6 reasons that stop you from being rich

6 reasons that stop you from being rich

We all dream to become a crorepati right? To own a luxury villa, drive the coolest car, provide the best opportunities to our children, enjoy a lavish retirement and to show off our financial status. Then what should you do to achieve this? The answer is simple: its “Wealth Creation,” and that is only possible when you start “Investing.” Of course, it’s natural to be hesitant about investments due to the potential of losing money. However, with wise planning, the results of investing are quite rewarding. Let’s look at some common mistakes that prevent you from being rich:

1. Delaying your investments
Waiting to find the right investment plan will kill your valuable investments years, and it’s impossible to compare/ succeed with a person who has been regularly investing; this is because the biggest pitfall of starting late is that you are missing out on the “Power of Compounding.” Remember what Warren Buffet said, “if you don’t find a way to make money while you sleep, you will work until you die.”

2. Being impatient
One must understand the basic rule of investing: if your goal is within 3-5 years (short term) then you must go for Debt Investments; any financial goal which is five years and above (long term) you must go for Equity. You cannot make money by investing in Equity for less than 5 years. Remember you need to stick to your investments to reap the benefits. Patience is key.

3. Trading!
We are investors and not traders. Even if your investment plan is excellent, moving in and out of your investments will not earn you returns. Instead, you would end up paying more taxes, exit loads, and miss out on the spectacular returns that you would have made otherwise. Remember wealth creation is a journey. Hence, spend time in the market rather than timing the market.

4. Not taking chances
Benjamin Graham once said, “Successful investment is about managing risk, not avoiding it. ” You cannot generate great wealth with Debt schemes alone. You can’t play safe always. If you are young, it’s smart to invest in Equity Funds because you have enough time to forecast any fall in the market and benefit from long term returns. Remember, Equity Funds are known to be the best option for wealth creation over the long run.

5. Ignoring Inflation
Did you know your idle money would make you lose 4.5% every year due to inflation? The only way to beat inflation is to start investing, and it helps in maintaining “purchasing power.” If you want to make substantial returns over inflation, then Equity Mutual Funds should be your choice; they are safer than direct stock markets and earn 12-15% returns on your investments.

6. Not being smart with Taxes
Nobody wants to lose a substantial amount of their salaries to taxes. One easy way to reduce your tax liability is through investments. Investment option such as Equity Linked Savings Scheme (ELSS) not only lower your tax burden but also provide returns between 15-16% (which is way more than PPF at 8%) and has a lock-in period as low as three years only.

Now that you know about the importance of Investing! Why Delay? Start Now!
You are just minutes away to start your journey of wealth creation!

6 Reasons Mutual Funds

6 investment mistakes to avoid with Mutual Funds

An addition of about 9.74 lakh Systematic Investment Plan (SIP) accounts recorded each month on an average last financial year and an average SIP size of about Rs.3,200 (data according to Association of Mutual Funds in India (AMFI) ), has shown the ease with which people can understand, invest and earn returns with Mutual Funds, thus making it a popular investment option. Also, the fact that investors can choose between Equity, Debt and Balanced funds (which invest in both Equity and Debt), they can invest in funds that suit their investment needs, risk appetite and financial goals. Investments in Mutual Funds help you earn higher returns than Fixed Deposits or your Savings account, provided you avoid these six common mistakes while investing in Mutual Funds:

1. Not Considering Risk
A typical behavior we see amongst investors is “The herd mentality”. Investors do not want to miss on returns, hence come under peer pressure and invest in Mutual Funds that do not suit their risk appetite. It’s very important to do a financial check of your situation and evaluate your investment horizon. If you are a risk-averse investor with an investment goal less than five years, then do not choose Equity Funds instead go for Debt funds. However, if you have longer investment goals (> 5 years) then choose Equity Funds. Remember, only the right Fund would yield the proper Benefit.

