In one of our recent articles we talked about how the individual investors are investing in India and the changing pattern of the investments over the years. As we saw, there was a visible change in the individual preferences for different asset classes and investment avenues with the trend clearly towards more of financial assets away from physical assets. Mutual funds, although still small, is making an impressive progress in gaining increasing share of the wallet.

The mutual fund industry today appears to have emerged stronger after going through challenging times of high volatility in equity markets and the fallout of the credit events in the debt market in recent years. One of the biggest positives for the mutual fund industry has been the huge surge in the retail investor participation in the equity markets especially through the systematic investment plan (SIP) route, primarily in equity-oriented funds.

In just about 3 years, the SIP accounts (not individual investors) have increased in the industry to approximately 2.84 crore from just 1 crore. In September 2019, the monthly SIP contribution to the industry was at Rs.8,263 crores, up from about Rs.3,700 crores exactly 3 years ago. The average SIP size stood at Rs.2,900 per SIP last month. The industry has been making quite a effort in promoting mutual funds and the "mutual fund sahi hai" campaign also has made a visible impact in spreading awareness.

The interesting part though is that the SIP registrations and the inflows have been steady inspite of the recent volatility in the markets. This shows that the investors are now increasingly looking at SIPs with a long-term view and are over-coming their behavioural instincts to react to less pleasant numbers /returns in short term. This is indeed a welcome thing in the industry and investors need to be appreciated and congratulated for this. The growing size of SIPs and the number of SIP investors showcases the habit of disciplined investing.

What is a SIP?
If you are wondering what an SIP is and what are it's advantages, read on... "Little drops of water make the mighty ocean" – this line holds very true for SIP. As the name suggests, Systematic Investment Plan or SIP, is an investment plan (methodology) offered by mutual funds wherein one could invest a fixed amount in a mutual fund scheme periodically at fixed intervals - say once a month instead of making a lump-sum investment. SIP is similar to a recurring deposit where you deposit a small /fixed amount every month.

Advantages of SIPs:
SIPs are often spoken by experts as the ideal way to invest in the equities. Here are a few basic advantages of investing in SIPs. Note that these advantages of only of the SIP methodology and we are not talking of the advantages of mutual funds here, which is something we would like to talk about someday later.

1. Convenience: SIP is a very convenient method of investing in mutual funds through standing instructions to debit your bank account every month, without the hassle of having to write out a cheque or making payment each time. One can also start (or stop) a SIP online at the comfort of your home at any time with any of the distributors offering the online service.
2. Flexibility: The SIPs are opened for a fixed tenure. However, one is free to stop, pause or register the SIP again at any point of time. One is also free to withdraw (redeem), in full or partial, your investments and take back money whenever you need it, even during the SIP tenor. Further, one can select any frequency for the SIP – from daily SIPs to even once every quarter to suit your need. One can also choose any particular date available for the monthly debit to your bank account. One can also choose to periodically and automatically increase the SIP instalment amount to match your contribution with your growing income /salary over many years.
3. Suitability: The SIP instalment amount could be as small as ₹500 per month. There is however practically no upper limit on the amount of instalment or the number of SIPs or the number of funds to have SIP into. You can also choose to have an SIP in debt mutual fund schemes not just equity funds. Thus, needless to say, it can match up to the investment objective, needs and the pocket size of virtually every investor.
4. Rupee Cost Averaging: Perhaps the most commonly quoted advantage of SIP is the Rupee Cost Averaging. Since the investors are investing in a disciplined manner they need not worry about market volatility and timing the market. With market volatility, there comes times when underlying stocks are either expensive or cheap. Since, one is investing regularly, automatically one buys more mutual fund units when there is a market correction. When the unit price goes up, he tends to gain. Over time, a SIP investor, while investing every month would end up buying more units when markets go down and buying less units when market goes up. Thus, his/her average cost of purchase of a unit would be relatively lower – this is phenomenon of rupee cost averaging.
5. Long-Term Wealth Creation: The key to building wealth is to start investing early and to keep investing regularly. A small amount of money invested regularly can grow to a large sum. With SIP, one can potentially create a substantial amount of wealth with returns compounded over the years. When we look at the corpus accumulated at the end of the tenor, the wealth accumulation is at its best in the long run. As the time given to investment increases, the wealth builds at an accelerated pace because of compounding effect.

How to make best use of SIP:
Few things in short. First, have a SIP which is long-term in its tenor. The minimum horizon should be at least 5 years. One can have it for even 10 /20 /30 years. Relax, there is no commitment and one can switch scheme or stop SIP at any time. Second, one can have a Step-up / growing SIP which keeps adjusting itself to match your growth in income. Next, it is always preferable that you map or link or just consider your SIP to any life goal like child education or retirement and think on lines of goal achievement instead of just SIP.

