This is the story of 2 different young investors.

Story of Achint and My Cousin’s Sister:

• Achint’s Journey:
  • Starting Age: 23 years old.
  • Education: Reputed B School, Master’s in Finance.
  • Investment: ₹3,000 per month.
  • Investment Duration: From age 23 to 58 (35 years or 420 months).
  • Interest Rate: 11.5% per annum.
  • Final Amount: ₹1.68 Crores.
• My Cousin’s Sister’s Journey:
  • Starting Age: 30 years old.
  • Investment: ₹3,000 per month.
  • Investment Duration: From age 30 to 58 (28 years or 336 months).
  • Interest Rate: 6.5% per annum (through recurring deposits).
  • Final Amount: ₹28.47 Lakhs.

 The Staggering Difference: Achint accumulated significantly more wealth than my cousin’s sister. The difference is ₹1.39 Crores (₹1.68 Crores – ₹28.47 Lakhs).

 Key Takeaway: The earlier you start investing, the more wealth you can accumulate. This is due to the power of compounding, which allows your money to grow exponentially over time.

Now lets understand why this happened or I should say let’s understand Compounding:

What is Compounding? Compounding is a powerful financial principle where the interest you earn on your initial investment also earns interest over time. This creates a multiplier effect, leading to exponential growth of your investment.

Example of Compounding:

• Interest Rate: 6.5% per annum (typical for recurring deposits).
• Investment: ₹3,000 per month.
• Duration: 20 years.
• Final Amount: ₹14.71 Lakhs.
• Higher Interest Rate Example:
  • Interest Rate: 11.5% per annum (typical for a good diversified mutual fund).
  • Investment: ₹3,000 per month.
  • Duration: 20 years.
  • Final Amount: ₹27.75 Lakhs.

Impact of Interest Rate: A 5% difference in the interest rate can result in a difference of ₹13.04 Lakhs over 20 years.

Now understand the long-term investment strategy:

How Compounding Works in Mutual Funds: When you invest in a mutual fund, compounding allows you to earn interest on both your principal and the returns you re-invest. This means your returns generate additional returns, leading to faster growth of your investment.

Example: By re-investing your earnings (interest or dividends), you buy more units of the mutual fund. These additional units also earn returns, further increasing your investment’s value over time.

Start Early and Invest Wisely: To harness the power of compounding, start saving and investing as early as possible. The sooner you begin, the more time your money has to grow, leading to greater wealth accumulation in the long run.

So, act Smart and Start Early.

It’s been quite a while I am sharing my experiences once again. Time flies by and from a market which was booming at large since past few years, suddenly one starts feeling the nerve and the market breakdown seems nearby. We are humans and we tend to react on emotions. The extremes of greed and fear will certainly prevail and one will have to deal with it. There will be extremism and still investors will be coming in hoards and when the chips go down. I met a retired defence personnel who seems to be quite of an optimist way back in 2016- 17 and why not the market was moving in leaps and bounds and his overall portfolio valuations were in double digits and he was quite ecstatic about it. On an evening when we were discussing about the markets and how will the tide turn in the next couple of years, I was quick to respond go slow on your overall small cap and mid cap exposures if you are just looking to redeem in the next 24 months. To this he reacted with quite an optimism. He said buddy the next 36 months the market would grow at the rate of 15 to 20 percent p.a. I won’t blame him for the utter optimism that a bullish market creates on our senses.

Most of the times we forget about the very basics of investing. The time period for which we would want to stay invested in the market. The second one – what do we want to do with that money? You would say what kinda question is that? I would say do you have some goals in the hindsight like in his case – a corpus for your grandchildren, a vacation in few years etc etc.
Why don’t we get mean when it comes to our money? Why not what’s wrong in that? In a really bullish market, we start chasing the best and only to find ourselves gasping for breath, we get ecstatic with the double digit returns and start pumping in more money into the market only to feel sorry when the market turns its ugly head. Same was the case here, after around 2 years the same person had been calling me frantically and asking for suggestions as to what should he do with his mid cap and small cap investments which are at minus 30 percent? Desperate times calls for desperate measures but will that help him now when he is in urgent need of this money. I am not here to provide solutions to anyone in this write up but then the idea that I am trying to draw is for every other investor to understand few basic things before putting in your hard-earned money in the market. Set your emotions aside, stay away from your EGO as it will lead you to a road of Nowhere. Till then Happy investing 😊

Of all the personal-finance problems that users interact with me on a regular basis, the one category of query that I find impossible to answer with certainty are the ones about the needing a financial advisor. Well, it’s quite complicated to explain and quite simple to understand at the same time. How? In the theory books – what a financial advisor can do for you is straightforward job. He asks you a set of questions about your savings needs and recommends one a set of investments that will fulfill those needs.