2. Investing without a Financial Goal
Have a Financial Goal. It could be saving money for your Child’s marriage or education, or you might want to save for your retirement, or it could be as simple as buying yourself a vehicle. No matter what the purpose is, every Goal has a fixed Tenure. So plan. Any allocation to equity or debt mutual funds must go hand-in-hand with your financial plan and to your inflows. And remember, once you have invested, you must not think about withdrawal until you are nearing your investment goal.

3. Over Diversification
Yes, Diversification is crucial, because Mutual Funds are subjected to market risks and putting all the eggs in the same basket could be tricky. However, at the same time, putting your money into different schemes is not the right solution; instead, you might be investing in several underperforming funds, and it could be a hassle to manage your SIPs. Alternatively, you should invest in a few schemes (4-5 schemes) which provide overall market exposure, and you can easily track your investments.

4.Timing the Market
We are not traders, we are investors. Traders/ Speculators are the ones who need to inspect the market minute to minute. On the other end we as investors, most of us are salaried people and do afford to set aside savings every month. So the best approach to invest in Mutual Funds is through a regular plan, meaning Systematic Investment Plan (SIPs). This practice will let the money grow over the investment tenure and helps you invest in a disciplined manner. Remember, with Mutual Funds, it’s the time in the market that matters and not timing the market.

5. Stopping SIPs when the market is down
It’s common amongst investors to panic and stop their SIPs when the markets are down due to fear of loss. However, investors forget the fact that it is in the bearish phase that you can buy more units at a lower price, and this will help you to achieve your long-term goals. It is important to stay invested with SIPs to reap benefits rather than changing it with the market sentiments. Remember! Every bear trend is followed by the bull, resulting in the recovery of the market.

6.Not Reviewing
It is after all your money at stake. Investors must track the performance of their investments, and it is best that you do it at a regular interval. Failing to do so can cost you a fortune. Make it a habit to conduct a periodical review of all your Mutual Fund schemes; this not only helps you to track the funds in your portfolio but also helps to get rid of the ones that are underperforming.

“Successful investment is about managing risk, not avoiding it. “
Benjamin Graham


Real Estate vs Mutual Funds

“Put your money in land, because they aren’t making any more of it.”

-Will Rogers

A famous quote that many people believed in. People could not stop bragging enough of how their land and houses which cost peanuts before, were worth so much in a few decades. We’ve all heard the stories and rantings, but is it really true? Mr. Will Rogers, the famous American actor, made this quote in April 1930; over 80 years back! Since then there was a World War, India gained independence from the British and went through fourteen Presidents. How relevant are his words in our present scenario?

Most of us are familiar with the past stories of real estate; how a piece of land in the 60’s cost peanuts and is now worth a thousand times more but is that the story? Real Estate is still considered one of the greatest investments because it provides several tax incentives, it can be financed or used to leverage for cash when needed. But that’s not all that it has, let’s look at the other side of it.

The value of real-estate is clearly unpredictable; the property you buy today may be worth 10 times more or completely worthless years from now. There is a tremendous amount of time and energy that you spent on real estate with payment of taxes and utility bills, keeping it in good condition and also selecting new tenants as and when needed.

It allows the investor to gain value through modifications, but such value add-ons do not guarantee you anything in return. The everyday news carries dispute cases that have been under litigation for years for fraud, title, contract breach, etc. It can be used as leverage for cash, but when looking to sell it, it is difficult to find a buyer and the urgency of the situation may lead you to sell at a much lower value.

Still, do you want to put your investment in Real Estate? Let’s look at the current market. The total demand for urban real estate is estimated at 4.2 million units during the period 2016-2020 across the top cities in India. Sounds great right? But know this too, over 4.5 lakh homes remain unsold in the cities of Gurgaon, Noida, Mumbai, Kolkata, Pune, Hyderabad, Bengaluru and Chennai, despite the huge demand in the market. The homes are either priced higher or are not placed in a good location. Considering all of this, real estate is not the best investment.

But how about Mutual Funds?