Lastly, do not put all your eggs in one basket. It is advised that you have mutiple SIPs in different types of schemes if you are investing a sizable amount – say Rs.30,000 can be spread into 3 schemes of Rs.10,000 each. If all this sounds a bit too much, we strong advise you to contact a financial planner / mutual fund distributor to plan for your life goals and advice you on your wealth creation journey. If you still haven't started your SIP, what are you waiting for?

The biggest financial challenge most of us facing is retirement. Unfortunately, retirement planning has not received the same level of importance and urgency which other life goals have traditionally received in India. The result, most of us are under-prepared for our retirement.

There are many things virtually wrong with the way Indians approach their retirement planning. Here are a few things which you find most common in the name of retirement planning for Indians...

1. Some X amount of pension drawn from a pension fund

2. Property rentals to support expenses

3. Hoping kids would take care of you...

However, there are things that one must be aware of regarding retirement.

1. What would be your expenses at the time of retirement and even later years?

2. How much nominal returns and 'real' returns should you expect from your retirement kitty?

3. What will be my retirement kitty based on my present savings?

4. How long will your retirement kitty last?

The most important question to ask is, how much retirement kitty do I really need?

Again, for all these very critical questions, we rarely do have an answer. So let us directly jump to answering these questions. Please note that we are only attempting to show you a broad picture and you have to take it in that spirit.

What would be your expenses at the time of retirement and even later years?

Let us assume that you have present expenses of Rs.50,000 and the inflation rate is 6%. Can you guess the amount of expenses required in future? Here is the table.

As you can see, a person of the age of 30 today would be needing Rs.3.8 lakhs monthly at the age of 60 and an astounding Rs.14.7 lakhs at the age of 80 to maintain the same standard of living. These figures are truly an eye-opener for many.

Your expenses will keep on growing due to inflation. It will not see if you are retired, earning or not. The scary thing is, most of us thing only expenses at the time of retirement. However, the expenses will continue to grow every year after retirement too, sometimes these years can stretch to 20-30 years easily with growing life expectancy.

How much nominal returns and 'real' returns should you expect from your retirement kitty?

For any retirement planning, this is the real deal here. Most Indians believe in risk-free returns after retirement. But why? Because everyone says so.

Agree that you need to worry about preserving the money you have left. But does it mean that you will be happy if it is all spent in just a few years due to rising expenses? Is it smart? Risk-free returns should only be expected to be sufficient to fund your retirement if the kitty is huge! Given that is not the case most often, you will be advised to also look for 'real returns' and invest in growth assets like equity.

We all know that the risk and volatility of returns reduce with time and since your retirement may stretch over 20-30 years, surely there is a strong case to invest some portion of your wealth in equities and make sure your kitty doesn't dry up earlier.

How much retirement kitty do I really need?

Let us just jump to the most important question. Based on assumptions, we have derived the following estimated retirement kitty amounts. The kitty makes sure that your growing expenses are taken care of from your conservative investments till the time you live. We assume that life expectancy is 85 Yrs, inflation is a constant 6% and returns on retirement kitty is 7%. Since few of us would like to retire early, we have given 3 age options as your retirement age.

What should be the required savings needed?

Well, assuming returns on investments of 12%, we have derived the mutual fund SIP amount required to be saved till retirement. As you delay the savings, the SIP input value will increase more and more. Better to start as early as possible.

Conclusion:

Retirement is fast emerging as the biggest financial challenge for most of us. Today we see that education loans can be easily acquired, alternative and new careers are emerging, dowry system is no longer prominent and late marriages by working children are often funded by themselves. On the other hand, children are unlikely to stay in one city or with parents for long, families are getting nuclear and distant, costs of medical are rising and life-style diseases are also rising. All these put together say only one thing to you – FOCUS ON YOUR RETIREMENT PLANNING, TODAY!

Everybody likes to be in control. And to do the things they like. Almost every second person today dreams to have his/her own business/venture. But are these dreams mere dreams? There is a famous quote - “goals are dreams seen with open eyes”. While our dreams may or may not fructify soon – the answer largely depends on one thing and one thing alone – money or wealth.

Carl Sandburg, Pulitzer prize-winning writer once remarked, “money is power, freedom, a cushion, the root of all evil... and the sum of all blessings”. True, there is a lot we can achieve with our wealth. However what comprises our wealth? To different people, wealth may mean many things. However, to summarise it well, it would be the ability to do things you desire to do.

