If you wish to invest some amount of your savings via Systematic Investment Plan (SIP) every month in the share market and if you don’t have enough time to analyze the market valuation and even then you desire to earn good returns from the market the how to do it? Is it possible with the help of mutual funds? Let us understand more about this in our today’s blog.
While watching our videos on YouTube, do you think it is possible to invest in YouTube via sitting in India? Similarly, if we wish to know about anything, we go and search about it on Google, so is it possible to invest in Google by sitting in India? Also, if we want to purchase anything we sit at home and buy it from Amazon so is it possible to invest in Amazon from India? While using computers we mostly use Microsoft software and also prefer to buy Apple phones; so can we invest in such companies from India? Is it possible to systematically invest in gold and earn good returns from it? Similarly, In India is it profitable to invest in good performing companies via Mutual Funds? So if you want to grow your wealth, stay tuned to our today's blog as we’ll be answering all the above questions for you.
If you have never taken any risk in your life then you have actually taken the biggest risk of your life because not taking a risk is the biggest risk of your life. If you are carrying out your own business or you are a working professional, the amount that you save after spending is known as Savings. So if we carry-out the right financial planning then only it will help us to grow our wealth. As you know, we have our app called ‘Aryaamoney’. We launched this app with the aim to create financial literacy amongst the people. In the app, we have 2 powerful training programs Gateway to Wealth and Smart Investor Training Program. So the Gateway to Wealth is a free training program in that we have uploaded a video on how to carry out the right financial planning. Do check it out.
As mentioned in that program, for carrying-out the right financial planning three steps are very important. The first is Life Insurance. The second is Health Insurance and the third is Contingency Fund. In the future, any such adverse event like the pandemic, etc. might occur whether you are pursuing a business or a job that’s when you will require your contingency fund. So, it is advisable to have at least 6 months of contingency fund with you. After this, we still have the remaining portion of our savings. So we should follow the next rule of financial planning before we invest all the money in the share market. Thus, the next rule is to save the amount of money equaling your age. Consider if my age is 40 then out of the savings that I have, I should invest 40% of that amount in safe asset classes such as banks. Now with the remaining 60%, I can afford to take a risk and then invest in the share market.
Now when we decide to invest then, we have 2 asset classes. The first is the Safe asset class like Bank FD where the returns are fixed but limited. The second is where the returns are unlimited but the risk is high as well. So they include share market, currency market, gold, etc. So we invest here according to the market valuation then we can earn good returns. So now if you don’t know how to invest according to the market valuation or due to your hectic pace of life you cannot afford to spend time to invest in share market, currency market, gold then common investors can invest in such risky asset classes via Mutual Funds.
So, how to invest via Mutual Funds? Let us understand. Before going ahead let me highlight this, ‘Mutual Funds investments are subject to market risk. Please read all scheme-related documents carefully.’ A while ago these lines were spoken too fast in the TV advertisements until SEBI asked them to slow it down so that people could understand it better. Also, whatever we are discussing in this blog is for educational purposes only.
Now be it the share market or currency market or gold, here there is a high fluctuation rate. So if we invest all our money at one single level and later the market falls down then we may end up losing all our money. So to avoid such risk, a systematic investment plan (SIP) is chosen. SIP means you choose a specific amount to invest monthly in the market. Now because of choosing SIP, we invest at different levels in the market instead of investing at one single level, so due to this, we get our Average Buying Price here. So when the market is in the uptrend and it goes above our average buying price, then we earn a profit there. If we are investing a lump-sum amount in the stock market then for what time-frame are we investing and at what valuation we have invested in decides the return that we will earn from the market. If we are opting for the SIP then that too has its own advantages as well as disadvantages too.