This is a vehicle to invest in diversified avenues of investment. It has the added benefit of cover from inflation in the market, and the premise of diversification there is much less to worry about. Mutual Funds has a range of funds that cater to the investor’s return and risk appetite which is professionally maintained by the fund manager. It provides various tax benefits and has high liquidity. Moreover, the number of AMCs have doubled over the past 3 years or so, and according to Association of Mutual Funds in India (AMFI), over 70,000 new distributors have started to offer mutual funds over the recent years. Now that is a market worth investing in!

If rewards are the cheese and you are the mouse looking for it then Real Estate is the trap that promises you the tasty treat that tricks you to an investment that is ultimately a liability. The pain of dealing with realtors, settling legal disputes, having to put all your money with no immediate benefit is not what you need from an investment. 

Don’t invest in better, invest in the best!

Emergency Funds

A Fund for every Emergency!

I am sure we all have heard this phrase quite often in our lives. But the question is why should one be prepared for adversity? Let’s look at an example.

My father always reminds me to wear a helmet whenever I ride a two-wheeler. He also follows the rule that a pillion rider must wear a helmet (I must admit here, that I hate to wear a helmet as it messes up my hairstyle).

One fine morning, my dad had to drop me to college. Both of us wore our helmets and left our home. On our way, we were hit by an auto. The auto driver was trying to avoid a cop and took the road which was one way and collided with us.

The cop caught the auto driver. My dad and I escaped with a few bruises. I must admit the helmet came to our rescue. If not for the helmet, I would have hit my head on the divider. It’s better to be protected because like Ceat Tyres say “The Streets are filled with idiots”.

I also remember my father’s advice Save money for the rainy day”.  We all want to stay away from risk and be well prepared for an unplanned event, right? The same applies to our money or hard earned savings. The common fear amongst people today is that they hesitate to look into long term investments. They feel that if their money is locked up in a long term investment, it prohibits them to use their own money during an emergency.  This is definitely a genuine reason to be afraid of. Situations such as accidents, health issues, job loss, etc. are uninvited guests and one needs money in terms of liquid cash to be able to face such situations. Hence people avoid long- term investments and resort to more liquid instruments such as bank deposits so that they are able to use their money when they need it.

But does that mean one can never invest in long-term investments? The answer is NO; there are indeed other ways one can invest in order to set aside money for emergencies.

Thus, arises the need for an “Emergency Fund”. 

We typically need emergency funds for two reasons:

  • for planned events which are under our control.
  • unplanned events which are definitely out of our control.

For example, House Rent is an expense that you would have every month and for fixed intervals. Similarly, expenses like servicing a car/bike, EMI, School fees, etc. are events that can be forecasted and one can control the nature of these events by having a well-structured budget plan.

But what happens in situations that are uncalled for? Like an accident or a medical emergency. These situations are likely to happen and without an emergency fund, one is seldom prepared. Let’s take the example of the 2018 Crisis caused in Kerala due to the unusually high rainfall during the monsoon season. Who would except thirty-five out of the fifty-four dams within the state to open for the first time in history? The situation was declared as Level 3 calamity meaning, “calamity of a severe nature”. Many people lost their lives and their properties to these floods. Most parts of Kerala required and still requires massive restructuring in terms of infrastructure. To face such situations it is always important to have emergency funds.

But this fund will be used only in case of a financial crisis and you will not access it until the need arises, meaning one cannot use it for a planned event such as the down payment of the house. This is only for unexpected and crucial emergencies.

A friend of mine recently switched jobs. A job that he had been dreaming to join for quite some time. His joining date was in another week or so. Even though he had savings from his previous employment and with the hopes of a better salary from new employment, he bought a four-wheeler on a bank loan. To his surprise, the company he was supposed to join went on a hiring freeze and informed him that there would be a huge delay in his date of joining. And once the freeze was removed they would consider his employment again. This was a situation which was clearly uncalled for. This meant that he had to take care of all his expenses and the EMI with the savings from his previous employment, which was not much.

Situations like hiring freeze don’t happen often. They are events not anybody would want to face, but one doesn’t have a choice.

My friend managed to borrow some funds from his family, cut down on his expenses, forwent few Friday parties and paid his EMI on time. After about 3 to 4 months, his job started and his life was back to normal.

