As Robert G. Allen rightly said: “How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.”
Investing is all about making Money, and that’s pretty tough to do if you are scared to get out of the safe path.
The bottom line is that- If you are trying to make money, then you can’t afford to keep all your funds in saving accounts that are hardly earning interest (Merely 3.5-4%)
To make money, you will need to take some risk. After all, when there is no risk, there is no Reward.
So, my point is, if you want to make money on your investment, then you have to ventured out in to equity.
In Equity you would have two choices to start: Direct Equity or Equity Mutual funds.
As your aim in investing would be to churn out the higher returns over a long term. Hence, you would need to fetch detailed research on the companies along with monitoring of the market fluctuations at regular events like Lokshabha election, rate of cut, global slow down, sales report. Etc. because here, you are the Fund manager!
Whether to Buy or sell the stocks you own, it would be your Call as per the market tuning.
For those who have never invested in equities, it is difficult to know where to start from. However, everyone knows that there are two different ways of investing in equity.
Choosing a stock and buying and selling yourself. Another option is through Equity Fund.
The Ultimate goal is the same: To benefit of the superior return that equity investing offers.
However, in the context of what you do, these two routes are completely different.
Unless you are an expert investor or willing to put in considerable amount of time and effort required to become one, it does not make sense to invest in Direct Equity.
Therefore, for beginners, I would give answer straightforward: You must invest through Mutual funds. But don’t take in this way, that individual investor cannot make money from Direct equity. There are many who invest and get good results.
However, in general, the odds are unfavorable. For every 100 who try, perhaps five or 10 will be successful. An even bigger problem is that even the few who succeed will probably do so after many failures, and each of failure would cause them some time big losses.
So, in simple answer: Let Fund manager handle it and you sit relax on your couch.
Reasons: Why Should You Start SIP
You name any financial Goals; Financial experts would chorus: Start SIP in equity fund to meet them.
However, it is very difficult to escape this ubiquitous option these days. Have you ever wondered what is so special about SIPs?
Everyone now a day would talk about maximizing the profits, and that is main reason for recommendation of SIP based investing.
But here main objective is to inculcate the financial discipline in the lives of investors. Many investors are on start and stop mode in investing, they start investing when there is optimistic mood around them and same they stop it if there is pessimism (market is in downside loop) around them. Sip puts an end to this dubious practice, you can buy at lower price and maximize the returns over a long period of time.
As we know, in lower market you buy more units, and at the time of bullish market you buy lower units, so it will lead to average out the cost which in return give you substantial profit as market takes turn again after downfall.
It forces investors to put fixed amount in Mutual fund irrespective of the market tunings. Since money is directly debited from your registered account, the chances of missing the investment or market condition influencing your decision comes down.
Average the Purchase Cost:
Stock Market is known for its volatility. Investors usually try to make gamble by timing the market, purchase the mutual funds when market is low and sell it when it reaches to its peak.
But timing the market is not easy thing to practice.
You cannot be sure that market is not going further down after reaching its bottom, or it would not rise it further.
So, only way to handle the uncertainty to average out the cost over a period in market uncertainties- Automate the investments with SIP.
For instance, if I would have invested in ICICI Prudential Bluechip fund in sip with 3000 Rs Monthly, average cost of the Mutual fund units usually low over a period of time and gradually you would be able to accumulate more units when fund nav gets depreciated as per the market tuning.
Ripple effect of Compounding on Investments
Compounding is all about earning interest on interest earned by reinvesting the same, which can turn small savings to large corpus in the longer term.
But need to remember one thing with Compounding that, it favors to those who accept this as early as possible. Even the small amount can create a big corpus for your financial Goals.
In Mutual funds, you can start investing with as low as 500 per month in a mutual fund, by opting for systematic investment plan, which enables a regular investment in to a Mutual Fund scheme much like a bank Recurring Deposit.
But, don’t delay the SIP if you are aligning it with financial goals because – The earlier the start, the more you save.
Let’s take an Example: Suppose, if you had started SIP in Mutual funds for your child Education which is 10 years away and, say, you are getting 12% rate of return with 5000 Rs monthly, you would be able to generate the corpus of 11,50,193 Rs.
But if you miss the bus, and delay the SIP by 5 years, assuming that I have lot of time to start with, so after 5 years even if you start SIP with 10,000 for 5 years, still you would be able to generate the corpus of 8,16,000 Rs Only. This is the difference which reveals that How compounding makes a favor on you