Why should Everyone invest into Mutual Funds?
Poor people usually spend their money and invest what left, that’s the philosophy of the poor. Now here is the philosophy of the rich, Rich people invest their money and spend what left. And here is the startling answer it’s really doesn’t matter what’s the amount is , what most important is not the amount what really important is the philosophy.
To Answer this query, will divide the investor in two Broad Categories – One at different stage of Life and other at different financial stages.
Category 01: Life Stages Division
- Individuals in the Student Phase
- Individuals who have just embarked on their Professional Journey
- Individuals who have recently started a Family
- Individuals at Mid-Career contemplating Retirement
- Individuals nearing Retirement, with less than a decade left in their career.
Category 02: Financial Status Division
- A Poor Person: Those from economically marginalized backgrounds striving to elevate themselves to the middle class or desiring wealth for their descendants.
- A middle class : Individuals whose income is primarily allocated to their children’s education, matrimonial expenses, and monthly installments.
- A Business person: Business owners who manage enterprises of 100s crores.
Depending on their life stage, investors may have different financial needs and priorities. Mutual funds can help investors of different life stages by offering them suitable schemes that match their objectives and preferences.
Students:
Every time I chat with folks around my age, we end up asking the same question: why didn’t our schools teach us about managing money? Why weren’t our teachers clued in on this crucial life skill?
Now, current generation has the golden opportunity to get ahead of the game. They can dive into the world of investments early on and really make a mark for themselves. I am here to share some insights that I hope will shed light on what it means to truly excel in life, financially.
Let’s face it, in India, we’ve got this life script that most of us follow – get a job, get married, have kids. And with each step comes the big buys: a house, a car, and all the gadgets and gizmos to fill up the space. Depending on what job you land, the price tags on these can vary, and before you know it, you’re caught up in the endless loop of EMIs [ To know more on this, read a book -“Unscripted” by MJ DeMarco]
So, how can investing in mutual funds help a student dodge this bullet? Let’s take a closer look:
- Power of Compounding: Imagine your investment returns getting put right back into the pot, earning more returns. Over time, this snowballs into something pretty huge.
- Learning Experience: Starting to invest early is like getting a head start in a race. You learn the ropes of investing, get the hang of the financial markets, and figure out how to handle your cash,This knowledge can be invaluable later in life.
- Risk Tolerance: When you’re young, you can afford to play the long game. You can take bigger risks for better rewards, especially with MIDCAP/SMALLCAP funds
- Financial Habits: Kicking off your investment journey early sets you up with some solid financial habits that’ll stick with you for life.
- Achieving Financial Goals: Whether it’s saving up for college, that dream car, or even thinking about retirement (yep, it’s not too early!), starting your investment journey sooner rather than later can help you reach those milestones.
I’d say, keep reading, keep learning. The value of these lessons only grows with time, just like a good investment.
Individuals who have just embarked on their Professional Journey
A Fresh Start: My Journey from Tax Naivety to Investment Savvy”
I remember when I first stepped into the working world, and January rolled around. Suddenly, everyone from the newbies to the big bosses was all about investments and tax savings. I was clueless, never having given a second thought to taxes or investments. In a panic, I rang up my dad, who’s a teacher, and he gave me the old-school advice: “Son, just head to the post office and pick up some NSC (National Saving Certificates) and put some money into LIC.”
So, I spent a couple of days, along with six other fresh-out-of-college friends, navigating the maze of agents at the post office and LIC office. It took us about ten days, but we got it sorted.
Fast forward two years, and I realized I’d made a rookie mistake in the name of tax saving. I quickly got on the phone with my agent and made a few trips to the LIC office to cancel my policy. The NSC had a lock-in period of 7-8 years, so I had to sit tight until I could close it.
But how did I come to see the error of my ways? Luckily, my first job was in Mumbai, where I had a friend whose relative worked at a mutual fund house. A day spent at their place opened my eyes – there was a whole world of investment options beyond LIC. That was the start of my journey into the equity world. I began with a modest SIP of ₹1000 in a fund. In 6 Years, thanks to that initial investment and gradually increasing my SIP amount as my salary grew, I was able to buy a house.
For those just starting out, here are a couple of things to keep in mind:
- Times have changed, and so has the income tax process. With the new tax regime, there’s no more Section 80C. But it’s still wise to set aside some funds for a rainy day. Typically, people turn to FDs/RDs, which offer returns just about keeping pace with inflation – around 4-6%.
- This generations are ambitious, always aspiring to start something of their OWN.
- In both scenarios, mutual funds are your best bet. With a horizon of over 10 years, you could be looking at returns of 12-15% or more. That kind of growth can really boost your ability to make big life purchases like a house or a car.
Individuals who have recently started a Family
Starting a family is a journey filled with love, joy, and a fair share of financial planning. If you’ve recently welcomed a little one into your life, you might be wondering about the best way to secure their future, especially when it comes to education, marriage, and all the family events that come along the way.
The Sukanya Samriddhi Yojana (SSY) is a fantastic start for your daughter’s future, but let’s be real – it’s not going to cover everything. In today’s world, even a degree from a reputable institution doesn’t guarantee a job right away. Many young adults face a tough time finding employment, which can lead to all sorts of struggles, not just financially.