An emergency fund acts as an oxygen mask during such situations.

But how much do I need to set aside in an emergency fund?

I’ll answer this question with a help of a table.

Your situation The amount to set aside for Emergency Fund
Single and no dependents 6 months’ living cost
Double income family (you and your spouse both are working) and no dependents 3 months’ living expense
Single income family with dependent parents and children A year’s living cost

Living cost here includes everything like rent, EMI, school fees, utilities, premium, credit card charges, club memberships, and many more. Remember these are only average estimates, one’s need can always differ from another based on personal situations, so you can increase or decrease the amount as required.

If your family is risk-averse and then it’s best to make it a habit to keep a year’s expense as an Emergency Fund.

Where do I keep this money?

The point of emergency fund is that it is easily accessible. One option could be Savings Deposit, but make sure that it has a sweep-in feature. An account with the sweep-in feature will earn you more interest than the normal savings account which is between 3.5% to 7%.  The point to be taken into consideration is “Liquidity of the funds”You need to move it to a place where it is not easy to access the money and resist the temptation of withdrawal, at the same time it must fetch you good returns and must be liquid enough to access it.

People usually pick the option of Fixed Deposits. Fixed deposits are safe and reliable. They provide you fixed returns on a fixed interest rate. Speaking about liquidity, Fixed Deposits are not very flexible. Fixed Deposits come with a maturity period. The money deposited in the bank cannot be withdrawn until the tenure is completed. If you wish to do a premature withdrawal due to an emergency or need, then you will be subjected to penalties, hence losing a portion of your gain. Also, the amount earned from Fixed Deposits is taxable depending on the current tax slab that you fall into. However, certain banks provide Flexi – Fixed Deposits, allowing you to take the amount you need rather than breaking the entire deposit. The alternate option is to split the emergency fund into smaller Fixed Deposits, thereby you don’t lose the interest on the entire deposit.

Another wise decision would be Short Term Debt Mutual Funds. Mutual funds are an investment vehicle that pools in money from small investors and invests the money in the securities market.  In particular, Short term debt mutual funds have a maturity period between 1 to 3 years. Considering the fact that if your new to mutual funds, then short term funds provide lower returns but are less risky compared to the equity funds.

Another option could be an investment in a Balanced Fund. One can invest a larger portion, say 70% in bonds and 30%, the smaller chunk in stocks (the percentages can vary as per your need and risk appetite). Thereby increasing the chances of receiving higher returns and managing the risk too.

All said and done. Needs differ so does Risk Appetites. One has to look into the extent of risk one can take and then choose the ideal amount to set aside as an Emergency Fund.

The easy method is to set a monthly target for your emergency fund and keep crediting your emergency account or provide standing instructions to your bank for the same. Upon reaching the desired amount required for an ideal Emergency Fund, you can stop funding it.

Where do I keep the surplus money?

Once you have set aside and planned your emergency fund, the surplus that’s left can be used to invest in long term investments. Any investment for more than 5 years has to be made in Equities because equities perform best when you remain invested for a long period.

The market is volatile, I don’t want to risk it! is this the problem? Well to address this concern MyWay Wealth provides 3 thumb rules:

  • For emergency funds, consider putting the emergency corpus in portions of Liquid Funds and Savings Account (with Sweep-in feature).
  • If you require money in the next 3 – 5 years, then you must put them in Government fixed income instruments or Debt Mutual Funds.
  • If you require money anytime after 5 years then you must put the money in diversified Equity Funds or Balanced Funds.

These rules don’t just help you with managing your personal finance, but also makes sure that your not placing all the eggs in the same basket i.e. you are diversifying the risk by placing your investment in various instruments as per your goal. Also, the advantage of mutual funds is that your investments are controlled and monitored by an Expert/ Professional Fund Managers. They help you in managing your mutual funds and also rebalance the investment portfolio regularly.

So hope this article helped in understanding the need to have an Emergency Fund. Remember its important to plan your finances rather than delaying your investments due to the fear of risk.

