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Mutual Fund
Investing in equity mutual funds or equities can be an excellent way to build wealth over the long term. However, these investments are not suitable for everyone. Below are detailed points explaining who should avoid investing in equity mutual funds, along with the reasoning behind each point:
**1. People Who Do Not Prioritize Beating Inflation**
If you are not concerned about increasing your wealth to outpace inflation, equity mutual funds may not be for you. Over the last 20 years, the average inflation in India has been approximately 6.50%. However, this figure includes outdated items like radios, tape recorders, CDs, fax machines, type writers, etc., which skew the accuracy of inflation data.
The real inflation that impacts common people is much higher. For example:
* • Food prices: Increased by an average of 6.20% annually.
* • Education costs: Rose by 8-10% annually.
* • Medical expenses: Escalated by 10-15% annually.
* • Clothing: Grew by 6.2% annually.
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Fixed deposit (FD) returns during the same period have failed to beat this practical inflation. For instance, ₹1 lakh in a fixed deposit would erode to about ₹90,000 in 5 years or even ₹82,000 in 10 years after adjusting for inflation. If you are content with this erosion of your purchasing power, equity mutual funds are not for you. [image]screenshot-2025-01-27-185015.png[/image]
**2. People Without Clear Financial Goals**
Investing without goals is like driving without a destination. Equity mutual funds are best suited for disciplined investors with clear objectives, such as:
* • Buying a house
* • Funding education
* • Planning for retirement and so on
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Having goals helps differentiate between needs and wants, instils financial discipline, and ensures proper allocation of resources. If you invest aimlessly, you may lack the motivation to stay invested during market downturns. Without goals, it’s easy to make impulsive or emotional decisions.
**3. People Who Don’t Believe in Asset Allocation**
Asset allocation is crucial for a stable and consistent portfolio. Equity mutual funds alone cannot guarantee the highest returns all the time.
* • Over the last 25 years, the Nifty 50 has delivered negative returns 5 times and sub-5% returns 5 times.
* • Gold outperformed the Nifty 50 in 6 instances, while fixed deposits outperformed equities in 5 instances.
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A balanced mix of equities, debt, and gold can stabilize your portfolio, reduce risk, and provide consistent returns. If you don’t believe in diversifying your investments, equity mutual funds alone may not fulfil your expectations. [image]screenshot-2025-01-27-184554.png[/image]
**4. People Who Consider Market Volatility as Permanent Loss**
Equity markets are inherently volatile. If you believe that market fluctuations result in permanent loss, you should avoid equity mutual funds. Permanent loss only occurs when you sell your investments during a downturn.
* • Over the last 25 years, the Nifty 50 has delivered negative returns in 5 years and sub-10% returns in 6 years.
* • Despite this volatility, the Nifty 50 achieved an average CAGR of approximately 11.3%.
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Volatility is temporary, but long-term investors are rewarded. If you cannot tolerate market ups and downs, equity mutual funds may not align with your expectations.
**5. People Who Think Distributors Control Returns**
Mutual funds may not be the right investment for you if you believe that distributors or advisors are responsible for generating returns. Returns come from the market’s performance, not the distributor. Their role is to guide you in making informed decisions, align your investments with your financial goals, and help manage risk.
Unrealistic expectations about distributors can lead to disappointment, especially during market downturns. Similarly, choosing direct plans without proper knowledge can result in poor decisions and financial strain during emergencies if you:
* • Ignore your financial goals or risk tolerance
* • Lack adequate liquidity for emergencies
* • Focus only on past returns instead of suitability
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If you misunderstand the role of distributors or overlook market dynamics, you may face financial trouble and blame the wrong factors. To make the most of mutual funds, work with advisors who educate you, manage your expectations, and help you stay disciplined during market fluctuations. Success in mutual fund investing requires clear goals, proper guidance, and a focus on long-term growth.
**6. People Relying on Advice from Social Media or Friends**
If you make investment decisions based solely on TV recommendations or advice from friends, you are setting yourself up for disappointment. Such sources often sensationalize past returns and extrapolate them into the future, creating unrealistic expectations.
A fund that delivered 50% returns last year might only yield 5% due to market corrections. Investing based on such advice often leads to disappointment.
Instead, focus on personalized strategies that match your risk tolerance and goals.
**7. People Investing Because Friends Are Investing**
Everyone has unique financial goals, risk tolerance, and income levels. Blindly following friends’ investment choices can lead to poor outcomes. For instance:
* • There are over 290 open-ended equity mutual fund schemes in India, of which about 60% beat their benchmarks. You cannot invest in each and every scheme. Chances of different schemes in portfolios between yours and him are high.