Step 2: – Then the advisor should tell you how to monitor those investments or, depending on the level of service, he should monitor them for you. If any of the investments do not live up to your expectations or if your needs changes over a time period, the advisor should help you choose an alternative and switch to them. Along the way, some investments, like equity, would face volatility that you may not have expected. During those phases, the advisor should act as a kind of counselor and help you stay on the course.

If you need to generate some cash from your investments, then the advisor would advise you about which investments to redeem and which one to be kept in the most cash-efficient way. He will also consider the tax treatment on the redemption value so that you save on your taxes well.

None of this is very complex and in fact, lots of savers quickly and intuitively learn all this from books, magazines and several websites in bits and pieces. However, many do not know this and then they need a financial advisor. Whether you would actually do better with a financial advisor or not depends not just on you but also on the actual financial advisor.

I read an article sometime back on the widespread damages done to the finances of those who used the service of professional financial advisors. In one study, research workers pretending to be potential customers went to a large sample of financial advisors, asking for advice on the investments they were already holding. These existing investments were perfect examples of low-cost, diversified portfolios that such investors should in fact be invested in.

However, a shocking more than 3/4^th of the financial advisors recommended changes to the portfolio that were objectively inferior but would generate higher commissions.

Another study found that on an average, investors advised by brokers had returns that were lower by 3 percent a year. In India, we have all kinds of rules for financial intermediaries and yet financial advisors always act in their own interest.

Whether it is insurance or mutual funds or stocks, behavior is always guided by the commissions that exist for the salesperson. There’s a huge pile of regulations in every area, and yet, none of it is adequately effective in preventing bad advice. The reason is simple – there is not a single financial product where the interest of the salesperson is aligned to that of the saver/investor.

In some areas, such as mutual funds, the regulator has made an effort to cut down the upfront reward that the seller gets, but unless done holistically, this does not improve the larger situation. All that an advisor has to do is to guide savers towards other products. It’s a tough situation, and I am sorry for not providing you a definite solution.

All I can say is that in any case you must make an effort to learn enough to be your own advisor or else judge your wits and check for an advisor who puts you first while making a plan for you. Who understand your spending patterns/behavior and then provide you a holistic approach towards financial planning.

After all, it’s your hard earned money which you would want to or aspire to invest into right assets of products depending upon your needs and the time horizon. Until then Happy Investing.

In a small town lived Maya, a cautious investor who had always been wary of the stock market. The idea of putting her hard-earned money into something as unpredictable as equities made her nervous. She preferred the safety of her savings account, where she earned a modest 6 to 7.5% per year. Though she knew these returns barely kept up with inflation, the security of her capital was what mattered most to her.

Maya often found herself struggling to save consistently. Every month, after paying bills and indulging in a few small luxuries, there wasn’t much left. She had heard about people investing in mutual funds, debt funds, and other market-linked products, but they seemed too complicated and risky for her taste.

One day, Maya’s friend Raju introduced her to a concept called the “Ladder Strategy.” He explained it in a way that made perfect sense to her. He asked her to imagine setting up a series of small, recurring deposits—like planting seeds that would gradually grow into a flourishing garden.

“Think of it this way,” Raju said. “You start by creating a small recurring deposit (RD) account. Let’s say you start with ₹1,000 in June. The next month, you set up another RD for the same amount, and you continue doing this each month. By the time you reach May of the next year, you’ll have 12 RDs, each maturing one after the other.”

Maya listened carefully as Raju continued. “In the first month, only ₹1,000 will be debited from your account. But each month, as you create a new RD, the total amount debited will increase by ₹1,000. By May of the next year, you’ll have ₹12,000 invested, and from June onwards, each month, one of your RDs will mature, giving you a steady stream of returns.”