Expense Ratio - Karan Batra

What is an Expense Ratio in Mutual Funds?

An expense ratio is a ratio that measures the per unit cost of managing a fund. The figure is arrived at by dividing the fund’s total expenses by its assets under management. There are various costs the AMC incurs which forms part of the expense ratio. For example, the AMC has a fund management team which consists of highly qualified professionals who track the markets and companies in the portfolio. They make decisions to buy and sell securities to meet the objectives of the scheme. In addition, the asset management company also incurs expenses such as transfer and registrar, custodian, legal, audit fees, and fees to be paid for marketing and distribution of its products. These costs are recovered through its unitholders on a daily basis. The daily net asset values (NAVs) of a fund scheme are reported after deducting such expenses.

There are different components to Expense Ratio.

  • Management fee: A mutual fund is a professionally run scheme so you have professionals who you actually select different schemes and there’s a lot of research that goes into it so the fee which is charged by those professionals is categorized as a management fee.
  • Administrative cost: All the cost associated with customer support, record keeping as well as offices are all categorized under admin cost.
  • Sales and distribution: The cost associated with marketing mutual fund schemes and also the fee which is paid to the different broker’s or distributors are categories under sales and marketing.

The Portion of Debt in your Investment Basket

Did you know that even as a kid in school we had a portfolio of investments? We’d divide our pocket money to get our candy and our favorite cake, sometimes we would have small savings to buy those shoes, or even loan it to a friend for a while. So as we grow our portfolio becomes bigger in terms of scale and range of investments. We focus more on security and future. But how much of our total portfolio should go into these channels? Why do we have to have debt instruments?  Diversification was the first rule learned in investing. The story of when we put all our eggs in one basket and it all breaks when the basket falls down, is familiar to all investors. But perhaps you never got to the part of hstow many eggs and in which basket should we put it in. 

Debt is the basket which offers you security. But the word itself doesn’t give a ring of security because it is often associated with words like ‘loans’. In truth, however, it is essential for every person to invest in some debt instrument in his lifetime. The different products include Public Provident Fund, Fixed Deposit, Bonds, etc.

So when it comes to giving a slice of your portfolio towards debt instruments here are a few things to keep in mind:

  1. The choice of the debt instrument is vital. So ask yourself what do you want it to do? The answer should either be to providing money on short notice or provide stability to long-term investments, both of which is given by debt instruments.
  2. Focus on just the top debt instruments and leave the rest. If you try to pick too many of debt funds you tend to have a mediocre investment which gives high safety but low returns. Don’t try segregating eggs in that debt basket so much.
  3. The allocation of your investment in Debt instruments should be in proportion to your age. The younger you are, the better it would be to invest in growth-based schemes(equity). When you get older you must focus more on stability(debt).

When it comes to Provident Fund or Pension Fund, that are retirement schemes by the Government of India, its sole purpose is to set aside money from a person, preferably during his employment and return it back in a lump sum along with a small amount of interest.

The Public Provident Fund is one of the kinds of PF accounts for any individual at any age, even for an infant. The greatest benefit of this is the returns which are completely tax-free. The account stands as your loan to the Government at the advantage of receiving a tiny amount of risk. It allows you to invest a minimum of Rs.500 to a maximum of Rs.1.5 lakh per year so as to ensure the account remains active for the lock-in period of 15 years. The PF or Pension Funds are to safeguard your lifestyle after retirement, but they are not the only debt instruments you can rely on. Read more about PPF on the MyWay Wealth website.

A Fixed Deposit is a popular stowaway for your money which saves upon a fixed rate of return during its term. It is applicable for tax and is affected by inflation in the market. It is suitable to use as an emergency fund. Suppose you have a wedding to host or pay for your parent’s medical bills it can be immediately withdrawn to meet those expenses at a reasonable penalty. Whereas, as an investment, it is not a suitable option as it guarantees neither safety nor growth. To know more read the article at MyWay Wealth’s Blog about Fixed Deposits.

