Picking a fund is really easy – Steps followed by a common investors : –

You would go to a website then check various funds ratings and its past performance statistics and you end up with a fund under your belt. The amount of research while selecting and finalizing a fund would vary depending on your level of understanding. But still in the end you would select a fund and justify your selection and begin your investment journey. All said and done the bigger question that we never encounter in the matters of personal finance is when do we really exit a fund?

Fluctuations, fluctuations and bigger fluctuations defined by big market movements really scare the common investor a lot. These days many are worried with their day to day returns! As in many blogs these questions are posed a multiple times. People really start fearing what’s next? Shall I redeem now? What do I do? Everyone start trying to safeguard their falling investment value and starts wondering shall I press the panic button!!

Well that’s exactly what you should refrain from doing in times like this. The whole idea of investing is to optimize your returns and maximize it by a margin.

Market movement should not be the driving force for you to redeem your funds . Please note this is very much an intrinsic nature/trait of the market. They keep fluctuating in varying degrees. You need to stick to these market ups and down.

Point number 1 : – The very primary reason why you should sell a fund is because you need your money. It’s as simple as that irrespective of the market movement.

Point Number 2: – When you are restructuring/re organizing your portfolio. Why because you’re needs/your goals/ your requirements have undergone a change over a time period so you would dump few funds and select those funds which are more appropriate for your current situation in life.

Point Number 3: – When your funds are doing badly over a longer time period. The time when you had invested you were pretty okay with the fund style but then it gradually changed its fund structure and started performing badly, another couple of years the fund lost its sheen. You should note that a fund cannot be solely judged basis a single market fall since there are many funds which would have given negative during the same time period.If this falling returns cycle remains the way in different market conditions then is the time to dump it. (Please do check the statistics though). If you are only trying to time the market well you will always have a lot of catching up to do. Markets will go down dramatically. Market fluctuations should not be the reason for you to sell. If that was the case and you are a risk averse investor)at the first level you should better remain with fixed income instruments provided by Banks like FDs/RDs/time deposits etc.

Point Number 4: – If you reach your goals simply sell your funds and redeem it. If you don’t set out any goals for yourself then it’s another story. But, if you have a specific goal in life with a defined time frame and a target amount and you have reached your goal redeem it friend. Don’t be greedy at that time.

Few days back I attended a wealth manageFew days back I attended a wealth management session on “Making Money”. Though the idea was quite lucrative and the attendance was good. But it just turned out to be just another dead rubber for many since by the mid-session many left and realized it was just another marketing gimmick endorsing a financial product. The obvious reason why most of them were disappointed – they were looking for a readymade solution or a product that could offer them RETURNS. If this task of making huge/decent returns on ones investment was so easy everyone would have been a millionaire by now Right!!!\nLet’s talk further – so what happened when the recent annual budget introduced taxes on long term capital gains on Equity investment – the retail investor pushed the panic button for sell. Was it really required at that time? The obvious answer is No. But since the basic fundamentals of investment is not known to most of us – we never realize the power of “STAYING CALM and CARRYING ON” .This ad was as an instant hit (Keep Calm and Carry On – I have just simply changed few words here to make more sense) amongst most of the office goers in the Delhi NCR region few years back as they could relate to it quite well when they were stuck in traffic jams for long hours and they would often get into heated arguments with fellow passengers to reach office in time. Was avoiding the traffic jams under their control? No…..then why can’t we simply apply the same methodology to our investments? Why can’t we as investors understand that the way the market cycle functions? Why can’t this mad rush for achieving greater returns be toned down? And we start looking for ways by STAYING CALM. It is possible quite possible provided you have a vision in sight and believe on setting your goals (with a definite number in mind) and then aligning your investments with a definite time frame.\nThat’s the way your investment needs to be. You need to stay calm and carry on with your investments. Since, the 2008 financial crisis when the prospect of the equity markets looked bleak. The common investor either stopped investing or pushed the sell button. Looking back over the last decade or so that would be the worst thing to do to stop your investments/SIPs in such times.\nRemember in the end you have a goal in life for which you are working relentlessly. No matter what these market cycles will keep happening and you just cannot escape it just like your traffic jam situation.\nThe simple fact is that there no better time to create the foundations of a solid portfolio than when everyone is running and looking to sell. Eventually over a long term horizon it’s that kind of dips that will actually produce profits for you. Remember the onion price theory I talked about in my previous write up. Keep buying low and when the market tide changes directions you are there to reap rich dividends of staying invested.\nPersisting through such times is what sets the tone for much higher returns over a complete market cycle. If you end up trying to time the market you will go nowhere. So it does pay to STAY CALM and STILL STAYING INVESTED when you have a goal in sight. Till then happy investing ment session on “Making Money”. Though the idea was quite lucrative and the attendance was good. But it just turned out to be just another dead rubber for many since by the mid-session many left and realized it was just another marketing gimmick endorsing a financial product. The obvious reason why most of them were disappointed – they were looking for a readymade solution or a product that could offer them RETURNS. If this task of making huge/decent returns on ones investment was so easy everyone would have been a millionaire by now Right!!!

