USE THE 8TH WONDER OF THE WORLD

A popular saying goes ‘one should save for the winter while some summer is still left.’ It is quite common for young people to postpone their savings blissfully ignoring the fact of the Fascinating effect of Compounding has on your investment. The World's greatest scientest Albert Einstein said "compound interest is the 8th Wonder of the World". There is no magic formula for this. Compounding is in simple terms, re-investment of income on the prinicipal amount. And again the income on the re-investment of income is also re-invested!!! And thus, the impact obviously will be massive and the more time your money has, the faster it multiplies.





But, the general public tend to ignore this and keep on postponing their investment. Let us take a practical example of my client.



Mr.Bharani Kanth asked :

Sir,



I happy to came across to very useful and informative site.



I am able to settle in my life at the age 30. I am not able make significant investments until now. I need your suggestions in selecting good schemes in the following methods of investment.





1. I want to insure my self upto 30 Lacs using Term Plans.

2. I want to invest in Tax saving mutual funds in SIP mode.

3. Where should I invest if I get any extra money if I get for medium and long term perspectives.



4. I want to save if there is any extra money for short term investments like liquid funds.



Thanks,

vbkanth



SRIKANTH MATRUBAI advised :

Dear Bharani Kanth,

At your age of 30, you should had some kind of investment, at least Term Insurance to start with. Sure, the temptation to postpone and enjoy the money NOW is irrestible, but just see the longer vision. You could have a Wealthy Retirement.

http://goodfundsadvisor.blogspot.com/2009/10/first-job-first-investment.html

You should start your investments as early as possible. The earlier the better. This gives you the advantage of 'compound effect', rightly described as the 8th Wonder of the World. There is no truth to statements like ‘I am too young to start saving’.

COST OF DELAY :

Do you know that if you intend to invest Rs.2000pm and delay the same by just one(1) month, you would be losing Rs.1,90,792!!!! (Calculated @20% for 25 years). And in today's worth of money, you are losing Rs.44,454. Yes, by delaying your Rs.2000 investment by 1 month, you are losing Rs.44,454 in today's worth

http://goodfundsadvisor.blogspot.com/2010/02/retire-super-rich.html

POWER OF TIME :

Do you know, that if you need Rs.1 Crore in say about 20 years, you need to invest Rs.7535 per month.

For the same Rs.1 crore, if you start investing 5 years earlier, you need to invest just Rs.3628 per month. A huge huge saving indeed.

You can use the following calculators ……………..



http://www.moneycontrol.com/planning_desk/magic.php

http://www.bankbazaar.com/finance-tools/compound-interest-calculator.html

WHAT YOU SHOULD DO.......

Apart from start saving now, , of course, he should be very regular in his saving and should have a definite goal.

To begin with, Take Term Insurance to adequately cover your self. An adequate Life Cover means a Minimum of 5 years of Annual Income and normally 10 years of your Annual Income. Suppose your Annual income is 2 lakhs, you should take a Minimum of 10 lakhs Insurance Cover and if possible, increase to 20 lakhs Insurance. It feels to notice that you are more inclined towards Term Insurance which is the Cheapest way of Insuring your life.





Your idea of investing in Tax Saving Mutual funds through sip mode is a very good one and you can find the best funds to invest in my blog posts.

Where you invest your extra money you get depends whether the money if short, medium or long term.

If it is short term, it is always wise to invest in Liquid Funds.

If it is medium term, it would be prudent to invest in Debt Funds or Balanced Funds.

If it is long term, of course, Diversified Equity Funds are the best avenue.





Best of luck ,

Srikanth Matrubai

Also visit

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DSP BLACKROCK QUIZINDEX

The DSP BLACKROCK Mutual Fund people recently organised a Get together for Independent Financial Advisors of Bangalore in a star hotel. The programme was well organised and was hosted by the ever smiling Harsha Bhogle.

Thankfully, the Quiz was not restricted to Mutual Funds but included topics ranging from Cricket, Movies to even Politics.

Harsha Bhogle ensured that there was never a dull moment.

Here are some photos of the event.













