value of the goal, both present and future, is the key to determine why and how much you need to save through SIP.

C: What is the time period: Is it a Short, Medium or Long Term Goal

In our life span there are various goals and priorities which comes during of life journey. There are Short term goals which we want to achieve in a year or two like buying a car or a vacation trip. These goals have a very brief investment horizon and require safe and steady returns during the SIP tenure. Medium terms goals are those which have a minimum investment horizon of three to five years like a foreign holiday trip.  For medium term a part of investment in Equity Funds could be beneficial in such a scenario along with balanced and debt funds. Here, we also need to be careful about capital gains and implication on income tax. Long term goals are the ones that are five, ten or maybe many more years away. Retirement or higher education planning for a new born child, or a retirement home or even a world tour could be a long term goal. Defining each financial goals and the investment horizon of the goal will let give us the clarity about the investment we should make in present time to attain the required corpus in future value.

D: Right Asset Class: to Reach the goal on time

Choosing the right asset class is very important to achieve our financial goals. For example to cover a distance of 2-5 Km we may use a bicycle or a bike, for 10-20 Km bike or Car would be preferable for 50-100 Km distance Car or train would be preferable while 500-1000 Km distance it’s better to use train or plane but to cover a distance of 5000 Km plane is the ideal option whatsoever risky it may look like.  Similarly to cover the time period for achieving the financial goals also we need to select the instruments carefully. The asset allocation determines the returns rather than 50-individual selection of funds. In Mutual Funds we can invest for one day to 20 years through different type of schemes by selecting Liquid Funds, Equity Funds, Balanced funds and Debt Funds. The amount of investment we make in every asset class will determine the future value of the corpus. Liquid funds or short term debt funds are ideal for a short term goal as they provide returns in a short investment horizon. Partial investments in debt and or equity funds or balanced funds are crucial for medium term goals. And for a long term goal should invest more on equity oriented mutual funds. Risk taking capacity is also equally important while selecting the asset class, and If we are a risk averse investor, we should invest more in debt and balanced funds and avoid volatile equity funds.

E: Right SIP to achieve goals

Once we have decided the asset class the next step is to select the right schemes in that asset class so that we can easily achieve the goals. You should find a scheme that does the hard work for your investments. Ideally, you should invest in a diversified equity scheme that has consistent performance for the last three, five or ten years have less volatility as compared to its peers with decent portfolio size and have outperformed the category average and benchmark returns. The Asset Management Company should be reputed with good standing in the market and the fund manager should have an impeccable reputation in managing funds. A good track record of the fund manager is essential for choosing the right fund.

  

  

Monthly SIP Amount for Period (in years)  >	5	10	15	20	25	30
SIM Amount	Total Return in Rs. Lakhs at a rate of Return 15% P.a.
5,000.00	4.48	13.93	33.84	75.80	164.20	350.49
8,000.00	7.17	22.29	54.15	121.28	262.73	560.79
10,000.00	8.97	27.87	67.69	151.60	328.41	700.98
15,000.00	13.45	41.80	101.53	227.39	492.61	1,051.47
20,000.00	17.94	55.73	135.37	303.19	656.81	1,401.96
25,000.00	22.42	69.66	169.22	378.99	821.02	1,752.46

The above table contains a basic calculation on what could be the possible future values of monthly SIP investments. The future value could vary due to changes in the rate of returns generated over a period of time. If we have rightly calculated your future goal value then deciding the right SIP amount would be very easy, if we keep the return expectation little lower. For example – the fund chosen by you may show a historical annualised return of 18% but while deciding the right SIP amount we may conservatively calculate the return, say at 15% annualised. Therefore, even if in future the fund is able to generate 2-3% lesser then its historical returns, the goal amount can still be achieved. Therefore, it is very important to invest the right amount because in case of shortfall for certain corpus against which options such as borrowing can push a investor in financial trouble.

The golden savings tips while maintaining your current lifestyle

Generally when we talk about personal finance it is related to investing. However the biggest question comes how to invest, if we don’t have enough savings? Although regular savings habit is part of our ancient culture but in current environment, with rising cost of living, better lifestyle and with consumerism part of our culture,  Saving sufficient amount is becoming increasingly difficult and challenging. In this post, we will discuss some golden savings tips that can help us, without compromising in our lifestyle.