* • Your friend’s investment might suit their goals but not yours.
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Investing without understanding your own requirements will likely lead to dissatisfaction.
**8. People Expecting Quick or Consistent High Returns**
If you believe equity mutual funds can consistently deliver 20-25% or more annual returns, you are likely to be disappointed. Equity markets have periods of underperformance:
* • In the last 25 years, the Nifty 50 delivered negative returns 5 times and sub-5% returns 5 times.
* • Yet, the long-term CAGR remained at 11.3%.
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Equity mutual funds require patience and a long-term outlook. They do not offer linear or guaranteed returns. If you are looking for quick gains, equity mutual funds are not the right choice. [image]screenshot-2025-01-27-184139.png[/image]
**9. People Who Invest Solely Based on Past High Returns**
Chasing top-performing funds is a flawed strategy. If you invest solely in top-performing funds based on their past returns, research consistently shows that such a strategy often leads to underperformance compared to staying invested in diversified or well-balanced funds. Studies by Morningstar, S&P Dow Jones Indices, and CRISIL have highlighted the following findings about chasing top-performing funds:
* Average Future Returns Drop:
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Funds that performed exceptionally well in one year often fail to sustain their performance. The average future returns of last year’s top funds typically fall to 7–10% annually, significantly lower than market averages.
* Consistency is Rare:
* Only 10–15% of top-performing funds stay in the top quartile for consecutive years.
* Funds ranked in the top 25% often fall to the bottom 50% or lower due to sector rotations, market corrections, or style changes.
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Investing based solely on rankings increases the risk of underperformance.
By relying on these studies, it becomes evident that chasing top-performing funds based on past returns is not a sound long-term investment strategy.
**10. People Nearing Goals or Retirement**
Equities are risky for short-term goals. For example:
* • A person close to retirement aiming for ₹50 lakh might face a sudden market correction, reducing their portfolio to ₹40 lakh. This volatility can derail short-term plans.
* • Suppose you plan to fund your child’s college education or marriage in two years. You invest heavily in equities, expecting growth. However, a market downturn reduces your portfolio by 20%, leaving you short of your goal.
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Shifting to safer investments like debt funds or FDs as you near your goals can mitigate this risk.
Equity mutual funds are not ideal for short-term investments or for those nearing financial goals or retirement. The volatile nature of equities could impact your principal during market downturns. Equity investments require time to deliver expected returns. As you approach your goals, it’s better to shift to safer options like debt funds or fixed deposits.
Equity mutual funds are a powerful tool for wealth creation, but they require patience, discipline, and a long-term perspective. If any of the points above resonate with you, it might be better to explore other investment options or consult a financial advisor to determine the best strategy for your needs.
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Category
Mutual Fund
Investing in debt mutual funds offers a balance between returns and safety, but it's crucial to understand the strategies involved, especially focusing on accrual and duration approaches.
Accrual funds, including overnight, liquid, ultra-short duration, low duration, and income funds, primarily generate returns through interest income by holding debt instruments until maturity. These funds prioritize stability and consistent income, making them suitable for investors seeking steady returns with minimal interest rate volatility.
On the other hand, duration funds, including medium duration, medium to long duration, long duration, gilt, and 10-year constant maturity gits, capitalize on changes in interest rates to generate capital appreciation. During periods of decreasing interest rates, longer-duration funds tend to yield higher returns, while in times of increasing rates, shorter-duration funds are favored.
Currently, there's speculation of a potential reduction in interest rates by the Reserve Bank of India, which could enhance returns in longer-duration debt funds. However, timing is critical, and investors must carefully assess their risk appetite and tolerance for volatility. Timely entry and exit from longer-duration funds are essential to maximize returns and mitigate risks associated with interest rate fluctuations.
For instance, imagine an investor having a 10-year government bond with a 7.5% coupon rate at its face value. If interest rates rise, newer bonds with higher coupon rates may be issued, decreasing demand for existing bonds with lower coupon rates. This could result in a mark-to-market loss if sold. Conversely, declining interest rates may increase demand for higher-yielding existing bonds, leading to potential capital gains upon sale.
A comparative table has been devised to analyze the returns across various categories of debt funds based on the duration of their debt instrument holdings, focusing on periods where interest rates experience significant shifts of 2% or more.
