Who Should start an SIP?

SIP’s need not be very big, it can be as low as 500 per month and has no upper limit. This small contribution helps you feel the pulse of how the investment is growing and then bring confidence to add more.

Also this small amount helps people to bring savings habits with children and the needy. Thereby helping them become independent.

Additional features available for a SIP investor

  • You can set up SIP for a specific goal, once the goal is reached, stop the SIP and fulfil the goal. 
  • You can have alerts set, so as to get a message when the value is down to add more funds into the investment when the market is down.

Step up SIP’s are available which has a present additions to be made to the SIP contribution after completion of a stipulated period. Like you start with a 5000 per month, after completion of 1 year add additional 500 and increase the contribution to 5500 with similar increments after every passing year.

SIP insure is a new concept which helps you have insurance cover as you save. Funds provide upto 100 times the SIP amount as insurance cover for the investor. If you are doing a Rs.5000 SIP for a 3 year period, you get Rs.6 lakhs insurance cover and it stays active till you are invested in the fund. So, no contribution to insurance and all your investment having the highest growth.

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.

Mid Caps Melts…

There is a saying, “Sell in May & go away”. Markets proved it right this year. It gave back gains made in April. Mid & Small caps lead the fall. They lost 6.5 to 7%, rising concern among conservative investors to move away from the markets.

While not all portfolios melt the way the indices did. The leaders of the current market are in Chemicals, Electrodes and Construction sectors. Stock holdings in these sectors, preferably the leaders in them stood out strong.

Right stocks at the right time are the need of the day. As Crude oil is reaching for highs, currency depleting & bond yields on the rise, the major concerns that shook the markets. Stocks that had gone up beyond fundamentals took the larger beating.

Adding fuel to the fire was the Karnataka election results which brought more confusion and lots of challenges for the next year’s general elections. Media started giving their share of bad news that, opinion polls show only 47% of our population now willing to give BJP the next term.

Yet there were gems still available in the hay stack. Newspapers reported that, stocks like HEG, Graphite grew strong on their fundamentals. These stocks stood the test of selling pressure.

Stocks that the experts were bullish on like Ashok Leyland, M&M Finance & Escorts – all of them showed more strength on the upside. We have all these in our portfolio which has helped us lose only half of what the markets lost. In April we had 11% gains, double the gains made by the broader indices like the SENSEX.

When markets corrected, we are holding strong with lesser loses. Our portfolio has given back about 3%. Such small and consistent strength over the years have helped us make 200% gains in the last 5 years.

Consistence in holding the top positions for every time periods is an even bigger challenge that fund managers face. This is because of some committed stock not behaving the way it has to or the fund manager holding a view that largely differs from the market.

In this space, we held strong. We were not emotional on our positions. We are not judgemental when entering or exiting a position. Just followed the system and we have consistently outperformed all the other funds in the diversified category.

Last year financial sector had bigger exposure in our portfolio, now we are shedding weight in there. We have been adding a slew of stocks in the consumption and construction sector. With such kind of elite stock picking and commitment to follow the system rules with the highest discipline, we are confident that the outperformance will continue.

I met a couple of top fund managers, whose are now foreseeing a flat year for India. The expectation is that, it will take about 12 to 18 months before bullishness returns to our market. Checking with the patterns in the market now to find if we have to retreat from equities and move to debt or reduce equity exposure. I found that, though there is not much upside from here for the markets. It is not showing weakness as what is perceived by the managers.

It can have another small rally, which can break the 36K on the SENSEX where it will go weak. For this to happen Crude has to retreat, Currency has to get strong. As of this writing both have done that, while it is not over yet. They will rise again, breach the high and then turn down. That is where the markets will manage to reach for a new high.

There is going to be a lull, while before getting there, lets accumulate the gains provided so that, we have a better edge when the tide turns against us.

We are planning to move out of equity exposures in Mutual funds and move capital to Equity savings till the 2019 election fever is over and hop in, into the next leaders at that time. So, markets are going to be tricky and strong players will take the advantage to maximise their gains.

Why Mutual Funds May Trump Real Estate as An Investment Option?

We Indians are believers in creating assets and leaving it behind for the next generations. Saving up and funding assets is a must, for most Indian families. So, what kind of assets do we look at investing in? In a typical Indian family, it will mostly be gold, real estate (either a plot or a house), and in a rapidly growing crop of people, mutual funds and SIPs as well. So, what prompts our choices and how do we make our asset allocation decisions?

