13 Sep 2016


Beginners Guide on Savings and Investment

 Earning more money and saving as much as possible is common strategy in our mind when we think of accumulating money however to achieve our Financial Goals - Saving is not enough  - Investing the hard earned money at right place is  Real Challenge and some time people say - this is an Art which can be easily gained if basics concepts  are strong on investment. I

Must Read :- How to Become Rich In India 

   There are various traditional saving and investment methods used by peoples like Recurring Deposit, Fixed Deposit, PF/PPF, LIC etc, however with change in time new investment methods came in market and people which their exposure used to accumulate more wealth then traditional methods. In this post I will be covering very basics on all these and then put some questionnaires to clear the basic doubts/myth. So let me start with  topics on Savings then Investments.

1. What are savings methods, How can you Save More ?

What is Saving ? Let me explain in very simple term

Saving = Your Total Income ( Monthly) - ( All your expenditures and Expenses)

The amount we left after our complete expenditure amount is saving. Some times we have lots of unexpected expenditures which do not allow us to save, once this is repeated we get use-to it and we never save any money. Many a time we do not think of saving - let our current needs get fulfilled , dont bother about future needs at all, so all our earning get spent. So saving is very very basic if you want to be Rich,  So how can you save more ? 

Warren Buffet said -

   "Dont Save What is Left after Spending, But Spend what is left after Savings" 

The Single advise from Billionaire will help you to save more. Once you start saving the money you can then move learning how to invest the saved money.

2. How to Invest Money Wisely, Methods to Invest Money ?

Now you have developed the habit of savings - you will have lots of money parked in your savings account, you will earn 4-6% of interest per annum which will definitely increase your net worth. If we adjust the interest rate with inflation then basically your net value of money is not increasing as inflation in India is always more then 4%, so keeping money in savings account is definitly not a good idea at all.

 a) What are the Traditional ways of Investments 

1. Recurring Deposit ( RD) 

     This is most common method which is being used by a disciplined  investor, every month or at fixed interval you deposit some fixed/variable amount of money in your account and you get fixed interest rate depending upon the tenure between 7 to 9 % currently. This is surely a very good method to save and earn compound interests if you have small amount of money as well - then this is best. This is obviously better then keeping money in savings account.
     You can Start your RD at your Bank Account Branch or online as well.

2. Fixed Deposit (FD) -

This one time investment of your saved money for fixed tenure, on fixed interest rate. In RD you have to deposit money monthly  however FD are one time deposit. This is a very very common method of investment where you can be assure thatyou will get this much of money after tenure completion. Interest rates are usually same as RD 6 to 9 %, depend upon the tenure. You can Start your FD at your Bank Account Branch or online as well. Interest amount earned on FD is taxable.

3. Post Office Deposit/NSC - 

   RD and FD done at post office  comes under this category. These methods are used by  small investors. This was very common method before nationalization of banks as post offices have largest network across country. Interest rates are same as FD/RD almost. 

4. PF/PPF -

  Public Provide Fund is tax saving investment method where you get fixed interest rates on your investment however tenures are long between 5 years to 15 years. You will get interest rates of 8 to 9% compounded annually. You must have to keep your money for 5 years minimum and then you can withdraw partially as loan before 15 years. 
  PPF account can be opened in Nationalized Banks and Post office as well. This is best traditional method to save tax. 

5. LIC  - 

This is not Investment however from decades people used LIC as Investment-cum-insurance. You invest some fixed amount/Recurring Amount then you will get maturity amount at the end of policy term end and you will insured till the policy tenure. Returns on LIC policy are usually 5 to 7 % maximum. 

b). What are the New Better ways of Investments 

Above methods are still used by 90% of small and mid range investors however if you really want to accumulate Wealth in long terms let say more then 10 years then there are better ways for safe investment where you can get return int he range of 12 % to 20 % assured and that is also TAX FREE, in current article I will explain about MF  only -  

Invest in Mutual Fund 

     This is not new method however most of the common people are not aware of it as it involves various small small details and need understanding in detail.  

What are Mutual Funds ? - In simple terms mutual funds are the set of shares of companies which are managed by Expert People on behalf of you i.e. You invest Rs100 in xyz MF then Fund Manager will invest same money in different shares of companies and you get your return, fund manage will charge very nominal amount for doing all this - This is very very basic definition of mutual funds.
  Let me put one Desi Definition  - MF are nothing but investing in shares of companies but you will ask some expert to invest in better companies as you dont have time and in-depth knowledge - So you ask Fund Manager to invest on your behalf for which he will take charges from you and return back the net return you got.  
    So MF need not to be Equity always they can be Debt, Equity and combination of those two. I will write  in different post about more details about mutual fund types. So MFs are market linked returns where you get returns based on Equity and Debt ratio, as per the data equity mfs if invested for long term let say more then 5 years then you will definitely get return more then 12% - minimum.

How to Start investing in MF -Basic method is start an SIP ( Systematic Investment Plan) which is nothing but same as RD - Invest in MF of your chosen category of fixed interval basis like monthly, quarterly. Your money get invested in MF, you will allotted units of that MF and you can keep track of your net value via your mf account.You can start SIP by our own online as well or approach to any bank for opening mf account.

  Alternatively you can invest in one shot like FD as well.

MF returns are tax free - if you keep invested for more then 1 years then your capital gains are tax free. 

Lets me put some FAQs to clears the doubts, you can comment as well to get more info -

How Mutual Funds are Better then Traditional Investment methods 

MF investment gives you more return then any of the traditional methods - if you keep your money invested for  more then 5 years. After analyzing last 20 years data it is found that equity market investments returns are more then 12 percent always.
           Let me put a basic common point - MF money is ultimately invested in shares which are indexed via Sensex/NIIFTY, so let say in year 2008 sensex was 8000 - in 2016 sensex is 28000 so just compare how much it has been increased - in the similar fashion your invested amount get increased. 
   Now  a question may arise - sensex may come down again - yes your questions is valid however if sensex crashes to lower value and remail at the same for longer time then that will be recession  - which is very drastic economic phenomenon - in that case none of your money is safe , even banks get bankrupt as well.
   What if company where my money get invested looses/get closed - MF are not invested in one company these are group of companies where expert invests so dont worry this wont happen.

To Summarize,

   Saving money is first step if you want to accumulate wealth, once you start saving then choose investment method wisely to get more return and in my personal view MF invested via SIP are best possible way to get better return on your investment.

For any Query please comment below, or you can post on our facebook page or you can mail me directly - ballunavodaya1@gmail.com