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Your salary provides you the mechanism to meet your everyday needs, and any surplus is your saving which provide a means to meet your future needs.

It is a general opinion that people who earn more are rich today and will have a richer and brighter tomorrow. Not necessary. Because if that was the case, Vijay Mallya wouldn’t be where he is today. There are cases of so many rich people in India and around the globe, who eventually filed for insolvency in the past. All thanks to mismanagement of money. Many people are making enormous money, but how many of them die a multimillionaire. Not many. Because they might be getting a lavish paycheck, but matched by an equally lavish lifestyle, and before realizing that entire money is gone in a flash. A salary with a large number of zeros at the end won’t make you wealthy, how well you treat your salary certainly does.

• You don’t have to spend all your salary: After ploughing through for a full month 10-7 each day, you get your salary, you feel you slogged for it and you deserve to spend it the way you want to. You do deserve the money, no second thoughts, but spending do need some serious consideration. You have to save a fraction of your income to ensure that you don’t run out of money when there is none coming. This fraction determines your spending and not the other way round, meaning, if you get a salary of Rs 40,000, you spend Rs 35,000, Rs 5,000 is your saving, next month you spend Rs 39,000, your saving is Rs 1,000, some month you’ll spend the entire 40, another month you’ll spend 44, the extra 4 is on your credit card. Can you feel the clutter? It is because this is not how it works. So let’s unclutter it a bit, your salary is fixed, Rs 40,000, let’s fix your savings too at Rs 15,000. So each month salary 40,000, saving 15,000, spending you have to manage within 25,000. This Rs 15,000 each month, put in the right direction will make you wealthy in the long run.

• The salary shouldn’t be lying in your salary account: Dear Customer, your account is credited with Rs XXXXX on 1-Jul-17, salary for the month of June 2017. You spend from this account over the month, there is some surplus in the account, then again next month you get the same message, and this continues, month over month and year over year. Many salaried people have lakhs of rupees resting @ 4% in their saving accounts from the money thus accumulated. Your savings are dying a slow death this way, when they have the potential to grow at double or triple this number, so why are they not exploring better options, why are they not living to the fullest?

• Save Tax: Paying tax pinches, because a substantial chunk of your salary, you have to give to the government. And the irony is, taxes are directly proportional to your income, the higher the salary, the higher the tax. You are earning to live your dreams and not to pay 30% as tax. If you can alleviate your tax liability (legally), so why not. Therefore, your investment list must have tax saving at the top. Investing in tax savers will increase your net income as well as will get you a decent return on your investment. When you invest Rs 1.5 Lacs in a tax saving instrument, you save Rs 45,000 (taxes saved assuming 30% slab) + 12,000 (Return from your investment, assuming 8% fixed return), a total of Rs. 57,000.

• A salary increase = A savings increase: The general reflex action to a pay raise is we fall prey to the consumption instinct. When your salary increases, the need to splurge increase, a wage hike proportionately increases the standard of living. And a dominant part of the additional expenditure is on stuff that we can easily do without. Ideally, when your income increases, your saving & investment must also increase in a similar proportion. This will make sure that your investments are able to catch up with your escalated lifestyle.

The above thought-points form the protocol for a productive management of your salary, and if followed religiously can create magic. Money management has to be pursued at all times, irrespective of which end of the hierarchy you are at, the bottom most or the topmost, because building wealth is a lifetime goal.

“Your salary gives you a start, the end is a wealthy you.”

Need for more wealth is never ending. We want to be wealthy, free from stress, free from monthly rents, mortgages and wish to pursue our passion. But the irony is, only a few from the lot are able to achieve financial freedom. It’s not that we don’t work hard, we all do, but something is wrong somewhere and we don’t really handle it well. Why can’t we be wealthy in spite of the struggles that we go through each day even after years? We often wonder what is it that the wealthy do and we are not doing?

For becoming wealthy, you have to earn, save, invest, and thus multiply what you earn. We all know this, however there are some personality traits which are becoming boulders in our way to success. Today we will talk about some of these traits…

Procrastination: We fail because we do not start on time, we keep on waiting for the right time, not realizing that if we do not start, the probability of winning is zero. Most of us are in the ‘planning to invest’ stage since ages, but this planning never ends, and we seldom move on to the next stage of ‘executing’. We know that we have to invest to save tax, to meet our future goals, to build wealth, but there is something stopping us to actualize it. ‘“I’ll start an ELSS SIP this year”, and I say this each year’, is the problem.

Band Wagon: My neighbour is rich, I’ll do what he is doing; This is a common problem, if my neighbour is doing well in his car modifying business, I’ll also want to do the same business, not realizing the fact that he is a mechanical engineer, he has a passion for cars and it’s not there in my blood. We have to identify what we are good at, what excites us, and then choose our career. This starts from our education and extends to our career, If economics excites you, don’t take computer science because it is more popular, and all your friends are choosing CS.

