Be a Smart Investor – March consistently towards prosperity

I can calculate the motion of heavenly bodies, but not the madness of people.”

These words were said by none other than Sir Isaac Newton after he lost a fortune in the stock market.

The story goes back to 1720. Ebullient after making a huge profit of £7000 by selling the shares of South Sea Company that he owned, Sir Isaac Newton decided to re-enter the market, when the market was closer to the peak. Thinking that the uptrend would continue, Newton kept holding the stock, only to sell it at a loss of £20,000. The brilliant scientist that he was, Newton got swept away by the frenzy of the market and lost a fortune in a stock bubble. The story goes on to prove that it is almost impossible to time the market and make gains consistently.

Three centuries later, the above statement still holds good.

The question that arises is how to be a smart investor. Here’s a simple rule of thumb that can help you to invest wisely:

Resist the impulse to Time the Market

Most of us are tempted to time the market in order to make big gains. While trying to time the market, we often tend to be overconfident of our judgement and overlook the fact that the chances of losing our money also increases as we time the market.

Some of the most successful investors agree that when it comes to investing, discipline beats intelligence. Studies have shown that a regular investor makes more money than one who times the market.

Rather than timing the market, if you invest a fixed sum, every month, in a Mutual Fund Systematic Investment Plan (SIP), you can tide over the highs and lows of the market without having to worry about when to buy or sell. An SIP-based approach not only helps you to beat the market volatility but over a period of time, the returns from a SIP in mutual funds will also help you to beat the rising inflation.

 

Why Mutual Funds?

Traditionally, fixed deposits (FDs) have been the most favoured investment instruments in India.

It is true that investing in stocks is subject to market risks, due to which people often opt for fixed deposits. However, the fact remains that fixed deposits also come with interest rate risk that arises as you lose the opportunity to invest in instruments that fetch a higher rate of return since the money is locked up for a long tenure at a lower rate of return.

Whereas, fixed deposits yielded a rate of return in the range of 12% – 13% for investors in India during the 90s, the interest rates offered by the bank FDs are now between 6.5% – 7.5%.

Additionally, the interest on FDs is taxable, while Equity funds held for long term (more than a year) are not taxable. Moreover, most Mutual funds offer high liquidity after the minimum holding period has passed.

As such, mutual funds have become a must have asset class in our portfolios.

Mark the 7th of each month as Mutual Fund Day (MFD)

Mutual Fund Day

To instill the habit and discipline of investing among people, Reliance Mutual Fund has conceptualized the Mutual Fund Day initiative by celebrating the 7th of every month as the Mutual Fund Day.

You can start small with an amount as low as Rs 500 per month. This amount leaving your bank account on the 7th of every month will add up to Rs 6000 a year, plus your return on investment.

Investing in mutual funds is easy and the payments can be done online at the click of a button. The date is easy to remember as seven is considered as a special number by many people all over the world.

So, make it a habit to invest on the 7th of every month, and find yourself in the seventh heaven as you watch your wealth grow.

Fund For a Friend (FFAF)

FundForAFriend

Now that you know why it makes sense to invest in Mutual Funds, why not tell your friends too? Here’s a fun way to spread the awareness about investing in Mutual Funds.

Take a small quiz about your best friend and share the result with them, suggesting a suitable investment profile for them that can help them to realise their dreams and live the lifestyle that they aspire to. By helping your friends or loved ones to achieve their goals through financial planning, you can guide them towards the path of prosperity.

Why wait then? Click here to share and care.

 

 

Image credit: Reliance Mutual Fund Facebook Page

  • author's avatar

    By: Somali K Chakrabarti

    Hi there ! I am a management and leadership coach and a ‘çlinical blogger’. Well, that’s what my family & friends call me now ! Here, I tell stories of different brands, how people relate to the brands and the values, beliefs and emotions that they associate with the brands. Hope you enjoy reading my posts.

