Friday, September 5, 2014

Your teacher’s lessons will help you for life!!

 On Teacher’s Day while we remember our teachers and the countless lessons they taught us, the first thing that they might have inculcated in us, apart from their endless efforts to make us understand algebra and Shakespeare - is discipline. May it be reaching class way before the last bell rings, or doing our homework regularly to even polishing ourshoes on a daily basis, discipline in small ways has made a big difference in shaping the kind of people we are. We need to ensure that we inculcate that same discipline when it comes to our investment styles!

Discipline is the key to sound and healthy investments. Remember when you, as a child, used a piggy bank to save money? The coins you dropped into the piggy bank were miniscule in value, but they teach an important lesson in financial discipline - Save Small, Save Regularly. Today, this very approach applies to your financial wellbeing. With volatile markets and high spending habits, it is advisable to make small investments regularly and systematically rather than a large investment all at once. When you invest regularly & systematically, you reap the benefit of compounding (as explained in our previous article).

For example, if you plan to save Rs 2,000 per month for 10 years. Your total saved amount thus would be = Rs. 2, 40,000 per year. Now if you assume a fixed rate of return of 12% per annum, after 10 years your investment stand to Rs. 4,60,077. That is a difference of Rs. - 2,20,077! How did it amount to that? Simple, your savings used the power of compounding to transform into wealth. Do you still need an incentive to discipline your savings?

Like your teacher used to guide you, all you need is a guide, someone to handhold you and help you learn and manage your investments. Since most of us do not have the time or the expertise to understand markets and where should one invest, it is always better to invest in Mutual Funds.
Always invest in time, if you are planning to buy a car some years later, don’t wait for that salary hike to finance the car, start investing in Mutual Funds through SIP and build your corpus. Find out what your SIP will yield in different time frames. Do your homework to figure out which Fund House best suits your investment style and risk appetite, is the fund house going with the trend? Or is it unafraid to swim against the tide and take investment calls, which may look strange at that time but in the long run, are beneficial for your portfolio.

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