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

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.
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.

Invest in Mutual funds online - Dipika Jaikishan

How to invest in a Mutual fund online?

As the newer generation is moving from manual transaction to online transaction, this video talks about the various advantages of investing online. It also helps in simplifying the process of investment in a fast, effective and efficient way. Mobile apps like MyWay Wealth can be installed and steps are as easy as:

  • Register one time.
  • Complete your KYC(Know Your Customer).
  • Sync your bank account.
  • Select your mutual funds for investment.