Meet the Rahul Dravid of Mutual Funds

Ever wondered why Rahul Dravid was adored by millions of fans and also spoken highly about by the sharpest critics of the game?

How did he manage to play defensively when the ball was new in Test cricket? And later shaped up into a formidable finisher for India’s ODI team during the mid 2000s.

How did he do wicket keeping in ODIs inspite of not being a regular wicket keeper? Yet managed to retire as one of the world’s best batsmen?

How did he manage to perform consistently across all countries and in all situations for Team India?

Well, that is because he knew the importance of maintaining a balance.

If Rahul Dravid was a portfolio, he would resemble this:

Look at this interesting statistic:


Number of SIP Accounts opened from 1986 - 2015: 75 lakhs

Number of SIP Accounts opened in 2015-16: 27.1 lakhs

Which means close to 30% of SIP accounts as of today were opened in just last one year.

This would also mean that the penetration of mutual funds in India is increasing.

Earlier only the financially savy would be investing in mutual funds. But now several first time investors are also getting in through SIPs.

But what about individuals who have a lumpsum to invest? It may be an amount received as bonus for a working individual or a retirement corpus received by a government servant who just retired.

Apart from Bank FDs do they have any other choice which can help them beat the threat of inflation and the spectre of tax?

Check this out:

Most first time investors invest during the Euphoria phase, lose money at the denial phase and decide never to invest again at the panic phase.

Even during the 2008 recession, it was observed that fund inflows from domestic retail investors had increased at the peak of the stock market.

Indian mutual fund industry has several options for the financially savy investor.

However would it make sense to expect a retired college principal from Pondicherry who is investing for the first time to sit tight through the ups and downs of the stock market?

Today quite a few of us are aware about SIPs. But what do we do when it comes to investing a lumpsum amount? Mostly invest it in a Fixed Deposit.

Why not try out the 'Rahul Dravid' of mutual funds - The ICICI Prudential Balanced Advantage Fund

How does it work:

It is an all-weather fund and does well in all sorts of market conditions – The fund invests in both equity and debt. It allocates fund according to market conditions.  Interestingly it follows the Price/Book value model. It essentially means that when the Nifty’s price becomes expensive as compared to its book value the funds are allocated to debt and when the Nifty’s P/BV ratio decreases the funds are allocated to equity. This combines growth and relative freedom from risk.

Whom is it for:

Anyone who wishes to invest a lumpsum and doesn’t want to invest the amount in either stocks or Fixed Deposits.

The advantages of this fund are:

• Offers a mix of growth higher than benchmarked index and protection from risk
• Volatility is low over a longer period of time
• It offers better returns than a Fixed Deposit – Interest rates offered on Fixed deposits across banks doesn’t exceed 9%. If you take TDS into account, the number drops. In comparison, the returns offered by ICICI Balanced Advantage Fund has been 16.4% over 5 years.
• There are tax benefits – This fund is treated as an equity fund when it comes to taxation. Hence there is no tax on long term capital gains (gains accrued if you stay invested beyond an year)
• Automatic Withdrawal Plan feature – For the first time in the mutual fund industry, the Automatic Withdrawal Plan was introduced by this fund. Under this feature, one can receive regular monthly cash flows to meet monthly expenses.

So did you earn your bonus? Or received your PF amount? Or secured gratuity? Or just inherited a windfall?

Invest kar!

(Mutual Fund investments are subject to market risks, read all scheme related documents carefully)

Marine Drive

We all know about the Marine Drive in Mumbai.
Almost everyone who lives in Mumbai must have visited it at some point of time in their lives.
Dreams have been inspired and ambitions have been forged at this timeless place.

However, what if you want to buy a flat here?
6 Cr for a 1 BHK!

Now have you checked out the other Marine Drive in India?
It is in God's own country.
Ernakulam in Kerala.

Price of a flat here?

1.5 Cr for a 3 BHK!

What if I screw up?

Life is unpredictable

And one often screws up.

Getting screwed up is bad. But losing money in the ordeal is worse.

So what could those scenarios be:

a) Divorce: Most men in bad marriages stay married to their wives as they don't wish to lose money. As simple as that.

b) Stock market: As the bull market will come to close and the dreaded bear will raise its spectre, there will be stories abound about people losing huge sums by having invested in dodgy penny stocks.

c) Pledging house for a loan: You are a businessman. Last few years have been good. You wish to scale up with the help of a bank loan. You pledge your residence as collateral. A black swan event causes your biggest orders to get cancelled. You turn homeless

d) Health hazard: Your treatment was taken care by health insurance. But what about subsistence? You are the only working member of your family.

