Invest systematically to see the power of compounding

Want to see your money grow? Follow the magic mantra – Systematic investments over a period of time and enjoy the magic of compounding.

Read the article below for some great insights.

http://www.huffingtonpost.in/raghu-kumar/why-you-should-opt-for-si_b_7024422.html

SIP

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Why mutual funds work for Indians

Little knowledge is a dangerous thing…but ignorance is not always bliss!

It is true that many people in India still don’t invest in mutual funds. They have heard disaster stories that could only be attributed to half-cooked knowledge and choose the path of blissful ignorance without ever understanding what they are losing out on.

Consider this – you have INR 5000, which can buy you 125 litres of water (considering that 1 litre of water costs INR 40). You decide to deposit your money with the bank for one year at a rate of 8% per annum. Next year, you will have INR 5400 in your account. Sadly, due to an inflation rate of 10%, 1 litre of water would no longer cost you INR 44. Thus, you wouldn’t even be able to afford 125 litres of water anymore, despite having received a 9% interest on your savings.

A classic case of inflation biting into your savings; and a classic case of what is happening to the savings of most Indians.

This is the situation that investing in equity could alleviate. Mutual Funds are market linked. Once you understand the concept of compounding, you will understand that your money grows by the power of compounding if only you are consistent and give it time.

So, why should you invest in mutual funds?

  1. Firstly, because there is no social security to take care of you in your old age.
  2. Secondly, you seek a comfortable life after retirement.
  3. Third, conventional saving schemes may be marred by inflation over a period of time.

The whole purpose of building a portfolio is to create a corpus that grows over time so that you can reap the benefits of the wealth that your money builds for you.

Think about it. As a 30 year old, if your monthly expenses today amount to INR 20,000, how much money do you think you would need when you retire at the age of 60 years?

Taking an average inflation rate of 5% into account, your current monthly expenses of INR 20,000 would be equivalent to INR 86,311 after 30 years!

Thus, you need a saving scheme that can give you an average interest of over 11% over a period of time. Going by the trends of the past decade, it is only mutual funds that have been able to give such returns if investors have chosen rightly and consistently.

It is always smart to plan ahead. Financial planning is not about saving more but about investing right. See your money grow with mutual funds!

All you need to know about Mutual Funds

Consider a scenario where you wish to invest in the stock market and decide to consult the prime financial news channel. What happens next?

Well, if you are not a financial expert (like most people), the jargon used by the trade experts, analysts and news anchors would make you run away from the stock market – as far as possible.

There would be a continuous rattle about what stock fell down or gained, or which sector underperformed or surpassed industry averages – complete gibberish to a mind that is focused on solving other complexities of life, like making a living or managing the household.

But should it mean that the common man be devoid of an opportunity to make lucrative investments? Not really.

Your financial advisor would suggest you to invest in something called ‘Mutual Fund’ (MF) – trust him, he is not selling you something that is suspicious. But it’s better to know what mutual funds really are.

As the name suggests, a MF is a pool of money – the money coming from small, risk-averse investors like you.

A Fund Manager is the person who could help you in this process. He is a money-wise person with the right education and experience in the financial markets, investing this pool of money in a mix of equity shares as well as investments with fixed rate of returns, of course, after a lot of research and analysis.

The Fund Manager works for an Asset Management Company (AMC), more often than not, an arm of a reputed financial institution.

The AMC, in turn, is governed by the Securities & Exchange Board of India (SEBI), which is the regulator for the securities market in India.

So, your investment is safe from scams and frauds. Also, your money is being invested by a competent person. The fund management fee is spread across the pool, which brings per unit cost to a trifle.

You may now turn off that annoying stock debate on TV.

The next logical question is ‘how much do I have to pay to become a part of the pool of investors?’

Well, as low as INR 1,000.

Every mutual fund has its own investment philosophy, which includes preference for sectors, industries as well as asset class (equities / debts). At its initiation, the fund opens at a defined Net Asset Value (NAV), which is the price per unit. Once the fund starts investing, the NAV changes on a daily basis, depending upon the change in the value of securities held by the fund.

Now that you know the basics of MFs, it is fine to invest in the fund that your banker suggests, Right? Well, not quite.

Before investing in a MF you must know that there are various categories to choose from. Depending upon your age, income, saving habits and risk appetite, you may opt from balanced funds, tax saving, equity oriented, large-cap or index funds. In a nutshell, you must read about the investment philosophy of the fund, map it with your investment goals and then take a call. Such information is usually available in the Key Information Memorandum (KIM) of the fund, the website of the AMC governing the fund as well as sites such as myiris.com, investopedia.com etc.

If you have a long-term investment horizon and take an informed decision before investing in mutual funds, there is no reason why your money would not work for you.

So, what is a mutual fund?

A lot of people talk about investing in a mutual fund and building a portfolio these days. However, many don’t understand what it means and are often duped by investing without knowledge.

As they say, “Little knowledge is a dangerous thing.”

Read more to understand what it means to invest in a mutual fund and how it could help you.

http://www.franklintempletonindia.com/en_IN/investor/investor-education/fund-basics/how-mutual-funds-work