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Why Invest Through MutualFund

Professional Money Management
Fund managers are responsible for implementing a consistent investment strategy that reflects the goals of the fund. Fund managers monitor market and economic trends and analyze securities in order to make informed investment decisions.
Diversification
Diversification is one of the best ways to reduce risk (to understand why, read The need to Diversify). Mutual funds offer investors an opportunity to diversify across assets depending on their investment needs.
Liquidity
Investors can sell their mutual fund units on any business day and receive the current market value on their investments within a short time period (normally three- to five-days).
Affordability
The minimum initial investment for a mutual fund is fairly low for most funds (as low as Rs500 for some schemes).
Convenience
Most private sector funds provide you the convenience of periodic purchase plans, automatic withdrawal plans and the automatic reinvestment of interest and dividends.
Mutual funds also provide you with detailed reports and statements that make record-keeping simple. You can easily monitor the performance of your mutual funds simply by reviewing the business pages of most newspapers or by using our Mutual Funds section.
Flexibility and variety
You can pick from conservative, blue-chip stock funds, sectoral funds, funds that aim to provide income with modest growth or those that take big risks in the search for returns. You can even buy balanced funds, or those that combine stocks and bonds in the same fund.
Tax benefits on Investment in Mutual Funds
1) 100% Income Tax exemption on all Mutual Fund dividends
2) Equity Funds - Short term capital gains is taxed at 15%. Long term capital gains is not applicable.
Debt Funds - Short term capital gains is taxed as per the slab rates applicable to you. Long term capital gains tax to be lower of - 10% on the capital gains without factoring indexation benefit and 20% on the capital gains after factoring indexation benefit.
3) Open-end funds with equity exposure of more than 65% (Revised from 50% to 65% in Budget 2006) are exempt from the payment of dividend tax for a period of 3 years from 1999-2000.
Note: Equity Funds are those where the investible funds are invested in equity shares in domestic companies to the extent of more than 65% of the total proceeds of such funds.

7 good reasons to invest in SIPs

Fact No. 1: Over a long term horizon, equity investments have given returns which far exceed those from the debt based instruments. They are probably the only investment option, which can build large wealth.Fact No. 2: In short term, equities exhibit very sharp volatilities, which many of us find difficult to stomach.   No. 3:Equities carry lot of risk even to the extent of loosing ones entire corpus. Fact No. 4:Investment in equities require one to be in constant touch with the market. Fact No. 5:Equity investment requires a lot of research. Fact No. 6: Buying good scrips require one to invest fairly large amounts.

Systematic Investing in a Mutual Fund is the answer to preventing the pitfalls of equity investment and still enjoying the high returns. And it makes all the more sense today when the stock markets are booming. (Also Read - 5 corners of a sound Investing Strategy)

1. It’s an expert’s field – Let’s leave it to them
Management of the fund by the professionals or experts is one of the key advantages of investing through a mutual fund. They regularly carry out extensive research  - on the company, the industry and the economy – thus ensuring informed investment. Secondly, they regularly track the market. Thus for many of us who do not have the desired expertise and are too busy with our vocation to devote sufficient time and effort to investing in equity, mutual funds offer an attractive alternative. (Read more -The Investors biggest Dilemma)  

2. Putting eggs in different baskets
Another advantage of investing through mutual funds is that even with small amounts we are able to enjoy the benefits of diversification. Huge amounts would be required for an individual to achieve the desired diversification, which would not be possible for many of us. Diversification reduces the overall impact on the returns from a portfolio, on account of a loss in a particular company/sector.

3. It’s all transparent & well regulated
The Mutual Fund industry is well regulated both by SEBI and AMFI. They have, over the years, introduced regulations, which ensure smooth and transparent functioning of the mutual funds industry. This makes it safer and convenient for investors to invest through the mutual funds. (Check out - Foolproof strategies to maximize your profits)

4. Market timing becomes irrelevant
One of the biggest difficulties in equity investing is WHEN to invest, apart from the other big question WHERE to invest. While, investing in a mutual fund solves the issue of ‘where’ to invest, SIP helps us to overcome the problem of ‘when’. SIP is a disciplined investing irrespective of the state of the market. It thus makes the market timing totally irrelevant. And today when the markets are high, it may not be prudent to commit large sums at one go. With the next 2-3 years looking good from Indian Economy point of view, one can expect handsome returns thru’ regular investing. 