We recently shared our views on the pros and cons of gold as an investment option. So, left with the possibilities of real estate and mutual funds, let’s look at which one to choose and what are the pros and cons.

Initial investment

Many people usually save up for years to purchase a real estate asset as it is never cheap. The initial investment in real estate is always high, and at most times, apart from their entire savings, most buyers also end up taking huge loans. These loans can become a liability in the long run, if not planned for properly. Also, life is full of uncertainties – ill health, loss of job for an earning member, new family commitments, etc. can change the equation overnight.

In contrast, investment in mutual funds can start with as little as even INR 500 or 1000. You could choose to begin a Systematic Investment Plan(SIP) with a small amount per month and slowly build it up into a growing investment. In fact, many people have invested in mutual funds quite early on, from the time they have started earning and made enough profits, to invest in real estate. So, while you may not be able to purchase real estate unless you have lots of money to spare, mutual fund investments can start at an early age, and you need not wait to accumulate your savings.

The Process

Investing in real estate is not an easy process; one has to find the right property, at the right price, at the right time, at the right place. At times, you may have to involve brokers or other such third parties and pay out commissions as well. The property papers must be legally verified, and the due process of registration needs to be completed, which is again a bit cumbersome. In short, it is tedious, fraught with painful procedures.

For investing in mutual funds, however, there are no such hassles. Once you decide the amount you wish to invest, you can quickly start an investment account with your bank and transact online. Your relationship manager at the bank or a trusted financial advisor will help you maximise your returns by growing your money while reducing the risks as much as possible.

The Liquidity Factor

Any investment is made with the intention of growing one’s money and also providing a safety net in tough times. Real estate prices do rise slowly and even accounting for market slumps typically your property value would have gone up. The pain point is liquidity.  If you need money immediately to fund an emergency or new goal, selling your property for the right price promptly is difficult. Here again, the process is long- you need to find genuine buyers, and it takes time for the money to come in hand. In contrast, selling mutual funds is more comfortable, and at most times, the money is back in your account within three working days’ time.

While we all seek the safety and security of owning the roof over our head, do consider first building a growing mutual fund portfolio and then using the earnings to build a dream home.

Is investing in Gold a Good Option for Akshaya Tritiya?

Akshaya Tritiya is almost here with the festival falling on 18th April this year. This festival is considered, a very auspicious one. The name itself suggests that it is the third lunar day (Tritiya) of the Hindu calendar, indicating unending prosperity (Akshaya). Tradition has it that this very auspicious day is for auspicious beginnings like marriages, housewarmings, and purchase of property or gold. In fact, the purchase of gold is what Akshaya Tritiya has become synonymous with over the last few years thanks to smart marketing by gold merchants and jewellery brands.

Indians, especially women, are traditionally attracted to gold and invest in it. It is actually not necessary to buy gold only on Akshaya Tritiya. You could choose to buy anything new as a good symbolic start. An interesting aspect though, is that while women seem to have the knack of putting money away when it comes to investment, they mostly, only think of picking up gold ornaments. This probably could be a mindset issue that has been handed down across generations.

Gold As An Investment
While investment in gold is seen as a good bet by many, it is not so. Unless the gold is purchased for occasions like marriage, it is an unproductive asset. The gold is for consumption and not investment. Yes, there is the possibility that in times of crisis, you could turn to your gold assets. But, this is true with Mutual Funds (MF) too, which many people do not know. The money invested in gold is unproductive as it does not really help in any economic growth, unlike equity shares or Mutual Fundss. The purpose of gold in the Indian context is as a safety measure, a social necessity and for personal use.

If you invest a certain amount in gold, the gold remains the same, even after many years. Yes, the gold value may appreciate quite a bit, but it does not multiply like money can; especially if you make some informed, wise investments. A real investment should be one that generates wealth and aids in economic activity and keeps creating more wealth. So, in effect, if people are willing to give it serious thought, there indeed are better options to invest in, than gold. No doubt, there are social occasions when you need to purchase gold, and those are exempted.