Harsha Bhogle was at his wittiest best. See the Video here..........

http://www.indyarocks.com/videos/Harsha-Bhogles-jokes-415794

Yours Truly answered quite a few of the questions posed and Harsha even pulled my leg saying "anyone can answer this question expect Mr.Srikanth".









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BEST TAX SAVING FUNDS

Investing in Equity Linked Savings Scheme is the best way of saving tax, as it achieves the twin benefit of Tax Savings and providing benefits of Long Term Equity Investment. http://goodfundsadvisor.blogspot.com/2009/12/saving-taxes-elss-is-best-option.html

I keep getting hundreds of emails requesting me to recommend me the BEST ELSS fund. It is practically impossible to answer and satisfy each of them. http://goodfundsadvisor.blogspot.com/2009/12/saving-taxes-elss-is-best-option.html

So, I decided to write my best picks and post them on my blog here. I hope this will help you.

RECOMMENDED ELSS FUNDS :

Religare Tax Plan

An open-ended Equity Linked Savings Scheme (ELSS) with a lock-in period of 3 years, seeks to generate long term capital growth from a diversified portfolio of predominantly equity and equity related securities. Its performance has been in the top quartile in the recent past. The scheme has generated a 1 year CAGR of 114.85% while the benchmark indices ‘BSE 100’ rose by 109% during the same period. The fund has outperformed its benchmark in 3 years, 2 years and 1 year period. Even in its short history, the fund has developed the good habit of liberal Dividend payout.

Birla Sunlife Tax Relief 96 Fund :

Has been a STAR performer since its launch. The Fund has been ranked THE WORLD'S BEST FUND by Lipper!!!!

The Fund has had a great Dividend History. Your Rs.1 Lakh investment in this Fund in 1996 would have yielded Rs.21 Lakhs by way of Dividend alone!!! (Add another 70% being paid out on 12th March). Has given an astonishing return of 32.69% CAGR since launch in March 1996.

Sundaram Tax Saver:

Has a portfolio with a mix of Large Cap and Mid cap and is this a bit more volatile than the rest. The Fund is actively managed and is very nimble and thus performed well in the Bear Market of 2008. Its High Sharpe Ratio shows that the Fund's active asset allocation has paid dividends.

HDFC Tax Saver :

The BEST ELSS Fund. Not only does the fund do well in a Bull Market but amazingly even protects your money better in a Down market. Steady and Convincing Long Term Track Record makes this a Must Have even for Non-Taxing Purposes. The First Choice for any Tax Saver wanting an ELSS exposure. Even though the Fund has a large cap bias, it has managed to consistently beat its Benchmark, year after year. In Valueresearch rankings, The Fund has never had a rating of less than 4 Stars since more than 7 years now!!!!!

CanRobecco Equity Tax Saver :

Has had a remarkable turnaround in its forutnes since Robecco's entry. Earlier it showed flashes of brilliance, but that's it. Since 2006 has the fund consistently started outperforming its category and its benchmark. The Fund has a amazing knack of quickly moving into cash in times of market crash and being fully invested during bull runs which makes the Fund very volatile but has good performance to show for the volatility. Aggressive ELSS investors could consider this Fund.

Fidelity Tax Advantage :

The Fidelity Tax Advantage Fund has been a consistent performer since it was launched in 2006. It recently won the ICRA 7-Star Gold Award 2009 in the ELSS category for its 3 year performance till December 31, 2009. Its "value" approach makes it a good fund for all types of investors.

Also read http://goodfundsadvisor.blogspot.com/2009/03/suggest-me-good-tax-saving-funds.html

THOSE WHO DID NOT MAKE IT TO LIST :

There are some funds which have given good returns and you could see them recommended by some experts, but I refrained from recommending them. I have given the names and reason for NOT recommending them.

SBI Magnum Tax Gain :

Has had a power packed past, but has been struggling for the past two years. Frequent change in the Fund Manager has had its impact. The Fund has lately increased its exposure to Large Caps and is thus suited for low-risk investors. Its huge bloated Fund corpus could be a big drag on the performance.

