Wealth Accumulation :The three golden rules to achieve it

  • Invest Early
  • Invest Regularly
  • Invest Long Term

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:-

  1. You would prefer nominal growth. OR
  2. You would participate to see some volatility and fluctuations in the short run with the value of your investments to achieve higher long term returns. (Dont Forget the EPFO !)

Seems there is not much choice!


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.

Benefits of Investing Systematically:

Rupee Cost Averaging

(a) Rupee cost averaging is an automatic market-timing mechanism that eliminates the need to time one’s investments.
(b) One doesn’t have to worry about when to invest, how much to invest etc. considering daily market movements, as systematic investing reduces the risks significantly.
(c) Eliminates the need to time your investments in equities.
(d) Smoothens the impact of market fluctuations and hence reduces risks associated with investing in volatile markets.
(e)The risk of market volatility gets negated with more units being purchased when the price is low and fewer units being bought when the price is high.

Seems there is not much choice!

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.

Power Of Compounding (POC)

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

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    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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