Don’t forget Wealth Management is a part of Financial Planning
In order to reach the stage when money starts working for you. You need to understand the concept of power of compounding and Rupee cost averaging. The need to diversify your money among different kinds of investments is required, a process known as asset allocation.
You need to have a sound investment strategy and need to stick over it for the long term only after assessing your risk tolerance. It will be either of the following:-
REAL RETURNS:-GROWTH IS NEED NOT AN OPTION!!!!!
| Inflation | 6.90% | NA | NA |
|---|---|---|---|
| Gold | 7.20% | .3% | NA |
| Bank FD’s | 10.40% | 3.5% | NEGATIVE RETURN(-0.70%) |
| Corporate FD’s/NCD’s/DEBT MF | 11.30% | 4.4% | 1.5% |
| Equity | 17.90% | 11% | 9.9% |
* See how EQUITY is worth considering!
Don’t forget Wealth Management is a part of Financial Planning
A SIP is a planned approach towards investments and helps you to invest in a systematic manner rather than in one go. Investing in this way helps you achieve the benefits of two powerful strategies, Rupee Cost Averaging and the Power of Compounding.
| SIP Ruppe Cost Averaging | ||||||
| SIP Invertor | Lumpsum Investor | |||||
| Month | Unit Price | Investment | Unit Purchased | Investment | Unit Purchased | |
| 1 | 50 | 1000 | 20 | 9000 | 180 | |
| 2 | 47 | 1000 | 21 | |||
| 3 | 45 | 1000 | 22 | |||
| 4 | 44 | 1000 | 23 | |||
| 5 | 46 | 1000 | 22 | |||
| 6 | 48 | 1000 | 21 | |||
| 7 | 49 | 1000 | 20 | |||
| 8 | 50 | 1000 | 20 | |||
| 9 | 52 | 1000 | 19 | |||
| Total Investment | 9000 | 188 | 9000 | 180 | ||
| Total Units Purchased | 188 | 180 | ||||
| Average Unit Price | 48 | 50 | ||||
| Value Over 9 Months | 9799 | 9360 | ||||
As seen from the above chart at the end of the period total units purchased will be 188 & cost per unit will be 48/-. Thus, the profit for an SIP investor from the above investment will amount to Rs 799/- (9,799 - 9,000)
So, we recommend not investing at one go. The investment in staggered manner is a better
option to invest.
Compound interest is the interest on the Principal along with accumulated interest. The amount of money invested gives more money as it gets compounded that can be quarterly, monthly, semi annually, annually as well. Interest on interest. The impact of POC implies in your fixed deposits as well. Let the interest component be reinvested always unless required.
For example you invested Rs 5000 in a fixed deposit in a bank. The impact of POC is shown as below :-
Rs 5000(1+.08)=Rs5400
Rs 5400(1+.08)=Rs5832
Rs 5832(1+.08)=Rs6298
Rs 6298(1+.08)=Rs6802
Rs 6802(1+.08)=Rs7346
Investing a small amount of money in a disciplined way in a mutual fund can work wonders in your wealth accumulation plan. The compounding effect can be explained in the illustration below
| SIP Returns | Investment Scenario A | Investment Scenario 2 | Investment Scenario 3 |
|---|---|---|---|
| No.of Years | 5 | 10 | 15 |
| Monthly Investment | 5000 | 5000 | 5000 |
| Total Investment | 3,00,000 | 6,00,000 | 9,00,000 |
| Assumed Annualised return | 18% | 18% | 18% |
| Final Corpus | 4.93 lakhs | 16.86 lakhs | 46.01 lakhs |
“Compounding interest is the greatest mathematical discovery of all time. Its the eight wonder of world.”
-Albert Einstein
KD Financial Services having registered office in New Delhi is an integrated firm that specializes in offering a varied bouquet of customized financial services to Institutions. The firm today offers complete financial solutions including areas like corporate Finance, Equities, Mutual Funds, Wealth Management etc
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