Why you should start an SIP?

The first reason is that it brings a discipline to save. And the second, the most important reason is that, it keeps you off mood swings. For example – If you decide to invest an amount every month taking time to check the market and then do it. Most of the time, you obviously get held up in some task and miss the investment. If you have the time, you would want to wait for a better price. Or think about your previous investment which is now in the negative and postpone the current one.

SIP removes all these worries about timing. It helps you have the investment happen automatic & accumulate wealth.

Axis mutual Fund has coined a tag line for SIP, Sleep In Peace. It is really so peaceful was of accumulating wealth.

Other benefits of an SIP

Apart from helping you average your investment cost which we had discussed there is one very big advantage in the SIP investment. It is the eighth wonder of the world, the magic of compounding. As the investment period is longer, the profit you earn in the first year earns similar profits in the second year and this multiplication goes on.

A ₹1000 SIP done for 10 years will have an average asset value of 2.75 lakhs at the end of 10 years. Where your contribution will be 1.20 lakhs over a period of 10 years & the profit generated will be 1.55 lakhs. Money has got multiplied 2.29 times.

Who should start an SIP?

There is no age limit or income limit to take advantage of this magic wealth creator. You can have a SIP for your just born child for his/her education or wedding expenses. You can start a SIP as soon as your first pay cheque comes to meet your goals like buying a car or a house.

You can start a SIP to accumulate a corpus for your retirement. A SIP even for a vacation, which many investors are now doing.

In Switzerland there are restaurants serving exclusive Indian cuisine because there are so many Indians visiting them. They have seen 60% increase in Indian tourists to their country. India is becoming wealthy and they are enjoying life.

Other benefits of an SIP

Apart from helping you average your investment cost which we had discussed there is one very big advantage in the SIP investment. It is the eighth wonder of the world, the magic of compounding. As the investment period is longer, the profit you earn in the first year earns similar profits in the second year and this multiplication goes on.

A ₹1000 SIP done for 10 years will have an average asset value of 2.75 lakhs at the end of 10 years. Where your contribution will be 1.20 lakhs over a period of 10 years & the profit generated will be 1.55 lakhs. Money has got multiplied 2.29 times.

What is SIP?

SIP is the short form for Systematic Investment Plan. It is a way to invest small amount of savings on a regular basis.

SIP is similar to a bank RD, here it is invested into a Mutual Fund. Where you can pre-fix the amount you want to invest on a regular basis. It can be monthly, Bi-monthly or quarterly.

The difference between Bank RD & Mutual Fund SIP is, in RD, every rupee invested will be growing every day. It has a fixed growth in a fixed period. In an SIP, the investment will not be growing every day. Some days it can be up and some it can be negative. It has no fixed return though it can have a fixed period.

This up & down movement is what makes SIP’s more attractive, because it will give lesser number of units when markets are up and more units when it is down. It will help in averaging the investment so that, when the market goes up to its next higher level, your investment brings higher return.

Let’s look at this with an example:

Investing ₹1000 into an RD account which gives 7% interest will accumulate to ₹12465 after 12 months. The same amount invested in a MF SIP where the assumed return is 7% and the funds NAV goes down to -7.60% in the same year before closing with a 7% profit. The value of the investment will be ₹12765. 300 additional earnings which is 30% more than bank RD.

This is the advantage of an SIP in mutual Fund. And Mutual Funds generally give 15% returns which would mean the same 1000 investment for 12 months would have grown to 13670. A profit of 1670 against only 465 from the banks.

 

Why you should start an SIP?

The first reason is that it brings a discipline to save. And the second, the most important reason is that, it keeps you off mood swings. For example – If you decide to invest an amount every month taking time to check the market and then do it. Most of the time, you obviously get held up in some task and miss the investment. If you have the time, you would want to wait for a better price. Or think about your previous investment which is now in the negative and postpone the current one.

SIP removes all these worries about timing. It helps you have the investment happen automatic & accumulate wealth.

Axis mutual Fund has coined a tag line for SIP, Sleep In Peace. It is really so peaceful was of accumulating wealth.

Interest rate & new challenges for the markets

Interest rate ticks up after 4 years of going down & industry not benefiting from the falling rates. Light at the end of the tunnel for the bank NPA’s which should make banking the next attractive sector for investors.

Crude Oil & Currency along with Forex reserved posing a catch 22 situation. Election year challenges to the ruling BJP as duties on oil could not be brought down.

Additional margins on 109 stocks bring high volatility in the markets affecting Mutual Funds & portfolio managers. Balanced Advantage & Dynamic mutual funds have become best bets for the next 1 year. Good time to review investments and move out of bad ones.

India’s Bad Banks

There was a report on the losses our Public Sector Banks (PSB) have made in the financial 2017-18. It was a staggering 87000 crores. Almost all of the stimulus given by the Government to clean the bank balance sheets have gone into thin air.

The above image shows 19 out of 21 banks have reported losses. Indian Bank outshines the crowd followed by Vijaya Bank, the only 2 that are profitable. Indian Bank was once into big trouble, change in management and restructuring on a swift note changed the fate of the bank. Later it has not looked back.

Now, it is time for all the other banks to change. Hopefully it is around the corner. As most of the bad loans are cleared off, of the books which have been made possible by the introduction of the Indian Bankruptcy Code.

Soon we are likely to see big growth coming these poor performers, hard lessons learnt which should not repeat. Probably another quarter or two more and it will be good time to add banking stocks to your portfolio. Even in mutual funds, investing into schemes which are increasing exposure to PSB’s by beginning 2019 will pay rich returns.

Karnataka Election Outcome and The Future

 

Softening of crude oil prices nd the currency. Karnataka election outcome and the future. Tata Steel taking over Bhushan Steel that brought new life to PSU Banks. Growing losses of PSB’s, which has crossed 60K Crores.

520% growth the markets had in the last 37 years which no other asset matched. A comparison on multiplication of assets by Gold, Silver FD’s and Stocks, where stocks show 260 times multiplication.

Why people lose in such a win win situation that the markets offer? Why Real Estate returns look attractive to investors even when Stocks delivery double their returns? Repeating of the 2015 patterns in the market, what is in store for the next 3 years. 43500 on the SENSEX soon