The ability is a very wide concept and goes beyond just numbers. Coco Chanel, French fashion designer once said that “there are people who have money and then there are people who are rich.”. Thus, what you do with your money is more important. You may feel insecure and not rich even if you are a millionaire and there is an actual study done to prove this. Understand this – if your wish is to travel after becoming rich and you are not travelling today, you will never travel even after you get crores in your bank. What is stopping you today?

The truth is that wealth means different things to different people. Some are in the game for the joy or excitement of it and some are in it just to survive. The ability can also mean cover things like physical health, social network or standing giving you the power to do things which others can't. However, for most ability would mean one thing – freedom. 

Johnny Carson, an American television host said that “the only thing that money gives you is the freedom of not having to worry about money.” The freedom will free you from the financial worries of day-to-day life which most of us aren't privileged to have. However, it is not impossible. The number behind this 'freedom' will change from person to person and place to place. But whatever may be this figure, the truth is that it will be only possible to achieve if you have this as your goal. You can be in control even today, you can be a CEO even today. You have an opportunity to do that – be your own CEO and get in control of your wealth.

The CEO Hat:

Now that you have your understanding of 'wealth' and a fair idea of the price of your 'freedom', let's us begin the day as a CEO. So how would you start your new journey – the journey of your wealth?

Have a vision/plan:

Having a vision of the journey, the path you want to reach is the starting point. Having a clear idea of your destination would be great. But as many new businessmen experience, either they overestimate their goal or underestimate it completely. The fact is, once you carry on the journey, the destination will also change. So you may start with say a target wealth of 10 crores. However, a few years down the line you may realise this is no longer feasible and revise it downwards to say 5 crores. Fortunately, if you are reading and implementing this article in the true spirit, you may even realise that you can even reach 20 crores !! You get the idea...

The path here is more important. There has to be a plan for everything in your life. Your wealth is perhaps the first thing in the list and something which is greatly in your control. How about a proper detailed 'Financial Plan' which covers all your financial goals, your assets, liabilities, your risk protections?

Invest in yourself:

Every business invests in itself – be it a shopkeeper or a big business conglomerate. But as a person are you investing in yourself? Times are changing and there is no guarantee today that any business or profession today will stay relevant after even say 5 years. It is a new reality of a highly competitive business environment challenged by disruptions daily. Your only way out – invest in yourself. It can be either learning or building a network or marketing yourself in a positive light, creating a social standing, and so on. There are enough opportunities around you to learn and build your network. Remember, if you are skilled and knowledgeable, have a good network, you may never fail in life.

Watch your budget and cash-flows

As the CEO of your wealth, you need to have a budget for everything you do. Have a budget for your living expenses, for your entertainment, for learning and most importantly – your saving or investments. Perhaps you can start managing your budget by allocating funds to living expenses and savings to start with. Ideally, your savings must be at least 25% of your post-tax income. The higher it is the better. Work out the other figures in relation to this. Many people do make a budget but fail when it comes to implementation. One idea on effective implementation of your budget is to have a very close watch on your cashflows. Spend some time to track these cashflows to stay on top of your budget. You may take some bold decision like – STOP the use of credit cards altogether. This is one advice which Warren Buffet (google if you don't know) gave when asked what advice he has for youngsters. It may apply to you too.

Hire /associate with good people:

A successful business is not built by one person alone. It takes a team. To be successful, you too will need to have a good team. The team will include people like your gym or yoga instructor, your spiritual guru, your doctor, lawyer, accountant and when it comes to money – your financial advisor. Everyone you consult has a role to play in your life, irrespective of how many times you are interacting with them. We would suggest that you have good people with you and invest in building this network. On a financial front, having a good financial advisor will take care of a lot of things when it comes to wealth creation, preservation and distribution. We would strongly suggest that you outsource these things and not do this dedicated, expert activities yourself.

Conclusion:

John Rockefeller, America's first billionaire once said that “if your goal is to become rich, you'll never achieve it”. Your focus should be pursuing the thing you like doing the most. Try and navigate your life's journey into doing so. A lot many people have changed professions careers in life to settle at things they love the most. The most successful in life are those who have done it. However, running merely after the idea of getting more money doesn't work for many. To create wealth or happiness or even a life, being in control and thinking like a CEO is perhaps the way to go.

We are now well into the new financial year. Most of us would have now got their salaries revised, business plans worked out and bonuses received. It is now then time for revisiting your own personal finances. The start of the year is the best time to do a thorough analysis and reworking our financial plans. In this article, we will take a look at the things that you need to do in order to reset all your finances and plans for the new year.