5. Does not strain our day-to-day finances
Mutual Funds allow us to invest very small amounts (Rs 500 – Rs 1000) in SIP, as against larger one-time investment required, if we were to buy directly from the market. This makes investing easier as it does not strain our monthly finances. It, therefore, becomes an ideal investment option for a small-time investor, who would otherwise not be able to enjoy the benefits of investing in the equity market.

6. Reduces the average cost 
In SIP we are investing a fixed amount regularly. Therefore, we end up buying more number of units when the markets are down and NAV is low and less number of units when the markets are up and the NAV is high. This is called rupee-cost averaging. Generally, we would stay away from buying when the markets are down. We generally tend to invest when the markets are rising. SIP works as a good discipline as it forces us to buy even when the markets are low, which actually is the best time to buy. (Read more - Invest wisely and get rich with equity MFs)

7. Helps to fulfill our dreams
The investments we make are ultimately for some objectives such as to buy a house, children’s education, marriage etc. And many of them require a huge one-time investment. As it would usually not be possible raise such large amounts at short notice, we need to build the corpus over a longer period of time, through small but regular investments. This is what SIP is all about. Small investments, over a period of time, result in large wealth and help fulfill our dreams & aspirations.

What is NAV ( Net Asset Value) of mutual fund scheme

The NAV of a mutual fund has not been correctly understood by a large section of the investing community.

This is quite evident from the fact that Mutual Funds had been recently collecting huge corpus in their New Fund Offers or NFOs, whereas the collections in the existing schemes were negligible. In fact, investors sold their existing investments and invested in NFOs. This switch makes no sense, unless the new fund has something different and better to offer.

Misconception about NAV

This situation arises from the perception that a fund at Rs 10 is cheaper than say Rs 15 or Rs 100. However, this perception is totally wrong and investors would be much better off once they appreciate this fact. Two funds with same portfolio are same, no matter what their NAV is. NAV is immaterial.

Why people carry this perception is because they assume that NAV of a MF is similar to the market price of an equity share. This, however, is not true.

Definition of NAV

Net Asset Value or NAV is the sum total of the market value of all the shares held in the portfolio including cash less the liabilities, divided by the total number of units outstanding. Thus, NAV of a mutual fund unit is nothing but the ‘book value’.

NAV vs Price of an equity share

In case of companies, the price of its share is ‘as quoted on the stock exchange’, which apart from the fundamentals, is also dependent on the perception of the company’s future performance and the demand-supply scenario. And hence the market price is generally different from its’ book value.

There is no concept as market value for the MF unit. Therefore, when we buy MF units at NAV, we are buying at book value. And since we are buying at  book value, we are paying the right price of the assets whether it be Rs 10 or Rs.100. There is no such thing as a higher or lower price. 

NAV & it’s impact on the returns

We feel that a MF with lower NAV will give better returns. This again is due to the wrong perception about NAV. An example will make it clear that returns are independent of the NAV.

Say you have Rs 10,000 to invest. You have two options, wherein the funds are same as far as the portfolio is concerned. But say one Fund X has an NAV of Rs 10 and another Fund Y has NAV of Rs 50. You will get 1000 units of Fund X or 200 units of Fund Y. After one year, both funds would have grown equally as their portfolio is same, say by 25%. Then NAV after one year would be Rs 12.50 for Fund X and Rs 62.50 for Fund Y. The value of your investment would be 1000*12.50 = Rs 12,500 for Fund X and 200*62.5 = Rs 12,500 for Fund Y. Thus your returns would be same irrespective of the NAV.