Maya’s eyes lit up. The strategy seemed simple and achievable. It was a way for her to save regularly without taking on the risks she feared. Raju pointed out that this approach was particularly effective for risk-averse people, just like her, or those who found it difficult to save consistently, such as someone who had just started their first job or tended to spend impulsively.

“This is a safe bet,” Raju said, “and over time, you’ll see your savings grow. And who knows? Once you’ve built this habit of saving, you might even feel confident enough to explore other investment avenues, like starting a Systematic Investment Plan (SIP) in mutual funds.”

Maya felt a sense of relief. The ladder strategy offered her a way to start small, save consistently, and eventually, without taking on much risk, grow her wealth. It wasn’t just about earning a higher return—it was about building a habit, and creating a foundation that could lead to greater financial security in the future.

With newfound confidence, Maya decided to give it a try. As the months passed, she watched her savings grow, and with each maturing RD, she felt a little more empowered. The ladder strategy had given her the courage to take control of her financial future, one small step at a time.

Another day comes to an end, and we move into the beginning of a new dawn. A new calendar year where new resolutions will be made. Or is it really like that? While most of us commit to ourselves that they will change the way they lived live till now by taking a new health regime, going to a gym, some will make new money management resolutions, I won’t invest in the last 10 days before submitting the investment proofs to the employer !!

If that’s the case I have not seen any such change on the kind of questions being posed by majority of the investors everywhere – which is the best fund? Which is the best insurance plan? Which is better PPF or NPS? But then merely answering such vague questions on a social media platform – will it really help you. I am afraid not.

The point I am trying to bring forth is there is a strong need to have a structured approach even before you start investing your money. This approach is sadly missing in most of the investors or is often a quite a boring topic. But believe it or not this is the most important element when it comes to the field of “Personal Finance.”

Once you have prioritized your goals you will have clarity and a purpose to channelize your investments in such a manner that you meet your financial goals accordingly. Put your goals into a time basket (short term, medium term, long term and very long term) meaning each of your financial goals has to have a definite time period in which you would want to achieve it right. If that’s done understand your risk taking ability. Are you an aggressive, moderate or a conservative investor? These all such multiple factors play a key role in investing your hard earned money. Do not simply rely on a social media platform to take your money decisions.

For example if you are planning in the new year to investing for your child’s education remember this is the only financial goal in which the date by which you need to attain this goal is absolutely fixed. You just cannot negotiate with this goal by the time the child turns 18 you need to have a sizeable investment amount for further studies. Having said this here is a 4 step process – a) Education cost inflation rate is higher compared to the normal inflation rate.
b) In order to meet such inflation rate of 10% around the only asset class that stays is equities so an early start is quite imperative. An early start into this goal can help you compound your money.
c) if you started really early let’s say you have 14 years start with 2 to 3 multi cap funds, if you have a higher risk appetite use 2 multi cap fund and 1 mid cap fund
d) if you are too late to start this goal and have just 4 to 5 years you can try hybrid funds, if you still want a safer route stick to debt funds in that case.

So now you got a little hang of it. This is just an illustrative example for you, you may or may not stick to it. Remember – “Money making is not that easy like tossing a coin and getting your answers but if you have a structured approach and have a clear goal in sight you can start your financial journey quite well.

A retired life is a longer one and young people often don’t understand the financial implications involved in this phase of life. Just to give you a back drop the average Indian life expectancy is around 78 years and even if one looks at it mathematically, once you retire at the age of 60 you will still be required to keep savings intact for a good long 18 years. Saving and investing towards retirement is a combination of investment to accumulation and then disinvestment of the same to meet the financial needs during the retirement life.

During your working life you accumulate money and after retirement you withdraw it, the remaining amount has to stay invested and it should keep growing at a rate higher than the inflation rate. Also make sure you have adequate health insurance cover during retirement period because rising health care costs can really offset your best retirement plans.
One thing that I have noticed based upon my several interactions with investor of young age is that when they start earning because they have number of savings goals and the ever increasing usage of plastic money they are tempted to postpone their retirement goals.

So as like any other investment goal it’s a long term saving project – while one is required to invest judiciously into financial instrument that generates income what is more important is to control the risk with your investments in this phase. Your retirement needs would depend on your priorities, age, income etc but one can only build a sizeable corpus if you start your investments early in the during the accumulation period.

