Sunday, 2 December 2018
Thursday, 29 November 2018
Money is not a topic most households tend to discuss, yet it is a topic which draws down most of our family goals. Getting your family finances in order can be a daunting prospect, but by breaking down the process, setting yourself certain goals and being disciplined, it doesn’t have to be. By making a financial plan you can get you and your family on the right path, no matter what your goal is. Below are six easy steps to get around it.
Everyone sticks to the budget
Just about every family member has a budget, the homemaker has a household budget and kids have their pocket money. The easiest way to save is to ensure every member stays on budget. In other words, overshooting the budget is a strict no-no. In fact, members must be encouraged to save a little from the budget every month and set it aside in a mutual fund or saving account. When the spirit of savings is inculcated earlier on, particularly in the young, it gives a big push to the family’s finances.
Today younger family members are online and it is really important to leverage technology better to make the younger ones understand when it comes to savings. There are many apps which can help them to appreciate to save that extra money on online deals on groceries, clothing, and stationery. Holidays are generally a great time to dwell into this space, as you may end up with some major ‘festive’ discounts on essential items.
Educate the young
Often the trick lies in getting the young on your side. The mature ones already understand the need to save and contribute in their own way. But the young take a while to appreciate this. So senior members of the family need to educate the young on savings and make it fun by awarding the points if specific saving targets are met. When indoctrinated with the importance of saving and investing at an early stage in life, the young blossom into more financially aware and savvy individuals.
Most parents prefer not to share all the financial details with their teens, so it’s best to get your finances set initially when the kids aren’t around. Make a note of specific categories that you know they have opinions about and ask them for their input after you’ve determined what you could afford. Then you’re better able to guide a conversation with them, rather than making empty promises or an endless string of no’s and maybes.
Have fun at home
It is natural to expect families to make the most of weekends by going to the movies or dinner. This is the families ‘us’ time when all members get to spend time with each other. But there are equally good ways for the family to have a good time without burning a big hole in the family’s finances on dinners and movies. Order food over the weekend from a takeaway joint and instead of going all ‘fine-dine’, enjoy the simple pleasure of a home-meal while enjoying a good television show or a movie with your family.
You may not get it right in the first go
When you create a family plan and give yourself spending guidelines, there’s an initial period of adjustment. No one gets all the numbers right the first time, so expect to revisit and tweak your plan several times initially, then periodically when circumstances change or when you notice that things are off track.
It can be worth tracking your spending for a few weeks to see where your money is really going. When you track expenses, a useful focus for many is big box stores where you can buy anything and everything, as well as cash expenses.
The bottom line
Managing family finances needs to be a family affair, so do what works better for you and your family. At a minimum, everyone needs to be aware that you’re working towards specific goals and how they can support your efforts. This way there is a takeaway for everyone involved.
Wednesday, 28 November 2018
Common Mistake 1 : SIP in a fund with highest past returns.
Common Mistake 2 : SIP in 3-4 recent Top Performing Funds.
Common Mistake 3: SIP in 1 Large-cap, 1 Mid-cap, 1 Multi-cap and 1 Sectoral Fund.
By far this is the most popular method for selecting a fund. It is like driving a car looking at the rear view mirror. It’s misleading, inadequate and risky. Misleading, because it has the biases of when you started and how the markets are doing at the time of measuring the performance. It’s inadequate because it does not tell us how much risk the fund manager is taking and whether the fund is likely to perform in the future. It’s risky because funds that give the highest returns today have stocks that are overvalued and likely to correct or stagnate.
This is perhaps the most popular way of doing SIP. It ends up shortlisting funds with a very similar process (the rationale for selecting stocks in the portfolio) that resulted in all these funds outperforming together. For the very same reasons, these funds will someday start underperforming together making investors very uncomfortable and triggering an exit. This defeats the very purpose of SIP in multiple funds which is safety through diversification.
Many investors make/follow this decision with the hope of having a diversified portfolio. The idea of investing in a Mutual Fund is to use their expertise in picking stocks. In a Multi-cap fund the fund manager can pick large, mid or small cap stocks and stocks from any sector whenever they are attractive. Having chosen a multi-cap fund renders choosing other cap/sectoral funds redundant and probably counter-productive.
Monday, 26 November 2018
We are living in the 21st Century and we have a wide variety of products & services to choose from. You can buy a Car, branded clothes, a Smartphone, or even customized Tourist Package and akin to this are the varieties of Financial Instruments available in the Financial Markets. You can invest in traditional avenues like Gold and Real Estate or non-traditional avenues like Mutual Funds and Insurance.
What ends up quintessentially is how one chooses which items to look over, when to invest and of course the investment timing.
Even if you have finally decided to invest in Mutual Funds, there are multiple schemes and Fund Houses to choose from. Investing could be very confusing for many & if words like Portfolio Balancing, Market Performance, and Income Generating Assets make your head spin then remember you are not alone. Every investor has a different timeframe, risk appetite, corpus to invest, liquidity need, age factor, and investment objective depending on which the investor should make an investment decision.