It is quality of fund, which would make a difference to your returns. In fact for equity shares also broadly this logic would apply. An IT company share at say Rs 1000 may give a better return than say a jute company share at Rs 50, since IT sector would show a much higher growth rate than jute industry (of course Rs 1000 may ‘fundamentally’ be over or under priced, which will not be the case with MF NAV).

3 Simple ways to become RICHER in 365 Days

You have got complete 365 days. Why don’t you chalk out a plan to become richer by next year? The good thing is you don't have to employ some highly esoteric investment strategies or complex algorithms to become richer in a year's time. Some simple reorganisation in your personal finance management could make you richer. Almost always, the simplest are the most profound.

1) Make a Financial Plan:

This is the first and foremost important step to become financially successful. It is not your income, but your wealth that counts. People with high income like Michel Jackson died with a lot of debts. So a careful personal finance management is more important than how much you earn. To have an effective personal finance management system in place for you, you need to have a personalized well written financial plan.

What are the things you want to save and invest for? It may be for buying a home, buying a car, children’s higher education, retirement planning. Decide how many years from now you need to achieve each and every goal. Because you need to take into consideration the inflation for all those years and also you need to choose investment options based on the timeframe for investments.

You need to create your own list of financial goals. If you don’t know where you are going, you may end up somewhere you don’t want to be. To end up where you want to be, you’ll need a roadmap, a financial plan.

So create a financial plan for you and your family on this. There is a lot of help available for you online to create a financial plan in various websites with financial calculators. But if you want to create a more workable financial plan, you may seek assistance from professional financial planners.

2) Pay off all high interest debts:

You need to create a plan to come out your high interest debts like personal loan, credit card outstanding, car loan and the like. Credit cards can make it seem easy to buy expensive things when you don’t have enough cash. But it is not free money. To come out of debt, you need to have specific strategies that can work in your own situation. There are 11 ways to get out of debt and stay out of debt. You can choose one or a few ways from this to become debt free.

If you are not giving enough attention to your debt, then it can sink your financial ship. So take some time on this to list down all your borrowings and make out a plan to come out.

3) Start Saving and Investing:

As soon as you have paid off all your high interest debts, you need to start saving and investing for your financial goals. To save more either you need to spend less or you need to earn more. So you check up what are all the ways and means available for you to spend less and earn more.

If you are spending more than your income or all your income and you don’t have any money left to save or invest, you need to look for ways to cut back on your expenses. When you check where you are spending your money, you will be surprised to know how everyday petty expenses that you can do without add up over a year. You need to understand what makes us spend more and strategies to have self control with money to spend smart and save more.

When you started saving money, you need to convert your savings into investments. When you are choosing your investment option you need to take into account, the timeframe for investments, risk you can afford to take, inflation and your financial goals. Also you need to be careful in avoiding the biggest investment mistake. That is to choose a scheme in sync with basic investment principle. Make sure that you are not violating any investment principle. Don’t fall for speculative gains, ponzi schemes and get rich quick schemes.

Mutual fund investment by means of SIP ( Systematic Investment Plan ) is best saving option

If you follow these simple but authentic steps, by next year you will be richer than what you are in this year. Celebrate this year with much more confidence and peace of mind by following these simple steps for financial success.

The above matter views of Mr. Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached atramalingam@holisticinvestment.in

Risk of not investing in Equity.

Rajeev and Sanjay are classmates. They both had same level of knowledge and smartness when they completed their graduation. Rajeev hates to take the risk of traveling in a vehicle for the reasons only best known to him. Believe me; he travels only by walk wherever he goes. But Sanjay is ready to take risk. He uses all the mode of transports time to time convenient to him.

After 10 years of their graduation, they connected to each other on facebook only to know that they both are working for the same company. Rajeev is working as an accounts executive in Chennai branch. Sanjay is working as a Director-Finance in Mumbai, the head quarters of the company.

What made this huge difference? The ability and willingness to take risk.

Similarly investors should not hesitate to take risk. The ability and willingness to take risk by investing in equity will potentially increase your wealth considerably.

A person who is investing Rs.5000 per month for 25 years in safe avenues like FD or PPF will get around Rs.47 lacs; whereas if it is invested in equity it has got a potential to grow to Rs.1.64 crores. Huge difference! Isn’t it?