The other important pre-retirement milestone is when you start approaching retirement , let’s say when you are 45 years old and you are just 15 years away to retire this is the time for you to put a plan in place making sure your finances are lined up correctly for retirement days so that you don’t leave anything to chance.

Another phase is your withdrawal stage – when active income stops for you and you start using your savings through EPF and other savings that you have made over the years. You need to be aware there are 3 primary tasks at this phase of your life :-

Point Number 1 – Assess how your finances are working now that how are you going to use for retirement savings?

Point Number 2 – Do you need to modify the investment strategy?

Point Number 3 – Do you need to make changes in your living circumstances?

Point Number 4 – Are there any unexpected events that occurred in the past that would require you to re-evaluate your investment approach?

The last aspect of this phase is thinking about continuing investments which beats inflation but exceeds it, thus becoming a second source of income in the long term.

Investments does carry a risk, but if you exercise due diligence and with some knowledge the goals can be achieved. The idea behind this write up was to make people aware of not ignoring retirement goals to the last days. Instead one should plan and plan well in advance for their sunset years. After all you deserve a good life after working and toiling hard for so many years.

On a recently organized workshop – a very senior investor got quite frustrated and stated is there no such product for the really conservative investors like him who had already amassed wealth by now and does not want to take any further risk? He was not interested to understand the route to equity world. Why is it that we at all times advocate about equity investments? Is there no such product in the financial market which is for the really conservative, risk averse investors?

Today write up is just a small attempt to address his query – Will try to explore such a product and it’s called the Fixed Maturity plan. They are quite popular among investors who consider them as better alternatives to the traditional bank fixed deposits. They have the potential to offer superior returns than the latter and are far more tax-efficient.

To make it more simple FMPs are basically a fund or should I say a close ended fund with a definite term and yes your money gets locked for a defined period. There are new funds launched usually with a definite time period ranging from 3 to 3.5 years (1100+ days and so on). So fund managers usually give you a slightly more predictable return. Fund managers usually buy bonds with a similar maturity and yield on those bond are certainly predictable. They are usually insulated from the interest rate risk. One would ask me why is to so? It’s simple since the investors’ money is raised for a definite time period so the money in such funds gets locked in. Money is invested into Bonds with similar maturity period and therefore there is a predictable return from such funds.

FMPs are usually meant for risk averse investors or those Bank fixed deposit investors. The advantages of FMPs are that they usually provide slightly higher predictable returns unlike the open ended mutual funds. Secondly, and most importantly they are much more tax efficient if compared to the usual Bank Fixed deposits since the money can be redeemed usually after 3 years period, so on is able to take indexation benefit. Even though mutual funds do not guarantee a fixed as they are subject to market risk still the returns are quite indicative in such funds.

The only disadvantage one can see is : – it’s very low on liquidity so in case one needs money in between you cannot withdraw the money!! While in Bank fixed deposit you can withdraw anytime by paying some penalty charges.
So in a nutshell – they are interesting option for risk averse conservative investors who do not want to take interest rate risk and can help them earn a bit better return than the Bank fixed deposits with far more tax efficiency. Last but not the least before buying an FMP from a fund house just look at the older FMPs track record.

As the saying goes the earlier you start the better for you. So is your retirement planning corpus.
Few Rules you need to abide by (though how many would diligently follow it is still a big question mark?).

1. Save 10 to 12% of your income for retirement
If you are working and have a regular income this one would make sense to you. 12% of your basic salary and an equal contribution by your employer that flows into your PF account is a good way to build a small nest. The best thing about this option is that you cannot avoid it. It is some sort of a forced saving that becomes the default retirement plan for many individuals. (Please note all those who withdraw money post resigning from your job, it’s advisable if they transfer their PF account. Remember this money however big or small it may look is for your retirement age when your active income will stop) it will actually hamper your retirement goals to an extent.

