Make your money work for you

We slog for money, but do we make our money work for us? To create wealth, it is not enough to earn more, but it is also important to invest your money judiciously so that it creates wealth for you. With a market flush with financial products that suit different risk appetites and financial needs, all it takes to set out on the path of financial freedom is careful analysis and planning. So if you aren’t setting aside money for investment, or if your savings are sitting idle in your bank account, it’s time you make them work for you.

Analyse your goals and plan your investments

Your financial well being is an important determinant of your overall well being and hence financial planning deserves more than an ad hoc approach. Your financial needs and your ability to take on risk determine the right investment choices for you. I have seen people invest in a product because someone they knew did, or because of the product’s compelling advertising. Often such impulsive decisions take you away from financial freedom rather than closer to it. So if you haven’t given a thought to your goals yet, now is the time.

Consult a financial planner

Sound financial planning requires you to understand your goals, risk appetite and financial products available, and needs careful monitoring. Often people don’t have the time necessary for doing so, or the essential understanding. If that is the case with you, don’t just give up – choose an experienced financial planner who can help you wade through. Your financial planner will not only help you create a diversified portfolio suitable for your needs, but can also help you restructure and rebalance your portfolio periodically, in tandem with your changing needs and market conditions.

Invest for the long-term

Investments in equities and mutual funds are proven to deliver high returns in the long run. Often investors take short sighted view of investments and make purchase/sell decisions based on immediate market swings. Though volatility is the name of the market game, it has been proven historically that in the long-run, a well managed investment avenue will deliver superior returns. An investor who stays invested in a good stock or scheme for the long-term is likely to earn more than one who pursues quick profits.

SIP is the way to go in mutual funds

Investing in mutual funds through SIP allows you to benefit even from a volatile market. A recent article in The Economic Times says that while top equity diversified funds have returned 16-18% in three years, SIP investors have earned returns in the range of 25-28% (investing into the same funds) during the same period. With most fund houses allowing investors to invest amounts as low as Rs. 100 per month through SIP, even those with small investible surplus can begin their mutual fund journey.

Stay away from bad debt

Nothing disrupts your financial well being like a huge credit card debt or those personal loans you took to indulge in little luxuries. While good debt like a home loan or an education loan are essential to achieve your and your family’s long-term objectives, bad debts only push you into a vicious cycle of high interest payments. Use your credit card prudently. Money wisely spent is money earned.

The principles I have shared are not some breakthrough, novel strategies, but simple financial wisdom that have been known for long. They have worked well for me. Sometimes all it takes to get back on track is a gentle reminder and a signpost. I hope these signposts will help you successfully tread your journey towards wealth creation.

Disclaimer: All views expressed in this blog are my personal and in no way express or implied, of that of the company I work with, or have worked with in the past.

Take Birla Cash Plus for example, the country’s first liquid product. I still remember, we struggled to collect Rs. 5 crore in July 1997 when we launched it – today, liquid funds is a multi-crore industry. Or Birla Dividend Yield fund – the country’s first dividend yield fund – which sparked off interest in equity funds amongst retail investor’s way back in 2003.

During my stint at ING Investment Management, we launched the country’s first packaged daily investment product and also CPPI as a mutual fund option – it was a heady feeling.

Speaking of a heady feeling, there cannot be a better one than what I am currently experiencing. At Bharti AXA IM, we’ve just won the World CMO Council’s “most innovative product of the year – financial services” award for our “Liquity” product!

So what is Liquity? I believe it is a significant game changer for Bharti AXA and the MF industry – much like the other products I mentioned above.

It works on a simple premise. Today, Liquid and Treasury funds have an option of ‘Daily Dividend Re-investment’ i.e. the tax-free dividends accruing on your investment in liquid funds are automatically re-invested with the principal.

Liquity takes the same dividend and instead of re-investing, transfers it to an equity fund! Think about it, your principal remains safe while your dividends earn better returns for you!!

In a volatile market, and one which is witnessing a pressure on returns, investors seek a level of security for their investments – trying at the same time to maintain a certain threshold of returns. It is at times like these that the MF industry comes up with innovations customized to tap into these very obvious needs. Liquity is one such product.

Liquity ensures that the scheme invests in money market securities and is managed within strict and transparent investment guidelines to maintain principal value as well as competitive returns and high levels of liquidity. The objective of the fund is to maximize current income while preserving capital and liquidity.

The concept of Liquity is based on the analyses of why a person would prefer to purchase a liquid fund. An investor comes to a liquid fund to park money, get better returns than in savings and current account and more importantly, for capital preservation. There is no other avenue in fixed income space other than liquid funds that gives capital preservation and higher returns than bank accounts.

A liquid fund is a safer option for investing money in the short term. These funds are a good mix of safety and liquidity. SEBI has mandated that the average maturity of liquid funds should not increase beyond a time. For liquid funds, it is three months and for Liquid plus, it is six months. Previously, the underlying maturities were much longer than the maturity of the fund itself.

A large part of the Indian mutual fund assets is comprised of liquid/money market funds. Large institutions and corporate houses park their surplus short term funds in liquid schemes as it provides tax efficient returns and higher performance at low risk. 70% of the mutual fund industry money is invested in fixed income. Out of this, 50% is in Liquid and Liquid plus funds. So this is a big opportunity. It is a very simple and smart product.

The potential for growth for the mutual fund industry is enormous. There has been a shift in investment habits and patterns in the past few years. Investors are now seeking more exciting and innovative products. And fund houses are sharpening their appetite by offering attractive schemes. I believe people will come to you if they like you and if you are different. Liquity has been a game changer for us.

Disclaimer: All views expressed in this blog are my personal and in no way express or implied, of that of the company I work with, or have worked with in the past.