• ·        Make a monthly budget:

If we sincerely make a monthly budget half of our job is done regarding controlling the expenses. However we should be careful while making budget, it should not be a theoretical exercise but based on all practical needs and not on gut feelling. When we prepare your monthly budget, it should start with absolutely necessary items, e.g. food, rent, utility bills, transportation costs, children’s school fees, insurance premium, home loan EMIs etc. After that we should keep some money aside for emergency needs. The balance is discretionary spending. We should always try to minimize our discretionary expenses and maximize the savings. So how can we do that? First we should take out our monthly bank or credit card statement, and study our spending habits. We should check each and every items whether it is necessary or discretionary and eliminate wherever possible. The other option is to set a savings target and stick to it assiduously.

• ·        Debt only when desperate:

Loans means spending tomorrow’s income on today’s expenses so we should avoid debt and take it only for very essential things. Debt comes in many forms e.g. credit cards, buying expensive electronic gadgets/ items in equated monthly instalments etc. We should always remember that debt, in whatever form, have its cost in the form of interest expense. If we cannot control our buying habits than we should use debit card, instead of credit card. If we are using credit cards, we should ensure to pay the full amount due on a monthly basis. Setting up an ECS to pay the full amount due on credit card on a monthly basis before the due date, will prevent us from incurring interest expense and late payment fees. We should avoid EMI payment schemes for purchases the simple logic is if we cannot pay in full, probably we cannot afford to purchase the product as of now. So we should wait till we have saved enough to purchase it by paying the full amount or opt for a lesser priced product. We should not be enticed by promotions like “zero interest” EMIs for purchase of certain items. There is no such thing as a free lunch. For such items with zero interest EMIs, we are likely to get a discount if pay upfront which is similar to interest cost. If we already have debt, it should be paid in full, before we spend on non-essential items. However there are certain loans like Home loan which are not bad if taken to buy home for living as in that case we are buying assets and will also get income tax benefit.

• ·        Plan before buy:

In earlier days like our parents first prepare a shopping list, before going for grocery shopping. The shopping list has a great use, if we are trying to minimize our spending especially when we are shopping in a supermarket. With a shopping list we shop with a sense of purpose and only buy items that are really required. On the other hand if we are shopping without a list, we may end up buying unnecessary items that catches our fancy, rather than the utility. The ambience and product placements in supermarkets are designed to make us spend more and feel good about it. For example, the music in the supermarket often has a slow rhythm. The idea is to make us walk leisurely, so that our wandering eye can catch some attractively packaged stuff that most probably we do not need. Smart product placement often makes us spend more. Generally the most expensive brands are kept at the eye level and the less expensive brands are kept in the upper or lower shelves. Naturally the most expensive brands will first catch our attention and make us buy it. Many supermarkets have consumer durables next to fruits and vegetables. Although, it does not make logical sense but there is a science behind the product placement. The bright colours of fruits and vegetables serve to brighten up our mood. The happier we are, the more we are likely to spend on a consumer durable item that we may do not need. On the contrary If we have a shopping list, we will buy only those items that are required and leave.

• ·        Wait before buying:

When it comes to buying gadgets like TV, Laptops, smart phones, tablets etc very often we want to buy the latest model. But we should also remember that latest model is often the most expensive one too. First we should ask our self, do we really need the latest model. If we can afford to wait for few months, we may get the same model at significant discount. However, I do realize that it is easier said than done. When it comes to electronic gadgets, people are led by “herd mentality”. We should, however, remember that smart savers are never influenced by what their peer group is doing, because most people in the peer group are not smart savers.

• ·        Shop Smartly:

In the current age of internet and ecommerce online shopping could be a smart and time and money saving. Online shopping cheaper because real estate cost of brick and mortar stores are getting expensive by the day, especially in big cities. Online retailers buy their merchandise directly from the source, instead of going through intermediaries. Some online retailers are well funded by venture capitalists. They can afford to adopt predatory loss pricing to capture the target customer segment. Online retailing is picking up in India at an accelerated pace. However, some customers are worried about quality, reliability and customer service issues. Some shoppers like to touch and feel the product before buying. You can visit a brick and mortar store to get a closer feel of the product. But you can always order it online and save costs. We can follow some simple tips to make the online shopping safe and enjoyable experience.

o   We should shop in a trusted familiar and well known online sites. Searching for a product on Google may throw up very enticing offers, but we cannot be sure about the trustworthiness of many websites. On the other hand if you shop from well-known online sites likelihood of things going wrong is quite less.

o   Before purchasing we should always compare prices of the same item on different websites so as to get the best deal. Different online shopping sites run different promotions and there are chances that we can get a better deal if we explore multiple options

o   Shipping charges could be a hidden cost and we should check it before placing the order. Otherwise, we may be hit with a nasty surprise when at the time of final bill.

o   Always check for security of website for making online payment through credit card we can check it through SSL encryption which is depicted by the icon of a padlock on the address bar.

o   We should fill out only the mandatory personal information, when making an online purchase. There is no use in filling out non-essential personal information like date of birth, spouse’s names etc. which can actually be misused by cyber thieves.

o   We should always use strong passwords, with combinations of upper case and lower case, numbers and symbols.

o   When on the move, we can use mobile apps for online shopping through our mobile phone. This will ensure online shopping on mobile a more efficient experience.

