Amar and Ashwini are working professionals.

They plan each of their weekends differently.

Sometimes they go on a long drive. Occasionally, they go shopping or dine out

Some weekends they simply chill out at home watching their favourite movies.

Rajesh and Rashmi, on the other hand, spare a weekend to discuss financial matters—receivables, payables, household budget, savings, etc.  

At times, they discuss their on-the-job experiences—work pressure, officious interventions of the boss, the uniqueness of recently acquired clients, etc.

How do you usually spend your weekend?

Like Amar and Ashwini or Rajesh and Rashmi?

Weekends are meant for relaxation, true, but they can also be utilised to discuss important household matters too. If you are below 35 years old, you probably spend your weekend like Amar and Ashwini. And if you are a little older, your idea of the weekend might be somewhat similar to that of Rajesh and Rashmi.

But have you noticed something about both couples?

They don’t discuss their investments much.

Rajesh and Rashmi at least talk about their household budgets, but interactions about investments are extremely rare.

Unfortunately, they aren’t seeking unbiased expert advice on their financial matters either.

Over the last two decades, PersonalFN has observed this trait countless times among young and mid-age couples. Most people wake up to their investment needs only when they have grown older and start realising that they need to put money aside for their retirement and/or  their children graduation and post-graduation.

We, at PersonalFN, not only help couples start a dialogue about intelligent investing between themselves, but through various product and service offerings, actually, help them make smart investment decisions.

Couples like Amar and Ashwini need more handholding because they are uninformed about the ‘ABCD’ of prudent financial planning and investment management. And those like Rajesh and Rashmi need personalised advice and some finishing touches.

Do you want to know the secret of intelligent investing?

Here’s a strategy you must follow to make intelligent investment decisions

1. Identify your  financial goals: Many people aspire to become rich, but most of them fail to achieve this objective. This is because their goal isn’t S.M.A.R.T—specific, measurable, adjustable, realistic, and time-based. To become rich is an unclear goal, and hence it doesn’t help much to draw up an investment strategy. Compare that to, “Increase investments by Rs. 50,000 p.m. to have a portfolio of Rs. 2 crores within 15 years”. Now this is a S.M.A.R.T goal.

   [Read:How to Set S.M.A.R.T Financial Goals]

2. Know your risk appetite: The term "risk appetite" refers to one’s willingness to take the risk. But it doesn’t merely end with the desire to make a prudent investment decision. Various factors such as age, household budgets, and nearness to goals among others affect the risk appetite. You should never get carried away with the lucrative returns you might see on some investments, because every investment has some amount of risk involved in it.

   To assess your risk appetite watch this video

3. Draw a personalised asset allocation: In simple words, asset allocation is the composition of various asset classes in your portfolio. While you decide the proportion in which you should invest in equity assets, fixed income assets, gold and real estate, keep in mind these two factors. Your goals, time left in fulfilling these and your risk appetite (which broadly decides your asset allocation). This is the most important consideration that determines your success as an investor.

4. Invest in suitable investment avenues: Once you know why to invest; how much to invest; and in what proportion to invest in the various asset classes, you need select those investment avenues that suit you the most. For example, to invest in equity assets, you should carefully evaluate what suits you more, investing in equity shares or investing in equity oriented mutual funds. If you have time and expertise to make well-informed buying and selling decisions on your own, direct equity may work for you. But if you don’t have time and skills or both required for active management, mutual funds might be an ideal investment route for you.

5. Review your investment portfolio periodically, at least once a year: You shouldn’t take the success of your financial plan for granted. Selecting the right investment alternative won’t ensure fulfillment of your financial goals. For that, you need to make sure, investment options you are relying on are performing as expected. Else, you should replace them with suitable alternatives.

Watch this video to know why you need a detailed and holistic financial plan

Role of mutual funds in financial planning

Whichever asset class you want to invest in—equity, debt, gold, or others—mutual funds is the right option for you.

Can you skip all these asset classes and still think of making the money you need to satisfy your financial goals?