An emergency fund is a good idea.
But what about wealth creation?
Will it get stalled because of this?

How about an SIP which will keep going irrespective of any eventuality that can befall you.
According to the calculator, a SIP of Rs 2000 achieving 15% CAGR can be worth Rs 1.4 crores after 30 years.
This is worth Rs 18 lakhs as of today.

It may just give you a second chance in life.

Do you check the price of your house every day?

Markets are volatile

So you won't invest in equities or mutual funds.

Great!

But you are willing to invest in property.

Because property prices are not volatile.

Ok.

Ever wondered what would you do if your property's price was showed up on a ticker every day. Just like how share prices are shown.

Today the price of your property might be up.

Tomorrow it would be down.

Would you still hold on to it patiently?

What if you had the same attitude towards stocks?

Think about it.

Start up. At 60?

Life comes with several responsibilities.
Initially towards parents, then spouse and then children.
And middle age is usually spend fulfilling responsibilities towards all the three.
Yes, there are a few whose families are supportive towards starting up at 30,35 or even 45.
However, ever given a thought at starting up at 60?
Don't feel bemused.

In fact there are quite a few companies which were started off by seniors.

Captain CP Krishnan Nair founded Leela Hotels in 1987. He was 65 then. He passed away at the ripe old age of 92 in 2014. Between 65 and 92 he was sprightly enough to not only launch chains of The Leela all across the country but also took it public.

Does Colonel Sanders ring a bell? It doesn't? Well here you go:

Col Sanders became a professional chef at the age of 40, acquired the franchise of KFC at 62 and sold it for $ 2 million in 1965 at the age of 75.

What about Charles Flint? Well what about him?
He started the company which we now know as IBM. At the age of 61

Have a housing loan? It should most likely be from HDFC - which was started by Hasmukhbhai Parekh when he was 68.

So you must be saving and investing to get your children educated, take your family for holidays, retirement, buying a holiday home and for unforeseen circumstances.
But did you have a dream to start up? And reading about all those young rockstars who have made it big makes you feel you could do better! Or just start up! After all, it is this life that counts.
Why not create a start up fund? Start investing Rs 10,000 per month in a credible mutual fund. Even when you are 45, you have another 15 years to go. Do you know how much will it be worth when you are 60?

Assuming growth of a conservative 15% per annum, you are likely to land up with Rs 67.6 lakhs when you are 60. Even if you take inflation into account it is worth close to Rs 25 lakhs as on today.

Not a bad figure to use as start up capital eh?

How much do you need for retirement?

So you are 40.

And your monthly expense is (exlcuding EMIs) close to Rs 80,000 per month.

You wish to maintain the same lifestyle when you are 60.

Considering inflation of 7.2%, your outgoing would be close to Rs 3,20,000/month when you are 60!

Does this number offer a reality check?

It must and it should!

Unless inflation rate is kinder or you are comfortable asking your children to pay you a monthly amount or you cut down on your expenses be prepared to be spending this kind of money.

And it is only going to go up.

Wish to know how to predict how much you need to live a comfortable life?

Introducing the rule of 72!

The rule of 72 helps you to calculate the approximate number of years which are required to double your money if the interest rate is known.

Example: Suppose you have invested 1 lakh in a financial instrument which grows year on year by 18%. Then the value of the same will be Rs 2 lakhs in 4 years.

This principle can also be applied to understand how inflation will impact your finances.

Example: If your monthly expenses are Rs 80,000 and inflation is 8% per year, then you will find yourself spending Rs 1,60,000 after 9 years. (72/8 = 9)

Sounds simple enough?

Become a millionaire by 31

Are you 21?
Receiving your first salary?
Rs 18,000 per month?

Wish to become a rupee millionaire by 31?

Care to invest 20% of it?
Rs 3,600 per month through SIPs

According to the calculator you would make 10.03 lakhs!
Taking inflation into account (around 7.2%), it would be worth 5 lakhs as on today.

Now if you don't touch this corpus and let it continue, you would have ....

..a mind boggling Rs 11.3 crores by the time you are 61.
(However taking inflation into account (around 7.2%) , it would be worth Rs 1.5 crore as on today)