Lack of well framed goals: We want to achieve a lot, but if someone asks us what do you want to do in life, or how do you see yourself ten years down the line. Most of us would have vague answers, since our goals are not clear. We don’t know what we want to achieve and what we are working for. And no matter how much we struggle, working without a mission is like a ship without a helm. You’ll never reach the shore if you don’t have a direction in life. You should have well framed goals and the time horizon to achieve them, before investing for those goals.

Indecisive: Another major pit on our path to success is our inability to take decisions and to abide by them. At first, we are not able to decide whether to invest or not, then when to invest, and finally where to invest. And if at all we invest, we easily lose conviction in our decision and keep on changing our investment pattern, we sell what we have and buy something which our friend suggested. The cycle repeats in many forms and we end up wasting the time and efforts involved in making each investment. Result, we don’t end up anywhere.

Personal life: Not having a happy married or family life, can be one of the biggest contributors to misery. It destroys your goals, your self confidence, your plans and your inner peace. In order to be wealthy, you have to start from your home and you have to maintain harmony and understanding in your relationships and invest time, care, love and concern in people around you.

Lack of patience: We all want to make money and make it quick. Unfortunately, financial success is all about patience and time. Once you invest, you have to be patient and see it rise and fall, until it reaches a point where it serves your purpose. Often a fall in the investment pulls the rug from under our feet, and this state of panic leads to wrong investment decisions. We have to control our emotions when the times are bad and wait till the clouds roll by.

Some people just don’t want to take risk: Some people are adventurous, and invest in high risk high return products, and at times lose the principal as well. And there are some, who do not want to risk their money at all, even if their age and financial position allows them to take some risk, they won’t. And both extremes, do not make money. Risk and reward go hand in hand, you have to take risk, to build your wealth, but it should be calculated on the basis of financial backgrounds, goals and risk appetite.

Standard of living: We tend to imbibe the standard of living of our acquaintances. We buy things which we do not require and we cannot afford, in order to maintain a lifestyle and social status. A Levi’s jeans is equally good as a Diesel jeans and both serve the purpose, the reason spend Rs 16,000 on a Diesel jeans in the snob appeal it presents. If we cut down the expenses which are not necessary or stop paying a premium, not

for quality but for brand value, we’ll be able to save a lot. And these accumulated savings, if invested wisely, will add to our better future.

Idle cash and savings A/c: Cash lying in a pot buried in your backyard or in your savings bank A/c is not building wealth for you. If you are keeping cash with a view to ensure safety and liquidity, you do not realize that the prices of consumer goods are increasing at around 7% annually and your savings bank balance, or worse, cash in that pot, are not increasing anywhere near the inflation rate. So, effectively, this idle cash is deteriorating with time. In fact the same can be also said for investments in Fixed Deposits of banks where post tax returns are less than inflation. You must direct it to a better return generating avenue, so as to at least cover the inflation rate. If you are looking for liquidity, investing in a liquid mutual fund is a better option.

Excess gold: Indians are obsessed with gold. We buy gold on every auspicious occasion and worse, we buy gold in jewellery form and we firmly believe that it is an investment which will protect us in case of emergencies. We pay huge making charges at the time of purchase, which is a total loss. We pay locker rents for ensuring safety of our jewellery. And in case an emergency arises, selling gold jewellery is considered ominous, and is the last resort to source money. And if all we have to sell, we pay wastage charges, which is again a loss. So, buying gold jewellery is not an investment at all. If you still feel that gold offers you protection, you can possess it in dematerialised form, you can invest in gold funds or gold ETFs. This will give you the benefit of availing the increase in the price of gold, no making or wastage charges, & no handling charges. The investors who are willing to overcome these personality traits will move towards their goal of becoming wealthy sooner than those who don’t.

For those who may choose to not see the lights may be left searching for answers. So let us bathe ourselves on in light of these priceless words said by the masters. To keep things simple, we are only listing the most important ones for our readers.

Investor behaviour has been a subject of deep study with many authors and finance experts reflecting their opinions on it. As is most commonly seen, investor behaviour often deviates from rational and reason. The individual personality traits matter a lot while decision making, often complicating them. The personality is subject to influences, ego and emotions like impatience, fear, greed and hope.

These factors often cloud the facts for decisions which end up being judgmental and biased resulting into wrong decisions. This famous statement by Graham rightly highlights this point.

There is another way at looking at this. As smart investors, we should look to allocated most money to the best ideas or assets that have potential to deliver the highest. At the same time, we should also ensure that our mistakes are not so costly that they harm our wealth noticeably. It is also a pointer to how most of us view and manage our portfolio which are often heavily skewed in favour of fixed income /debt products /physical assets, etc. even though our risk profile may permit a far more balanced asset allocation.

Most of us have a small exposure to equities when we consider our total portfolio but still are most worried about it on a daily basis. Given this mindset, in the context of the quote, we must question ourselves: what are the “costs” and “profits” of what we are doing with our overall portfolio? We should stop worrying about a small portion of our wealth in say equities and instead look at the big picture. Let us focus on diluting those debt products for short term needs and lets give adequate time to equities to give compounded returns in long term. The sooner we reflect upon George’s wisdom in our lives, the better will it be for our own wealth creation goal.

