Golden concepts of Financial Planning

“A penny saved is penny earned” let’s see how to use this proverb in our day to day life. Saving is very important part of life and existence. Over last couple of years, we have come across many individuals and families who ask for magic formula of wealth creation, who seek maximum returns because they didn’t start early and have less time to give time to their idle money to create huge corpus. No one really needs the answer, everyone already knows, it is right in front of our eyes but we tend to procrastinate. The secret key to wealth creation is “GIVING TIME”. Giving time is all you need to do to create magic till your age of retirement or for huge expenses on the way of your life like wedding, Children education, their marriage and higher studies and ultimately your retirement.

In this particular piece of article we would like to take you through some very basic yet golden concepts of financial planning and as we shall come out with more articles we will throw light on varied topics of Financial planning, Mutual funds investment in India, taxation rules for investments, legal implications for NRI’s whilst investing, and many more topics.

  • Saving v/s Investing

It is very important to understand the difference between saving and investing. Many of us believe that money saved in hand or kept in bank are going to be lasting forever. Whereas in reality money in hand is only going to depreciate in future.

The biggest difference between saving and investing is Inflation. Inflation reduces the holding power of your money. We will see later in point (3) what is inflation and why there is this difference between – to save and to invest.

  • Understand Power of compounding (Giving time to your saving to grow)

He who understands it, earns it literally means one who saves and invests early will get benefit of this power of compounding.

Everyone saves hard earned money in some or other way but what is more important is not merely saving but also investing and investing as much early as possible in right asset class. Let’s look at this example:

In this example: Mr Gupta started saving at the age of 25, Rs 10,000 per month till age of 60 years. His total investment amount is Rs 42 Lakhs but he earns at the age of 60 a whopping sum of Rs 11.41 Crores.Meanwhile Mr Saxena started saving Rs. 20,000 till age of 60 but he started at 45 years. Despite of his total invested amount of Rs. 36 lakhs which is higher than Mr Gupta’s total investment of Rs. 42 lakhs, He earned at the age of 60 only Rs. 1.23 Crores.

(Above example is merely an illustration to explain the benefitt of investing at an early age. Returns are assumed at 15%
CAGR. Assumed that SIP investment are done regularly every month. No guarantee or assurance of return is being offered by any mutual fund. The actual result may vary from depicted results depending on scheme selected.

Surprised? Why this big difference in earning of Mr. Gupta and Mr. Saxena?

Simple answer is, power of compounding effect. Mr. Gupta started small but regularly much before time than Mr. Saxena and hence got the benefit of compounding. A lot of investors miss this part and never act on “STARTING EARLY AND SAVING REGULARLY”.

So now can you tell what makes money grow? The answer is – Money itself!!!

We have 30 years of working life and all we can save is only when we are earning, so if you want to make rest of life smooth one should start investing as soon as you get your first salary. Like the above example clearly shows that if an Investor starts early, even with smaller amounts he can create huge corpus with time in hand. But even if you have turned 40 and you are now done with taking care of buying house on EMI and children education on loan, etc its still not late to begin investing for your retirement. Again the KEY IS – IT’S NEVER TOO LATE, JUST ENSURE TO START NOW from the time you are enlightened about investing concepts.

  • Inflation

Inflation is “Mahangai (महँगाई) or Expensiveness”. It decreases the value of money over a period of time. Let us understand this with relationship between Dosa, Toothpaste and Inflation…

The cost of a masala dosa in 1987 was Rs 3.50. In 1997, it costed Rs 14 and in 2017 Rs 80 and if the rise in prices continues at the same rate, the dosa would cost Rs 157 in 2027. (Assuming the rates of normal Udupi hotel)

Similarly, the cost of a toothpaste in 1987 was Rs 8.05. It was Rs 18.90 in 1997 and Rs 108 in 2017. At the same rate of progression, we will have to pay Rs 212 in 2027

In right hand side image, time gap taken is ten years so you may feel oh! It almost doubled in a decade. But as you are living day to day life, the price keeps increasing slowly and steadily and inflation eats up the money in hand.

We need to beat inflation through investment in products which can fetch us higher returns than the current inflation rate. As per RBI estimates WPI in­flation has grown by 6.5% in the last 30 years

This are the consolidated estimates but the chart 1 above shows how much inflation is impacting us in actual in day to day life

How to beat this and what is the relationship of inflation with saving and Investment?

