ear a crore1

8/7/2019 ear a crore1

http://slidepdf.com/reader/full/ear-a-crore1 1/5



For the next year, add Rs 2,000 (instead of Rs 1,000) and you will end up with Rs 9,158.40 at the end of

two years.

The following year, add Rs 3,000 (instead of Rs 2,000). You will end up with Rs 13,131.07 at the end of

three years.

That is more than double the amount you invested.

Don't withdraw the interest

Not withdrawing the money helps.

Invest Rs 5,000 at 8% per annum. You will get Rs 400 every year. It will take you 13 years to earn Rs

5,200 as interest (if you earn an interest of Rs 400 each year). This means it will take you that long todouble your investment.

If you do not take the interest every year and reinvest it instead, you will end up doubling your money at

the end of nine years.

What's more, you would get Rs 10,000 as a lumpsum. Else, you would end up spending the interest you

earn every year (Rs 400).

If you are convinced, there are a number of ways in which you can engage in these 'forced savings'

investments.

How to invest in a mutual fund

anjay Prakash, CEO, HSBC Asset Management (India [ Images ]) Pvt Ltd, has an interesting tale.

Six years ago, he began to invest diligently every month in a mutual fund for his daughters.



From an amount as low as Rs 500 a month, he increased it to Rs 1,000. He then set himself a target of

increasing it by Rs 500 every six months. Today, he invests Rs 7,500 in each of his daughters' names

every month.

Though very young and still in school, each girl has Rs 700,000 to her name.

Where did he invest? In a diversified equity fund.

How? Through a Systematic Investment Plan.

What is that?

An SIP is a vehicle offered by mutual funds to help you save regularly.

It is just like a recurring deposit with the post office or bank where you

put in a small amount every month. The difference here is that the

amount is invested in a mutual fund.

The minimum amount to be invested can be as small as Rs 500 and the frequency of investment is

usually monthly or quarterly.

My friend would do well to learn from this.

Recently, when the Sensex rose to dizzying heights, the Net Asset Value of her funds soared too. The

NAV is determined by the market price of the stocks the fund has invested in. So when the markets rise,

the NAVs follow. And vice versa.

Being smart enough to sense she would not get a return like this in a while, she sold her units and madea tidy sum. Now, she is waiting for the market to slump and the NAVs to fall so she can buy them back

cheap.

The theory is good; but does it work?

Nobody can time the market. Nobody can predict when it is going to fall or rise and by how much.

While she is waiting for the market to drop, she is missing out by just sitting on her money.

And just because she got it right once does not mean she will win again.

How an SIP works

An SIP allows you to take part in the stock market without trying to second guess its movements.

AN SIP means you commit yourself to investing a fixed amount every month. Let's say it is Rs 1,000.

When the NAV is high, you will get fewer units. When it drops, you will get more units.



Date NAV Approx number of

units you will get at

Rs 1,000

Jan 1 10 100

Feb 1 10.5 95.23

Mar 1 11 90.90

Apr 1 9.5 105.26

May 1 9 111.11

Jun 1 11.5 86.95

Within six months, you would have 5,894 units by investing just Rs 1,000 every month.

Over the long run, you make money

Let's say you invested in Prudential ICICI [ Get Quote ] Technology Fund during the dotcom and tech

boom.

Say you began with Rs 1,000 and kept investing Rs 1,000 every month. This would be the result:

Investment period Mar 2000 Mar 2005

Monthly investment Rs 1,000

Total amount invested Rs 61,000

Value of investment of Mar 7,

2005

Rs 1,09,315

Return on investment 23.87%

Had you bought the units on March 13, 2000 at Rs 10.88 per unit (that was the NAV then), you would

have lost because the NAV was just 7.04 on March 7, 2005. But because you spaced out your

investment, you won.

How an SIP scores

It makes you disciplined in your savings. Every month you are forced to keep aside a fixed amount. This

could either be debited directly from your account or you could give the mutual fund post-dated cheques.



As you see above, it helps you make money over the long term. Since you get more units when the NAV

drops and fewer when it rises, the cost averages out over time. So you tide over all the ups and downs of

the market without any drastic losses.

Also, a number of mutual funds do not charge an entry load if you opt for an SIP. This fee is a percentage

of the amount you are investing. And if you do not exit (sell your units) within a year of buying the units,

you do not have to pay an exit load (same as an entry load, except this is charged when you sell your

units).

If, however, you do sell your units within a year, you would be charged an exit load. So it pays to stay

invested for the long-run.

The best way to enter a mutual fund is via an SIP. But to get the benefit of an SIP, think of at least a

three-year time frame when you won't touch your money.

ear a crore1

Documents

Transcript of ear a crore1