It’s quite a dilemma, isn’t it? The PF or PPF is an important long-term savings scheme for a retirement corpus. However, as mentioned before if the expectation from your debt basket is to help in cases of emergencies a Fixed Deposit would work much better. The PF focuses to help you in the long term and the FD will be more reliable as an emergency cell. Click here to know more on that.

Wouldn’t it be great to have one that serves as both in the long-term and act as an emergency fund? In uh a case Mutual Funds are the way to go! Specifically, the Debt Funds in the Portfolio that invest mainly in bonds, giving you security, relatively higher returns, and high liquidity.

Real Estate

Investments in Real Estate, not very Realistic

Home Sweet Home. It’s such a secured feeling to own land and have your property on it. The pride is immense and overwhelming.

Brokers also use these emotional flavours to sell properties. The ease with which one gets a loan these days has lead the masses to invest in real estate easily, but not wisely!!

We have heard our elders say, “Invest in real estate, the future value of the property will earn you a fortune”.

Is this really true?

Here are 6 reasons not to invest in Real Estate.

  1. Low Liquidity:

We buy property with the hope to sell it at a higher cost. But what if an emergency arises and we want liquid cash immediately. Remember your urgency in selling a property is a treat to a potential buyer. Because, your dire need for cash would lead you in selling your property at a lower price than its true value.

  1. Low returns

Most real estate investments fetch you the same amount of return as that of Fixed Deposits. Lines from Nishant Agarwal (managing partner and head (family office), ASK Wealth Advisors )“Considering the rising interest rates and high maintenance cost and tax on rentals and capital gains, I would not suggest investment in physical real estate”.There is no guarantee that you would find occupancy if you are depending on getting income in terms of rent.

Which means, it’s obvious you’re not getting index-beating returns..

  1. Unpredictable

I remember my dad saying  “20 years before if I had bought this house in Kammanhalli, I would have been a crorepati today”. Why?

Because rates increase in real estate depending on the property’s location not on how much you spend on the house, or how does the property look, which makes real estate an unpredictable asset class.

  1. Tracking is a pain.

Mutual Funds are managed by Professional Fund Managers, you have apps to give you alerts, even if you owned more than one scheme.

But how would you track real estate? How do you know that the broker dealing with the property is not a fraud? How would you track your property? You can’t track it daily, can you?

  1. Government Regulation

But the recent disruption announced by our Prime Minister, through “Demonetisation” has curbed the circulation of Black Money by stripping the status of our currency unit.

People don’t even let properties on lease these days, then forget buying a property. Thus reducing the demand of real estate in the market.

  1. Additional expenses.

You need to shell out a bomb to buy a property. Many opt for loans. But in addition, there are other expenses that come along with a property:

  • Maintenance charges
  • Finding a tenant
  • Commission to brokers
  • Utility Bills
  • Taxes

This is exhaustive both financially and physically.

The next time you want to Invest in Real Estate, Think!!

There are better options to invest such as  Mutual Funds. Direct Plans, SIPs, Gold Funds or Equity Mutual Funds help you with wealth creation in the long term. Use “MyWay Wealth” to discover, track and invest in Mutual Funds.


The Debt Story

Parents always warn us not to be in Debt. “Better to go Hungry to bed than to wake up in Debt” is what our dads would say in a stern tone. But why?
It has a simple reason! The word Debt is often referred to as borrowings such as a car loan, home loan or credit card loans. It reminds of the hunting calls from the credit card companies.
But, these are conventional thoughts.

As for the newer ideology… DEBT means products with “ RETURNS”.

The usual feeling that comes with “Investing” is “Fear”. They are normally two sides of the same coin, to most investors. But like Warren Buffett says
“Risk comes from not knowing what you’re doing.”
Knowledge is what you require to make your first move in investing in Debt Instruments. The finance part, you will eventually figure it out once you are familiar with Debt and stop fearing it.

Here are few Debt Instruments and also a set of alternatives that will help you in your course of investing:

1.Savings Bank Account: Savings account is a necessity, not an instrument anymore. They encourage savings, are highly safe with their moderate interest rates and are flexible when it comes to withdrawing your money when you need it.