Let’s talk further – so what happened when the recent annual budget introduced taxes on long term capital gains on Equity investment – the retail investor pushed the panic button for sell. Was it really required at that time? The obvious answer is No. But since the basic fundamentals of investment is not known to most of us – we never realize the power of “STAYING CALM and CARRYING ON” .This ad was as an instant hit (Keep Calm and Carry On – I have just simply changed few words here to make more sense) amongst most of the office goers in the Delhi NCR region few years back as they could relate to it quite well when they were stuck in traffic jams for long hours and they would often get into heated arguments with fellow passengers to reach office in time. Was avoiding the traffic jams under their control? No…..then why can’t we simply apply the same methodology to our investments? Why can’t we as investors understand that the way the market cycle functions? Why can’t this mad rush for achieving greater returns be toned down? And we start looking for ways by STAYING CALM. It is possible quite possible provided you have a vision in sight and believe on setting your goals (with a definite number in mind) and then aligning your investments with a definite time frame.

That’s the way your investment needs to be. You need to stay calm and carry on with your investments. Since, the 2008 financial crisis when the prospect of the equity markets looked bleak. The common investor either stopped investing or pushed the sell button. Looking back over the last decade or so that would be the worst thing to do to stop your investments/SIPs in such times.

Remember in the end you have a goal in life for which you are working relentlessly. No matter what these market cycles will keep happening and you just cannot escape it just like your traffic jam situation.

The simple fact is that there no better time to create the foundations of a solid portfolio than when everyone is running and looking to sell. Eventually over a long term horizon it’s that kind of dips that will actually produce profits for you. Remember the onion price theory I talked about in my previous write up. Keep buying low and when the market tide changes directions you are there to reap rich dividends of staying invested.

Persisting through such times is what sets the tone for much higher returns over a complete market cycle. If you end up trying to time the market you will go nowhere. So it does pay to STAY CALM and STILL STAYING INVESTED when you have a goal in sight. Till then happy investing 

Some time back I went on a trip to the nearby hill station along with college friends. College memories were relived and a sudden nostalgia crept in yearning to be college goers once again rather than being part of the cruel corporate world. As usual my friends discussed their personal finance related issues and at one point one of them asked what Asset Allocation is? They had read it at so many times but never knew how to practice it in their day to day money management.

Well , once you begin your investment journey – there were will be 2 major set of things that will plague your mind.

First – making an investment decision without thinking enough (as most of us do, refer a website/ refer ratings and buying a product without any proper understanding). Second thing that would bother you is thinking too much about your investments.
Let me give an example of today’s times. There are many people who continuously think or rather suspect they suffer from disease 1 or disease 2 and would rather go to a doctor’s clinic quite frequently. The doctor would chuckle on your story and by providing you few pills for your mental satisfaction he would be done.That’s it.

Quite the same thing happens with your investments also. In fact many people also suffer from the same disease that their portfolio is diseased. One of the the most popular type of disease in this field is a faulty asset allocation. Many people often wonder whether their investment portfolio has the correct amount of allocation to both EQUITY and DEBT. Well, there is no perfect solution to it.

Asset allocation is just an exotic/fancy jargons used by professionals to confuse the commons. Rather It simply means investing your money in a manner that suits your needs. That’s it. My friends asked is it that simple to do asset allocation? Answer is Yes. It is easy provided you are clear about your goals in life – The key to really figuring out your asset allocation is to make a rough work sheet or you may even use an excel sheet – list down all the things that you would want to do in life (which involves money) – Then prioritize your goals one by one (strike off which are unnecessary), then define when you will need the money and how much for each of your goals one after the other. Your half of the job is done. What you need to do is to match your investment time horizon to the asset class. Asset classes such as FDs/RDs, then you have the short term liquid/ultra short bond funds and so on in the debt category (if your investment period is really short term in nature ranging from 1 to 12 months). Then you would create a stock portfolio or choose a well diversified equity fund provided your investment horizon is long term in nature (Period ranging from 7 to 10 years and onwards)

Let me admit that the example cited above is just a simplified version but what I have been trying here is to make you understand and demonstrate the principals on which individual should choose their asset allocation. There are no set formulae though for right asset allocation but then until and unless you begin the exercise how will you make it simpler for yourself?………..Till then Happy Investing 

In a short conversation with a small town investor I discovered how they are pitched such mutual funds in the NFO category (New fund offers). The basic premise that the investor is made aware of is that you buy a fund in “units” and the price of each unit is called the NAV (Net Asset Value). You are therefore conditioned to believe that a fund with a lower NAV is far better and cheaper. So an NFO fund is better than an already running equity fund.

