where to invest your money

 Let me explain the best way to invest money in Mutual Fund:-

Q. I earn monthly salary and I want to invest my money with handsome returns. What is the best way?

A. Systematic Investment Plan

Q. I have received ₹ 50 lakh on retirement which I want to invest such that I get monthly income. What is the best way to invest?

A. Systematic Withdrawal Plan

Q. I have lump sum of ₹ 10 lakh which I want to invest. How should I invest with less risk?

A. Systematic Transfer Plan

Let’s take each strategy and understand with an example:

Case 1) Systematic Investment Plan (SIP):

This is the best strategy for income class people where a certain amount is invested periodically in selected mutual fund.

How is it beneficial?

As we know that mutual fund invest money in stock market, the value of mutual fund (NAV) varies based on market value of stocks in the portfolio. Now, suppose you put all your money together, there is risk of market going down. Ideally, everyone wants to invest when the market is down but nobody can time the market. Hence the best way is to average out the purchase over time.

Example: Axis Long Term Equity Fund- Direct Growth

Lump Sum: If you had invest ₹ 60,000 in January then by June it would be at loss of ₹ 78. This is because at that time, the NAV was 45.91 hence you bought 1306.9 units (₹60,000/45.91). But while selling in June, the NAV got reduced to 45.85 and hence you earned ₹ 59,921 (Total Unit Purchased*NAV of 45.85). Final loss of ₹ 78.

SIP: However, SIP helped in reducing the average price to 44.6 which is less than final price is June. You purchased total 1345.96 units (39.06 Units more than Lump Sum) at average price of 44.46. While selling in June, the NAV became 45.85 and you earned ₹ 61,712 (Total Unit Purchased * NAV of 45.85) and hence profit of ₹ 1,712.

Case 2) Systematic Withdrawal Plan (SWP)

Today, everyone understand that if you put your hard earned money in saving account, you can’t even beat inflation. Now a person who has recently retired would look for a safer option of investment. The person also want a monthly income.

The best investment option is debt mutual fund or hybrid mutual fund with maximum exposure to debt.

Once you invest the money, you can set up SWP.

Example: Axis Liquid Fund- Direct Growth

Invested Amount on 1st Dec 2017 : ₹ 50,00,000

NAV: 1883

Total Units: 2655.33

Here, monthly withdrawal is set for ₹ 30,000. This withdraw the total units based on current NAV. The final amount is the calculation of Final Units*NAV.

Please note that total of ₹ 2.4 lakh (30k * 8 months) has been withdrawn but the final amount value is ₹ 49.96 lakh instead of ₹ 47.5 lakh. The reason is because of returns received on the investment with increase in NAV.

Note: There are monthly income mutual funds as well which provide returns in form of dividends but with recent changes, government has introduced 10% dividend distribution tax on them and hence they are not very attractive now.

Case 3) Systematic Transfer Plan (STP)

One of my friend wanted to invest a lump sum amount of ₹ 20 lakh. he wanted to invest in mutual fund but doubtful due to market volatility. I suggested him a strategy to invest the amount in debt mutual fund and systematically transfer it into equity mutual fund. This is called STP. It help in reducing the risk due to market volatility and one of the best strategy to invest lump sum amount in mutual fund.

Example: STP from Axis Liquid Fund to Axis Long Term Equity Fund- Direct Growth

Plan :Axis Liquid Fund- Direct

Investment Value: ₹ 20,00,000

Date: 01-Dec-15

NAV on 1st Dec 2015: 1636

Total Initial Units: 1222.49

After transferring ₹ 7,20,000, the final value of Liquid Fund is ₹ 15,64,405 with a profit of ₹ 2,83,063.

Now, we have systematically transferred ₹ 30,000 every month from Axis Liquid Fund into Axis Long Term Equity Fund- Direct Growth

With ₹ 7,20,000 investment in Axis Long Term Equity Fund, we purchased a total of 20,568.8 Units. The investment value is ₹ 8,72,532 with profit of ₹ 1,52,532.

Total Profit= ₹ 2,83,063 + ₹ 1,52,532= ₹4,36,937

Absolute Return= 21.8%

If the amount was only put in Axis liquid fund, the final investment value would have been ₹ 23,03,178. Hence we have got “extra” return of ₹ 1,33,759 with systematic transfer in Axis Long Term Equity Fund in just 2 years.

Hope it helps. Let me know if anyone needs the excel file to understand the calculations.

Note: When it come to investment, there is no “One size fit all” strategy. The above explanation is for illustration and help to understand the different strategies. Every individual investment differs based on risk appetite and individual goals.

Cheers!

By sleeping over the investments. Yes, this is how the most amount of money can be made if you are a real long-term investor in publicly listed companies. Finding opportunities is not easy. There are over 1600+ companies listed on the National Stock Exchange. But once you find a good company and decide to invest your savings in it. It is important to be bold and stop thinking about it everyday. If you start to become fickle and cross-question your rationale every now and then, then you will sell your stocks too early and miss out on the steady capital appreciation over the years.

I have seen many fortunes being made and lost because of just one virtue: Patience or the lack of it. For instance, one of my friend’s dad was a full-time stock trader and investor. He had invested a large part of his family’s life savings into Maruti Suzuki India Ltd. in the year 2003 at some 150–170 levels. He held his investments until his demise in 2009 (One year after the stock market had crashed). I still remember how disoriented he was after the 2008 crash because the price came down from 1200 to 430 in 1 year. However, his family never sold those shares. They continue to hold them till today and the price as of yesterday is ₹8,783 per share. That’s a whopping 4756.7% increase overall excluding dividends. So, if ₹10 lacs was invested then, then the capital has appreciated to around ₹4.7 crores today (The numbers are not accurate and I cannot disclose their private details in public. I have mentioned these numbers for your understanding only). If they had lost their cool and sold their shares in the panic, the circumstances would be entirely different for his family.

Of course, timing the market and finding the right stocks to invest is no joke and that’s part of the game as well but patience is virtue if you have found the right stock. There are many such examples which I can share. The correct way to go about it is to trade aggressively to create a capital & then use that capital to invest for the long-term.

Hope this was insightful.