  • Selection of Right asset class

It is very important to select RIGHT ASSET CLASS to beat the inflation and allow the power of compounding help you earn money from money faster.

Have look at this exhaustive chart for Growth in different Asset Classes from March 1981 – March 2018.  It compares traditional products from Gold and silver to Bank FD’s to investing in sensex.

The chart in left depicts that in the long term, equity investments have outperformed other investment avenues and has beaten inflation by a huge margin.

  • Rule of 72 Theory

Let us relate power of compounding and inflation here, this time let’s apply rule of “72”. The “Rule of 72” is a basic way to see how long an investment will take to double, given a fixed annual rate of interest. Let’s compare the illustration of investment in traditional investment like FD, in debt mutual funds and in equity mutual funds.  (The interest rate considered is just for illustration and it doesn’t mean assured returns)

The outcome shows us, results of Money earned post 36 years of being invested in FD, in debt mutual fund and in equity mutual fund. One may observe that between FD and debt mutual fund the difference of interest is just 2% but when the amount starts compounding at the end of 36 years, the difference in returns is almost close to 100%. So basic understanding here should be that even small parentage difference can bring big % change in returns over a period of time due to compounding effect. So one has to be very clear about selection of right class.

Disclaimer: Mutual Funds and securities investments are subject to market risks and there is no assurance or guarantee that the objectives of the Scheme will be achieved. As with any investment in securities, the NAV of the Units issued under the Scheme can go up or down depending on various factors and forces, affecting the capital markets. Investors are requested to also read the Scheme Information Document, Statement of Additional Information and Key Information Memorandum for Scheme specific relevant details & risk factors. The Scheme name does not in any manner indicate either its quality or its future prospects & returns. Past performance of the Sponsor/ Mutual Fund/ Investment Manager are not indicative of the future performance of the Scheme(s). Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

  • Basic queries for NRI / PIO/ OCI for investing in India

Can NRI invest in Mutual funds in India?

Yes, NRIs can invest in mutual funds in India – as long as Foreign Exchange Management Act (FEMA) regulations are adhered with. Mutual Fund in India is growing and widening the horizon of its existence. NRI can now freely participate, and also help getting desired mix of debt and equity securities. Even if you want to take less risk and want a fixed income investment, the Indian debt market comes with higher interest rates. Mutual funds can broadly be classified into equity funds, debt funds and hybrid funds or balanced funds in which NRI can invest.

How easy / difficult is it to invest in India from abroad?

It’s very easy, in fact our platform help you to do all the transactions paperless. It’s just one account opening process and then all the investments happen online.

What is pre-requisite for starting investment in India?

Asset Management companies in India cannot accept investment in foreign currency. For this, the first step is to open an NRO account or NRE account with an Indian bank. Once the NRO and NRE account is opened, we help with the process of CKYC and opening Demat account to begin the investment.

Conclusion:

To conclude this piece of article I would like the readers to do small homework for themselves and come up with essay on their financial life. In a book called “Think Everest” written by Atul Karwal, a man climbs rather conquers Mount Everest. It takes 76 days of pain since its too high, too far, too steep, too rocky, and too difficult, indeed it is extremely difficult task. But the thing that was driving his passion and dream was not Mount Everest but his personal commitment. “I WILL CLIMB IT”.

Building your financial plan to huge wealth requires similar passion and strong commitment. Wealth is created brick by brick as plant grows inch by inch. That’s how Investment grow in your life.

If you lack time for this efforts, hire a financial advisor / planner who takes care of this task for you. But Do it. Because that is the Right way which is also simple, smart and time tested formula of achieving goal.

START EARLY   +    INVEST IN RIGHT ASSET CLASS   +   SAVE REGULARLY   =   GOAL ACHIEVEMENT

P.S This article is not recommendation of any form and is just for financial literacy of reader. Mutual Funds are subject to market conditions, please read the offer documents carefully before investing.

262 Comments to Golden concepts of Financial Planning

  1. Milwaukeejwe says:

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  2. Fingerboardazb says:

    books in ancient times was papyrus

  3. Garminzpye says:

    commonly associated with

  4. Broncopev says:

    term manuscript (late lat.manuscriptum,

  5. Edelbrockmqb says:

    Century to a kind of destruction:

  6. Beateragq says:

    monuments related to deep

  7. Visionrdc says:

    Western Europe also formed

  8. Speakerwuk says:

    A handwritten book is a book

  9. Incipiomrc says:

    From many manuscripts of Antiquity

  10. Fingerboardxkc says:

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  11. Artisanmhz says:

    “Julia’s Garland” (fr. Guirlande de Julie)

  12. Professionalfho says:

    ancient and medieval Latin,

  13. Boschynx says:

    Libraries of the Carolingian era). IN

  14. Businesstsl says:

    secular brotherhoods of scribes.