While searching a perfect investment avenue for yourself that suits your risk appetite and financial Goal the most herculean Task is to choose a fund manager and an investment plan that would be the most suitable for your situation and goals. You have the choice to choose the manager with whom you entrust your capital.
A Fund manager can offer multiple plans with varied level of profit and risk which will depend on the underlying securities. Therefore, before investing, you need to understand the advantages of each type of investment, time horizon & risk appetite. It is also essential for the investor to understand an essential connection between expected profits and risks: the higher the expected profit, greater are the fluctuations in the value of investments.
Every individual has a different Investment style and the most successful Retail investors are those who believe in short-term pain & long term Gain. An average tax paying investor’s portfolio should essentially comprise of bank deposits, liquid mutual funds which can take care of his liquid needs. He or she can also invest in debt mutual funds, gold ETF. Investing in gold ETF is better than the physical Gold because liquidity is guaranteed in Gold ETF whereas it is not so in the case of physical gold. The combination of all these investments will create a diversified portfolio on a post-tax adjusted basis & will give surely give return to the investor with low risk.
If you are willing to invest then you should ask these 7 questions to yourselves and they will surely help you build a sound investment plan based on your goals.
• What is the Purpose of my Investment?
• What are the minimum and maximum amounts I want to set aside for investing?
• What are my financial obligations especially the debt obligations?
• What should be the time horizon of the Investment?
• What is my Risk Appetite?
• Which is the best Financial Instrument to invest in that will fulfil my investment Goal?
• Which particular Fund House/ Scheme/Plan would give me the maximum ROI?
Once you have identified the level of risk is acceptable to you, & the most reliable and safest fund manager, you should now identify the investment plan that would be the most appropriate to your interests.
Remember, what kind of investment plan you will choose, is only up to you. A Financial Advisor can only give you a piece of advice but it is you who have to take the final decision and once you have chosen a plan, you should regularly review it & stick with it! That is the key to investing success.
Sunday, 25 November 2018
Friday, 23 November 2018
A mutual fund is a pool of money invested primarily by retail or institutional investors & is professionally managed by the fund managers. The Mutual Fund Performance depends on multiple factors such as the portfolio composition and macroeconomic conditions & these factors will largely determine the extent to which the investor can meet his financial objectives.
Significant factors which determine the Mutual Funds performance are:-
1. Asset Performance and Risk
Equity Mutual Funds are the riskiest while Debt & Gilt Mutual Funds offers less risk to its investors. Investors can invest in either of them or take a balanced approach depending on their risk appetite. Mutual fund performance is affected by the change in the value of its holdings or underlying assets. The asset mix of an investor's investment portfolio determines the overall return. An investor should use the diversification strategy for investing because nobody should keep all his eggs in the same basket. There is a risk-return tradeoff associated with every asset -- the higher the risk, the higher the volatility and return potential. Similarly, lower the risk, lower is the volatility and return potential, For example, stocks are riskier and volatile than bonds, but the ROI of stocks is more than bonds over the long term.
2. Sector Performance
Mutual Funds NAV also depend on the performance of the sector in which the investment is done by the Fund House. Each sector behaves differently under different market & economic conditions. Funds holding foreign stocks will improve when the dollar weakens. Consumer stocks respond to well to a healthy economy where there is a lot of demand for products and services. Energy funds will do well when crude oil prices rise while Bond funds will perform well when interest rates fall and bond prices rise. Index funds simply mirror the performance of market indexes such as the BSE & NSE.
3. Management related Expenses
The return on a mutual fund scheme is the current NAV, minus the management fees and expenses. Every fund house charges fees for management, as well as the marketing and back-office clerical work, needed to keep the fund operating.
4. Fund's Popularity & Cash Flow
A fund's popularity affects its performance. A Popular investment plan in which the investors are piling money, the manager has more opportunity to invest in avenues where he thinks it will achieve the best ROI. If a fund is performing poorly and the market is down the investors will be bailing out. This cash drain will force the manager to sell holdings. An investor should always check the net cash flow when searching for funds before investing.
Macroeconomic factors associated with the economy affect investment's rates of return. A growing economy means more jobs, which means they will spend more & this will lead to an increase in sales, profits, and investments.
On one hand, Rapid economic growth can lead to a higher interest rate which will make credit more expensive, thus dampening consumer spending and business investments. On the other hand, economic slowdowns lead to low employment, lower profits and stock prices resulting in improved bond price. This is how the changing economy affects the investments and it returns.
6. GOVERNMENT POLICY
Fiscal policy, regulations, political stability & arduous regulatory approval process also affects investment rates of return.
If the above points make your head spin then you need a Financial Doctor (Financial Advisor), who is experienced enough to guide your investments. The Advisor will understand your needs, chalk out a proper strategy based on your risk appetite and time horizon & finally will advise some mutual Fund schemes that will fulfill your Financial Goals.