Money Management

Money Management

Do you think, you have enough money for your retirement or future goals? Do you feel you have successfully and financially achieved or can achieve for which you dreamt of? Are you confident that your life is secured or on the right path financially?

If your answer is 'Yes', then this article may not be written for you as time saved is money earned, so close the tab.

For those, who are with us and their answer is ‘maybe” or “No” continue reading. We will tell you, how you can make fortunes and become rich by small savings every month. The simplest way to make a fortune and become rich is money management. Money management is an art in which all individuals needs to work on.

The old saying “Money saved is Money earned” is a bit outdated, now a day’s “money saved and invested properly is money earned”. As an individual, you need to analyze your annual expenses, annual luxury, and opportunities available for multiplying your savings. A right product mix can enhance ROI on investments along with it will help you in unseen situations in the future.

A plant takes its own time to grow, so is your investments.  You cannot expect a seed to become a TREE in a day with giving fruits the second day. Like you need to nurture seed for it becoming tree you need to nurture your investments. Time is a crucial factor in investment planning. Likewise, your investments need time, there is no simple shortcut to becoming rich. If there is, then chances of losing money and making money are 50:50

In this particular article, I am going to describe the simplest way effective money management and investment planning which can be started with as low INR 500 a Month! Absolutely you heard it right, by saving INR 500 in a month can become 35,00,000 in 30 years with a nominal ROI of 15%. In this, your total invested money is INR 1,80,000, which is multiplied by 20 times. Some people will think that this is just a mock! But is it? The answer is NO. You can become rich with small investments.

Power of SIP

Systematic Investment Plan commonly known as SIP is basically a mode of investment with mutual funds. It is a long term investment plan with the tenure of 15 to 20 years or more, where individual can invest their money periodically. The product comes with risk factors involved in it which is the uncertainty of financial markets But SIP, in the
long run, eliminates this risk factor of an uncertain market. Many of the long term investors use this vehicle for disciplined savings and better ROI on savings.

  

When one shall start SIP?

The sooner the better. A small saving should start from the day an individual starts earning. An individual can subscribe to SIP in any open-ended schemes of Mutual funds. It is never late to start investments if you missed the train earlier. For making your first Crore in another 20 years you need an approx SIP investment of INR 6500/Month with ROI of 15 %, but if you have started early in your life and you have 30 years then One Crore can be accumulated with  INR 1500/ Month investment with the same ROI.

Advantages of Investing through SIP

#SIP is for all Budget

SIP allows you to invest in small amounts as well as a big amount. It is not necessary that you need to invest a larger amount only, you can even start SIP with a minimum of INR 500/month!

#SIP gives benefit of Rupee-cost Averaging

It’s a fact that SIP has got an edge over other investment options which requires a Lump sum investment amount. Under the rupee-cost averaging one can buy more units when the prices are low, and similarly one can buy fewer units when the prices are high. This contributes to good discipline. On the other hand, it enables individual to lower the average cost of investment.

#Power of Compounding in SIP Investments

The compounding ROI is an integral quotient of SIP. When other investments get compounding effect after a certain period, Mutual funds get their price changed everyday which makes compounding benefit daily. This edge of SIP makes it more attractive because ROI will be compounding daily.

For example, if Mr. Sunil shells out investment of INR 10000/month for 10 years and we assume that ROI is 15% PA, then by the end of 10^th Year his principal amount will be 12,000,00 and the maturity amount will be INR. 27,55,000. So basically his money has grown by 2.30 times.

If he makes the investment for 20 years with the same investable amount of INR 10000/Month and earns the same ROI per annum then feel the magic of compounding. Then by the end of 20^th Year his principal will be INR 24,00,000 and maturity amount will be 1,51,59,549. So basically his money has grown by 6.31 times now.

You can see the difference in the above-mentioned illustrations. The power of compounding is the world’s 8^th wonder as described by Albert Einstein. He quoted, “Compound interest is the 8^th wonder of the world. He who understands it, earns it, he who doesn’t, pays it”

   

Effective tool for Goal Planning

Each individual has certain financial goals in their life be it buying a house, savings for children's future or for accumulating retirement corpus. All these are unachieved dreams till the time an individual doesn’t take steps towards it.SIP is the best tool to achieve any long term financial goals of life. SIP comes with intrinsic benefits like compounding returns, rupee cost averaging, inflation adjustment which helps in attaining all long term financial goals.

How to Select Best Mutual Fund Scheme for SIP?

Although SIP is best investment vehicle for attaining life’s financial goals but you need to identify a mutual fund scheme according to your risk appetite, time duration, financial goals. All mutual funds come with no assurance of returns along with financial market associated risk. One has to identify the product according to his needs and above-said parameters.  If an individual has time to analyze and execute his investment goals with risk analysis and knowledge of the financial market, then one can definitely create a basket of SIP himself. If an individual has no time for this than he can hire some Adviser for doing this job

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Caution before selecting SIP

Avoid taking ideas from friends and relatives as it can be a very risky proposition which you may not realize in the early stages of investments but in long run, your risk on particular investment will go high and ROI from expected ROI will be much lower. Don’t make the investment based on past performance because past performance is certainly not the criteria for future performance too.

Don’t hesitate in taking advisory from certified planners or advisors as it is your future planning wherein money involved for future financial security. A wrong decision can lower your time horizon of investment which will ultimately hamper you're all goal planning.

A last word of caution, do not start or stop SIP without a reason. If you can’t afford an X amount then start with the lesser amount and later on once you are comfortable then you can add the amount in investment comfortably.

Disclaimer: Author is Rohit Khandelwal. He is an AMFI registered mutual fund advisor.  All views expressed in the article are his own. Moneymatters.co.in or Infomagine consultant LLP doesn’t guarantee any accuracy of data. All shown rates of return are tentative, not guaranteed in nature to anyone.

Mutual funds are subject to market risk, kindly read the scheme related documents before investing.

Insurance is the subject matter of solicitation.

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