Franklin India Tax Shield :

Has been a steady performer since its launch. The Fund's 'safety first' makes it suitable for conservative investors. Definitely not the most exciting ELSS Fund, but it protects your money well.

Taurus Tax Shield :

The Fund has had two very good years and should have straightaway made it to the list of recommended funds, but .....BUT its volatile past and relatively high exposure to mid-caps make this fund a High Risk High Return Fund and could be avoided.

Sahara Tax Gain :

Has been very impressive both in the short term as well as the long term. But its tiny AUM should be a cause for concern and you can avoid at this point till there is some semblence of inflows into the fund to give comfort in terms of AUM.

OPT FOR DIVIDEND PAYOUT :

Never go for Dividend Reinvestment Plan in ELSS because by this The Fund assumes you are making a Fresh investment whenver your Dividend is reinvested and thus is locked for a further period of 3 years. Either opt for Growth or Dividend Payout.

For HNIs and those having liquidity constraints, it is wise to opt for Dividend payout option. Even though, Mutual Funds dividends (unlike Equity Share dividends) give back your own money to you, here, since your money is locked for 3 years, it would be prudent to get back some part of your capital. It would also ensure that you get Full Tax benefits without investing the full amount of Rs.1Lakh.

Ex:- Suppose you invest Rs.1 Lakh in Birla Sunlife tax Relief96 whose NAV is 80, you get 1250 units. Now since dividend is announced at 70% (7 per unit), you get back, Rs.8750/-. So, in effect, on a investment of Rs.91250, you still manage to claim Tax Rebate of Rs.33990. This is just an example, some funds even have a dividend yield of above 10% and some Tax Funds (Religare, Sundaram) even declare dividends more than once in a Financial Year.

ELSS & SIP - A FANTASTIC COMBINATION

Best way to invest in ELSS is through Systematic Investment Plan(SIP). With SIP you can invest a small amount every month for a specific time period. With SIP investor can take advantage of fluctuations in the stock market. So investor will get more units when the market is down and get less units when the market is up.

Instead of simply putting in a chunk of Rs 1 lakh at the end of each fiscal year, if you develop a healthy saving habit,you could invest a fixed amount every month and benefit from the advantages of both SIPs and the tax rebate.

When you invest in ELSS, through the SIP route, you enjoy the multiple benefits of better market-linked returns in the long run, rupee cost averaging and a tax break. So, happy investing!

For the other articles on ELSS funds, click here http://goodfundsadvisor.blogspot.com/search/label/ELSS and get all the details.

Regards,

Srikanth Matrubai

Also visit

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GOOD ELSS FUNDS FOR SIP

sushant from Goa

Hi ,
I want to start SIP for some ELSS fund over the next 9-12 months. Please suggest me some good ones. I have my list. Please comment on any additions/deletion:
1) Sundaram Tax Saver
2) Principal Personal Tax Saver
3) Magnum Tax gain


SRIKANTH MATRUBAI replied :


Dear Sushant
It is always a great idea to invest through SIPS. SIP investing is a no-brainer. 9 out of 10 times, you make more money through a SIP investment than through a Lumpsum Invesment.
The next thing to consider is the Fund itself.
My personal favourite has been Religare Tax Plan and HDFC Tax Saver, especially for the fine ability with which both the funds have been able to outperform their peers even in a Bearish Markets.
HDFC Tax Saver has had a great history and a Fund Manager with the highest experience in the entire MF industry.
Sundaram Tax Saver and Fidelity Tax Advantage too are good and have a had a decent track record, but if it is only 1 Fund which I had to choose, then it would be HDFC Tax Saver.
Magnum Tax Gain, even though it has bounced from a disappointing performance in recent times the huge AUM makes me avoid the Fund for now.

Regards,
Srikanth Matrubai

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BEST FUNDS FOR A NEW INVESTOR

ALL WEATHER FUNDS



Jagdish Kumar asked :
Dear Sir,

I need suggestion for Below funds, i m planning to start sip for Rs. 8000-10000 in below 2 or 3 funds. Pls help in choosing the best performing funds in future.