There are two types of risks. One is blind risk. It is something like driving a vehicle without knowing how to drive and driving without understanding the road rules. The other one is calculated risk where we know how to drive as well as the road rules.

An investor needs to take well calculated risks; not blind risks. One should know how to invest as well as the investment principles and techniques.

Suppose you don’t know how to do that and also don’t have enough time to learn those things, it is better to outsource it to someone who knows investing better. Mutual funds and Portfolio management services will serve this purpose for you.

Investing in equity is a risky proposition. At the same time staying away from equity is also a risky proposition, because inflation is like a slow poison, which will eat away the value of money over a period of time. That is if inflation is 6%, your investment should give at least 6% post tax return to maintain the same money value for your investment. If it is giving less that 6%, then your money value is eroding. If it is giving more than 6% then your investment is really growing. Equity is one such investment which has got a potential to beat inflation in the long term.

Don’t hesitate to invest in equities. Beat inflation and accumulate real wealth

The above matter views of Mr. Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in

8 Investment Myths To Be Avoided

Today I am going to debunk a few investment myths. You will know ‘why individual investors are failing miserably and how you can avoid being one of them’.

I am too young to plan for retirement

Have you started planning for your retirement? You may be saying ‘who me? I am too young to be thinking about retirement”. It is not so! Rethink. You should have started thinking about it yesterday. Because time flies quickly. If you were smart, and planned for retirement when you are young, your retirement years will be really those “Golden years”. If not you need to compromise and you need to work longer and retire later than others.

East or west FDs are safe and best

Nothing wrong in investing in FDs. FDs are really safe and it gives us fixed return. But there is no meaning in investing all your money in FD. The post tax return of an FD will hardly beat inflation. If your investments are not beating inflation, then your money is losing its purchasing power. FDs are safe but not always the best option.

I can never be as good as Warren Buffet or Rakesh Jhunjhunwala so why try?

In the words of Warren Buffet “Success in investing doesn’t correlate with IQ once you’re above the level of 125. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.” You don’t need a super brain for making investment decisions. You only need common sense and discipline. If you don’t have enough time and expertise, then you can get assistance from professional financial planners.

Stock markets can earn me quick bucks

This is a common myth among investors. Stock market will reward the long term investors. Stock market is a system which transfers money from investors who are fearful and greedy to the investors who are balanced and rational. You need to be calm, patient, disciplined, and rational. You don’t have to be smarter than the rest; you have to be more disciplined than the rest.

Timing the market is important

Investors often spend a lot of their time in trying to identify when the market is very low or high, and timing the purchase and sale of investments accordingly. In other words, they want to time their exit when the market has reached its top and to time their entry when the market has reached a bottom. This not a practical idea because there are so many influencing factors to the stock market. Predicting all the factors and making investments is practically not possible. Instead of that stagger your investments through SIP, STP and stay invested for long term.

There is no such thing as too much diversification

Diversification is needed. A well diversified portfolio can be created with 10 stocks or 3 mutual funds. Having more than 20 stocks or 6 mutual funds can dilute your returns. The reason is you are not only investing in best stocks and funds, you are investing in above average and average stocks and funds. So your returns will come down. Instead of over diversification, you need to concentrate on a few stocks. It is possible to achieve the required diversification with a few stocks or funds.

The best way to make money is investing in what is hot

If you are investing in what is hot, then you are following the crowd. If you follow the crowd, you will get what others are getting. You will not get anything more. You need to be fearful when others are greedy and you need to be greedy when others are fearful. So don’t go by the market trend or the hot pick of the month. Think like a contrarian and follow value investing.

Saving tax is the only objective for me to Invest

Which group you are in? There is a group of people who invest just to save taxes. They will not bother to invest anything more than that. They will meet their objective of saving tax. There is another group which invests to save tax as well as to save for their other life goals like retirement, children’s future. They will meet the objective of saving tax and achieving other life goals. Kindly check you belong to which group.

You can be an assured successful investor if you could avoid these investment myths.

