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CASE STUDY 10

Client Profile

Client : First time investors, new investors.

Situation : First time investors, various income groups, need clarity, trying to understand the ‘Whys’, ‘Whats’, and ‘Hows’ of investing.

It is never too late to start growing your money. While time is an important factor when it comes to investing, it really does not matter with the right approach and proper advice. The best time as they say is ‘as soon as possible’. Responsibilities are like leaves on a tree, the more the tree grows the more leaves it gets. Therefore, now is the time you need to now ask yourself some questions. Are you ready to take on these responsibilities? Are you well prepared to successfully take care of those responsibilities? When confronted with these questions you will probably want to explore the possibilities that mutual fund investment has to offer. If you have read our previous writeups carefully you must be already aware of the impact that the power of compounding has on your investments. If you are ready for a long haul, then you will experience the exponential growth of your money in a few years.

However, wealth managers will always emphasize ‘earlier the better’ when it comes to mutual fund investments as time becomes the most valuable asset and those who are young (investors) will have an extra edge. Nevertheless, there are some stumbling blocks to setting aside money, particularly when you’re young. With low-paying entry-level jobs, inadequate financial education, and socioeconomic barriers, most young people are just trying to get by. And then, after years of hard work when they’re finally ready with a decent corpus to start investing, they find themselves facing a dilemma. Please know, you can start investing at any age.

We have several clients, in the range of fifty to sixty, who came to us a few years ago with a decent kitty and lots of dreams, which we depict as goals in financial parlance. Many of them lack the education and guidance they needed for their savings. They entrusted us with their precious corpus and are now happily enjoying the fruits of their discipline and sacrifice. Clients are individuals who are very unique in their own rights, hence our job is to create a tailor-made portfolio for them to suit their requirements.

If you are a beginner, you can start your mutual investments with a lump sum or through SIPs. Lump sum investments are advantageous when you have a lump sum amount available, allowing immediate capital deployment. It may also be suitable during market opportunities. Whereas, systematic investment plans (SIPs) offer a more disciplined approach and mitigate market timing risks, making them an ideal choice for some investors. Mutual funds also have a feature whereby if required you can get monthly income through SWPs.

Investing is many things, but being intuitive is not one of them. Knowing when, where, and how to set money aside in any kind of product where it can grow usually requires training and education that many of us don’t have. This is why we insist that you seek guidance from financial experts . You can also come to us and give us an opportunity to serve you. Through this article we intend to not just help you understand the importance of investing but also show you that it doesn’t take much effort to plan it prudently. The right way of investing is to build a mutual fund portfolio. Many first-time investors, young or old alike, do not invest in mutual funds because they find the entire process too complicated. It becomes less complicated and less stressful if one puts in a little effort to understand the implications of tax on mutual funds, exit load on withdrawing money from mutual funds, expense ratio of mutual funds and few other things on investment returns.

Always remember the rule- One should start investing the day you get your first pay cheque. Neither get too greedy nor get too scared, then with time you will see that you have everything you ever desired sitting right on the other side of fear. You would be able to fund your higher education/ university education in the country or abroad, buy a house, create a substantial retirement fund, travel abroad and so on. The first step towards building a mutual fund portfolio is to identify the goals you are building that portfolio for. Having goals is important because all your further decisions will be anchored to them. Investing without a goal is just like boarding a train without a destination in mind. It is important to understand that money is not the ultimate goal rather it is “a means to an end”. Which means, money is the resource or a tool by virtue of which you achieve that desired goal or objective. Money or more specifically properly invested corpus will facilitate your broader life goals and aspirations.

You can invest directly if you have adequate knowledge and sufficient time for research otherwise it is always prudent to have it professionally managed. The fund managers do research and goal mapping. You can access your money when needed, regardless of market conditions at that moment. You need not worry even if your broker / RM dies before your maturity as he is just the mediator. When you purchase any mutual fund, your folio gets created with the respective fund house which is the sole identity of your investments.

If the investor passes away while the SIP term is on or before the maturity of a close-ended scheme, there are defined procedures to be followed by the nominee, survivors in case of joint holding or legal heirs to claim the proceeds. This process is called transmission. You can request to withdraw an invested amount either in part or all of it, at any time. The only exception is Tax Saving Funds which come with a lock-in period of three years from the date of investments. You can withdraw money from most mutual funds anytime, unless they have a lock-in period.

Mutual funds are long-term investments, and it's important for you to remain calm during a crash. You need to stay invested and take advantage of rupee cost averaging. Markets have rewarded those who have not pulled out of their investments. It is very important to give yourself a lifestyle purge every once in a while and declutter. No one needs to tell us how to upsize our lives, it is very easy. It happens the minute you get some extra money or find a new job. Therefore, to keep your budget manageable and your house clear of clutter, you need to intentionally go on a downsizing mission often. Downsizing your life isn’t just about cutting out an expense here or there. Getting rid of expenses means reducing your bills, paying off debts, cutting down on unnecessary spending, and reducing impulsive buys. Downsize your entertainment spending. Eventually, downsizing becomes a mindset.

There is a fascinating behavioral economics experiment on the concept of choice. It outlines how more choices might not necessarily leave us better off – in terms of returns. You might be thinking about how having more options can be detrimental. Think about choosing one out of two pretty dresses or two different chocolates and the problem of choosing one out of many varieties. This paradox of choice is exactly what underlies our investment decisions, and this is the reason why you need thoroughly experienced investment experts. They save you time and trouble when confronted with a paradox of choices, which is pretty inevitable where mutual funds are concerned.

Don’t know where to park money so let’s spend it all: This is a very wrong approach. Please stop. This is why we emphasize; it makes sense to start your financial journey with mutual funds as they offer diversification. You own a pool of assets instead of just a single stock or bond. With work stress and personal problems, it may seem to be a herculean task to manage your finances. Consult and expert or come to Investaffairs, so that a well-informed person can take decisions on your behalf while you focus on your career and other sources of income. Take baby steps, but start saving first, and then investing, and let it add an intrinsic value to your life. Remember, Rome was not built in a day!

These words by Estee Lauder sums it up profoundly– “I never dreamed about success. I worked for it”…

CONCLUSION: Investing in mutual funds presents a valuable opportunity to grow your money regardless of your age. By carefully considering your financial readiness, seeking advice, and aligning your investment choices with your goals, you can navigate the complexities of the investment world successfully. Remember to stay informed about tax implications, fees, and the importance of diversification. With a clear plan, guidance from experts, and a disciplined approach, mutual funds can serve as a reliable vehicle for building wealth and securing a stable financial future, freeing you to focus on other aspects of your life.