Transcript of chat 21-May-2017

Click on the link below to read the transcript of my chat on www.moneycontrol.com on 21st May 2017



Equity investments simplified

Equity investments simplified - chat transcript April 10, 2017

http://www.moneycontrol.com/news/mgmtinterviews/chats/detail_new.php?chatid=2849

SIP Top Up - a very good facility for the salaried class

My article in Gujarati Mid-day today on SIP Top-up facility

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The English translation is as under:

Earlier, we have discussed about the benefits of SIP and also seen how it works. We highlighted the two major principles on which the concept of SIP works, viz., “Rupee cost averaging” and “power of compounding”. The power of compounding helps one accumulate large sum of money through small regular contributions. We know that small drops make an ocean. It is the same with SIP, too.

An investment of Rs. 5,000 per month for a period of 25 years adds up to more than Rs. 65.00 lacs, if the investment grows at 10% p.a. yes, every drop makes an ocean.

Well, there is practical difference here. Of course, we do not know the exact return that any scheme would be able to generate in future, there is a small difference between an illustration as above and real life. In real life, most of the time, the ability to save also increases. How do we factor for that?

That is where mutual fund companies came up with a practical and a very useful innovation known as SIP top ups. In this case, the monthly SIP amount is increased periodically. Let us assume for the purpose of simplicity that the amount is increased every year at the rate of 5%.

Thant means, in our example above, while the investor started with monthly investment of Rs. 5,000; the same was increased to Rs. 5,250 per month in the next year (Rs. 5,000 plus 5% growth on that). In such a case, the accumulation would definitely be higher, since the invested amount keeps increasing.

The calculations suggest that the amount accumulated would be more than Rs. 1.50 cr. Compare this to Rs. 65 lacs accumulated if the invested amount was not increased.

There are schemes available that allow an investor to increase the amount by a certain percentage (as shown above) or by a certain amount, say Rs. 500 per year. There are schemes that allow an investor to top up the SIP amount every six months, too.

If you expect your income to grow year after year, it is logical that the savings would also grow. In such a case, SIP top up is an ideal choice for most people earning regular income.

- Amit Trivedi

 

Transcript of today's chat on www.moneycontrol.com

Equity investments simplified

Live chat on www.moneycontrol.com today at 4 PM

Do you have questions about investing in mutual funds? Or about planning for your financial goals? Joine me on a live chat today at 4 PM on www.moneycontrol.com

Equity investments simplified - chat transcript

Readers questions answered today. See the transcript below:

http://www.moneycontrol.com/news/mgmtinterviews/chats/detail_new.php?chatid=2796

Chat transcript 12-Dec-2016

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Chitralekha - Birla Sun Life Mutual Fund Conclave yesterday (4th Dec, 2016) at Ahmedabad

What a response to this wonderful event. Thank you Ahmedabad. There were more than 250 people present on a Sunday morning to attend this function. Chitralekha had to close further registrations as the hall was already jam packed.

Fantastic audience. People listened to the speakers for over two hours and then there were many questions.

Thank you Ahmedabad once again. Thanks to Chitralekha and Birla Sun Life as well.

Five money lessons my son taught me

Managing money is not so difficult, after all. My son taught me some very important personal finance lessons. Click on the link below to read further:

http://www.moneycontrol.com/news/planning/five-money-lessons-my-son-taught-me_7287101.html

Chat transcript - 8th August 2016

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Equity investments simplified

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.

Not defining a goal likely to land you in a financial mess

Yesterday Portugal won the EUFA European Championship 2016 by defeating France in a close encounter. The final score read 1 - 0. While we still have good memories of the matches that were played between some great players of recent time, here is a write up regarding one very important lesson we can learn from football and apply in our financial lives.

Click on the link below to read the article:

Not defining a goal likely to land you in a financial mess

Transcript of my chat on Master Your Money segment on www.moneycontrol.com

Master our Money - Build wealth with mutual funds

Chat transcript on www.mooneycontrol.com date: 9th May, 2016

Equity investments simplified

Benefits of starting SIP in ELSS in April

In the last month, i.e. in March many would have worried about paying the tax or saving taxes at the last minute. This behavior of waiting till the last minute often ends up in a mistake, and sometimes the mistake is too costly. So this year, let us resolve to make amends and not repeat those mistakes.

Click here to read my article in Mid-day Gujarati edition ...

The English translation of the article is as under:

In the last month, i.e. in March many would have worried about paying the tax or saving taxes at the last minute. This behavior of waiting till the last minute often ends up in a mistake, and sometimes the mistake is too costly. So this year, let us resolve to make amends and not repeat those mistakes.

One of the things that we can consider doing is to start planning for saving taxes right in the beginning of the year. In case if you avail the services of a good financial advisor, you must be taking care of this already. In this article, we will talk about how one can benefit out of some brilliant strategies that help achieve multiple objectives.

As we all know, we can get tax benefit under section 80C of the Income Tax Act upto Rs. 1,50,000 per year. There are various avenues that allow us to take this benefit. One of those avenues is the ELSS – Equity Linked Savings Scheme.

What is ELSS? How does it work?

