One of the many new year resolutions every year is to be a regular investor. This is before the monthly cycles of salaries-EMIs-payments start. And then the investment we had so vehemently planned, takes a back-seat. Does this sound familiar to you? If yes, WealthApp wants you to have a different 2019. Allow us to list down the three ground rules that will help you achieve your investment objectives.
Define Financial Goals
Let us start with the basics. At the beginning of 2019, let us define your goals first. Goals namely-
Answering these, right at the beginning of the year will help you chalk out a better plan. When and how much are the two questions, which when answered practically, can save you a lot of last-minute hustle.
Invest and stay Invested
A common mistake some investors make is to fidget with the portfolio and mutual funds. Never a good idea, if you ask us. We’ll explain why. Mutual fund investments grow as per the logic of compound interest. Compound interest, by definition, is directly proportional to the time period. Hence, the longer you stay invested, the better and more stable returns you can expect. The return your investments generated is further gaining and thus the money is growing. This is called the power of compounding. Let us look at this with an illustration-
The above example shows that for a lakh rupee invested today, assuming a rate of return as 15%, what will your maturity amount look like after certain time intervals. As we can clearly see, when left to grow on its own, the power of compounding works like magic! In 10 years the money has grown 4-fold and 66-fold by 30 years.
Start a Systematic Investment Plan (SIP)
We will tell you exactly why a SIP works better-
1. Inculcates investment discipline. If you wait for that lump sum money to get saved up, you might just have to wait for a long time. Instead, a SIP has you investing bit by bit every month so you don’t feel the blow.
2. Power of compounding works better with SIP. As in the above example, suppose you invest Rs 5,000 every month- compounding is working on your money right from the beginning. That works better than a lump sum investment, in terms of the returns gathered.
3. Rupee Cost Averaging is a by-product of SIP which basically eliminates any requirement to time the market. It does so by averaging out your cost of buying the fund units and minimizing your risks associated with one-time investments. Consider the below example wherein you are investing Rs 5000 every month-
Now, suppose this was to be a lump sum investment in Jun’19, the number of units earned would have been 600 only. So, Rupee Cost Averaging has saved you by buying lesser units when the price per unit is high and buying higher units when the price per unit is low.
Do you need a head start with SIP? Join the WealthApp family. Register, login and voila! You can get started. Our financial advisors will be happy to assist you, should you need any.