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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:

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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.

Why should someone help you achieve YOUR goal?
		Amit Trivedi
“What is your objective?” asked the consultant to an entrepreneur. The answer was: “I want to create wealth for myself.” The entrepreneur was clear about how much wealth he wants to create and in how much time. We are quite aware of the importance of having goals. Here is an example of someone who has clarity about what he wants to achieve and has also put the deadline to the dream. As Zig Ziglar has famously said, “Goals are dreams with deadlines.” The consultant praised this entrepreneur for goal clarity, but asked a very pertinent question, “Why should someone help you achieving this goal of yours? What is in it for them?” Think about it. When an entrepreneur sets out to start an enterprise, it is done with a purpose. Very often entrepreneurs confuse between building a business and generating income. If income generation is a goal, the entrepreneur cannot focus on building a business, as setting up a business takes time. One has to forgo income for some time, until the venture turns into a self-sustaining business. Till that time, the parent (entrepreneur in this case) has to look after the baby often sacrificing one’s own pleasures and even basic necessities sometimes. Building business will allow one to create wealth over a long term, earning income will help one sustain in the short term. It depends on what type of person you are. Some people can handle enormous amounts of risk. They can start focusing on building business even when there is no income in sight. The other category may first want to stabilize the income and then focus on building an enterprise. When you set your goals, please make sure where is the customer in the goal. If your goal specifically and explicitly spells out what you plan to do for the customer, the customer will help you achieve your goals. However, it is just your own goal without any reference to what you can do for someone else, ask yourself, “Why should someone help you with YOUR goal?” The goal that this entrepreneur has set for himself has something lacking. This is a goal of an entrepreneur, who is setting up a business. The business has to do something for the customer in order to be profitable and to sustain for long. Still, the same customer is missing from the goal. Wealth creation would be the result of the goal one has set. All the best! *The author runs Karmayog Knowledge Academy. He can be reached at amit@karmayog-knowledge.com. The views expressed in this article are author's personal views. Source: http://www.ftfoundation.com/English/expert_talk.html