What Are Your Options
So, this Akshaya Tritiya, what are the options available to make an auspicious start that generates wealth for a few years to come? Look at investments in MFs, for one. It is quite possible to build a carefully chosen investment portfolio with the help of a trusted and reliable investment advisor. When people who have an in-depth understanding of the whole ecosystem use their insight to help you figure out which MFs to invest in, you can succeed in generating wealth.

It is not always necessary to start big in Mutual Fundss, you could always choose to go with small amounts per month, known as systematic investment plans (SIP). Across a period, you may find that you are getting good returns and there is no fear of lock-in. A few may even provide good short-term returns. Most mutual funds can also be liquidated quickly.

So, perhaps, this Akshaya Tritiya is the right time to ring in the change and think beyond gold!

Think Mutual Funds!

How investing in SIPs can make you a crorepati

Everybody wants a reward while nobody would like the risk on working towards it. This is also the main reason for the popularity of systematic investment plans, or SIPs, which give investors the option of gaining from market while reducing the risk of volatility that is inherent in all financial markets.

Why to start an SIP?
Equities are growth assets and have the potential of delivering far superior returns than any other asset class if one remains invested for long-term. Sensex has delivered an annualised return of 16 per cent over the period of 39 years. Compared to it, gold has delivered an annualised return of just 6 per cent. While a bank fixed deposit is currently giving around 6-7 per cent for a 5 year fixed deposit.

Apart from this the biggest advantage with equity is taxation. Gains upto 2 year are taxed at 15% & after 1 year is taxed at 10%, the lowest among any other asset class. While in case of debt investments like fixed deposits, the interest is added to the income of the investor and taxed as per the slab. So, a person falling in highest tax bracket (30%) will effectively get less than 5% in a FD.

In case of gold, gains before 3 years are added to the income of the individual just like FDs while gains after 3 years are taxed at the rate of 20% post indexation (helps to reduce the tax burden by adjusting the gains against price rise).

How to become a crorepati?
The key to reaching this goal is to start early provided equities deliver the expected rate of return. So, start your SIP today. The early you start the more you benefit.

If you are 20 years old and you want to accumulate Rs 1 crore by the time you become 60, you just have to invest Rs.322 per month to accumulate this amount. We have assumed a rate of return of 15% per annum.

Yes, the number may look surprising but this is the power of compounding where if you stay invested you earn returns over your gains which help you accumulate faster.

If you can increase the amount to Rs 5,000, you can become a crorepati by the time you reach 42 years of age, given 15% rate of interest. If you continue investing Rs 5,000 per month till you retire, you will be able to accumulate Rs 15.50 crore when you reach 60 years of age. Therefore, your accumulation will also depend on the time you stay invested.

However, if you have lesser time in your hand, you will have to contribute more towards the goal. If you start at the age of 30, you will have to increase your investments to Rs 1444 per month to accumulate Rs 1 crore by the time you retire, given all other conditions remain same.

If you start investing at 40 years of age, you will only have 20 years in your hand, therefore you will have to invest 6679 per month to accumulate Rs 1 crore.

So start today and continue investing in a disciplined manner.

Fund houses offer a wide variety of mutual funds, take the help of your advisor to help you choose the right fund that matches your risk and return profile.

Which Investment Basket Is Right For You?

Investing money is not the same as saving it up. While savings help you build up cash reserves over time for various needs, investments help the money grow. Indeed, it is possible to make money grow at such a rate that it could become an alternative source of income!

In this article, we discuss the various investment options available, their pros and cons and in which scenario you need to be investing in each of them. Perhaps, you already have a Fixed Deposit or an insurance plan. What you need now is a way to judiciously invest money in order to make it grow. It is time to move from savings to investments.

Here are a few investment options available to you:

Liquid Assets

  1. Fixed Deposits: FDs, as they are better known, are used to store away large amounts of cash in a bank for extended time periods. They are a secure investment and offer guaranteed returns. However, the FRDI bill mandates that a bank’s liability on FDs is only up to INR 1 lakh. Any investments beyond this number could fall into trouble. Hence, it is important to do your research on the banks in which you wish to open an FD, especially in the current scenario of bank frauds and scams.
  2. Insurance: Insurance is a financial asset. Many people are tempted to opt for insurance policies that also have added benefits and assured returns. However, insurance has the lowest returns amongst all options. Hence, it is better to opt for term insurance and not go after policies that sound very lucrative.
  3. Corporate Bonds: When it comes to this investment category, research and prudence on the investor’s part is very important. Depending on your risk appetite, you may choose to go for bonds with a lower rating as they promise higher returns, but we recommend that you stay with AAA rated bonds as much as possible, as the potential risk of a lower rated corporate bond is much higher than the possible returns.
  4. Mutual Funds: MFs are very diverse as far as investments go. MFs can be debt, equity or tax-saving mutual funds. Both debt and tax-saving MFs give a nominal income that is 1-2 percentage points higher than an FD. An SIP can be compared to a recurring deposit, but unlike an RD, it gives on average 17% returns.

