Monday, August 22, 2016

You enjoy your holidays and your money works for you, is it possible?


You enjoy your holidays and your money works for you, is it possible?

Read my article on the subject in Mid-day Gujarati edition today.

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English translation is as under:



How does it sound when your money works for you even when you are enjoying your holidays?
August is the month of festivals and long weekends. Many of us go for mini-vacations – either on some excursions or to meet our families. During such periods, often the money lies idle in the bank accounts. There are no options where the money can be parked to earn some returns.
Bank fixed deposits are available for a minimum period of 15 days if the amount is small. That means, the money remains idle in savings or current accounts. With most banks, the current accounts do not earn a single rupee and the interest on savings accounts is a low 4% p.a.
In such cases, mutual funds offer an incredible opportunity in form of liquid funds. It is possible to invest amounts as small as Rs. 10,000 and even for weekends. Many large companies use this facility offered by mutual funds to park money for weekends. The liquid funds are open-ended mutual funds and hence the transaction can be done on any business day. Let us say, there is a holiday on a particular Monday, making it a long 3-day weekend – Saturday, Sunday and Monday.
If you have surplus money in your bank account on Friday before these holidays, you can invest the same in a liquid fund and simultaneously file for redemption such that you get the money in your bank back on Monday. In case you do not need the money on Monday, you may continue to stay invested.
Mutual funds offer a great flexibility in terms of not declaring the investment period in advance. You may invest your money in a liquid fund without mentioning the date of redemption in advance. You may stay invested till the time you do not need the money.
As per the website of Value Research, a leading portal for mutual fund information, the liquid funds have delivered the following returns in the past:
Table 1:
Period
Returns (p.a.)
Last week
6.76%
Last month
7.08%
Last 3 months
7.36%
Last year
7.83%
(Disclaimer: Past performance may or may not be sustained in future)
As you can see, the rates of return are around 7% p.a. However, you may also observe that the returns for the shorter periods are lower than the longer periods. This is not like a bank fixed deposits where they offer lower interest rates for shorter periods and higher for longer periods.
This has happened in case of liquid funds since in the last some time, the interest rates have come down. Liquid fund is a product that responds to the changes in interest rates in the market very fast. If the interest rates in the economy start going down, the liquid fund returns would get adjusted and if the rates start going up, the liquid fund returns would improve.
Let us do some Math with the above numbers. If you have a surplus of Rs. 5 lacs to be invested for a long weekend (3 days), how much do you earn?
Table 2:
Assumed rate of return
Money earned
6.76%
Rs. 277.81
7.08%
Rs. 290.96
7.36%
Rs. 302.47
7.83%
Rs. 321.78
(The rates of return are taken from table 1)
If you do not need money, as we mentioned earlier and you keep the money in a liquid fund for 10 days, the earnings would be as under:
Table 3:
Assumed rate of return
Money earned
6.76%
Rs. 926.03
7.08%
Rs. 969.86
7.36%
Rs. 1,008.22
7.83%
Rs. 1,072.60
(The rates of return are taken from table 1)
If in a year, you get four to five such opportunities, we are now talking about serious money.
Liquid funds also offer facilities to transact through SMS, increasing the convenience. In fact, just before writing this article, I invested some money in a liquid fund just by sending an SMS. The redemption from the fund account also happens through an SMS. All you need to do is to get a one time mandate registered.
So, what are you waiting for? Enjoy your holidays and let your money work for you. The earning would take care of part of the expenses.
-        Amit Trivedi
The author runs Karmayog Knowledge Academy. Recently, Amit has authored a book titled “Riding the Roller Coaster – Lessons from Financial Market Cycles We Repeatedly Forget”. The views expressed are his personal opinions.

Saturday, August 20, 2016

Now, a marketplace for IFAs to buy and sell their advisory business


This marketplace will help IFAs to monetise the value of their business that they have built over the years.

A great initiative by iFAST. This is the first of its kind in India.

I am proud to be associated with this initiative. In the last two annual events of iFAST - Goa in 2015 and Jaipur in 2016, I did a session each on valuation of IFA practice. Thanks Rajesh Krishnamoorthy and Akash from iFAST. Thank you very much Anupam Saxena and Sudip Mandal of DSP BlackRock and not to forget dear friend Ajit Menon. My friend and colleague Harish Rao and I worked jointly to develop this program.


Monday, August 8, 2016

Chat transcript - 8th August 2016

Click on the link below to read the transcript of the live chat session today on www.moneycontrol.com



Which is the best SIP? - The one you start early and continue for long ...

Many times, one gets a question from investors, "Which is the best SIP?" Here is the answer

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The English translation is as under:

“Which is the best SIP? Please recommend the best SIP. I want to start one.” After reading my article on SIP, one of the readers wrote to me. This was not the first time that I came across this question. Many investors have wondered about this and asked the experts.
The real question is not which is the best SIP, but it is what the investor expects from the “best” SIP. Whenever I have tried to get to the bottom of the question and understand the real concern, it has thrown some interesting insights.
Returning to this question the real concern for the investors is to find out a scheme where the SIP returns would turn out to be among the highest in future. This future timeline is also uncertain or undecided – it often is a time when the investor checks the performance of one’s investments in comparison to other avenues – similar or otherwise.
So the question is: how do you look at an SIP in a mutual fund scheme? Start with the purpose of an SIP. Why should one start an SIP in a mutual fund scheme?
For that, we need to go back to understanding what an SIP in a mutual fund is. SIP, or Systematic Investment Plan, is a facility offered by mutual funds to help an investor invest regularly in a mutual fund scheme. Signing up for an SIP requires an investor to fill up just one form for multiple transactions of a fixed amount and a fixed frequency. This instills discipline as the investments happen regularly without the investor’s intervention.
An investor can choose from among equity, debt, liquid, gold or hybrid funds based on one’s own unique requirements.
With the above points, an SIP should help an investor meet one’s requirements and not necessarily be the “best” – whatever that means. So often, investors seek an investment option or an investment strategy that can deliver the highest rate of return. However, as we all know, an investment is made in order to accumulate a sum of money for some future expense requirement. If the goal is to accumulate, the focus also should be on the amount accumulated and not on the rate of return.
Lower rate of return over longer term may help one accumulate much more than higher rate of return earned over short time horizon. Let us consider the following two options:
·       Investment of Rs. 1,00,000 per year invested at 8% p.a. for 10 years would help accumulate a sum of Rs. 14.50 lacs, approximately
·       Investment of Rs. 1,00,000 per year invested 1t 15% p.a. for 5 years would help accumulate a sum of Rs. 6.75 lacs, approximately
As can be seen from the above numbers, it is better to start as soon as possible and continue with the investment plan rather than chasing high returns.
By that logic, the best SIP is the one that you continue. So, start your SIP at the earliest and keep it on till your goals are reached.
Happy investing!
-        Amit Trivedi

The author runs Karmayog Knowledge Academy. Recently, Amit has authored a book titled “Riding the Roller Coaster – Lessons from Financial Market Cycles We Repeatedly Forget”. The views expressed are his personal opinions.