2. Bank Fixed Deposit: These are the most trusted funds because they give moderate yet periodic returns with Average interest rate of 4%-7 %. You get your principal amount back once your term is over. All this with zero risks. This fund is essentially useful when you want to park your money aside for an Emergency. One of the easiest ways to invest is to opt for smaller Fixed Deposits so that you don’t lose the entire interest on your deposit when you have to break it for an Emergency.

3.Provident Funds: If you are employed then Provident fund is your pie. Provident fund is the accumulated amount one gets on retiring from his/her job. The accumulated amount is the contributions one makes during the employment period.

Public Provident Fund: This instrument is provided by the Central Government to employees who are self-employed and those at the unorganized sector. These are long term savings scheme that provides income security at your old age. This investment is famous for guaranteed returns, tax benefits, withdrawals after lock-in periods and is voluntary. Both Provident Funds and Public Provident Funds are definite items in your investment list as they secure your life after retirement.

4.Recurring Deposit: When you hear Recurring Deposit, remember SAVINGS. Recurring Deposit is quite similar to fixed Deposits. The difference is that in the recurring deposit you deposit a fixed sum every month in a recurring deposit account for a fixed tenure and you earn interest on these deposits, thereby you practice the habit of saving.

Warning Bell: The usual jazz that brokers give when they sell schemes is “Higher Returns”. Ever wondered how, say, for example, Real Estate manages to provide high-interest rate. The trick is, Higher Returns is a sugar coating for the Hidden Risks. An easy thumb rule is to keep the Interest on Bank FD as your benchmark. Any scheme providing an Interest rate higher than that a Bank FD, will have the factor of higher Risk. However, there is a way to earn higher returns with Debt too with the help of Debt Mutual Funds.

Life Insurance

Have you started saving for uncertainties?

Vijesh is 48 years old, an engineer working in an MNC and he is the only working member in his family. One day while returning from work in his car, he met with an accident. Unfortunately, he died. He was survived by his wife, Meena and two children. Meena has lost his life partner and she has to take care of her children. Now she is struggling to get a good job which would serve 3 lives.

Imagine something like this happening to you. What happens to your loved ones when you are no longer there? Death is an inevitable part of life. Invest in a life insurance plan and put these concerns to rest. Your insurance investment will take care of your family in any situation and will help in replacing lost household income, paying for the education of your kids or even providing financial support to your spouse if something happens to you.  

What is Life Insurance?

Life insurance is a contract between an insurance policy holder and an insurer or assurer, where the insurer promises to pay a designated beneficiary a sum of money in exchange for a premium, upon the death of an insured person.

Types of Life Insurance

1.Endowment Policy

  1. Unit Linked Insurance Policy
  2. Term Insurance
  3. Money Back Policy
  4. Whole Life Policy
  5. Pension Plan

Let’s know more about its 3 major types:

  1. Term Insurance Plan- Term insurance is a type of life insurance policy that provides coverage for a certain period of time or a specified “term” of years. If the insured dies during the time period specified in the policy and the policy is active – or in force – then a death benefit will be paid. Term insurance is initially much less expensive when compared to other life insurances.
  2. Unit Linked Insurance Policy- A Unit Linked Insurance Plan or ULIP is a product offered by insurance companies that, unlike a pure insurance policy, give investors both insurance and investment under a single integrated plan. You can withdraw only after lock-in-period of 5 years. Advisors say not to mix insurance with investment. Mixing the two will give you less than moderate returns from both.
  3. Endowment Policy- An endowment policy is a life insurance policy which apart from covering the life of the insured, helps the policy-holder save regularly over a specific period of time so that he/she is able to get a lump sum amount on the policy maturity in case he/she survives the policy term. This maturity amount can be used to meet various financial needs such as funding one’s retirement, children’s education or marriage or buying a house. The premium payable is usually much higher than that of whole life insurance or term insurance. It does not have the renewability (a few companies do provide renewable endowment policies subject to a maximum issue age) or convertibility option available in term insurance.