Warren had the skill of telling the most important things in the most simple way. This quote and many others similar, shows Warren’s belief that that wealth creation was not a forte for the intelligent but for the disciplined. Anyone of us can be wealthy in our lives and it can be done provided we do few important things in our lives and not do the wrong things. This is clearly in reference to how investors approach their wealth /portfolio management wherein we try to time the markets not realising that it is staying invested for long term that really helps create wealth. If we add all the costs of all the wrong decisions, market timings, etc. done in past by us, put together, they would most likely amount to lots of lost wealth.

The important principles of starting early, investing regularly and right asset class (‘equities’) ought to be highlighted here. These are the right things that we all should aim for. We need not be scientists or finance experts or even literate to follow these principles to be truly wealthy.

Much success can be attributed to inactivity. Most investors cannot resist the temptation to constantly buy and sell.
– Warren Buffet

You won’t mind us quoting Warren here again. It is probably one of the greatest mysterious wherein on one hand almost all investors idolise Warren but on the other hand, most of us do not truly follow his wisdom and advice. One of the most often quoted advice /wisdom from Warren is about how we can really create wealth in long term. It is about buying into good businesses and holding them for a very long term without worrying about what happens tomorrow. The above quote clearly reflects how most of us are often worried about short term movements while the true need of the hour is to keep invested for the long term and being passive. Investors have to believe that, if they are investing for long term for say 7-10+ years, short term movements do not really matter. “Stop trying to predict the direction of the stock market, the economy or elections” he says while attributing patience and long term holdings as among the most important factors behind his success.

In brief..
Keeping in mind the spirit of this article, we have only given only four essential quotes though we could have easily added a few more. The idea was to keep the focus on the essential part and not flirt with other less important things. The wisdom from the above quotes focusses on the key essentials – managing investor behaviour, looking at the bigger picture, doing the right things and then having patience to let investments deliver. Out together, these ideas take form as the basic principles, a guiding light on path to becoming rich. And there is really nothing more that we should add to it.

We have explored the SWP in one of our previous issues. This month, we would be exploring the STP or Systematic Transfer Plan in detail.

Thanks to the consistent marketing efforts by the industry, today SIP or Systematic Investment Plan have become a familiar term for investors. More people are now beginning to explore the savings route through SIPs. But as an investor, one should know that SIP is just one route or facility of investing. Likewise, there are also other facilities offered by mutual funds to investors to invest, redeem or switch between investments, which are relatively unknown. We shall be exploring these facilities in detail in the future newsletter issues. In this issue, we will talk about Systematic Withdrawal Plan or SWP.

What is SWP?

A SWP is a facility that allows an investor to withdraw money (redeem units) from an existing mutual fund scheme at defined time intervals. Thus, the SWP is something opposite or reverse of a SIP where periodic investments are made into the scheme. The SWPs are used by investors to create a regular flow of income from their investments for meeting various life objectives.

SWP Options:

There are certain additional options offered by mutual funds within SWP. As far as time intervals are concerned, the frequency options generally available to withdraw are on monthly, quarterly or annual period basis. In terms of the nature/type of withdrawal possible, investors normally have two options to choose from…

Fixed Withdrawal: Wherein specific amount of money can be withdrawn.
Appreciation Withdrawal: Wherein amount of appreciation only can be withdrawn.

Ways how you can use SWP in your lives:

SWP can help meet your cash-flow requirements for achieving any temporary or long term objective. It is one of the many ways available for planning regular income from savings. The following real life situations can help you realise the ways in which SWP can be planned

1. Mr. Amitabh will be retiring very soon. Post retirement he wants a steady income flow into his account.
2. Mrs. Kavita plans to take a break from work for a year to bring up her first child. She is exited and wants a steady inflow from her investments during this period.
3. Mr. Kishore has recently married and wants to create a perpetual cash flow for his wife while keep investment capital intact.
4. Mr. Banerjee is planning an investment in his son’s name with regular withdrawals to fund his regular pocket money and tuition fees needs.

As we can see, SWP can be a very powerful facility which can be used smartly to meet your cash flow needs. It can potentially play a very critical role as part of a holistic financial planning for your family.

SWP: Tool for Investment Strategy

There are specific ways in which SWP can be smartly used to manage your wealth as well as cash flow requirement. If we can carefully manage the amount of SWP with the returns or appreciation expectation, we can strike a smart balance between periodic cash flow on one hand and capital appreciation/ reduction on the other hand. For financial planners, its a great tool to play with…

Stategy 1: Regular cash-flow keeping Principal Intact:

This is the simple strategy where the the option of ‘appreciation withdrawal’ is exercised for SWP. Thus, the withdrawal amount changes to adjust for the “appreciation” or gain made on the amount invested. In this way your capital stays invested while you continue to enjoy the gains periodically.