Shortlisted Funds:
1) Reliance Growth Fund
2) Reliance Banking Fund
3) Pru. Icici Infra Fund
4) Icici Focused Equity Fund
5) Templeton India Enquity Fund
6) Franklin Asian Equity Fund
7) Franklin Bluechip Fund
8) DSP BR Top 100
9) HDFC Top 200
10) Reliance Vision Fund

Pls kind choose the best from these above 10, & kindly advice & help me for creating a good portfolio for Future. As i m looking at 2 yrs SIP for chosen funds once suggested from yourside.
I want the BEST fund to invest which will perform in all seasons and also tell WHEN is the Best time to invest. In short, is there any fund which any new investor can blindly invest???

Thks in advance and waiting for your comment on above investment.

Regds
JK

SRIKANTH MATRUBAI replied :

Dear JK, First of all please understand there is no such thing like THE BEST FUND TO INVEST.
One should try to invest in good funds not in the best fund of current time. Because leadership positions may be changed very quickly.

Today`s winners may become losers & today`s losers may become winners tomorrow. Fund performance keep fluctuating and other than Stock Performance, factors like change in Fund Manager too affect the performance of the Fund due to the Fund Manager`s change in strategy, etc. (Remember JM's super performance in 2007-08 and the super dud show thereafter??)
You may be surprised to know that the None of the Top 10 Funds of 2008 made it to the list in 2009!!
However, what I can suggest you is to invest in those fund which has been consistent in all Market Cycles and is more of `no surprise` fund rather than a spectacular performer in a Bull market and a Super Flop in a Bear market.



DREAM FUNDS........ THE BEST FUND FOR ALL SEASONS:
There are very very few funds which can fit into the category of a Dream Fund, the one which you can invest either in Peak of the Bull Run or the nadir of a Bear Market. Consistent above average performance across market cycles is the key here. Sure, there will be a few hiccups here and there even in the Best of Bests., buy you have to digest and let the fund perform to its maximum capability. My selection of 'All Weather Funds' are as follows:
HDFC Top 200 Fund
HDFC Prudence Fund
Reliance Growth Fund
Reliance Regular Savings Fund - equity
Sundaram Select Focus Fund
SBI Magnum Contra Fund (inspite of frequent change in Fund Managers, the fund has managed to carry on its good works)
DSPBR Equity Fund
Fidelity Equity Fund


See these links
http://goodfundsadvisor.blogspot.com/2009/03/best-funds-for-cautious-investor.html

http://goodfundsadvisor.blogspot.com/2009/01/portfolio-advise-needed.html

http://goodfundsadvisor.blogspot.com/search/label/Star%20performers


The funds I have shortlisted do have long history of picking long term winners and have earned consistent returns over time.
The above fund shortlisted is not the 'one size fits all'., but you can make these funds as 'core' of your portfolio and add further depending on your profile.

WHEN TO INVEST :
Without going through the routine of explaining, I will be straightforward and tell you in the face…………….Anytime is the BEST time to invest.
Surprised??. Yes, even if you started invested right at the peak Sensex levels of 21000, if you have had invested through SIPs, even now, when the Sensex is down by more than 20%, still you would be in PROFIT!!!! SIP investment ensures that you 'automatically' time the market and also gives the added advantage of Rupee Cost Averging.


You can invest in any above funds depending on your risk profile and objectives. For you Rs.8000-Rs.10000 investment, from your list of funds, I suggest you to consider
HDFC Top 200 fund
Reliance Growth Fund.

Outside of your list, you may consider
fidelity Equity fund
HDFC Prudence Fund
Mirae Asset India Opportunities Fund
Sundaram Select Focus Fund.

Do go for sip and invest in different dates to take advantage of volatility.
Best of luck,
Srikanth Shankar Matrubai






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FUNDS FOR PERSON WITH UNSECURED JOB

Mr.A Tripathi from Lucknow wrote :
Dear Sir,

I am an unsecured job profile 39 years old man with 2 sons. one is 14 years and second is 8 year old. Now days conditions permit me about sip investment Rs.5000/- per month for 3 years. please give me fund names with monthly investment amounts.
I do not mind being Aggressive Equity Funds.





thanks.

A Tripathi , Lucknow.


