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We have come a long way from realising the need for a savings oriented institution like the Unit Trust of India in early 1960s, to establishing an industry full of strong players who are driving a whole new era of financial planning, with authority. Having grown to such an extent, the Mutual Fund industry now, with the advent of revolutionary technology, acts as a strong tool for even under-equipped investors to invest and grow, with the Indian markets. With the Indian
Asset Management Industry touching record levels of INR 13 L Crore of Asset Under Management, several intermediaries associated with the industry, now have new levels to scale up to.
While quantitative and qualitative developments form the spine of the industry, what interests the final consumer is how the product would make a difference for him.
We mention consumer here, because every fund manager, financial adviser, employee, etc. comprises the gamut of consumers that the industry derives its existence from. We as consumers, require financial planning at almost every stage of our financial existence. To elaborate, here is how each stage of an individual's life can be put in the Mutual Fund perspective
1. A stepping stone for early investors
One of the many commandments of investing is starting early and of the biggest challenges for early investors is small amounts to spare coupled with limited knowledge of investment avenues.
The best suited route for such investors could be an investment tool that lets them invest small amounts at regular intervals for their long term goals - a Systematic Investment Plan.
For a classic example of growth through a SIP, consider this.
If you invest INR 1,000, on a monthly basis through a Systematic Investment Plan in a mutual fund, at a rate of say 10% p.a., your money could grow to over 4,00,000 in 15 years*. A SIP, as opposed to a lump sum investment, or other investment avenues such as Bank FDs, helps your money to undergo compounding and rupee cost averaging, wherein the accumulated units are averaged out over market ups and downs.
2. Taking charge of the firsts
The first paycheque brings with the authority to splurge and the responsibility to invest. Being the start of an income flow, it should be channelized in the growth direction, and that could be done through Mutual Funds. Kailash
In the early stages of your financial life cycle, you could undertake a fair amount of risk in your portfolio with equities. But, as compared to direct investing in equities which requires homework, Mutual Funds offer a simpler route. New investors could start with large cap funds and basis their risk appetite and experience, gradually move into categories such as fixed income, to suit specific goals.
3. Making the double income work, post marriage
Marriage spells out huge responsibility, before and after, particularly on the financial front. Mobilizing income streams of yourself and the spouse could be a challenge, given the additional responsibilities
Post marriage, it's essential to look at investing the double income for mutual goals. Since young individuals can absorb a fair amount of risk in their portfolios, a smart decision would be to invest through SIPs for their next big goal. For instance, your priorities would change to reflect your financial goals, thereby altering the time frame attached with those goals. On reviewing the same, initially investing in equities for long term growth and thereafter, a gradual allocation shift from equities to balanced funds or debt could be made, depending on impending commitments.
To aid financial calculations by factoring in factual data, various calculators such as SIP calculator, Budget Planners etc can be used
4. Investing smartly, for the days to come
There comes a stage where your life is guided by goals. First car; first house; first child etc. While some of these goals may be short term, some allow you to plan for a longer period. And to suit each need, there is a Mutual Fund category.
For short term goals, debt funds could be looked at as they invest in bonds and deposits, and are detached from the stock market, therefore, exposed to lower volatility. Whereas for goals that are time accommodative, equity funds coupled with a tax saving feature could help you build wealth alongside saving tax.
5. Giving wings to your child's dreams
With the cost of education skyrocketing with time, you will probably have to start planning for them before planning for yourself. You may have to consider several factors before you start planning – current cost of your child's ambition, no. of years at hand and the future cost factoring in inflation.
Again, the thumb rule would be to start early. Aiming for a period of 10-15 years by investing in equity funds could help you get the desired returns over the long term. However, towards end of the period, you could look at gradually moving your portfolio towards debt, to steer clear of probable risks.
6. Passing on the legacy of sound financial planning
An investment, like other assets requires an heir. One generation of successful financial decisions lays the foundation of decades to come. Despite various investment choices having come up, there are some choices that are handed down to us by our parents - A life insurance policy, equities for long term goals, investment in gold for marriage etc. While these choices serve the purpose of the goal, the routes to invest could vary. For example, investing in equities through Mutual Funds, instead of going direct; alternate investment choices while investing for marriage, such as balanced funds or fixed income categories and mainly, avoiding their mistakes, such as delay in investing.
