Learning basics of wealth creation is essential to achieve your financial goals. This also includes understanding when to conserve capital and when to be bullish and grow your money. An important reason that your money is not growing is that you may not have factored inflation in your returns. Every investment should beat inflation or else it is just erosion of your capital. Apart from inflation your investments should factor in risks and risk adjusted returns. Lastly before writing a cheque you should know if the returns are taxable or tax free.
If you have too much cash, your money is actually shrinking with time. With increasing inflation, your cash will not be able to get you as many goods and services in future, as it is getting now. Cash or cash equivalent should be kept to minimum levels.
If you need 10% or higher rate of return from your investment, you can achieve it only by investing in equity or equity mutual funds. You have to make sure that the fund you have chosen in equity class is not yielding lower returns. This is where the role of an expert financial advisor MutualFundWala comes in. We shall assist you in closing the right fund that meets your expected returns while maintaining risk to the minimum.
While calculating your financial goals, take into account, both inflation and tax payable. Make sure that the amount you are investing today includes the annual inflation rate and all the applicable taxes. For eg if your PF corpus is to be 1 Cr in 20 years you need to factor in at least 8-9 % inflation and accordingly presume that the corpus will be roughly equivalent to 30 lacs today. Similarly, if you need Rs. 1 lac every month today then in a pension plan you need to get close to Rs 3 lacs every month after 20 years.
Diversifying your portfolio will help you generate higher returns and lower risk. You should not be parked only in PF and FD’s. You should invest at least 25% in good equity MF’s and invest for a longer time horizon.
A lot of investors consider redemption if they feel markets are rocky. This will never enable an investor to meet his financial goals. Withdrawing money before the specified time period can result in loss of money, lower returns and overall dip in the process of wealth creation. You should stay invested to meet financial goals, be it retirement planning or your Childs higher education. You should withdraw only when the objective is met and move the asset to fixed assets like FDs or debt mutual funds.
Periodically reviewing and re-balancing your portfolio is important. Even if you are investing in mutual funds, you will have to make sure that your fund is performing as per your expectations. Weed out the non performing schemes and invest in the sectors and schemes that are doing well and likely to do well. This is where role of MutualFundWala as a financial advisor comes in.