No!

Mutual funds is the simplest way to invest across asset classes

Here’re some of the benefits of investing in mutual funds…

• Professional management: A professional fund manager and his/her team manages your money. Hence, in case of equity-oriented funds, ascertaining the prospect of the companies is not your prerogative, and the fund manager takes care of portfolio churning (if required). Similarly, in the case of debt funds, the fund manager evaluates the credit opportunities available and invests in debt instruments issued by various entities. In other words, once you invest in mutual funds, you are relieved from the duty of taking portfolio decisions.

• Low transaction costs: If you make all the investments yourself, without going via mutual fund houses, transaction costs involved will be high due to lower volumes. Compared to that, the transaction volume of the smallest mutual fund is also higher than that of an individual investor or a small pool of individual investors. Naturally, mutual fund houses enjoy the economies of scale. They pass on the benefits to investors as well, in the form of lower expense ratios.

• Start with a minimal amount:  Mutual fund houses allow you to invest as low as Rs 5,000 in most of the schemes, while a few schemes even accept Rs 1,000 as well. Unless otherwise restricted by the mandate, equity and debt schemes spread their portfolios across investment instruments.

  For example, an equity diversified mutual fund invests at least in 20-30 stocks and an income scheme too diversifies across various debt instruments, based on scheme objectives. Such diversification isn’t practically possible for an individual investor investing a negligible amount independently in stocks or debt instruments. How many shares would you be able to buy with just Rs 1,000, if you think of managing money yourself?

• A variety of available options: Asset Management Companies (AMCs) offer you the flexibility to invest in mutual funds. Depending on the type of scheme, your investment horizon, and the amount available with you at the time of investing, you may either invest in a lump sum or opt for SIP (Systematic Investment Plan) / STP (Systematic Transfer Plan). Moreover, depending on your cash flow requirements, you may choose any of these options: dividend, dividend reinvestment, and growth depending on your cash-flow requirements.  Choose direct plan or regular plan depending on your requirements.

  Similarly, at the time of withdrawing money from your schemes, you may either withdraw any sum as and when you want or may opt for SWPs (Systematic Withdrawal Plans).

• Liquidity: As you might be aware, open-ended mutual fund schemes declare Net Asset Values (NAVs) on a daily basis, except on holidays. If you submit your request within a stipulated time, you can buy and sell units for the NAV as on a particular day. So invest in any asset class — equity, debt, or gold; you can liquidate your investments any time.

However, to discourage premature withdrawals from the products meant for the long-term such as income funds and diversified equity funds, mutual fund houses charge an exit load.

So what’s your objective of investing in mutual funds?

• Growth

• Income

• Protection against inflation

• Peace of mind

• Preservation of capital and

• Tax saving

If you are young and earn a decent income, then the growth of capital, tax saving, and protection against inflation would be your objectives.

If you are retired or approaching retirement, peace of mind and preservation of money would be your investment goals.

In case, you are investing for long-term objectives such as retirement, higher education of your children and their marriage, you may start a SIP in diversified mutual funds that have a proven track record.

Benefits of SIPs are:

1. SIPs are light on the wallet

2. SIPs make market timing irrelevant

3. SIPs enable Rupee-cost averaging

4. SIPs benefit from the power of compounding; and

5. SIPs are effective medium for goal planning

Do you still think taking intelligent decisions is a bit challenging for you?

In case if you need any assistance you can reach out to PersonalFN’s SEBI-registered investment advisors on 022-61361200 or write to info@personalfn.com.

Moreover, if you don’t know how to select a winning mutual fund, you need not worry at all. PersonalFN offers a ready-made solution for investors like you.

You may follow PersonalFN’s 7 High-Performing, Time-Tested Readymade Portfolios offered under FundSelect Plus. These portfolios are backed by decade-long market-beating track record.

PersonalFN’s recommended portfolios have outperformed the markets by as much as over 80%! 

The best part is, these portfolios are crafted as per your risk profile and investment time horizon.

Click here to know more

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