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7 thoughts on “Be a Smart Investor – March consistently towards prosperity

  • July 14, 2017 at 10:02 am
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    It is very wise investment tips you share, Somali. I love that quote you shared, and so interesting to know Sir Isaac Newton also dabbled in shares. Fixed deposits don’t yield too much returns here in Australia. I have one for a while, but it still beats putting your money in an every day account and also savings account. The downside really is that I can’t touch it for a long time – but that has made me careful with my spending and have a backup plan when it comes to my finances. It is also interesting to hear how mutual funds are growing in India, and if it’s professionally managed especially after talking around to financial planners and similar minded-individuals with similar experiences, then a better return is always on the cards 🙂

    Reply
    • July 15, 2017 at 5:52 am
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      Thank you Mabel. I too was surprised to know that Sir Isaac Newton dabbled in shares as well. 🙂 Yes, with Fixed Deposits, you can’t touch the money till the FD matures, in a way this ensures that you do not overspend, as you have mentioned. I also have a fixed deposit but the moment it matures, I will put in liquid funds, so that I earn a better interest than FD, the liquidity is there and the risk is also contained. Mutual fund awareness is picking up in India. Yes, these are professionally managed and one can expect decent returns with a long investment horizon. 🙂

      Reply
  • July 16, 2017 at 11:12 am
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    Somali, this is an excellent piece of article on how mutual fund plays an anchoring role in our investment portfolio and we have always shied away from participating in equity. Direct participation is not easy and it needs adequate research and it also needs a fair understanding of the stock market.

    As so nicely described, you have shared the bad experience of Sir Issac Newton with his genius he couldn’t handle the unpredictability and the timing of the market shall always remain an illusion for lesser mortals like us and with little knowledge definitely makes it a dangerous game. With the FD losing it shine, one just cannot escape the share of higher return that one can obtain from the equity portfolio, the question is how much to invest and how to do the investment prudently…undoubtedly the vehicle of “mutual fund” makes it easy for beating the volatility and also spread the risk. There are good mutual funds and we can choose few of them to further minimize our risk by apportioning our investment.

    Also as so mentioned by you, it has become simple and so easy to invest in such mutual fund portfolios, these are just a click away. So rightly emphasized, the moot aspect is “discipline” not so much as “intelligence”, this doesn’t work here as it does in other space of work and working here squarely boils down to how much we are discipline in our investment plan.
    😀

    Reply
    • July 19, 2017 at 2:54 am
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      Thank you Nihar for so summing up the gist so nicely. We usually tend to procrastinate when it comes to investment either because we do not know how to go on about it or we find it uninteresting, as unlike in equities, the results are not apparent in the short term. Thus we lose out on the benefits of compounding. People who inculcate the discipline of investing and holding for a sufficiently long period, take the benefit of the market while offseting the risks with time.
      Hope you are enjoying the monsoon in Hyderabad.

      Reply
      • July 19, 2017 at 4:15 pm
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        Most of us loose out this space of investment where the returns are much high, though we have to take fair amount of risk, but nothing in life is achieved without taking risk…
        I agree discipline remains the paramount importance to fetch the maximum dividend and we can always limit our investment till you get a fair understanding and confidence of being invested in this space. Equity Market is another topic I love to debate and analyse…
        Yes, yes Somali…just last couple days it is raining cats and dogs, after the hot and humid summer, it is great relief and enjoying the bounty of nature…how about Mumbai, it seems it was also under the siege of rain.
        😀

        Reply
        • July 19, 2017 at 6:28 pm
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          I have traded in derivatives, made very good profits and then lost a considerable portion, so stopped that altogether. With the benefit of hindsight, I can say long term investments are the best. Yes , we too had continuous rains since the last few days. Today evening, got a break from the downpour of 3-4 hrs. 😀

          Reply
          • July 20, 2017 at 2:32 am
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            I know Derivatives not easy…I have learned that staying put in some blue chip companies for long is the best thing for us. Long term capital appreciation and regular dividend is good point to start with and there are few ones where we can expect something bigger in terms of it turning out as multibagger…later case we need the support of luck.
            Same here, just got a break today after a long spell of heavy downpour for last 3 days.
            😀

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