The above matter views of Mr. Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in

Mutual Fund SIP: For Short term or Long term?

It may look very strange when everyone is advocating Mutual Fund Sip for long term, what is the necessity for this debate on ‘Is Mutual Fund SIP for Short term or long term?’.

Theoretically doing a Mutual fund SIP for long term will work for investors. But for practical reasons we need to commit a Mutual Fund SIP for short term. That is we need to break that long term into many 6 months or 1 year periods and commit your Mutual Fund SIP for first 6 month or 1 year.

Then at the end of 6 month or 1 year renew your SIP for another 6 month or 1 year. You need to renew like this till you complete your predetermined long term period.

You may think it is an unnecessary paperwork and waste of time. But you will be completely convinced when you have finished reading this article.

Contribution towards Mutual Fund SIP Changes:

How much you are contributing towards Mutual Fund SIP changes over a period of time. At the beginning of a career a person will be able to commit Mutual Fund SIP for small sum of amount. As he progresses in his career, he or she will be able to increase his contribution towards Mutual Fund SIP.

Similarly, when someone reaches a stage where he need to spend more on kid’s higher education, daughter’s wedding, buying a house or meeting a major financial commitment, it is difficult for him to continue the same amount of Mutual Fund SIP contribution.

So whenever you renew your Mutual Fund SIP at the end of 6 month or 1 year, you can look at your cash flow position and based on that you can renew the Mutual Fund SIP for the increased amount or the same amount or the reduced amount.

Portfolio Review:

Also it gives you a chance to review your portfolio with your advisor once in 6 months or 1 year. The scheme which you have chosen for Mutual Fund SIP is performing well when compared to its peers or not? You need to review this periodically. The scheme may turn out to be a laggard.

The scheme may be performing well when you have chosen for doing SIP. But over a period of time, it could have derailed from its performance. This is something like our cricket players. They will be in a good form in the game for some period of time. Then they will lose their form after sometime. So you need to periodically check up whether the fund is performing NOW or not.

If you are committing a Mutual Fund SIP for 10 years, then the advisor may not be coming back to you whenever you call him for reviewing your portfolio. If you commit for 6 months or 1 year he or she will be definitely coming to you for renewing the Mutual Fund SIP. You can have a review with him or her at that time. When you commit Mutual fund SIP for long term, generally we ignore to review it. It may generate poor returns. You can avoid this by periodic review.

Equity Exposure in Overall Portfolio:

How much equity exposure you can give to your overall portfolio can change the amount of Mutual Fund SIP in equity and debt. As the age goes up, your ability to take risk comes down. So you need to change your equity mutual fund SIP contribution periodically.

How close or distant you are to achieve your financial goals will also decide your equity exposure. If you have got long period to achieve your financial goal then you can have more equity exposure. When you have short period to achieve your financial goal, then you need to reduce your equity exposure.

Rebalancing your portfolio based on your predetermined asset allocation will also decide your equity exposure. All this can change your Mutual Fund SIP amount in equity funds.

So committing a Mutual Fund SIP for long term looks good on paper. For practical reasons we need to commit for short term and renew it at the end of every short term till achieving our financial goals.

In this regard, instead of committing a Mutual Fund SIP just like that, having a long term financial plan and committing Mutual Fund SIP based on that plan will be really fruitful. This will make a solid difference in achieving your financial goals.

The above matter views of Mr. Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in

What Is The Right Mutual Fund For You?

If you are planning to invest your money in equity funds, there are plenty of options in front of you. Broadly the equity funds can be categorized into index funds, diversified funds and sectoral or thematic funds.

Your friend could have told you index funds are safe and cost effective. Your colleague could have told you, infrastructure is going to be the next big theme. So invest in infra funds. As an investor you are confused with the information overload and would like to choose the right type of fund for you. I will unveil this to you today.

Index funds Vs Diversified Funds

Index funds are just index trackers. They aim to replicate the movements of an index. Index funds will hold all of the securities in the index in the same proportion as the index. There is no research and analysis on which stock to invest. There is no human input. They just track and replicate the index. There is no active management and there is no fund manager. So they enjoy the low cost advantage.