For example: Amount Invested R5 lac. Expected returns 9%. Monthly withdrawal option: Appreciation only meaning any amount over 5 lac will be to the investor on the selected periodic intervals. The main investment remains intact.

Strategy 2: Creating Perpetual Cash-flow:

This is the advanced version of strategy, wherein a ‘fixed’ withdrawal amount is kept lower than the expected returns or appreciation. So if expected returns is say 9%, you will be withdrawing below 9% every year. This way, a perpetual cash flow is ensured with lump-sum capital staying intact.

For example, if scheme “X” : Amount Invested R5 lac. Expected returns 9%. Monthly withdrawal: R3,000/- short of 9% yearly. This would create a perpetual cash flow of R3,000/- with invested capital staying intact or increasing slightly. An extension to this strategy is that if you have a big investment capital and mush smaller withdrawals, you may be able to increase your withdrawal amount every year and still continue to enjoy outflow for a longer period of time. A real life scenario for such a case would be retirement where the growing annuity would be needed to adjust for inflation. The other option would be to keep withdrawal constant, then you would be able to increase the value of your investment.

Comparison with other products:

Let us now compare the SWP option with some of the other products in market which offer regular income option.

Unfortunately, looking at the above comparisons, we can confidently say that there is not enough savings products or options available that is worth comparing to the SWP option in a mutual fund scheme. The popular SCSS and POMIS products may offer fixed returns but they also have limitations in terms of amount, period, mode of holding along with the inconvenience and operational hassles. Mutual funds which also offer debt and money market schemes can potentially deliver better post tax-returns, in addition to the many other advantages.

Way forward:

Times are changing. As investors, we need to take efforts to understand the options /facilities available to us and be open to incorporating these ideas to manage our wealth and our lives in a better way. SWP is one strategy that really helps you meet your consumption or cash-flow needs. Perhaps SWP is as important a tool for managing redemption or withdrawal of money as SIP is important for investing. We hope, the next time you are thinking of withdrawals, the idea of SWP shall cross your mind.

This article is for the ones who fall in the above category. We have listed some tips which can help you in trimming your expenditure, without causing much pain.

Concentrate on Essentials: This is about a girl Nimrat, from Kolkata who moved to Gurgaon for pursuing higher studies in July last year. Four months passed, and winters had set in. Delhi unlike Kolkata, is chilly during winters, so Nimrat asked her dad to transfer her money so that she could buy some warm clothes. Next day she got the money and went to Ambience mall with her roommate to buy winterwear. As soon as she entered, on her right was Zara, on her left was Diesel followed by her favourites, M&S, Bobbi Brown, Mango, Promod, and a number of other brands, all inviting her to splurge. Nimrat couln’t resist the bait and soon was rattling in the trap. She spent her money on a ripped jeans, a cocktail gown, and a skimpy top and none of this was going to warm her up during the freezing temperatures. Nimrat wasn’t left with a choice but to borrow from her roommate for her “essentials” shopping.

This anecdote intends to convey, prioritize your needs, spend on the necessities, because if you prioritize luxuries, you might end up in in a difficult situation for fulfilling your basic needs later.

Keep your cards at home: A very simple yet effective technique of actualizing shopping within budget is, keep your plastics at home when you go for shopping. Envisage the amount that you’ll be needing and keep only that amount in your pocket (keep a margin of 10-20%). So when you go out, you’ll concentrate on necessities only as there is no money to pay for impulsive purchases.

Wait for sale: Don’t spend Rs 1000 on a t-shirt which you can get for Rs 500, 2 months later. All brands put their stock on sale at least 2-3 times a year with discounts ranging from 30-70%. Nowadays the frequency of sale has increased on e-commerce website, they put a sale almost every month. Don’t be an impulsive shopper, commit to yourself that you’ll shop only during sale and save a lot of extra bucks. Having said that, it is also important to note that offers, discounts and sale on e-comm websites and malls will try to lure you into buying stuff you don’t need, extra 25% on orders above 1,499, 1+1 only for the next 2 hours, buy 2 get 3 and the like. Don’t be a victim of such gimmicks, and buy only what you need.

A sane shopping partner: If your shopping mate let’s you buy overpriced or unwanted things, then you need to break up with him/her and look for a sane one. Your shopping partner plays a very important role in controlling your urge to splurge and help you save money. So have a shopping partner who is prudent, values money, decisive and is fun to be with.

Shopping is not a stress reliever: When the whole world looks grey, shopping looks pink, and that’s why many distressed souls seek joy amidst stacks of goodies confined in the flamboyant glass walls of the shopping mall. It’s a general belief that shopping alleviates sadness and you tend to buy things that you do not need, do not want, and most importantly can’t afford. This tendency is generally labeled as Retail Therapy. It sounds good as far as it’s a marketing ploy, but when it’s practiced by us during our lows, it doesn’t remain good any longer. Using shopping as a means to relieve our stress time after time, can turn out to be catastrophic for our finances. There are economical ways to lift your spirits, go for a walk, call up a long lost friend, go and have an ice cream, these things will soothe your mood without affecting your pocket.