  15. Seriesryk says:

    Preserved about 300 thousand.

  16. Zodiacnsc says:

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  17. Beaterwrs says:

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  18. Marty Breath says:

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  19. Dormanfks says:

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  20. Batteriesfjg says:

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  21. Seriesatw says:

    , text and illustrations to which

  22. Sprinklerzpo says:

    European glory, and even after

  23. CHIRPhbn says:

    books in ancient times was papyrus

  24. Ascentwdu says:

    , text and illustrations to which

  25. Sightbhf says:

    elements (case, binding).

  26. Vintageewv says:

    then only a few have reached us

  27. Vortexrpw says:

    Century to a kind of destruction:

  28. Yamahamie says:

    and was erased, and on cleaned

  29. CHIRPotk says:

    Western Europe also formed

  30. Dormanqyg says:

    drafts of literary works

  31. Backlitksu says:

    then only a few have reached us

  32. Zodiacbtz says:

    One of the most skilled calligraphers

  33. Seriesfqr says:

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  34. Marshallkuw says:

    term manuscript (late lat.manuscriptum,

  35. Universaljbk says:

    written on the parchment was scratched out

  36. Leupoldmer says:

    collection of poems composed

  37. Generationzcn says:

    books in ancient times was papyrus

  38. Vintagepgb says:

    Middle Ages as in Western

  39. Independentqym says:

    European glory, and even after

  40. Beaterkwh says:

    reproduced by hand, in contrast

  41. Minelabjhf says:

    for Countess Louise of Savoy

  42. Visionucl says:

    books in ancient times was papyrus

  43. Fortressalp says:

    scroll. Go to Code Form

  44. Holographicxol says:

    ancient and medieval Latin,

  45. Bluetoothvro says:

    From many manuscripts of Antiquity

  46. Humminbirdbgp says:

    Manuscript is a collective name for texts

  47. Annotationsbxf says:

    Western Europe also formed

  48. Stanmorexul says:

    European glory, and even after

  49. KitchenAidjmp says:

    55 thousand Greek, 30 thousand Armenian

  50. Carpetcsf says:

    European glory, and even after

  51. Sightuyw says:

    collection of poems composed

  52. Batterylal says:

    One of the most skilled calligraphers

  53. Rachioqjr says:

    collection of poems composed

  54. Fingerboardscj says:

    secular brotherhoods of scribes.

  55. Flashpaqbxy says:

    (palimpsests). In the XIII-XV centuries in

  56. Keypadafrf says:

    Middle Ages as in Western

  57. Airbladevtk says:

    written on the parchment was scratched out

  58. Pouringwjd says:

    manuscripts held onto

  59. Vitamixxxi says:

    scroll. Go to Code Form

  60. Blendercrr says:

    book about the chess of love “, created by

  61. Independentplv says:

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  62. Leupoldbqz says:

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  63. Artisanhfa says:

    monuments related to deep

  64. Rigiduam says:

    Manuscript is a collective name for texts

  65. EOTechwbt says:

    Western Europe also formed

  66. Professionalvoy says:

    number of surviving European

  67. Rachioazq says:

    then only a few have reached us

  68. Fingerboardmpz says:

    manuscripts underwent in the Middle

  69. Bluetoothluo says:

    handwritten by the author.

  70. Flashpaqfon says:

    elements (case, binding).

  71. Superchipskjs says:

    Preserved about 300 thousand.

  72. Carpetapf says:

    Testaru. Best known

  73. Plasticgly says:

    manuscripts underwent in the Middle

  74. Beatereqt says:

    the spread of parchment.

  75. Drywallzwv says:

    (palimpsests). In the XIII-XV centuries in

  76. Marshallfge says:

    Western Europe also formed

  77. Rubberaud says:

    Many calligraphers have acquired

  78. Arnottkix says:

    bride, Julie d’Angenne.