SRIKANTH MATRUBAI replied :
Dear Mr.Tripathi,
For your job profile, a Full Fledged Aggressive Equity Oriented Portfolio will not do. Aggressive Funds are very volatile and risky in nature. With an unsecured job, you may not only be in a position of not being able to fulfill your sip commitments but also need to withdraw your investments at a short notice. Such being the circumstances, Aggressive Funds are ruled out.
You need to strike a balance between safety, liquidity and returns. Hence, you are better off having some debt exposure to provide stability to overall portfolio. Balanced Funds would be the apt choice for you.
Before going for these investments, insure yourself adequately with Term Insurance. Then you need to protect your family from financial insecurity due to sudden illness and thus a Health Insurance becomes inevitable. I hope you also have provided adequately for the Education Expenses of your two sons. You need to consider all these things and only thereafter go for the Mutual Funds Investments.
Preferably go for Large Cap Funds and Balanced Funds.
You can consider investing in the following way.
Birla Sunlife Frontline Equity Fund = 1000 *1 per month
Fidelity Equity Fund = 500 * 1 per month
HDFC Prudence Fund = 500 * 2 sips per month
HDFC Top 200 fund = 500 * 1 sip per month
Religare Business Leaders Fund = 500 * 1 per month
Reliance Regular Saving Fund(Balanced) = 500 * 2 sip per month
Sundaram Select Focus Fund = 500 * 1 sip per month

In Reliance Regular Savings Fund, you are advised to go for 2 sips in 2 different dates.
The Above Funds will ensure that you have sufficient exposure to Large Caps, Diversified Funds and Balanced Funds. I have avoided Debt funds, since you seem to be aggressive. Balanced funds will lend enough stability to your overall portfolio.

In the above list, you go for Birla Sunlife Frontline Equity Fund, invest under Century SIP to take advantage of Free Life Insurace which is an added benefit, especially since you seem to be underinsured.



Best of luck,
Srikanth Matrubai
Bangalore





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RETIRE SUPER RICH

RETIRE SUPER RICH

"WHEN YOU HAVE SILVER IN YOUR HAIR, YOU SHOULD HAVE GOLD IN YOUR POCKET".

Retirement is a fact of life and is inevitable.

One day everyone needs to face the 'retirement' question. Are you ready for it?? Is your financial plan working towards it??.

It is equally essential that your Retirement planning not only factors in volatility and income shortages but also factors in Inflation and thus a plan should be such that your cash flow will support your retirement lifestyle.

THE BASICS FIRST :

The Basic Priority should be to have enough 'Emergency Cash' which will cover your immediate needs in case of job loss, etc. It is ideal that your 'Emergency Cash' covers between 3-6 months of your normal expenses.

You also need to plan for your children's education, marriage, home. All this will mean lesser and lesser amount for your retirement savings and that's precisely the reason for starting to save early.

Read this article, it may help you....

http://goodfundsadvisor.blogspot.com/2010/01/4-ways-to-become-wealthy.html

ENOUGH INSURANCE:

Next comes the insurance. Have you covered your life adequately??

Take the Human Life Value calculator to zero in How much Insurance you need.

The Thumb Rule says, if you have kids, you need to have 10 times of your Annual Income as your Insurance Cover.

Insurance is NOT Investment. Hence, avoid ULIPs and go for Term Insurance Policies. Use Insurance as a Security to cover the risk of Dying Young. Insurance is a tool which protects your dependants from financial ruin in your absence.

Along with Life Insurance, you need to have adequate Health Insurance. Your current income and savings may not be enough to sufficiently fund against Medical emergencies. This is where Health Insurance steps in.

HOW MUCH YOU NEED FOR RETIREMENT:

The basic thumb rule says that you need around 75% of your current expenses to maintain the same standard of living (adjusted to inflation). This is just half the picture. The picture is complete only when you guess(that's the only word I could zero in) how many years you will live after retirement.

Again Indian Life Expentancy average is about 75-80 years. So, now you can start planning.

You can also use the Human Life Value Calculator like the http://www.personalfn.com/calc/hlv.html to calculate how much Insurance you need.