Sell the stuff you don’t need: Most shopaholics’ homes are filled with stuff which they have never used or will not use in the future. This is the stuff that you need to get rid off as soon as possible, sell it off and the money you get can help you in sponsoring things or experiences which are of a higher importance. You can save this money, invest it for your future and feel proud of the fact that you made wealth from waste.

The above are a few steps which can aid you in controlling your urge to splurge. This piece does not encourage you to become a miser, rather become frugal, a prudent shopper, because there’s no harm in shopping but going overboard is as deadly as gambling your hard earned money in a casino. Saving money won’t bring in pain, you need a little presence of mind, a clear vision and some creativity to save yourself from a lot of future pain.

Whether Demonetization was able to do the needful or it failed in its purpose, is a separate question altogether. Amidst the high profile debates propounded by the Democratic league, we the common man, have our own set of experiences and memories, good and bad, associated with NoteBandi. This chaotic phase has delivered many financial lessons for the common Indian man. So, this article focuses on what did we learn during this one year, and how the lessons can be helpful in managing our finances better.

Don’t keep cash at home: The biggest lesson that Demonetization has taught us is ‘Do no hoard Cash’. Money lying idle in your cupboards can have serious repercussions like:

• The cash is vulnerable to being stolen.
• The money is gradually diminishing in value. The termite, inflation is slowly nipping it away inch by inch.

Why do you want to handle so much cash after all? If you already had cash in your banks, there was no need to affix yourself to the queue, anterior to the banks on 9th November 2016 and onwards.

And this is applicable to both households as well as businessmen. The latter who deal in cash are also subject to the above side effects.

So, the first step of action is if you still have cash lying at your places, go and deposit the same in your bank account.

Secondly, invest that cash, apart from a little emergency money for your near term cash requirements, so as to shield your money from the inflation attack.

Digitization: Another wind of change that Demonetization has brought in the way we live is the embracement of technology. And the scale at which it has made it’s way into our lives is noteworthy. Post the NoteBandi, people were not left with an option but to use digital means for their everyday transactions. Such was the plight that even the sabjiwala’s and the small grocery stores, started accepting payments through digital wallets and got their own card machines. Although the cashless phase has passed, yet their machines and wallet codes are in tact and the number of transactions are on the increase.

Demonetization has broken many apprehensions related to Digitization, people who didn’t even have a debit card now use wallets and UPI App for buying groceries.

It was witnessed that those who were comfortable with technology a year ago, were better off than those to whom technology was alien. Furthermore, we should start adopting technology:

• For our own good, because of the unmatched convenience and safety it offers.
• And, the government’s intentions with respect to its penetration are clear, so the future will be majorly digital, so the sooner we adopt technology, the better it will be.

Tax Planning: Post Demonetization, those who had huge chunks of unreported income, suffered dire consequences. Those who deposited more than Rs 2 Lacs in their accounts had to report this deposit separately in their tax returns. Those who fumbled in filing returns previously found themselves in a hapless situation. There were series of scrutinies and raids conducted in people’s homes and offices for not contributing their share to the economy. On the whole, Demonetization clearly conveyed the message, Be honest and file your returns in time.

And why should you evade taxes, when there are multiple methods to legally avoid them. Consult your advisor and invest in a range of products which can help you save a lot of taxes.

So, the above were the lessons which we can learn from the ripples created post Demonetization. Effective implementation of these learnings into our finances can make our lives easier in the long run.

1. There is not just one finish line, there are multiple goals to be achieved during a lifetime, and you’ll be simultaneously running for all of them.

And 2. The life goals, unlike the finish line, they aren’t constant, as you move towards them they’ll drift a little further, not necessary in the north.

So, resting on the above attributes, we arrive at: Goal Setting is not a once in a lifetime process. It is an ongoing affair, you need to revisit and review them time and again.

Having said this, why aren’t our goals fixed? why do we need to revisit them repeatedly?, often comes into the investor’s mind. So the following paragraphs will explain the reasoning behind the constant motion in your goals.

Firstly, your lifestyle exercises a significant impact on your goals. Let’s assume, you are working in a junior management grade in a company, and you feel Rs 1 crore will be enough to meet your lifestyle needs post your retirement, and you invest accordingly. After some time, you get promoted to a middle management grade, so now with an increase in your income your lifestyle will also upgrade, and to maintain this upgraded lifestyle after your retirement, Rs 1 crore may not suffice. This concept is not just applicable to an increase in your daily living expenses, it is also applicable to the size of your other dreams, they will also move in conjunction with your income. The dream of owning a basic hatchback will transform into a dream of owning a comforting sedan, the dream of a Kashmir vacation will translate to a Dubai vacation, and the like.