While lessons don't change through the course of getting taught, their outcomes sure move a notch higher.
7. Laying the first brick of the foundation for your golden years
Often undermined, but contrastingly relevant. It is easy to understand why retirement doesn't loom large on the horizon for young individuals. But more now than ever before, the employed youth, today aims to retire at least a decade before their parents did.
Starting early, especially for this reason, could be beneficial. And laying the first brick, with mutual funds could be ideal. Exposure to equity, especially through Mutual Funds over the long term could be beneficial to your corpus as they are considered long term wealth builders.
Consider this. Your retirement at age of 50, which, assuming you are at 25 would be 25 years away. Expecting a 10% rate of return with 7% inflation and a corpus of INR 1 Cr to accumulate, you would have to save close to INR 10,500 every month. Easy right? But this procedure, if started at the age of 35, would demand a monthly investment of close to INR 28,000*! The figures speak for themselves.
8. Adopting technology for Financial Planning
From countless paperwork to just a click, everything has transformed with technology
Investors today can obtain a wide range of information, ranging from general investment planning to specific portfolio details on platforms such as Social Media, mobile apps etc, which were until a few years back, just a mode of social engagement
Not only this, industry intermediaries are putting in their best efforts to make sure their investors have access to accurate and authentic information, while making their financial decisions
9. Being retirement-ready
For most people, retirement spells luxury and that luxury demands preparation. First things first, your retirement corpus needs to be estimated, factoring in inflation and your expected expenses. Once the corpus is reached at, it could be broken down into monthly instalments that you could start as early as in your 20s.
Advisable for regular retirement corpus building could be to invest in equity, systematically. A SIP in an equity mutual fund could be one of the best methods of saving and building a reasonably sizeable corpus in about 2030 years. Another important factor to consider while investing is tax saving, which could be clubbed with equity investments, through the Mutual Fund route. Remember, the earlier you start saving, the lesser you will have to shell out every month.
10. Stepping into your second innings
Entering your second innings with less or no worry indicates that you planned well for it. For long, retirement investments have been linked to just safety and minimal growth. But what is often rightly recommended is that equity should most certainly be a component of your retirement portfolio.
However your portfolio could be balanced with a combination of debt and equity to provide you the perfect balance of growth and stability. Another important need to keep in mind is a regular stream of income which again, could be achieved through Monthly Income Plans by Mutual Funds.
Retirement however, shouldn't be tagged with low or no income. If you invest smartly, you could make your money work for you.
Financial Planning for every stage may not entail the same kind of pressure. At each stage and with every goal, your investment variety and choices need to keep changing to match your risk appetite and corpus requirement.
To save yourself from planning woes, you could consider a financial adviser, who would bring with him/her the versatility of drawing a unique plan for your different financial stages, and matching each plan to your unique goals. And while drawing up a plan is just the first step, they also assist you throughout, in monitoring your portfolio and regularly reassessing the balance to ensure that your strategy continues to provide optimal results.
*All the above calculations are done internally. The illustrations mentioned above are for information purposes only and should not be construed as an investment advice. It does not in any manner imply or suggest performance of schemes of L&T Mutual Fund. The recipient of this document should rely on his/her investigations and take his/her own professional advice. Calculations are based on assumed rates of returns on your investment and actual returns on your investments may be more or less. Annual recurring expenses have not been factored into the calculations and they could reduce the returns on investments. Past performance may or may not be sustained in future. Please contact your financial adviser before taking any investment decision.
The article is for general information only and does not have regard to specific investment objectives, financial situation and the particular needs of any specific person who may receive this information. Investments in mutual funds and secondary markets inherently involve risks and recipient should consult their legal, tax and financial advisors before investing. Recipient of this article/ information should understand that statements made herein regarding future prospects may not be realized. He/ She should also understand that any reference to the securities/ sectors in the document is only for illustration purpose and are NOT stock recommendations from the author or L&T Investment Management Limited, the asset management company of L&T Mutual Fund or any of its associates. The value of investments and any income from them can go down as well as up.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully. CL02229
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