You can also use the following Retirement Calculators

http://moneycentral.msn.com/retire/planner.aspx

http://www.bloomberg.com/invest/calculators/retire.html

START EARLY :

Starting saving early ensures that you have the time ti ride out the stock market volatility and thus you are in a position from the '8th Wonder of the World' the "Compound" effect. The younger you are, the fewer are your financial obligations, leaving you with higher surplus to invest.

Do you know, if you delay your SIP investment of Rs.5000/- by just 1 month, over a period of 25 years at 15%, it would cost you (hold your breath), Rs.1,64,595/-!!!!!!.

You would lose Rs.38,350/- in today's worth of money.

Investing for Retirement should start from the day you start earning.

RIGHT ASSET ALLOCATION :

Investing in the right Asset Allocation will also ensure the merits of diversification and mitigating risks but also beating Inflation. Remember there are so many investment avenues eyeing your money, it is sure to confuse even a well informed investor. Gold, Real Estate, Insurance, Mutual Funds, Equities, PPF, NPS the list goes on.

DO NOT KNOW WHAT 'NPS' IS...Click here http://goodfundsadvisor.blogspot.com/2009/05/new-pension-scheme-analysis.html

Indian mentality is swayed by words like 'GUARANTEE' AND 'PENSION'.

Don't Purchase any Pension Plan of any Insurance Company under any Circumstance!! WHY?? These Plans have High Allocation Charges, Admin Charges, Very LOW returns on Annuity. Your Pension is based on your Corpus. With Insurance Plans, your Corpus is limited.

Invest in Good Diversified Mutual Funds which are regularly recommended by me in this blog. With this, you will get a very high Corpus at the time of retirment. After Retirement, you can opt for Systematic Withdrawal Plan (SWP) and receive Pre-determined amount every month.

Equity does not mean just 'equity funds' per se. Invest in different investment style of equity funds which fit into your overall asset allocation strategy. The younger you are, the more equity oriented your investment should be.

You can choose to invest in the funds recommended in this blog regularly.

WATCH THIS VIDEO:

http://www.indyarocks.com/videos/Begging-for-Cake-435705

REVIEW AND RESET ASSET ALLOCATION:

At least once a year, religiously review your entire Investments and Re-balance. Moreover, your needs will change with time and the rebalancing will cover this aspect.

The Worst time for a Market to get into Downturn is when you are about to retire!!! As you near your retirement, it is prudent you change your portfolio from a equity-heavy to debt-heavy portfolio.

AFTER RETIREMENT :

Planning for retirement isn't just about how much money you can accumulate — it also looks at how you use those funds during your retirement.

The 'Accumulation' phase is over. The "Decumulation' phase starts.

Don't overinvest in Bonds and Debt, they may actually fail to beat inflation and your purchasing power erodes substantially in front of your eyes.

You should go for a combination of Balanced Funds, Monthly Income Plans, Fixed Maturity Plans, Arbritrage funds and Large Cap Funds and also look at investing in Senior Citizen Scheme (split them, to avoid penalty in case of early closure., as only will be closed at a time).

Also you could also decide how much cash flow you need now, how much you can postpone, how much you may need after 5, 10 years hence; this amount can be invested in MIPs and Conservative to Moderate Balanced Funds. Strike a balance between safety, liquidity and returns.

You can also look at Reverse Mortgage to augment your retirement income.

THE RIGHT PLAN :

Investing and financial planning needs a lot of time, attention to detail, research and paper work. For someone with a busy schedule, it’s too much trouble. Working with financial adviser is a great way to adequately plan for retirement. They can work with you to create a plan and build a portfolio that fits your needs and goals, and is designed to sustain you for the long haul.

What I have given is not a One size fits all Formula. But this is a starting map for you and your Financial Advisor can take it up from here.

Finally remember, if we fail to plan then we plan to fail

http://goodfundsadvisor.blogspot.com/2009/03/retirement-planning-and-sons-education.html

http://goodfundsadvisor.blogspot.com/2009/01/want-to-have-2-crores-in-10-years.html

Best of luck,

Srikanth Matrubai

Also visit

http://equityadvise.blogspot.com

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