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.

On a recent discussion with a couple in their early 30s they posed a very common question which still lingers in the minds of million investors today. Where should one invest for their long term goals (say 20to 25 years) like their retirement corpus.

Further they narrated their investment journey like how they got into investment world of FDs/RDs and Post office MIS schemes once they started earning their livelihood some 5 years back. That’s it and they never came out of these instruments because they were so comfortable with it. Indian investors are traditionally savers and a fundamentalist. They may be less knowledgeable or more, they may critically analyze everything they are told, but when it comes to FDs/RDs/Post office deposits, they seem unshakable in their beliefs. The very idea of safety over returns still plagues the minds of the common investors.

Off late such myths and misconceptions are being broken gradually through several advertisements and retail investors are now looking in to mutual funds as an investment tool for a time period ranging from 2 to 20 years plus. So when you have such a long time horizon where should you invest?

Answer is better start your investments with a multi cap fund let’s say for some 3 to 4 years time in the beginning. By advocating/suggesting to begin with a multi cap fund it does not mean that I am ignoring small cap and mid cap funds as they would have definitely generated a far superior returns than a multi cap fund for the same time period but then there is an element of risk involved into small and mid cap fund categories. The very nature of investments into such fund category is risky and I am not very sure or confident enough that a common investor would stick to it at all times.

Everyone still remembers the 2008 market mayhems or for those who would have experienced it – the investors’ investment value went down by 60 to 75% and sticking to one’s own plans got really difficult at those times. Therefore, start with a multi cap fund understand the finer nuances of investment market get used to it and over a time period gradually increase your exposure to let’s say around 50% into small cap and mid cap funds but only after you have experienced the market nature and built up a gain in the market .

Lets say one would have invested into a popular tax savings funds way back in 1998 with an SIP of 20,000 per month total investment by now would be 48 Lakhs and the same would have become around 1.87 Crores and when you send those kinds of gain around 3.9 times of the total amount of investments it really enthralls your mind. You are ready to take the risk and take a deeper plunge into the market.
Your contribution is only 26% of the total corpus and your risk appetite or should say risk tolerance goes up. There is a different you and the belief gets further strengthened.

Over period of 20 to 25 years time you will see that the investments that you have made and the gains that you have earned the component of your own investments would be very little and that would give you a great piece of comfort.

But, when you are a newbie or not experienced enough even a Rs. 1,000 investment turning out to be Rs.900 rupee in a small time period of let’s say 6 months shakes you up and you put the panic button on. Or it turns out that your investments have turned positive to Rs. 2,000 you start staring at it with a sense of disbelief. When it comes down to Rs. 1,500 again you panic. But, then comes another scenario where Rs. 1,000 becomes Rs. 4,000 and then it goes down in a value by RS. 200/- you don’t panic, you get so used to it and you stay fine with it. That is the moment of belief you are looking at right.

So investment is a simple art but made complicated because of the several avenues available to us. Understand your requirements at the first level, then chart a plan, think about a number, understand your life style and your risk taking ability and then carefully select a product.

What should you be doing if you are a first time young investor?

Your money should work harder that’s what you should be doing. But then there are multiple barriers to this very concept. The bigger question is how should one get started? Well its a million dollar question and that s the topic of discussion today.

Once you are out of college and you have just landed into the corporate world and are quite ecstatic to get your first pay package. It’s a moment that you would cherish for a long long time. After all you have toiled so hard to reach here.The idea of managing one’s own money really thrills.

But then the real question is when should you really start investing rather than saving? You would say saving and investing are one and the same thing then why are saying its different. Well that’s how most of us think.No dear it’s not that way.The sooner you understand the difference between the two (saving and investing) the better for you. When you save you put your money in to fixed income instruments that gives you a guaranteed rate of return. The rate of return might match the inflation rate in the market (let’s say 6.5%) or it may be a tad lower than that. No matter what in both the scenarios you tend to lose.

This is where you need to understand you need to make your money work harder to earn better returns and for that investing is really important – you need to carefully select the products that earn you better returns.

Young earners these days believe everything shall be taken care off on its own and it would happen automatically for them –but if the money that you are saving is not able to beat even the current level of inflation your money is going down or I should say your purchasing power is getting lower so either you should hold your purchasing power or beat it by some mark. The only way you can do it is to start investing in equity rather than savings. You need to think smartly Start investing it thoughtfully.

The first step a young earner should take is to divide your money into broadly two categories: –

First would be your emergency fund (the fund that would be required by you in the next 1 to 3 years) – you should stay invested in to fixed income funds – a mixture of FDs/RDs/Liquid funds/Ultra short bond funds would suffice.

The second category would be the money that you are in all likelihood not requiring it in near future but with a time horizon exceeding 5 to 7 years or plus.

This is where you need to invest methodically. This is where most of you get stuck!! Why. The biggest problem is your thought process.Recently, I met a bunch of new job earners. During my conversation with them I realized they were mentally blocked towards the very idea of investing. Why? Well they think their savings is quite small at this point in time and they should better wait when their salary becomes significant enough for them to invest…with so much little amount what would they really accumulate nothing!!! Is it so!!!

That very response surprised me a lot but then that’s how most of them or I should say everyone of us think…right .
I had to take an extended time to make them understand the whole idea of how compounding functions in real life.
So let’s say a young investor at 25 years starts investing 3,000 per month till he retires at 60 years the total corpus with such a little sum would become a staggering 1.94 crores (@12% p.a.).
If one had waited another 5 years to invest the same little amount it would have been 1.05 crores and so with every year delay this corpus gets smaller.
So did you get the crux of it even a small delay of 2 to 5 years can make a huge difference to the final amount. This is what one can call the opportunity cost of investing ones money with delay. That’s what time value of money can do to your investments. It is so simple yet powerful and yet so complicated because simple is quite complicated these days for people to believe it!! Right  (You may refer to my earlier article on this “Simple is quite complicated”). Saving is a habit that’s what we have learnt from our parents but then let’s make investing a habit as it will go a really long way. Think ….think think…time is now.

If you want to save tax you can select one of the ELSS funds online basis their statistics and performance details online. Get started. Now is the time.

If you are not a tax payer or saving taxes is not under your agenda why not choose a balanced fund. Start with a small amount.Gain experience and invest more and diversify over a period. Remember you need to invest regularly. So don’t delay any further get going as now is the time.

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.