Investing is a tool for building wealth. It is not only for the wealthy. Anyone can get started on an investing program, and various options make it easy to begin with small amounts and add to a portfolio periodically. In fact, what differentiates investing from gambling is that it takes time—it is not a get-rich-quick scheme. Investing is also about making priorities for your money. Spending is easy and gives instant gratification. But investing requires prioritizing our financial futures over our present desires.
No one investing strategy or approach fits all. Every investor has different reasons for investing, different goals, different time horizons and varying degrees of comfort with investing. It’s important to define and articulate your own parameters. The only way to attain financial security is to save and invest over a long period of time. You just need to have your money work for you. That’s investing.
For many of us, money and investments weren't discussed at home. It is the primary responsibility of parents to teach their children how to deal with the money. It is the primary duty of husband and wife to discuss about money matters. It is sad that many couples don’t discuss the investment planning issues together. Remember, discipline begins at home.
In order to build a fortune you must invest your money. It takes only minimum effort to set aside a small amount each month and make your money grow. A good way to reduce your risk is to spread your money within each type of investment. This is known as ‘diversifying’.
With interest rates staying low and investor interest in real estate fading, savings are finding their way into mutual funds. Investors experience with mutual funds is getting better every year. A mutual fund is a professionally-managed investment scheme, usually run by an asset management company that brings together a group of people and invests their money in stocks, bonds and other securities. Mutual funds are highly popular investment option for achieving various financial goals like retirement planning, tax planning, wealth creation, children education and so on. As an investor, you can buy mutual fund 'units', which basically represent your share of holdings in a particular scheme. Value of per unit is known as Net Asset Value (NAV).
One of the best ways to invest in mutual funds is SIP i.e. Systematic Investment Plan. You can invest specified amount on specified date every month. A few fund houses offer more frequent SIPs - even weekly/daily. SIPs fosters discipline. This route has gained popularity among the retail investors in recent years – really good development. They take away the risks associated with ‘timing the market’ and help investors to neutralize the downsides of market volatility by averaging the cost of purchase. It is a simple and effective tool.
After deciding to start SIP, it is important to give sufficient time to that investment. Do not focus on timing the market and quick money. It is your time in the investment which makes money for the investor. Sachin Tendulkar accumulated maximum runs in test cricket by staying on the pitch as long as possible and facing as many deliveries as possible. He did not try to hit every ball a four or over the fence. Spend time in the stock market to make money. Thus, SIP is the eighth wonder of the world and suitable for many of your financial goals.
Let’s look into the some parameters to be considered while investing in mutual funds:
Systematic approach
Regularly invest and disciplined investment helps you to create huge wealth and enhance your life cycle considerably. Many investors have followed this rule and grown.
Asset allocation
Returns from mutual funds are largely dependent on your appropriate asset location rather than scheme selection/fund house selection/timing the market. Allocate among three: equity, debt, cash. 100 minus your age in equity is preferable and not more than 10% of your portfolio in cash is acceptable.
Comprehend your risk appetite
Knowing your risk appetite and selecting the scheme accordingly is the key to success. Many times investors think that they can take enough risk, but the risk thermometer categorizes them differently.
High expense ratio
Expense ratio for different schemes must be examined before selecting the scheme. You must ask your financial planner about that ratio and act.
Ideal time to exit
Simple question has the simple answer. You should exit when your goal has arrived like retirement or your daughter’s marriage and not when the market is seemingly high.
Nomination
Succession planning must be kept in mind. It is recommended that every investment must have a proper nominee des-ignated by the main investor.
Volatility
The second name for volatility is equity market. Please remember that volatility gives you an opportunity to invest in markets when they are low and you can enjoy superior returns.
Invest in Indian funds
More global investors are investing in Indian stock market for improving the returns of their investors. In such situation international funds are avoidable.
Review
Most ideal frequency of reviewing your portfolio is once every quarter. The review should indicate that your portfolio is doing well. This should be done religiously as you go for physical health checkup at regular intervals.
Aim
You should have clearly defined aims or goals. The year in which goal is expected to arrive must be kept in mind. Do not forget to factor in inflation which will increase the amount required for various goals.
Track record
While choosing schemes you must ask questions about track record of fund managers. Their experience and research capabilities count. Future prospect of the scheme is more important than past record of the schemes. It should not be the only criteria for selecting the scheme.
-Shivanand Pandit
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