[image]screenshot_14-4-2024_8388.jpeg[/image]
During periods of decreasing interest rates, longer-duration debt instruments have tended to generate higher returns. Conversely, in times of increasing interest rates, longer-duration debt instruments have yielded lower returns.
In summary, understanding the differences between accrual and duration strategies is crucial for investors. Accrual funds offer stability and consistent income, while duration funds provide opportunities for capital appreciation by actively managing interest rate risk. Investors should align their investment objectives and risk tolerance with the appropriate strategy to build a resilient portfolio.
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Mutual Fund
બજારની ઊંચાઈ વચ્ચે, રોકાણકારો ઘણીવાર તેમની SIP ક્યારે શરૂ કરવી તે અંગેની દ્વિધા સાથે ઝઝૂમતા હોય છે, આ ડરથી કે તેઓ સંભવિત લાભો ગુમાવી શકે છે. પ્રચલિત ધારણા બજાર કરેક્શનની રાહ જોવાનું સૂચન કરે છે, પરંતુ શું આ વ્યૂહરચના ખરેખર ફાયદાકારક છે? આ લેખમાં, અમે પડકાર આપીએ છીએ, પરંપરાગત શાણપણ અને બજારની પરિસ્થિતિઓને ધ્યાનમાં લીધા વિના, તમારી SIP મુસાફરી શરૂ કરવા માટે કોઈપણ દિવસ શા માટે આદર્શ દિવસ છે. લગભગ બે દાયકા સુધી વિસ્તરેલા વાસ્તવિક-વિશ્વના ઉદાહરણોમાંથી, અમે SIP દ્વારા મહત્તમ સંપત્તિ સંચયની ચાવી શોધી.
ચાલો, બે કાલ્પનિક રોકાણકારો, ક્લાયન્ટ A અને ક્લાયન્ટ બીના વર્ણનમાં ડૂબકી લગાવીએ. જ્યારે બંને પાસે સંપત્તિ એકત્ર કરવાનો ધ્યેય છે, પરંતુ જ્યારે તેમના SIP રોકાણોના સમયની વાત આવે છે ત્યારે તેમનો અભિગમ અલગ પડે
ઉદાહરણ 1: ક્લાયન્ટ A 24મી એપ્રિલ 2006ના રોજ તેમની 10000 ₹ SIP સફરની શરૂઆત કરીને, સુધારાની રાહ જોવાની સામાન્ય વિનંતીને નકારીને, 12671 ની બજારની ઊંચાઈએથી અતૂટ આત્મવિશ્વાસ દર્શાવે છે. પરંતુ, બીજી તરફ ક્લાયન્ટ બી સાવધાની રાખવાનું પસંદ કરે છે, લગભગ 28% કરેક્શન પછી 15મી જૂન 2006ના રોજ 9133 ની માર્કેટ મંદી પછી જ તેમની SIP શરૂ કરવાનું પસંદ કરે છે. 21 માર્ચ, 2024 સુધીમાં, ક્લાયન્ટ Aની હિંમત ₹91,54,518 ની સંપત્તિ સાથે સુંદર વળતર આપે છે, જે ક્લાયન્ટ Bના ₹90,44,542ને નોંધપાત્ર ₹1,09,976 દ્વારા ઢાંકી દે છે.
ઉદાહરણ 2: 10મી જાન્યુઆરી 2008ના રોજ 20900 ની બજારની ટોચ વચ્ચે ક્લાયન્ટ A ફરી એકવાર તેમની 10000 ₹ SIPની શરૂઆત કરીને હિંમતનું પ્રદર્શન કરે છે. જ્યારે ક્લાયન્ટ B 6 મી માર્ચ 2009 સુધી તેની SIP શરૂ કરવા માટે 61% સુધારાની રાહ જોઈ છે. 21 માર્ચ, 2024 સુધીમાં, ક્લાયન્ટ A ના ચતુરાઈભર્યા નિર્ણયથી ₹74,03,950 ની સંપત્તિ પ્રાપ્ત થાય છે, જે ક્લાઈન્ટ B ના ₹61,41,098 કરતાં નોંધપાત્ર લીપ છે, જે લગભગ ₹12,62,852નો તફાવત ધરાવે છે.
