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| Source: www.linkingsky.com |
In case you are new to the investment space and would like to have handsome returns on your savings then you need to strategize your investments. We all know that keeping the money in savings account or in fixed deposits yields a very low return which might be a counter for inflation. But in case if you want to have some extra income apart from your regular source of income, you should start investing though smartly.
I am sharing with you my thought process and my strategy which has worked well for me, my acquaintances and many more. Try to follow the below mentioned steps and do let me know the output:
- Start with smaller amount which you can afford to save for a minimum span of 1.5-2 years
The basic rule of investing is one must have some sort of risk appetite and should start with investment of “EXTRA/SURPLUS” money which you don’t require in near/short future.
- Start with SIPs (Systematic Investment Plans)
In order to play safe the basic rule of thumb is to start with monthly SIPs. As SIPs work on law of averages, hence chances of making losses will be low.
- Invest in pure MF’s only
By pure MF’s what I mean is, don’t get fooled up by ULIPS or other schemes which offer multiple benefits. Always follow the KISS therapy which suggests Keep it short and simple. When you require medical insurance buy pure medical insurance, when you need life insurance buy pure life insurance and when you need MFs go for pure MF’s.
The reason behind this is when you opt for multiple benefits in a scheme you end paying for useless deduction and charges viz; mortality charge etc. The real money which is utilized for investment becomes less than what you actually pay.
- Diversify the investment
Always opt for multiple and varied kind of schemes. The varied kind doesn’t mean different AMCs like ICICI or HDFC or SBI etc. By varied kind I mean different structures of schemes like Small-cap, Mid-cap, Pharma, Index schemes etc.
- Invest for a good time frame
The minimum time frame should be 2 years to get a reasonable return, though this may vary a lot. In case a depression comes-in during your 2nd year itself then you need to sustain the scheme for some more time.
As the SIP’s work on law of averages so do keep in mind to sustain or carry forward the scheme during depressions and low levels of equity market. The depression is right time for investors as this is the time when you purchase units at cheapest price.
- Your right pick of schemes
In case you don’t have any idea about various indexes or sector performances then the right strategy for you is mentioned as hereunder:
a. Depending on the amount which you can save try to divide that fund into 2-3 proportions.
b. Try to locate best performers across various AMCs for Equity diversified funds. Another way of looking at it would be to locate best performers in Large Cap, Mid Cap and Small Cap.
c. Invest in equal proportions in varied cap funds.
The logic behind investing in varied caps is that it will help you in reducing your risk. You can gain benefit of multiple types of equities using such MF’s.
Beware of sectoral funds or index funds. While searching for top performing funds always try to locate 5 stare or 4 star rated firms with high asset allocation. Some of the reference website can be:
- http://www.moneycontrol.com/mutualfundindia/evaluate/
- http://www.valueresearchonline.com/funds/default.asp
In case you have surplus money in your bank account which you want to transfer in MFs through SIPs you can opt for STP. Now comes a question what is the difference between STP and SIP. The below figure will explain you the same in very simple manner.
STP is just a Debt Mutual fund which is safest and yields better returns than your normal savings account. Rest all transactions are the same. In STP one gains the advantage of better returns on the lump-sum amount which would have otherwise not yielded returns or have yielded returns at bank rate.
