An old Indian tale about a poet teaching his King the power of compounding was quite popular back then… the best way to teach someone is when he/she is a child and as parents we teach our kids a lot of good habits and ways to live in this competitive world but unfortunately we fail to teach them ways and means of investing their money saved/earned, this creates a whole generation of youngsters who stay confused when they receive their first pay cheque and then they learn it the hard way.
Nowadays a lot of money is being spent to maintain or raise our social status, expensive cars, mobiles, watches etc…which builds in a lot of EMIs, that you end up paying all your earning life and suddenly you realize that you have failed to save a corpus for your retirement which is one of the most important things to do.
As Warren buffet rightly said your monthly earnings minus your monthly savings should be your monthly expense and not the other way round.
So now the question arises where and how do I invest? Answering the first part of the question; all of us know that the stock market is the barometer of a nation’s economy and that our nation is on the developing curve, the best place to invest in is the equity markets as there is no instrument as liquid as this which gives you returns that easily beat inflation and bank FD returns.
And the best way to invest in equity markets is the mutual fund route for the reasons given below;
- You can start investing with as low as ₹ 500
- Your funds are professionally managed
- You need not worry about risk of the markets moving up and down every day
- They help you save tax
- They help you beat inflation
- The returns are much better than FD interest in the long term
- And you can redeem them at any given point in time
To start with you need to invest in the following funds:
- ELSS (Saves tax)
- Equity diversified
The above type of funds will help you build a decent portfolio for your retirement, they will be quietly earning for you so that you can relax and enjoy the fruits of the disciplined life you led.
SIPs (Systematic Investment Plans) are the best way to invest in mutual funds as:
- You can start saving with small amounts and gradually increase the amount proportionate to your income
- The power of compounding will help you get four-fold benefits in the long run
- The cost of purchasing the asset will be averaged as you will be investing at regular intervals, thereby your risk on the volatility of the stock market will also be arrested.
- Your Future goals will be met more easily than before
- You get the benefit of diversification.
- Makes you a more disciplined investor
Taking a step further I would also suggest, you shift a part of your bank FDs to liquid mutual funds as these Liquid funds give you a better rate of return and are relatively safe to invest.
Having said all of the above the best time to invest in SIPs was yesterday the next best time is now, so go ahead and achieve your dream buy investing in the equity markets through the mutual fund SIP route.
Posted: February 2018