ઉદાહરણ 3: ક્લાયન્ટ A ની તેની 10000 ₹ SIP મુસાફરી 5મી ફેબ્રુઆરી 2015ના રોજ 29844ની બજારની ઊંચાઈએ શરૂ કરે છે, જ્યારે 12મી ફેબ્રુઆરી 2016ના રોજ જ્યારે બજાર 24.5% થી 22600 સુધી નીચે જાય છે ત્યારે ક્લાયન્ટ B તેની SIP શરૂ કરે છે. A ના વ્યૂહાત્મક પગલાના પરિણામે ₹23,88,838 ની સંપત્તિ છે, જે ક્લાયન્ટ Bના ₹20,19,287 ને નોંધપાત્ર ₹3,69,551 વટાવી જાય છે.
ઉદાહરણ 4: તાજેતરના સમયમાં પણ 20મી જાન્યુઆરી 2020ના રોજ, ક્લાયન્ટ A તેની SIP 42273ની બજારની ટોચે શરૂ કરે છે, જ્યારે ક્લાયન્ટ B તેની SIP શરૂ કરવા માટે 23મી માર્ચ 2020ના રોજ 38.5% થી 25981 સુધીના સુધારાની રાહ જુએ છે. ક્લાયન્ટ Aના સક્રિય વલણથી ₹8,46,508 ની સંપત્તિ પ્રાપ્ત થાય છે, જે ક્લાયન્ટ Bના ₹7,95,219ને પ્રભાવશાળી ₹51,289થી પાછળ છોડી દે
આ ઉદાહરણો એક સુસંગત પેટર્નને પ્રકાશિત કરે છે: બજારની ઊંચાઈએ પણ, SIP ને વહેલું શરૂ કરવાથી, સમય જતાં વધુ સંપત્તિ સંચય થાય છે. બજારમાં કરેક્શનની રાહ જોવાથી તકો ચૂકી જાય છે અને ઓછા વળતરમાં પરિણમી શકે છે. વધુમાં, બજાર કરેક્શન માટે જેટલો લાંબો સમય રાહ જુએ છે, સંપત્તિ સંચયમાં અસમાનતા વધારે છે. તેથી, બજારની પરિસ્થિતિઓને ધ્યાનમાં લીધા વિના, સાતત્યને પ્રાધાન્ય આપવાનું અને લાંબા ગાળાના પરિપ્રેક્ષ્યને SIP રોકાણ દ્વારા અપનાવવાનું મુખ્ય પગલું છે. 'ટાઈમ ઇન ધ માર્કેટ બીટ્સ ટાઈમિંગ ધ માર્કેટ' કહેવત સાચી છે, જે મહત્વને રેખાંકિત કરે છે. જ્યારે તકો ઉભી થાય ત્યારે તેનો લાભ લેવા માટે."
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Mutual Fund
"Amidst equity market highs, investors often grapple with the dilemma of when to initiate their SIPs, fearing they might miss out on potential gains. The prevailing notion suggests waiting for a market correction, but is this strategy truly advantageous? In this article, we challenge conventional wisdom and reveal why any day is the ideal day to embark on your SIP journey, regardless of market conditions. Drawing from real-world examples spanning nearly two decades, we'll uncover the key to maximizing wealth accumulation through systematic investment plans."
"Let's dive into the narratives of two fictional investors, Client A and Client B. While both share the goal of wealth accumulation, their approaches diverge when it comes to timing their SIP investments."
Example 1: "Client A demonstrates unwavering confidence by commencing their 10000 ₹ SIP journey in NIFTY 100 TRI at BSE SENSEX highs of **12671** on 24th April 2006, defying the common urge to wait for corrections. Meanwhile, Client B opts for caution, choosing to initiate their 10000 ₹ SIP only after a BSE SENSEX downturn TO **9133** on 15th June 2006 after correction of nearly **28%**. Fast forward to March 21, 2024, Client A's boldness pays off handsomely, with a wealth of ₹91,54,518, overshadowing Client B's ₹90,44,542 by a notable **₹1,09,976**."
Example 2: "In another scenario, Client A once again exhibits courage by initiating their 10000 ₹ SIP in NIFTY 100 TRI amidst BSE SENSEX peaks of **20900** on 10th January 2008, while Client B remains on the sidelines till 6th March 2009 awaiting a correction of **61%** un BSE SENSEX to 8103 By March 21, 2024, Client A's astute decision yields a wealth of ₹74,03,950, a significant leap ahead of Client B's ₹61,41,098, boasting a difference of approximately ₹**12,62,852**."
Example 3: "Client A's boldness persists as they continue to embark on their 10000 ₹ SIP in NIFTY 100 TRI journey at BSE SENSEX highs of **29844** on 5th February 2015, contrasting with Client B's cautious approach till the BSE SENSEX corrects by **24.5%** to **22600** on 12th February 2016. By March 21, 2024, Client A's strategic move results in a wealth of ₹23,88,838, surpassing Client B's ₹20,19,287 by a considerable **₹3,69,551**."