So think twice, Let’s take an example a 25-year-old person who puts in a fixed amount every month, his savings in the first 5 years will account for more than 40% of his total corpus when he turns 60. The later you start, the more will be your monthly contribution each month. Let’s say your monthly expenses are 40k per month then on an yearly basis you would require 4.8 lakhs to maintain your standard of living. This is the bare minimum you would require. Secondly, now calculate the number of years you aspire to live so for example you are 25 year old now and your life span let’s say 80 years (I might be keeping this number high given the fact – to the kind of polluted environment/erratic food style and the kind of sedentary live we have) Then your figure would be 55 years. Lets multiply this it would be 4.8 lakh*55 years which will be 2.64 crores so if you have this much amount today available in your bank account you may retire today itself. This amount will be again reinvested into a traditional saving instrument which say will fetch you 5.5 to 7% interest p.a. basis…

Please note I have not considered your children education/marriage/home buy cost/ a car buy or any other discretionary expenses that you might incur during the course of your life. For such expenses you will have to plan your expenses separately. Also the inflation has been offset by the risk free return on your FDs and RDs. So think before it gets too late.

2 . Your investment amount should keep increasing on a yearly basis
Every year your income might increase by let’s say 5 to 10%. So did you step up your investment amount or not? (Nowadays few mutual funds give you a step up your SIP option.) Most of us believe this is not required. Please note inflation will eat your major corpus. So take a proactive approach. Lets taken an example once again to explain it better – if a 30-year-old with a monthly salary of 50,000 starts saving 10% ( 5,000) for his retirement every month in an option that earn him even a meager return of 9% per year, he would have accumulated 91.5 lakh by the time he is 60 years old. Now, assuming his salary increases by 10% every year and he raises his investment accordingly, it would be 2.76 crore!! Wat say…Liked the idea?. It is important to maintain the retirement savings rate at 10% so that your ultimate corpus value doesn’t fall short of your requirements. The trick is to is to stay committed…

3 : – Don’t dip into corpus amount before you retire

This might sound strange, but every time you change your job, your retirement planning is at a grave risk. Since one is tempted to withdraw one’s PF balance at that time!! Don’t do that to yourself instead transfer your PF account with the new employer. Remember you will have an option to withdraw your PF amount if you need the money for specific purposes in future – including your child’s marriage, buying or building a house, or in medical emergencies.

Dipping into the corpus before you retire prevents your money to gain from the power of compounding. Don’t underestimate what this can do to your retirement savings over the long term. A person with a basic salary of 25,000 a month at the age of 25 can accumulate 1.84 crore in the PF over a period of 35 years. This is based on the assumption that his income will rise by 5% every year. Yet, many people are unable to reach even the 1 crore mark in their PF accounts!! Although the paperwork is minimal, a lot of people prefer to withdraw their PF money when they change jobs or for other purposes.

The sudden flush of liquidity can trigger a spending spree and ill-planned decisions that can cripple your financial planning. Often, the money goes into discretionary spending. So next time think before you act in haste.

Tip: – Transfer it to the new account by filling ‘Form 13’ and submitting it to the new employer.

4 : – 100 minus (-) age = Your allocation to stocks

An investment portfolio’s performance is determined more by its asset allocation than by the returns from individual investments or market timing. Sadly most of us don’t realize this. How much you have when you attend your last day at work will depend on how you have divided your retirement savings between stocks, fixed income and other asset classes. As thumb rule you should have an equity exposure of 100 minus your age. So, at 30, you should have about 70% of your portfolio in equities and so on and so forth. At 55, the exposure to this volatile asset class should have been pared down to 45%. After you retire, your exposure to stocks should not be more than 25-30 % of your portfolio or even lesser. As I said it’s a general view point. This idea will differ depending upon ones requirements and risk bearing appetite.

5 : – Borrow for Children education, save for your retirement.

This might surprise many of you but as I said it’s a view point and you are open to debate on this – we are emotional beings and love to save for our children. Whether it’s for their education or for their marriage – remember before you pour money into a child plan/savings, make sure your retirement savings target has been met accordingly. In an effort to fulfill the needs of the child, Indian parents sometimes sacrifice more than they should. Some even dip into their retirement funds to pay for the child’s education. This is risky because your retirement is going to be very different from that of the previous generations. It will be entirely funded by you.

This doesn’t mean you should compromise on your child’s education. It can still be done through an education loan. U/s Section 80E, income tax deduction is available only if the education loan has been taken for yourself, your spouse or children…..So next time when you think on retirement planning do take these little points under consideration.