• ·        Savings through liquid funds:

Generally most of us keep funds in our savings bank that we will not need in the next few weeks or even months. Liquid funds are an excellent destination to park those funds. Liquid funds are better alternative to savings bank. While having an emergency fund parked in savings bank is essential from a financial planning perspective, if we can wait for a day to withdraw the funds, liquid funds are an excellent alternative to savings bank account. While savings bank interest is usually around 4%, liquid funds provide almost double returns in the range of 7.5-8.5%. This extra income is very useful from a long term perspective, because we can re-invest it in high yielding assets like equities and earn higher returns over a long time horizon. While liquid funds are subject to market risks, the nature underlying instruments in a liquid fund ensures a very high degree of safety. Withdrawals from liquid funds are processed within 24 hours on business days. Some liquid funds offer cash withdrawal facilities with ATM cards.

• ·        Start investing Regularly & Systematically:

In hindi there is a saying “ bund bund se ghara bharta hai”. Saving regularly is the best and easiest way for long term wealth creation. If we opt for systematic investing on predetermined dates directly through our bank accounts, It forces us to save more, by leaving a smaller surplus in our bank for discretionary spending. After a careful analysis of our regular expenses, we should prepare our monthly budget as discussed earlier and set a savings target. Based on this savings target, we should start a monthly systematic investing plan and set up an ECS with our bank account at the start of every month. That way we will prioritize long term investment over discretionary spending. With a systematic investment plan over a long time horizon we will benefit from the power of compounding of our investment returns and create wealth. The table below shows a scenario analysis of the corpus built over various periods of time at different investment return rates, with a monthly SIP amount of 5000/-

How to make your money work for you

Everyone works to earn money and this process goes on for whole life. Wouldn't it be nice that the money we have earned start working for us, so as to have the spending power of your income increase with time and also you have to work less and earn more?

So how can we make our money start working for us, generally we keep our left out money (left after the spending) ' in traditional saving routes, or we invest and make our money work harder. Thereby, getting more money in future which can be spend on the new gadget, the international holiday, education, marriage, or anything that money can buy.

Simply put, Investing can help you increase your spending power. So first let’s understand more about the difference between saving and investing.

 • Saving is placing our money in traditional saving instruments, like Bank Saving Account, Fixed Deposits etc.

• Investing means directing our money to suitable investment solutions which may deliver better returns over a period of time.

As we all know that there are several external factors which can impact our income as well as expenses. Investing could help us to improve returns and let us enjoy the following benefits:

1.            Manage Inflation

Cost of living is increasing continuously, and no matter where we live, everything around has become more expensive. So, over time, we need more money to buy the same quantity / quality of goods or services. Returns earned from our investments can enable us to manage  inflation-related financial burden better.

2.            Manage Personal Financial Crisis

Personal emergencies sometimes cause financial stress. An emergency fund, through the returns on the investments, can help manage some of these financial stress.

Normally Emergency fund should equal to be= three months regular expenses which can be kept as ready cash at home (about 20-25% of the fund amount) + investment in a highly liquid investment solution to withdraw whenever the need be.

3.            Enjoy Unearned Income

Interest, dividends, bonus, capital gains, etc can be indirect income which can be used during a financial emergency or for managing inflation or for creating wealth. Some of these income also comes as tax free income so that we don’t have to pay tax on the additional income.

4.            Fulfill our Financial Dreams with Minimal Burden

Once we start earning, we start making plans like; owning a car, taking an international holiday, buying a house, planning children’s education or self-retirement and so on. And with every increase in the income, the list only gets longer. Investments, big or small, made over a period of time, can enable us to make our dreams a reality.

5.            Create Financial Security

Financial Security comes with Investing, no matter how small we begin, it gives a sense of stability and security in mind, as it creates wealth that can be used for our planned / unplanned financial goals.

Most dreams are linked to money and by regularly investing a calculated amount of our income in appropriate investment solutions; we can make our money work as hard as we do towards achieving your goals.

It is very important that make Informed Investment Decisions and Invest Correctly so that our hard earned money works harder for us.