Investments: A step further

ab24218
Jun 16, 2020
5 min read

Updated: Jun 16, 2020

Hello readers, first of all thank you very much for the response you've given to first three articles in this series. Your feedback really means a lot to me and I'll surely create another series dedicated to the topics suggested by many of you.

In previous article we discussed about balancing your investment bucket into two major areas and we looked how to kick-start into some traditional as well as modern 'safe' investment instruments.

To take this further, let us assume your risk appetite calculator allows you to spread your investments into some long term instruments. To start with, let's pick up - Equity Mutual Funds.

Now what are mutual funds? You can do your own research on it. For now let's go ahead with a simple definition - it is an arrangement where many individuals like you and me submit our money to an organization called AMC or fund house, who invest it in portfolios of stocks, bonds and other securities on our behalf.

Advantage of going with them is, they have individuals called 'Fund Managers' who are chartered in this sector and knows better how to deal with the funds in order to grow it further. In return the fund house charge some amount from us as their fees and other management charges, which is called 'expense ratio'.

You can invest in mutual funds via two methods - Systematic Investment Plan i.e. SIP where you invest some fixed amount on regular basis; Or Lump Sum, where you invest some big amount in one go. To buy mutual funds you can either take help of some kind of intermediaries such as brokers, advisors, etc. or you can purchase it directly.

This gives you our first tip on Mutual Fund investment:

Choose the scheme where you pay less to intermediaries - Now with a common sense, you can understand, if there is no intermediary between you and the fund house, there will be no commission and hence it will be more beneficial deal for you. So always go with a mutual fund schemes having 'Direct plan' in their name.

But the real confusions starts here. There are hell lot of fund houses and their schemes available in the market. Which one should you choose? Let us break it down a bit. You know that you want to invest in a scheme which will invest your money in stock market. So category will be 'Equity' and in case you are looking for tax saving alongside, there are 'Equity Linked Saving Schemes' i.e. ELSS. These are also equity funds but has three years lock-in time. Once you invest in such scheme, you cannot redeem it at least for three years of time; and if you do, you'll end up paying high penalty called as 'exit load'.

As we are discussing today specifically about long term investments, this condition should not be a blocker. Now you know what fund category you want, next step is much easier.

Do not look for best fund, look for a fund managers who performed well in past few years and what scheme they are managing currently in that category.

It's just a matter of few clicks and you will have a list of 2-5 mutual fund schemes where you would want to invest. As stated earlier, you can make use of different investment platforms who provides this service for free such as Groww, Paytm Money, etc.

Do keep in mind, the money goes in stock market, is utilized by the companies to expand their business, improvise and grow their profit which will eventually create wealth for investors and it takes time. This is NOT a gambling. There can be hard times which may impact your investments. So what to do in case? Tip number three:

If you see a negative impact on your portfolio during crisis in the market, this is the time to secure future compounding of your wealth. It is advised that, on every fall of 100-150 points in the market index, invest more in your portfolio. [of course after considering all the circumstances]

If you follow these for mutual funds for minimum three to five years of time, you'll see the better results.

Watching your money grow, is really a wonderful feeling and pleased with this experience, you too might want to jump into some direct investments. This gives you the seconds way of highly paying investments - Stock Market Investments.

As I said, stock market is not for gambling. So make one thing clear in your mind before you sign up for this - Stock market is not a daily cash making machine. This is tool to strengthen the businesses in our country and thereby strengthening the economy. Always remember this one line by a legendary Investor, Benjamin Graham -

"In the short run, the market is a voting machine but in the long run, it is a weighing machine."

So, to start with, you'll need a Demat and trading account. I'll recommend to go with some discount brokers (for obvious reasons) such as Upstox and Zerodha. In fact Groww platform has also started the facility of stock market investments now.

Stock market investment itself is a big topic and there are lots and lots of books, YouTube Channels and other study material which can guide you for your journey. But I'll share a few to make it easier for you. You can start with material which is available free of cost.

Our next long term instrument is Gold and Silver which, I think, we don't need to discuss here much. Jewelry obsession in Indians is world famous and from investment point of view, we know its (almost always) an appreciating asset. If you buy them on right time at right price, you can see a massive returns in long term. Same goes with real estate. However real estate is another huge topic to cover. I know a few people who are directly involved in this business and all of them advice not to enter in it without a professional guidance.

I'll wrap it up with just one myth buster of all the time -

The property which you purchase for your own living by taking 15-20 years of 'home-loan', is not an asset for you but a liability. Because it is taking 'money out' from your pocket.

I think this is enough for today. If you find any value ad through this, you can hit like (that little heart symbol in right-bottom corner). Also do share it with them, who, you think should know this.

In next and the last article of this series, we'll cover another important topic for individuals - Tax planning. So stay tuned. Happy Investing.