Secondly, there can be a change in your footing which may require you to modify your goals. There may be goals which were paramount for you earlier, but now they’ve lost their meaning, so they need to be put off the table. For example, five years ago, your sole aim in life was to own a Harley Davidson and you were passionately saving for actualizing your dream. But recently you had to undergo a major knee replacement surgery, and you have to take the back seat now. So, the goal has lost its significance. Conversely, a variation in your position may require you to elevate or alter your goals too. Let’s say you wanted to stay ahead in the race and you started planning for your kid’s education while your wife was pregnant, but things didn’t move as planned, and she delivered twins, so now you need to account for the second kid too while planning for the kids’ education.

Thirdly, Inflation is the villain which pushes your goals away, away from your reach. It is because of inflation, that you have to run faster and sweat extra to reach your target. In our previous example, Rs 1 crore was enough for the investor to enable him meet his post retirement needs “today”, but not 10 years ahead when his retirement approaches. Assuming an average rate of inflation of 6%, his retirement corpus requirement to maintain his “present standard of living” will be Rs 1.8 crores after 10 years.

The fluctuations in our life goals are a product of the above factors. These changes are inevitable, and hence we need to keep on incorporating these changes into our goals and make the necessary modifications in our financial plan. If you do not keep revisiting and modifying your goals, you would be moving in a random direction which may or may not be leading you towards your targets.

To conclude, this marathon called life is really long, the number of laps are endless, the targets are many and are constantly evolving. So if you want to win the race, you have to be fast, run at a speed higher than the speed of the goals, you have to be flexible, align your direction with the direction of the targets, and you need to be attentive to the change throughout the run.

Arrival of a kid may be the most wonderful and joyful moment in any parent’s life. Along with joy this brings additional responsibility. Making your kid financial savvy forms an important part of modern day parenting.

Just as for any multistorey building it is important to have strong base, it is important for your kid to gain knowledge about finance and investment right from his/her childhood days to be financially mature & informed. Right from automobile to electronics to real estate to FMCG companies, all are targeting this segment as children play very important role in buying decision of their parents. Just as it is important to inculcate good values and virtues, it is equally important to focus on financial literacy for your kids. Making them understand about money matters and finance can help them build strong investment base right from early stage of their life, allowing them to reap benefits later.

Different kids at different age groups need to trained in different way. Let us try to understand how money or finance related matters can be explained to kids in different age group.

Kids in 3 to 5 Year Age Group:
Make them understand about basics of money. Very first thing which they need to understand is what is money and importance of money. Why money is needed to buy everything.

Kids in 6 to 10 Year Age Group:
Kids start going to school and start interacting with outside world. They get more involved with their friends at school. There are few very important lessons to be teach at this stage. Like making the kid understand difference between need and want, importance of savings, basic skills of negotiations etc.

Here you can prepare a chart and put all essential items like food and grocery purchase, milk, house rent, electricity, clothes, fuel, school fees etc in essential item circle called ‘Need’ section of the chart and other items like eating out, going to movie, buying toys etc in non essential item circle called ‘Want’.

Even though Rakesh and Rajesh invest more money than Rajeev, their final retirement corpus is significantly lesser compared to Rajeev. This is the benefit of starting early and allowing the power of compounding to work in your favour.

Create 3 jars or boxes : 
one for income, one for spending and last one for saving. Ask the kid to move money from income jar to spending jar whenever he wants to spend and transfer balance to saving jar.

Ask the kid to put whatever he/she earns on birthday celebrations, festivals like Holi and Diwali or through gifts in income jar. After spending on his/her books, stationary or any other miscellaneous items inculcate habit of transferring balance to saving jar. This will allow the kid to understand that we need to spend within our limits of income and positive balance should be left in income jar in an order to save.

Very important to make your kid understand about usage of ATM card. Importance of keeping the card and PIN safe and secured. Make him/her understand that ATM card is only one mode of withdrawing your own money from bank account. ATM machine is not giving you free money. Also open a savings bank account in kids name. There are many banks now a days which are offering junior account with basic banking facility like cheque book or ATM card.

Kid in 11 – 14 Year Age Group:
After making your kid financially aware about basic things related to money and concept of saving, now is the time to take things one level higher. At this age you can start discussing little more complicated but very important things with your kid.

You can start discussing with your kids about concepts of compounding. Importance of early start of investing in life to take maximum advantage of compounding.

Inflation:
Just as knowledge of compounding is important, knowledge of inflation is unavoidable. How inflation eats into the value of money and how it affects both investment as well as day to day life. Make the kid understand about why it is important for any investment to beat inflation to grow your money.

Usage of Credit Card:
Kids at this age are more exposed to internet and online world. Discuss about concepts of credit card, online payment and internet banking. Credit card is only mean to make transactions conveniently. Make your kid understand about not spending through credit card on something which you can not pay in cash later. One falls in debt trap if he/she spends beyond ones paying capacity. Discuss about high penalty and interest rates charged by credit card companies on late payment and how one’s credit score gets negatively affected.

Also discuss danger of providing personal data online and not sharing confidential information like passwords and fraud e mails in name of lottery winning, free holiday trips etc. Not to respond to these type of mails by providing account number / ATM Card, Credit Card number or PIN.