Assess Your Finances:
As an important exercise, we have to work out all our finances in the new year. Things like school fees, salary to your driver, society dues, fees to your CA, etc. would have all changed in addition to changes in your and your spouse's salary. It is thus high time that you sketch out the estimated monthly cash inflow and cash outflow to know your budget. It is also time to take stock of your investments, especially those lying in bank and small savings. Try and arrive of a proper balance sheet of all your assets and liabilities at this moment. Keeping ready with the cash-flows and your balance sheet would give the knowledge of your net-worth and your financial capabilities for making the upcoming decisions.

Make a Budget:
After an assessment of your financial situation, it is time to take the first step of reconstructing your finances by planning your budget. Most of us do not have fixed budgets defined for our expenses and do not consider them as important. However, this is far from truth. Having a budget not only helps you in better knowing and planning your finances, it also helps you to save more and control the unwanted expenses. At a more philosophical level, it helps us become more organised and thoughtful in spending our money. Put together all these things, repeated over the years, can make a considerable impact on your wealth. One may not realise this impact today but it can only be experienced when applied in its' true sense over time.

Review your financial plan:
In layman terms, financial plan is nothing but a statement of your financial goals and the investment plans to achieve them. It is mandatory that you prepare a financial plan for yourself at the first possible instance with the help of the experts. And if you already have one, its' time to revisit the same, given the financial changes that may have already happened. You may consider making the following changes in your plans...

Adding of any new financial goals Removing any financial goals which are no longer needed Adjusting the financial goals by changing the amount required and/or the period remaining Accounting and allocating the existing investments already made towards goals Lastly, making changes in the planned investments towards achieving different goals

Though these exercises are not simple and assistance may be needed to do them, a basic level of reworking of finances is not an impossible task. Engaging yourself in this exercise will also help you to understand your financial plan better and make you more committed to your plans.

Rebalance your Portfolio:
Once your financial plans are reworked, as a next step, you would be required to rebalance and/or make changes in your investment plans. This would mean understanding your present asset allocation (share of different asset classes like equity, debt, cash, etc. in the portfolio) and changing same by shifting money and/or making new investments. It is also recommended that you make changes (read increase) in your monthly investments (SIPs) with the given increase in your inflows. Your advisors would help you effectively rebalance your portfolio in accordance with your financial plans and your risk appetite.

Review your insurance policies:
This is something we don't often do. As a matter of fact, insurance is not a one time thing but an evolving need. With changes in your finances, family and your life stages, your insurance needs would also change and it is important that we reflect these changes in the insurance cover that we take. Note here that while a typical life insurance policy would be for a long-term period, general insurance policies are generally of a one year period. Thus, your personal accident, critical illness, health insurance, motor insurance and home insurance, all would be up for renewal /reconsideration. At this moment you would do well to assess all your and your family member's insurance needs – both in terms of the risks and the amount of coverage, and make the right decisions to comprehensively account for them.

Plan for next year's tax savings:
After planning for your budget, financial goals, insurance policies and portfolio, it is now time for the tax planning to be done. Your tax planning would consider your assessment of your tax slabs, the estimated income in different heads and the amount of tax savings already committed. These committed tax savings would be related to your provident fund, insurance policies, home loan, etc. After considering these expenses, you can arrive at some figure that you may need to save for tax saving purpose. Knowing this figure at the year beginning would be a great thing to know since now you can smartly plan your savings in the year ahead.

Implementing Your Plans:
After all the planning, comes the crucial implementation part. Doing this without any procrastination or delay would be no less than some feat. To ensure this, let us put on paper all the decisions that we have taken till now and also put a target date to these decisions. Remember that with every day of delay, there is some monetary cost attached to it which you cannot see. Also there is the risk of your plan itself loosing relevance with you forgetting and/or later avoiding any commitments. Your financial plans are like packed foods that come with a manufacturing and an expiry date. It is best for use (read implementation) only for a limited time and a delayed plan is like a stale plan which will need to be revised later.

Get ready to file Income Tax returns:
After completion of the financial year, it is important that you file your returns, if required, within the due date. Just to point out, there is no restriction on filling returns before this date. We can thus file the returns, properly and at our leisure, while avoiding the last minute rush. Other than you, there will be one more person who would be happy when you do this – your accountant.

Conclusion:
Well, there is a very thin dividing line between financial well-being and financial stress. The reason it is thin is that we can easily walk away and wander from the right path. If you are not on top of your finances and are doing things, making financial decisions without proper awareness of your goals and limits, you are most likely to fall to the wrong side of that dividing line. And as Suze Orman once said “The only way you will ever permanently take control of your financial life is to dig deep and fix the root problem.” The beginning of the financial year is an opportunity for you to get back onto this thin line and get in control of your finances. Let us not miss this opportunity. Its just an first quarter completed.