That’s where mutual funds can be a lifesaver
Imagine you have a 1-year-old kid. Beyond the day-to-day expenses and future education costs, if you start a monthly SIP (Systematic Investment Plan) of ₹5000 into two different funds, you’re setting up a solid foundation. And hey, if you want to chat about which funds to pick, I’m here for you.
Now, let’s say you add a little extra to that fund whenever there’s a special occasion. For example, you could add an additional ₹10,000 every year and increase it by ₹2000 each year until your child turns 22.
Here’s what the numbers could look like:
SIP Investment (₹5000 Per Month for 22 years):
- Investment Value: ₹13.20L
- Maturity Value: ₹89.30L
Additional Yearly Investment (Start with ₹10,000 and increase by ₹2000 every year):
- Investment Value: ₹6.82L
- Maturity Value: ₹33.55L
Total Amount for Your Child: ₹89.30L + ₹33.55L = ₹122.85L
[If you opt for a conservative 8% return on this investment, your child could comfortably withdraw ₹80,000 each month. This should be more than enough to cover monthly Pocket expenses.]
Note: These calculations assume a 15% return over a 22-year period.
This nest egg could provide your child with the financial security to navigate life’s challenges with confidence. Even if they face a delay in starting their career, this money could support them through tough times without the need for additional financial help. It’s all about giving them the freedom to pursue their dreams without being held back by financial constraints.
Embrace the possibility, and let your investment be the wings upon which your family’s dreams take flight.
Individuals at Mid of the Career
As a manager diligently working towards ascending to a senior management position, one may find themselves preoccupied with the escalating costs of living. These expenses skyrocket way faster than your salary can keep up. They call it ‘Luxury Inflation,’ and it’s no joke. It’s when your lifestyle upgrades start costing you big time.
Examples of luxury inflation include:
- Ditching that trusty old Android phone (Under ₹15,000) for latest iPhone (costing over ₹100,000).
- Trading your motorcycle (under ₹100,000) for a sleek car (over ₹1,500,000).
- Moving from a rented place (under ₹30,000/Month) to owing your dream home (with a down payment of ₹1,000,000 and a monthly EMI of ₹50,000).
These aren’t just upgrades; they’re financial leaps that can stretch your wallet to its limits.
And with that kind of pressure, it’s no wonder you might find yourself juggling work stress, family life, and health concerns. That’s when you need a financial guardian angel, someone—or something—to have your back.
Enter the well-researched mutual fund portfolio, your ‘Big Brother’ in the world of finance. It’s like having a safety net, reassuring you with its steady growth, ready to catch you if you stumble. It’s there, running alongside you, whispering, “Go on, I’ve got you. You won’t fall.”
Individuals nearing Retirement, with less than a decade left in their career.
For over a decade, I have been on a transformative financial journey. In 2017, I was approached by an individual referred to me by a mutual acquaintance. He shared his life story, which included a challenging period in his 40s when he faced bankruptcy after leaving a corporate job to pursue his own business venture, ultimately losing his entire investment. This setback necessitated his return to the corporate world.
Over the course of a week, we engaged in deep discussions and devised a strategy to consolidate his various debts—including personal, car, and home loans—and to reorganize his investments, which were scattered across multiple life insurance policies. With his retirement planned for 2024, he had a solid eight years to build his wealth.
However, due to a myriad of minor financial obligations, he was initially unable to set aside even ₹5,000 monthly. Nevertheless, we embarked on an investment journey in 2017 with a starting Systematic Investment Plan (SIP) of ₹10,000. Concurrently, we worked diligently to eliminate his debts within two years.
With each financial commitment resolved, he progressively increased his SIP contributions and also redirected his annual VPAY into the funds. By 2019, his monthly SIP had grown to ₹1.5 lakh.
Now, as we in 2024, he enjoys the security of comprehensive medical insurance, a substantial term life insurance policy, and the freedom from debt.
His investments have flourished to a remarkable ₹3 crore, enabling him to retire comfortably without financial worries. He plans to withdraw ₹1 lakh monthly for living expenses, which is feasible as he resides in his own home in Bangalore.
For the past decade, his financial struggles have limited his ability to spend quality time with his family. I have advised him to now embrace the joys of travel, suggesting at least one domestic tour every quarter, costing ₹1 lakh, and one international trip every six months, budgeted at ₹4 lakh.
The total annual withdrawal would be:
- Systematic Withdrawal Plan (SWP): ₹12 lakh
- Four domestic tours: ₹4 lakh
- Two international tours: ₹8 lakh
- Totaling ₹24 lakh Per Year
This amount represents 8% of his current corpus, supplemented by additional retirement funds from his Employee Provident Fund (EPF) and gratuity.
The success of his financial turnaround can be attributed to a well-curated mutual fund investment portfolio.
It’s important to note that India’s economic growth is just beginning. For those who have yet to embark on their investment journey, now is an opportune moment to start.
Seems the Article has become too Long, will cover the Category02 in my next article, will share the link here.. Dont miss it..