On the other hand, diversified equity funds will invest in non-index stocks also. The fund manager and his team will do an in-depth research before investing in each and every share. The aim of the fund manager is to outperform the index. Most of the diversified funds have outperformed the index with a huge margin. As these funds are actively managed, the expense ratio of these funds is relatively higher. But you are well compensated for the extra fees you pay. The returns you see in the above table are the net returns after adjusting all the expenses.

If that is so, then how come the concept of the index fund is so popular and accepted? In the developed countries, matured markets, grown up economy it is REALLY difficult to beat the index. So the extra expense on the active management will reduce the return. So index funds are better and popular there.

But in a country like India, where the economy is fast growing, market is still not matured and the country is in the transition phase of moving from a developing country to a developed country there are lot of better opportunities with the non-index stocks. That is why in all emerging markets including India, it is possible for the fund managers to outperform the index.

So, diversified equity funds in the long run (5 years and above) will outperform the index funds in all the emerging markets like India. That is why you need to choose diversified equity funds when compared to index funds.

Diversified Funds Vs Sectoral/Thematic Funds:

Sectoral fund invests in a particular sector. There could be a “Pharma Fund” which invests only in the pharmaceuticals sector. You can also see the funds like banking fund, IT sector fund, FMCG fund. The performances of these funds are restricted to the opportunities available in those particular sectors.

Thematic fund invests based on a particular theme. There could be an infrastructure fund which invests only in infrastructure based stocks. There are thematic funds available in the other themes like capex opportunities, energy opportunities, rural India, PSU opportunities. The performances of these funds are based on the success of those themes. Thematic funds can invest only in those sectors favoured by its theme.

On the other hand, the diversified equity funds can invest across various sectors and they can follow many themes. There is no restriction. The fund manager can invest a sizable portion in any particular sector or any theme if he thinks that sector/theme can do better in the future. Also he can move from one sector to the other sector and change his theme intermittently based on the changes in the market outlook.

This flexibility of moving from one sector/theme to the other sector/theme is not available with sectoral/thematic funds. Even if the fund manager of the sectoral/thematic fund thinks that, this particular sector/theme will not do well for the next couple of years, he is forced to remain invested in the same sector/theme. Whereas the diversified fund manager can change to another sector/theme if the outlook for a sector/theme changes.

Most often, the market creates hype on a particular sector or theme. Then investors get a feeling that this is going to be the next big sector/theme which is going to drive the market. This is only an illusion.

“Technology is the next big sector” – This is the hype created by the market in the year 1999. Everyone around you could have talked about technology stocks. Mutual funds have launched so many technology sector funds like ecom funds, internet opportunities funds. Most of the investors believed this illusion as real and invested their hard earned money in these funds. Technology sector as a whole has got crashed during the year 2000 and all the technology funds have taken years to recover from their losses. But the diversified equity funds which had sizable exposure in technology stocks have revived faster than the standalone technology funds.

“Infrastructure is the next big theme”- This is the hype created by the market in the year 2007. Everyone around you could have talked about infrastructure stocks. Most of the mutual fund houses launched schemes based on the infrastructure theme. Market crashed in 2008 and infrastructure stocks were the worst affected. Investors learned that, the prospect which they have perceived for infrastructure in 2007 was only an illusion.

Sectoral/thematic funds are potential to deliver superior returns, but it is almost impossible to predict when they will do so. Also there is an inherent danger of getting inferior returns. But market will play with your greed and make you believe the illusion as true and take action. Beware.

So it is better to leave the choice to the fund manager regarding in which sector/theme to invest. He knows when to invest in a particular sector /theme and when to move out of a particular sector or theme.

Therefore, east or west the diversified funds are safe and best.

The above matter views of Mr. Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in

10 Commandments of Successful Investing

Let me unveil the 10 commandments of successful investing today. These commandments strictly followed can make you a successful investor; make you richer. The successful legendary investors like Benjamin graham, warren buffet have followed these principles. So why not you…?

