“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)
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)
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