Kids in 15 – 18 Year Age Group:
This is the time when kids start preparing for their higher studies. Once the kid decides on type of course to pursue, you can ask the kid to calculate total cost involved for the course across different colleges which includes not only college fees but also study material cost, tuition fees, hostel expense if college is in different city as well as commutation cost. Kids can calculate the entire cost of the course across various colleges, compare and decide on his/her own. Also discuss about concept of education loan and pros and cons of taking education loan.

Adult Kids 18+ :
These are grown up kids either still studying or about to join work force in few years time. There are two very important lessons at this stage :

• Importance of Insurance
• Importance of Taxes

Explain concept of different kind of insurance like life insurance (term plan), health insurance, motor vehicle insurance etc. The best way to make the kid understand the concept is to take a term plan and medical insurance in kids name, involve him/her at every stage right from comparing different plans to premium payment to understanding policy document. Put responsibility of paying premium on your kid if he/she has already started earning.

Also importance of taxes while making any financial decision. Simple concept from filing income tax return, the importance of filing return and impact of taxes on investment return.

Educating your kid on financial matters is an ongoing process. Unfortunately our education system does not focus on practical aspect of finance world at primary or higher education level. The onus is on parents to educate their kids about financial matters so that they enter the professional world fully prepared.

Mutual Funds SIP, as we all know is an investing tool which imparts discipline and convenience to the investing process. It is a systematized method of helping investors achieve their goals and smoothing out their financial life. It stands by you in good and bad times. SIP apart from being a disciplined approach to investment, also helps in generating superior returns for the investor by the virtue of Rupee Cost Averaging.

This article concentrates on how investors can leverage the fundamental principles of successful investing to get the maximum out of their SIPs. Deriving maximum benefit out of your SIP investment can be achieved through maximizing Returns and minimizing Risk. Following are some tips which can help you make the most out of your SIPs.

Follow your ideal Asset allocation: The ideal ratio between equity, debt, gold and real estate is not restricted to lump sum or physical investments only. SIP investments too need to follow the protocol. Your financial advisor has a major role to play here, he/she will ensure that your portfolio confirms to the optimum at all times. So if your ideal Portfolio is 50 Debt and 50 Equity, your investments through SIP need to follow this allocation and any discrepancy as a result of valuation gains or losses need to be adjusted to arrive at the optimum.

Follow the Rules: No doubt investing in Mutual Funds through SIP helps in controlling risks because of Rupee Cost Averaging, the buying cost is spread over a period of time, so the risk of buying at peak is eliminated. Yet you need to follow the basic rules of investing even though you are investing through the SIP mode.

• Link the SIP to your goals, it’ll give you clarity, will help you in assessing how close or far you are from your goal and if you need to take any action with respect to the SIP amount.
• If the goal is too near, do not go for equity SIPs, if the horizon is longer, you can even go for riskier options like mid caps or small caps considering your risk appetite.
• Similarly, SIP investments should be in an assortment of varied underlying asset classes with the view to diversify risk, in confirmation with your ideal portfolio as discussed above.

Review periodically and Increase your SIP: You carve out your SIPs from your income to help you achieve your goals. Now your income is likely to increase each year and with this increase in income, the quantity and quality of your goals will also change. Investing through SIP does not mean you are sorted once and for all. It does make your life easy but doesn’t terminate your job, you have to regularly look back and forth and amend your investment as the time demands. Hence, your SIP’s should also increase with an increase in your income or with an elevation in your goals. Sit with your advisor and ask him to review your goals and help you decide the right SIP amount for you. The review should be done periodically, so that you don’t lose track. Increasing your SIP is not a hectic task, but it is very important and should not be ignored.

Scatter your SIP dates: If you have multiple SIP’s running, you should distribute the payments to different dates over a month. You should schedule them in a way that there is a reasonable gap between two SIP installments, this will ensure that you have sufficient liquidity throughout the month since all the money is not going out in one go. It will also help you in accelerating the benefit of Rupee Cost Averaging.

Exit from the underperformers, enter the performers: Ask your advisor to review your SIP for not just your goals and asset allocation but also for the investment’s quality and future prospects. There is a need to check regularly how your SIP investments are faring over time, and how good does the future looks. If any of your SIPs isn’t in the right scheme, you must exit that underperformer and enter a performer within the same category of funds to remain compliant to your ideal asset allocation.

So the above paragraphs are inscribed with a view to help you in exploiting your SIPs the maximum to your advantage. SIP’s are like a financial blueprint of the investor’s life, you choose the direction of your life and the above steps will ensure that the ride is smooth.

The title of the article may sound like a chapter from a psychology book. But hardly is it academic in nature. This time around, we would take a look at what goes on in our minds before we take any investment decision.Investment decision making is like a coin with two sides – one which is about about facts, figures, objectivity, planning & so on. This is the heads side of coin. The other side is about how we are, our emotions and our behavior. For most of us, our coins don’t often land up as heads. Let us then see at ourselves and look at these behavioral patterns more closely.