Young earners spend more than they save. In many circumstances they even end up spending more than they really earn!!! In times like this when access to plastic money and easy financing options are available one is spoilt for choices.

The need is to distinguish their wants from their needs. Sadly how many of us really do that is a matter of concern. They may need to save for their retirement- sunset days but the new gadget available online comes in the way!!!
It has been observed that people tend to overspend if they use a credit card. It’s not that I have anything against usage of such cards but then you have to exercise discretion and no matter what don’t spend mindlessly. This should be avoided at all costs. Use cash instead if you can’t suppress your spendthrift nature. Many young people are not able to save enough because they don’t have anything left after all their expenses.

Mathematically, Income – Expenses = Savings.

Lets work on changing this equation to Income – Savings = Expenses….

So think on this little aspect may be next time when you over splurge you might give it a thought. After all every one wants a comfortable retirement life.

First Lesson – Don’t panic. Please don’t panic. That’s the winning mantra to sail through such testing times.

Remember the crash of 2008 and if one tries to correlate to the falling market of 2008 the severity and magnitude of market fall was very great. But scenarios have changes drastically this time around. The participation of the common investors has increased significantly and so does the market overall economic indicators and global market scenarios. The factors are many however I won’t deal them here in detail or else it will dilute the very point of discussion.

Few things one must realize – in a bullish market (as we have seen in the last 4 years) ultimately your cost price followed an upward trend and you kept buying at high prices.

Here comes the “Onion Theory” in fact that’s how I have coined it over the years. Let’s say the intrinsic price of onions in the market is 25 per kg and then comes a market scenario wherein you start buying them at the rate of 40 per kg or even 60 rupees per kg because of demand and supply gap and other variable factors. What do you do when you buy onions at the rate of 60 you are basically paying more per kg Right!!!

In fact this is what really happens in a rising market. People are really happy over excited in such a rising market and they get overconfident. But don’t forget markets by their very nature are cyclical in nature and it fluctuates!!

So what if the investors saw a more than 30 percent annualized returns or even 50 percent in the mid and small cap fund segment in the last 1 to 2 years. Don’t forget the onion theory the market are cyclical in nature and it will fall (why not buy cheap and sell later at higher price) and so will your overall portfolio valuation.

In fact those new entrants in the last 3 to 4 years (who got overconfident) may not have even witnessed a falling market and are now experiencing the same and seems to be a worried lot. When market collapses every fund will replicate it except for fixed income funds though. In fact the fall will be huge for mid and small cap. So now what do you do as an investor?

Point Number 1: – For those of you who have been a regular investor with the market and have chosen funds appropriately do nothing and feel happy that you will get to buy the funds at a cheaper value.

Secondly, it also considers the fact that you don’t need the money for let’s say – for the next 5 to 7 years and you have a long term vision with your goals sorted out and aligned properly. Don’t look at the market valuations every day. Psychology and temperament plays a major role in ones investment . Stick to your game plan because that is the most important thing for you. If you exit at this time you will miss the opportunity. Dealing with such market adversity is important. Ability to withstand to such a market scenario will go a long way to your final success of achieving your goals.

Point Number 2: – New Entrant in the last 1 year in the market who accidentally entered the market to reap the market rewards would see their portfolio gains withering away in a very dramatic manner. What do you do then? Should I sell? Well it is high time you plan out your goals. Once a market starts falling freely all the windfall gains will be gone in a matter of days ! This very experience will scare you so much that you may never invest in to equities ever again. Make sure you have chosen the right mix of funds. For example if you invested 100 rupees at least 25 to 30 percent of it should be put into fixed income funds this way it will protect your capital to an extent. For those who have made money though riding high on the mid and small cap funds move towards a balanced fund so as to minimize your returns and catch hold of the falling losses. Remember even though you get a far more lower returns still this way you will be able to minimize the risk to an extent.

After all it’s your money right and you would also want to protect it from a far greater fall. For those of you who are in to the market for let’s say 2 to 4 years try to move to multi cap funds.

So now Let’s sum it up : –

1. Be in a diversified fund at all times. Don’t buy too many funds.
2.Invest regularly (as you brush your teeth regularly). investment is a healthy habit.
3. Keep a long term approach and invest your money which is quite aligned with your goals. This way no matter what you will be able to sail through the testing times.