ELSS, or Equity Linked Savings Scheme is a mutual fund scheme that invests in equity shares. It is generally a diversified portfolio, i.e. the money is invested across various companies and industries. The NAV of such a scheme moves in line with the average movement of the prices of shares in which the scheme has invested money. In some of our earlier articles, we have already highlighted the benefits and risks of investing in equity mutual fund schemes. We would request you to understand the risks before you invest your money. However, equity funds could be quite useful when you have some long-term financial goals to achieve. While the biggest risk in investing in a diversified equity fund is the price fluctuation, such an investment has the potential to provide protection against inflation – the rise in prices of items we consume.

This means, equity can help us fight one of the major risks in one’s financial life – price inflation. However, as a trade off, one would be exposed to the other risk, that of price fluctuations.

This risk of fluctuation in the prices of investment has certain interesting characteristics. First of all, price fluctuation is a big risk if someone is investing for a short period of time. However, the same is quite low when the investment horizon is long. Second, there are certain investment strategies that help an investor manage this risk – in fact, make this risk work in the favour of the investor. 

We will highlight this strategy here. It is not a new one, but already discussed in a few earlier articles – SIP or systematic investment plan. This is an investment plan that is available in almost all mutual fund schemes. All ELSS offer this facility. Under SIP, an investor can make periodic investments – the most convenient being monthly. 

SIP helps an investor manage the cash flow since majority of us have a monthly income and hence monthly savings. This can be very conveniently and efficiently invested in an equity scheme to achieve long-term goals. At the same time, regular investment of a fixed amount turns the risk of price fluctuations in favour of the investor. 

As we know, the number of units purchased would be equal to the amount invested divided by the prevailing NAV. Hence, when the NAV is high, we get fewer units and when it is less, we get more units. Thus, even the most ignorant of the investors benefit due to this inherent characteristics of SIP. 

Now, if you start an SIP in an ELSS in the month of April, you get multiple benefits:

1. Investment in equity fund (ELSS is an equity scheme), can help one achieve long term financial goals
2. Investment in ELSS helps one reduce the tax liability since this is eligible investment under Section 80-C of the Income Tax Act
3. SIP in an equity fund help one turn the price fluctuations in one’s favour.
4. Monthly investment eases the cash burden by spreading the investments monthly. This ensures that one does not have the year-end pressure
5. ELSS comes with a 3-year lock-in period. Holding onto your investments for that period ensures the capital gains would be tax-exempt. 

So go ahead and start your SIP this month and reap multiple benefits.

• 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. 

Answers to questions about mutual funds and investing

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Equity investments simplified

Questions about mutual fund investments

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Why mutual fund is the ideal investment vehicle for goal-oriented investing

If you know your financial goals and are planning to invest your money to achieve these goals, read this article first ..

Ideal investment vehicle for goal-oriented investing

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The English translation is as under:

Why mutual fund is the ideal investment vehicle for goal-oriented investing

A very important question all investors must consider before investing is: Why are they investing? What is the purpose of investing?

All the other questions are secondary to this one. This must be the first question that an investor must consider.

Let us understand the financial requirement of most of the middle class investors. Most of middle class people have certain large lumpsum expenses to incur in order to fund some major and important events in their life. These events could be having their own house, acquiring a vehicle, getting the children educated, marriage in the family and living a comfortable retired life. All these events require large sum of money, which may not be available when the event occurs. Money must be saved earlier in order to fund these events.

These are financial goals. Funding these financial goals is the primary purpose of saving and investing for most of middle class.

Once we understand that, the next question is how does one invest money. We have two options: invest your money in various avenues yourself or invest through mutual funds. We have discussed this in detail in some of our earlier articles.

There are some basic rules that one need to follow:

1.     Keep some money in short-term investments – these investments may not fetch high returns but the money would be safe here.

2.     Allocate your money in line with your unique situation – a process known as asset allocation.

3.     Periodically one needs to check how much is the deviation from the required asset allocation. This happens since different markets, viz., equity and debt markets behave differently from each other.

4.     Consider investing in equity if the goals are far in future. However, as the goal approaches near, the exposure to equity should be reduced.

It is really in points 2, 3 and 4 above that mutual funds become extremely convenient. First of all, allocating money across various asset categories is very easy if one uses mutual funds. At the same time, when one has to shift money from one scheme to another – be it from debt to equity or vice versa – mutual funds allow very convenient switching facility.

Mutual funds also have a major benefit in terms of availability of daily NAV, which allows one to regularly monitor if the current asset allocation is in line with the required one or has it deviated. Based on this, a decision regarding switch can be very easily taken.

All these switching can be done seamlessly within a fund house. The transaction is convenient as well as low cost. Mutual funds also are highly tax-efficient when it comes to such switches.

As against that, if one has built a portfolio by buying stocks and bonds, the big decision would be which stocks or bonds to sell and which ones to buy. In case of mutual funds, it is just a scheme that one needs to get out of or get into.

It is such high degree of convenience that majority of financial advisors also prefer to recommend mutual funds to their investors.

So, go ahead and take advantage of mutual funds in order to achieve your financial goals conveniently and comfortably.

-        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.

Pros and cons of investing through Equities - chat transcript 14th March 2016

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Equity investments simplified

Where does this road lead to? - My article on www.moneycontrol.com

Where does this road lead to? Asking the right question can put you on the right path. It holds good in the world of personal finance too.

Read more at: http://www.moneycontrol.com/news/planning/where-does-this-road-lead-to_5859581.html?utm_source=ref_article