Please note if someone is asking you to choose a fund simply because it has a lower NAV he is simply misguiding you. In fact, what should really matters more for you is that –
1. What sort of a fund your are putting your money into?
2. What was its past performance during the different market cycles?
3. How the fund manager manages the fund?

So a fund “X” with an NAV of let’s say 20/- and another fund “Y” with an NAV of 200/- will generate the same returns if the underlying assets (stocks) and the overall portfolio is the same. So comparing the NAV of fund “X” with fund “Y” is quite a futile activity and this can actually lead you to make random investment decisions.

Second point of discussion is the “DIVIDENDs” that the mutual fund scheme generates. The problems with MF dividends are – they are practically not at all any dividend or surpluses of any sort!! Let’s take an example – say the value of your mutual fund folio is 2 lakhs and the fund house declares a dividend of 10,000/- the value of that investment would be 1.9 Lakhs (2Lakh minus 10,000). It’s that simple. There is no such additional benefit that you have garnered but a common investor is always conditioned to believe so that a dividend generating fund is better than a growth fund and so on and so forth.

This dividend option is convenient if you would like to withdraw money from the fund on a regular basis. Please note you don’t get anything extra by opting for a dividend plan. Please note that dividend declaration by a fund is not guaranteed at any point in time it depends solely on the fund house discretion to declare dividends amongst the investors.

So next time if someone tries to convince by stating that a lower NAV plans are better off than a high NAV plan & a dividend plan is better than a growth plan be cautious. What’s really unfortunate is that both these misconceptions are widespread. So make sure the next time if someone pitches you such a thing please think for a while before taking a decision.

Quite recently I heard a nearby Sweets Shop Owner complaining on the reduced savings bank account rate offered.A meager 3.5% p.a. that’s it!! What will I really do with it as he muttered? Will I be really able to earn or make anything out of it? Well, this question plagues most of us as with the ever growing inflation rates — do we really do anything with this idle money lying in our bank account? Do we?

There lies a charm in savings bank account. The flexibility to call your money at will. There is instead a peace of mind and this has got to do more with ones psychology since decades. But do not forget that it comes at a cost as the money lying idle in your bank account earns you a low rate of interest? So what’s the way out? Is it possible to earn superior returns as well as get instant liquidity? Yes, it is possible if you invest/park your short term money into a liquid fund.

In the past 2 years or so the debt funds would have given the savings bank account a run for their money as the returns offered were somewhere in the range of 8% mark up. Though such returns won’t be sustained in the near future but even if one earns a 6% return by keeping their money into a liquid fund you are practically earning more than 50% money as compared to a savings bank account (offering currently 3.5%) so what’s the harm? A Liquid fund is considered to relatively be safer form as they do not invest any part of assets in securities with a residual maturity of more than 91 days. The average portfolio maturity of this category ranges between four and 91 days. These funds invest in short-term debt instruments with maturities of less than one year. Investments are mostly in money market instruments, short-term corporate deposits and treasury. The maturity of instruments held is between 3 and 6 months. They tend to least riskiest form of funds and the money is almost readily available if you have a smart phone which enable you to redeem instantly. By 2 to 3 clicks your money is ready to be withdrawn from the liquid fund account and it gets instantly credited to your bank account by some AMCs or the very next day.

On the taxation part for small investor do not enjoy such benefits as all such redemption within 36 months of your investments are treated as short term capital gain only but then if you are earning 50% more than your savings bank account is there harm? Consider you have 2 lakhs in a savings account which earns you 7,000 in a year (@ 3.5%) while a liquid fund would give you 12,000 in a year growing at a moderate rate of 6%.

Also liquid funds can be used strategically to meet your very short term goals like paying tuition fee for your child or a down payment for your car/School Annual fee or some other short term needs. So think again and make your idle money work harder after all its your money.

Thanks for joining me!

Good company in a journey makes the way seem shorter. — Izaak Walton