Example 4: "Even in recent times on 20th January 2020, Client A remains undeterred by BSE SENSEX peaks of **42273**, seizing the opportunity to initiate their 10000 ₹ SIP in NIFTY 100 TRI, while Client B waits for a correction of almost **38.5%** to **25981** in BSE SENSEX on 23rd March 2020. By March 21, 2024, Client A's proactive stance yields a wealth of ₹8,46,508, outpacing Client B's ₹7,95,219 by an impressive **₹51,289**."
"These examples highlight a consistent pattern: initiating SIPs early, even at market highs, leads to greater wealth accumulation over time. Waiting for market corrections may result in missed opportunities and lesser returns. Moreover, the longer one waits for a market correction, the greater the disparity in wealth accumulation. Hence, the key takeaway is to prioritize consistency and adopt a long-term perspective through SIP investments, irrespective of market conditions. The adage **'Time In The Market Beats Timing The Market'** holds true, underscoring the importance of seizing opportunities when they arise."
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Mutual Fund
Financial freedom is a dream for many, where you have the resources and flexibility to live life on your terms. While it may seem like an elusive goal, mutual funds can be a powerful tool to help you achieve this aspiration. In this blog, we will explore how mutual funds can contribute to your journey to financial freedom.
→ Diversification and Risk Management One of the fundamental advantages of mutual funds is their ability to diversify your investments. Diversification means spreading your money across a range of assets, such as stocks, bonds, commodities. By investing in a mutual fund, you become a part of a larger pool of investors, which, in turn, allows the fund manager to diversify your investments effectively. This diversification helps to reduce the impact of poor-performing assets and manage risk.
→ Professional Management Mutual funds are managed by experienced fund managers who make investment decisions on your behalf. These professionals are equipped with the knowledge and expertise to navigate the complex world of financial markets. They conduct research, analyze market trends, and strategically allocate the fund's assets to maximize returns while mitigating risks. This professional management ensures that your investments are in capable hands.
→ Accessibility Unlike some investment options that require substantial initial capital, mutual funds offer accessibility to a wide range of investors. You can start investing with a relatively small amount of money. This accessibility makes mutual funds an attractive choice for individuals at various stages of their financial journey.
→ Liquidity Mutual funds provide liquidity, meaning you can easily buy or sell your units. This flexibility ensures that you have access to your money when you need it. Whether you're saving for short-term goals or maintaining an emergency fund, mutual funds allow you to maintain financial flexibility.
→ Automatic Investment with SIPs Achieving financial freedom often requires discipline and consistent saving. Mutual funds offer a solution through Systematic Investment Plans (SIPs). SIPs allow you to set up automatic, periodic investments, helping you save and invest consistently. Over time, this disciplined approach can significantly increase your wealth.
→ The Power of Compounding Mutual funds harness the power of compounding, which can significantly impact your wealth over time. As your investments generate returns, those returns are reinvested, and your investment base grows. This leads to exponential growth and can be a key driver in achieving your financial goals.
→ Flexibility Mutual funds come in various categories and cater to different investment goals. Whether you're saving for retirement, your child's education, or buying a home, there is likely a mutual fund category that aligns with your specific financial objectives. This flexibility allows you to tailor your investments to meet your unique needs.
→ Transparency Investors receive regular updates on their mutual fund investments, ensuring transparency. You can easily track the performance of your investments and make informed decisions about your portfolio.
→ Tax Benefits Certain mutual funds offer tax advantages. For example, Equity-Linked Savings Schemes (ELSS) can provide tax deductions under Section 80C of the Income Tax Act.
→ Goal-Oriented Investing Mutual funds can be a vital tool for goal-oriented investing. Choose funds that match your financial goals to help you reach them in an organized way. This approach ensures that you are not just saving money but actively working towards your aspirations.
Conclusion
Financial freedom is not a distant dream; it's a tangible goal that you can work towards with the help of mutual funds. Through diversification, professional management, accessibility, liquidity, compound growth, and other advantages, mutual funds provide a path to financial independence. To make the most of this investment option, it's essential to select funds that match your risk tolerance, time horizon, and financial objectives. Regularly reviewing your investments and staying committed to your goals will help you realize your vision of financial freedom. So, start your mutual fund journey today and take the first step towards achieving your financial aspirations.
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