1) Decide your investment strategy and stick to it:

An investor may invest in SIP and when the market continues to fall he will discontinue his SIP. But market crash is the right time to continue your SIP. Because, during the market crash you will get more number of units and the averaging works out in your favour.

Another investor may decide 50:50 as his debt:equity asset allocation ratio. When the market goes up he may want to invest more in equity and hence he may change his asset allocation to 30:70. Actually when the market goes up one need to reduce his equity exposure to bring the portfolio back to his predetermined asset allocation ratio.

Don’t change your strategies midway. You know what is best for you and this applies to deciding with foresight the ideal investment strategy for you. Once the strategy is set, do not fluctuate in your decision each time you decide to invest. This would only mean losses instead of profits.

2) Conduct your own research on stocks:

It is not advisable to just depend on hear say and decisions of your neighbor, friend, relative or tips from the media or your stock broker and invest in stocks. It may seem easy but could amount to gamble. Being an informed investor investing your hard-earned money needs you to ensure if the investment would meet your financial goal. This could be done through research from various sources.

3) Learn to overlook short term fluctuations:

If you want to be a successful investor, you need to understand that it is futile to be affected by short-term fluctuations of the stock market. Investing in good and reputed portfolio ensures good quality of your investment and capital appreciation in the long run. The short-term volatility of the share market has got nothing to do with the long term performance of your investments and achieving your financial goals.

4) Resist investing in penny stock:

Some investors have a common misconception that it is better to invest in penny stock than in high value stocks. This is wrong as whether you buy stock at Rs.5. You need to see the background of the company before looking at the price of the share.

5) Discard the losers and pamper the winners:

There is a tendency among investors to sell off appreciated stock and to hold on to depreciated stock in the hope that it would rise. It is wrong, as it is possible that the shares which are not doing well may continue to underperform and the shares that are doing well may continue to perform in the future.

It is better to acknowledge you went wrong, swallow your pride and discard the loser stocks and lessen your losses. Your decision lies in deciding to suffer a one-time loss for future long-term gains.

6) Look before you leap

Even good company shares bought at the wrong price can be a poor investment choice. So devise some strategies like SIP, asset allocation to avoid this mistake.

7) Adopt an open-minded investment strategy:

It may be advisable to consider investing in good companies, however it is wrong to overlook the point that small start-up companies would make losses. Even such companies with good strategies and growth plans could contribute to long-term capital appreciation. Always have an open mind in taking your investment decisions.

8) Base your investment strategy on the future:

Investment decisions based on past happenings may not always be right. It is better to consider the happenings, but give more importance to the present and future prospects of the investment. An informed decision based on the fundamentals and mission of the company helps in long-term wealth creation.

9) Consider tax friendly investments:

Making investment decisions based on tax considerations may prove counter-productive. However minimizing taxes and maximizing returns after taxation would help. The long term capital gain tax is nil. So if you invest for a time horizon of more than one year you will have better post tax return.

10) Adopt a long-term perspective:

Adopting a long term prospective is advisable if you want to be a successful investor. If you want to get short term results, then you will be able to cultivate only coriander leaves. If you want to grow a large banyan tree then you need to wait for years. So if you really want to be richer and create wealth, you need to be a long term investor.

You could have seen a lot of success stories of people, who bought a good stock 10 or 15 years back and accumulated a good amount of wealth now because of the appreciation of those stock prices. But have you ever heard of a person accumulating wealth by trading in the stock market or moving in and moving out of the market?
By trading in market you may make profits in a few transactions, but you will not be able to make profits forever. There is a lot of difference between making profit in a single transaction and being a successful investor forever.

Knowing Vs Doing

There is a huge difference between knowing what we should do and actually doing it. The knowledge piece appears quite sexy; being interested, learning something new, coming up with that cool idea. The doing part sounds comparatively like routine work, no matter how easy this work may be to do or how obvious that it should be done.
Don’t fall into that “knowing Vs Doing gap”. Now you know the 10 commandments to successful investing and put it into practice to become richer.

The above matter views of Mr. Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in