Claim Settlement Process

On the happening of the event, the beneficiary is required to send claim intimation form to the insurance company as soon as possible. Claim intimation should contain details such as Date, Place, and Cause of Death. On successful submission of claim intimation form, an insurance company can ask for additional information about

  1. Certificate of Death
  2. Copy of Insurance Policy
  3. Legal Evidence of title in case insured has not appointed a beneficiary
  4. Deeds of assignment

On successful submission of all the document, the insurance company shall verify the claim and settle the same.   

Equity Mutual Funds

Equities! A Smart Way to Invest

People normally don’t find it safe to invest in Equity. They consider it a gamble. Why? Because your shares are traded in the stock market which is subjected to market fluctuations. Then why does Monika Halan, consulting Editor for Mint, state “I Love equity funds”  in her book “Let’s Talk Money”.

Let’s look at this picture:

Invest in Equities


Surprising! The most trusted instruments such as Fixed Deposit multiplies wealth only by 20 times whereas investments in Equity multiplies it by 260 times.

Equities are stocks, meaning shares of a company. When you invest in equities it means you own the shares of a company and are partial owners of the company

But the hitch is how do you know which company’s stock performs well? How are your shares trending in the market? When to sell or buy?

This arises the need to understand the difference between investors and traders. The work of a trader is to track the market minute to minute and closely monitor the fluctuations in the stock. But as an investor, you must ascertain your investment horizon and financial need, invest in Equities and to stay invested until investment purpose is achieved. Remember, “time in the market” is important not timing the market.

The best option to invest in Equities is through Mutual Funds. Even Monika Halan says that she doesn’t buy shares directly but rather invests in Equity through Mutual Funds. Because when you do so, the decision of picking the right stock is vested with Professional Fund Managers who track the movement of shares closely and rebalance the investment portfolio regularly. They have a tab on the performance of companies, markets, political events, interest rates, and past data that help them to forecast the future of a stock. With Mutual Funds, there is a scheme for every person depending on your risk and investment goal. Say if you are a conservative investor but are willing to take a little bit of risk then, with Mutual funds you can always have your investments primarily in Bonds (Debt) with a little exposure to Stock (Equity).

As an investor one should remember that Equity Investing is no gamble. In a growing economy like India, good investments should outperform in the long run, irrespective of the macroeconomic factors. The Table below will give a clear idea:

Time Period 1 year 3 years 5 years
Amount Invested (INR) 12000 36000 60000
L&T India Value Fund-Direct Plan Growth Option 10,948.02 37,485.68 76,658.66
ICICI Prudential Bluechip Fund-Direct Plan Growth 11,596.35 40,193.66 75,470.58
SBI Bluechip Fund Direct Growth 11,322.36 37,843.27 72,645.74

These are the Top Rated Funds on MyWay Wealth. The Table clearly shows that when Rs 1000 a month invested through SIP in these funds, say L&T India Value Fund-Direct Plan Growth Option for a period of 1 year gives a fund value of Rs. 10,948 which is lesser than the invested amount of Rs. 12000. But when the same process is carried out for a process of 5 years, the fund value is Rs. 76,658.66, which is 27% more than the invested amount Rs. 60000. The same pattern is seen in the other two funds as well.

India is expected to add the fourth-highest number of High Net Worth Individuals in the next five years, only behind the star economies of U.S., China, and Japan yet ahead of the European powerhouse – Germany.

Here’s what the High Net Worth Indians are doing right with their money-

HNI Indians: Source of Wealth

To make life simpler, here’s the inference you should care about – The wealthy have become wealthy through smart investing and by having a very good understanding of equities as an asset class.

Investing & Equity – bring these together and you will discover the secret sauce to wealth creation.

To sum it up, Equities may be volatile in the short run, but over the longer period, volatility will decrease and the returns will increase, thus reducing the risk.

So, Remember!

The thumb rule in Equity is to stay patient and remain invested for a long period to reap its benefits.