After opting for the SIP, if the market goes in an uptrend then there our buying keeps taking place at higher levels due to which our average buying prices too goes high. So here, if we compare the returns we get then the returns made by investing lump-sum are more here compared to SIP because the market is in the uptrend here because the lump-sum amount is paid all at one level from which the market has risen higher. Now, who can predict that the market will go up from where we had invested, and how much higher will it go? Nobody can. Hence, if you are investing via lump-sum then it is important to check the market valuation and then invest but if don’t know how to analyze the market valuation or you don’t have the time to do the analysis then you are left with only one option and that id SIP and you can earn good returns via this too.
What should be our thought process while doing the Systematic Investment Plan? The money that we are investing in the market through SIP should earn more returns than that we would have received had we invested it in the Bank FD, meaning here our comparison should be with that of the returns given by the bank this should be our aim. Here, there is a risk that we might end up getting fewer returns when compared to the bank but we can also get high returns too.
While you are investing in the market via SIP after analyzing the risks and following all the steps of financial planning then you can earn good returns in the market. Also, if you have made yourself financially secured and you have a higher risk capacity after doing your risk profiling then you can afford to take a higher risk in the market but only after carrying-out your risk profiling, you should take this decision.
If you wish to invest in Mutual Funds then there are two ways to do it i.e. Direct Plan and Regular Plan. Let us understand what is the difference between the two: Now if you invest in mutual funds via an advisor then it is known as a Regular Plan and here the commission is high as well whereas if you opt for the Direct plan then here the expense ratio is low and you save on commission too and so you can also earn better returns here. Now how to invest in the direct plan? Once you have chosen the fund you wish to invest in, you can go to the Asset Management company’s website and choose the fund directly.
In India is there any platform where you can analyze all the available direct plans and compare them and then later choose the one which you think is the best to invest in. Yes, that platform is Grow App. Now, on the grow app you can easily analyze the Mutual funds and the direct plan you want to invest into very easily. Also, you can regularly monitor the plan where you have invested. So if you wish to invest via Grow app, we have provided a link below for the same. Do check it out.
The world’s most successful investor Mr. Warren Buffet has already announced that after his demise where all his funds will be invested. The answer is Index Funds. What are Index Funds and what are Mr. Buffet’s thoughts about Index funds? If you want to know more about this, do check out our previous blogs, we have already discussed it.
Mutual Funds are managed in two ways actively and passively. In an Actively managed fund, the Mutual fund Manager very actively manages the fund they collect as well as they carry out too much analysis and then selects the companies where this fund can be invested in and accordingly invests there. He also periodically monitors these funds and can make changes if he desires to make them. As these funds are actively managed there is a high expense ratio here.
Now, let us understand passively managed funds via an example. Consider there is an Asset Management company which has its Index Funds based upon Nifty Fifty. Nifty is an Index comprising of India’s top 50 companies. Now here the Fund Manager will take all the funds and invest in the Index fund of Nifty in all the 50 companies in the Nifty according to their weightage in the Index. As there is no such analysis that is required here, hence the expense ratio is low here.
If one has to invest in Mutual Funds in the US then Mr. Buffet’s choice is fixed i.e. Low-Cost Index Fund. When someone asked Mr. Warren Buffet that if he had to invest in a developing country like India then in which actively managed Mutual Fund would he prefer to invest? He answered, “Be it any developing country or for that matter any country if he wants to invest in the share market mutual funds then his choice is fixed that is Low-Cost Index Funds.
In India the company that provides Low-Cost Index Funds and where the liquidity is good as well and where one can choose the Direct Plan to invest via SIP if you are a no nothing investor then you can opt for the Index fund via SIP and earn good returns in the long-run if the Indian share market shows good growth.
Well, India is a growth story and in the future, there will be tremendous growth that will take place here, and if the Indian indexes Sensex and Nifty represent this growth and due to that if Sensex and Nifty grow along with it too and one should invest here itself. Now, how to invest in Sensex – Nifty? You can invest here via Index Funds because if the common investor tries to invest in all the 50 companies present in Nifty individually then he will have to invest huge money for that. So via Mutual funds, one can invest here with less money by opting for monthly SIP.
Until next time…
Happy Trading, Happy Investing!!!
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