Personal Business: 
Everyone has a favorite. And the good thing about having favorites is that you tend to know more about them. In investments too we have our favorites and that it where we would be mostly investing. For some it may be equity, for some bank fixed deposits and for some, insurance plans. But the problem really starts when we tend to ignore other better options while feeling comfortable with our choice. Statistics show that a majority of the investors tend to invest only in one, two or at most three products for a particular purpose. Also we tend to be skeptical about new investments and unconsciously find reasons to reject the new ideas. As investors we should always be open for new ideas and investment avenues but not necessarily adventurous.

Herd Behavior: 
Another behavior commonly observed is herd mentality. We often tend to follow others believing that what everyone is doing is right and thus going with them wouldn’t harm us. This approach reaches an extreme when we know that something is not right but we still go through it believing that everybody is doing it so when something goes bad, you will not be alone. The sense of our loss becomes less hurting when we know that others have lost too. We also don’t want to stand out in a crowd and do things which most of our friends, family members have not done or are not comfortable with. While making investment decisions, this approach or behavior is something we must avoid. If everyone is saying that ‘x’ is bad or ‘y’ is good, it needn’t be so. Evaluate your decisions independent of what others are doing or saying.

Impatience:
With changing times and growing use of technology and other services, we are now spending less time for things that used to take hours before. The fast paced life has also made us more result oriented and impatient in many things, investments being one of them. However, within investments too, we tend to be more impatient and demanding out of few investment avenues, like equities, while being very easy with others, like say fixed deposits. Playing a good dad or bad dad to different investment avenues is not good. Often impatience leads us to make compulsive decisions, which may not be beneficial. Every asset class is suited for a particular time horizon and equities are for long term. So let us avoid checking our investment every now and think what the remaining money can do for us.

Pleasing others and self:
There are also a few among us who are good samaritans. Being good means that you take decisions knowing it may not be best suited to you, just to please or benefit that other person. It is not easy for you to say no. There may be may motives behind this like say relationship, financial assistance, ego or simply charity. But does acting on recommendations by persons, to whom you can’t say no, make any real difference to anyone? In doing so, many a times, we also unconsciously are trying to please ourselves and feel good about making such investments. We must learn to say no to investments until we are not very sure about, irrespective of who is behind it.

Not asking questions: 
There are also few among us who are not in the habit of asking questions. When any investment idea is proposed, we often just ask a few customary questions often beginning with “How is it?” Reasonably satisfied with replies, we rely on the trust and relationship of our adviser who is helping us. Surely, your adviser is acting in your interest, but wouldn’t it be really a lot more worthwhile if we could ask all relevant questions before making investments? This would include questions on ideal time horizon, expected returns, risks involved, tax incidences, liquidity, operational matters, past performance, other comparative products, investment costs and so on. Make use of these questions and the next time your adviser will surely bring better options before you and also come well prepared. So next time any investment idea is thrown at you be ready to say “Tell me everything about it”.

Procrastination & laziness:
Another very common behaviour observed is that of procrastination. This impacts our financial decisions fairly regularly. Procrastination can be seen in every instance of delaying investment decisions, delaying paper work or pushing decisons to some other time. Our laziness too gets the better out of us. Often, it is because of laziness that we do avoid getting involved in proper research, study of our own needs, financial goals, investment options available and so on. Combine them and we get a deadly combination that can kill good opportunities and harm our financial well-being over time. You may not see any big impact at any point of time, but they are always there, eating away your few rupees every now and then.

Overriding emotions: 
The last behavior but also the most pressing one is where we let our emotions get the better of us and impact our investment decisions. There are three emotions that we will talk about here – greed, fear & hope. Greed would be like buying when the prices have risen, looking at the past performance or the returns others have made or still holding on for more when the prices have already risen. Greed would also make us go on fishing trying to catch a big fish from a water we cannot see. The big fish or the next multi-bagger, hot tip, often does not turn up. At the end of the day, we waste more of our precious time and money trying to get one than from we benefited, even if we caught one. Fear is another big emotion to be beware of. It often makes us avoid good opportunities when markets are not doing good, for the fear of further falls. A sense of negativity prevails and we tend to believe worst is yet to come. We would also tend to sell and windup our investments in order to salvage whatever we can at preciously the time we should be acting in the opposite manner. Not only do we end up loosing money but we also end up loosing money that we could have made during these times. Any bad experience in past also makes us overly cautious and we blacklist the entire investment class for ever, often to our own loss. Hope is last of the big emotions that we pay to carry. Often it would make us keep holding in our long time, favorite investments hoping they will recover to the past highs. A sensible, objective analysis should be made each time any emotion overbears itself on our thinking. Emotions, after all, carry no value in the investment world.

Knowing and acknowledging the presence of these behavioral traits within ourselves would help us in avoiding decisions taken immaturely. The better we know ourselves, the better we can be objective in our decision making. Consciously keeping our emotions aside over time will see that our investment coins lands heads up more often than not. It is this process by which you graduate from a normal investor to a smart & shrewd investor.