Illiquid Assets 

  1. Real Estate: Real estate is not yet an investment asset in India and is meant more for your consumption as a commodity. That said, land often appreciates in value over time so it may be prudent to include some land assets in your investments. Ideally, you need to ‘buy and forget’ for a few years until the land value appreciates. Also, be sure to have all documentation in place for ready reference if the need arises.
  2. Gold: Gold falls somewhere in between being a liquid asset and an illiquid one. For the purpose of this article, we have put it under the illiquid asset class. Gold is both an ornament and an investment. Women are traditionally in favour of gold investments. However, most jewelers do charge several fees over the base price of ornamental gold which in turn may depreciate its value as an investment. If you are investing in gold, know that it takes time to see good returns.

Other Investment Options

 Apart from these options, you can also invest in commodities, currency, futures markets, etc. if you are serious investor who follows the market on a very regular basis and understand when to invest, when to stay put and when to exit.

Cryptocurrency is another investment avenue that is gaining popularity due to the skyrocketing returns it seems to promise. However, the cryptocurrency market needs to be regularized, and it needs to stabilize, before it can go from speculation to an actual investment.

You can also consider being an angel investor. As an angel investor, you invest your money in a growing company for a fixed stake. As the company grows, so does your wealth. Most angel investors choose to invest in a domain they are proficient in, and some investors often involve themselves in the operations of the company the invest in.

Spill-over effect of US trade war on China, to India

Trump administration has become fearful about their growth and have gone into protectionist mode. They seem to have lost confidence in their ability to create jobs and grow the economy, instead they have now taken the route of controlling imports and give opportunity for their local businesses to grow.

Anti-dumping duty on Steel & Aluminium imported to the US. Additional duties on Shrimp imports have added to the pressure that the global markets are facing due to rising bond yields & crude oil price surge. Though India is a small contributor to the US’s steel market, we have businesses which supply inputs in steel manufacturing to countries which are selling steel to the US.

Those steel related businesses have taken an impact due to the trade wars. Also there are doubts that the US administration will bring further more controls in many product segments, which will impact global markets across various industry segments.

US does not have facilities to cater to the immediate demand if imports are stopped, while in the time the facilities are set up, government will make good money from the duties which can even fund the new facilities. This being one side of forced growth, the history is that, whatever we fear, we attract it in our life.

In this manner, US fearing about other countries growing and not them, will only force the target countries like China and India become more stronger. Though these export dependent economies will have to go through some pain due to competition, soon they will also equip themselves on how not to be dependent of US for their business. Along with this the economies that will now learn a lesson on the US dominance, will shy away from importing any products from the US.

So, the down fall of the US is about to begin and supremacy of China & India is going to shine better. And this means more business growth for India. Be invested and be a part of the journey.

SFIO summon & 2 Lakh Crores wealth erosion

SFIO summons bank bosses and markets lose ground to continue with their fall. Banking stocks took a big hit. Mutual Funds did not have much of impact as very few fund houses have exposure to banking sector. Just on the same day, newspapers carried articles about MF’s having lesser exposure to PSU banks, which also confirmed the same.

As markets tanked, there were widespread news that, 2 lakh crores of investor wealth is lost in one day. BSE market cap goes to Rs.144 lakh crores from Rs.146 lakh crores. Only those investors who bought at high levels were actual losers, even for them, only if they sell and move out, there is a loss. Else it is only notional loss and over a period markets will recover.

With the kind of bad assets that banks have been building, some prominent fund managers are of the belief that the banking system will collapse and that will be the biggest disruption of this decade like the financial crisis that happened in the last decade.

Portfolios that are secure from such sectors that will vanish for the next generation are the ones people have to be invested in, to ride the biggest wave of financial growth that the world will witness in the coming decade.