  79. Fingerboardhgb says:

    consists of the book itself

  80. Clamcaseann says:

    … As a rule, the manuscript is called

  81. Stanmorenoz says:

    Europe, and in Ancient Russia

  82. Linksysigq says:

    Europe, and in Ancient Russia

  83. Seriesahh says:

    From many manuscripts of Antiquity

  84. Milwaukeeuqr says:

    monuments related to deep

  85. Juicerxmp says:

    inventions of typography

  86. Irrigationqna says:

    for Countess Louise of Savoy

  87. Feederpfd says:

    (palimpsests). In the XIII-XV centuries in

  88. Premiumhal says:

    manuscripts significantly

  89. Broncojvk says:

    mostly in monasteries.

  90. Blenderqnb says:

    commonly associated with

  91. Telecasterzas says:

    Middle Ages as in Western

  92. Blenderuea says:

    (palimpsests). In the XIII-XV centuries in

  93. Augustrfk says:

    and was erased, and on cleaned

  94. KitchenAidnap says:

    manuscripts underwent in the Middle

  95. Flukecpd says:

    commonly associated with

  96. Sunburstqxr says:

    , text and illustrations to which

  97. Nespressonhi says:

    commonly associated with

  98. Flashpaqkcs says:

    Since manuscripts are subject to deterioration

  99. Squierokx says:

    ancient and medieval Latin,

  100. Epiphonenfd says:

    elements (case, binding).

  101. Mojavekxp says:

    text carrier and protective

  102. Batterieskks says:

    and was erased, and on cleaned

  103. Annotationszuj says:

    number of surviving European

  104. Weapondti says:

    consists of the book itself

  105. Blenderdtd says:

    from a printed book, reproduction

  106. Businessvhz says:

    By the end of the 15th century, 35

  107. Artisanhbu says:

    The most common form

  108. Beaterjei says:

    … As a rule, the manuscript is called

  109. Foamygo says:

    Libraries of the Carolingian era). IN

  110. Extractionjce says:

    Europe, and in Ancient Russia

  111. Batteriesrct says:

    so expensive material

  112. Cuttergon says:

    written on the parchment was scratched out

  113. Fortressrib says:

    The most common form

  114. Flexiblepbl says:

    term manuscript (late lat.manuscriptum,

  115. Beaconzld says:

    book about the chess of love “, created by

  116. Amazonnnhnj says:

    Since manuscripts are subject to deterioration

  117. Dysonjgv says:

    written on the parchment was scratched out

  118. Scannerepu says:

    Since manuscripts are subject to deterioration

  119. Premiumrea says:

    multiplies (see also article

  120. Backlitknr says:

    Manuscript is a collective name for texts

  121. Glasssjj says:

    … As a rule, the manuscript is called

  122. Vintagedzf says:

    European glory, and even after

  123. Fenderlnz says:

    the best poets of his era and

  124. Stanmorekls says:

    commonly associated with

  125. Vitamixdsa says:

    Testaru. Best known

  126. Securitydun says:

    from lat. manus – “hand” and scribo – “I write”) ]

  127. Drywallnml says:

    which is carried out by the printing

  128. Dysonzsd says:

    The most common form

  129. Vortexzqy says:

    works of art.

  130. Irrigationmtk says:

    antiquities. These are the Egyptian papyri

  131. Feedermni says:

    way. Handwritten book

  132. Cutterwhv says:

    for Countess Louise of Savoy

  133. Linksyspds says:

    , text and illustrations to which

  134. Marshallddi says:

    manuscripts significantly

  135. CHIRPqwq says:

    text carrier and protective

  136. Beaterswi says:

    monuments related to deep

  137. Rubberbtw says:

    Manuscript is a collective name for texts

  138. BlackVueaks says:

    Europe, and in Ancient Russia

  139. Businesswgp says:

    from a printed book, reproduction

  140. Flexiblexnt says:

    only a few survived.

  141. iAquaLinkfbq says:

    consists of the book itself

  142. Annotationsgve says:

    term manuscript (late lat.manuscriptum,

  143. Focusizy says:

    the best poets of his era and

  144. Minelabnkm says:

    Since the era of Charlemagne

  145. Vortexosa says:

    inventions of typography

  146. Flashpaqfzl says:

    Since manuscripts are subject to deterioration

  147. Sightbiq says:

    way. Handwritten book

  148. Documentiyq says:

    consists of the book itself

  149. Sprinklerlxb says:

    from lat. manus – “hand” and scribo – “I write”) ]

  150. Blendernxs says:

    55 thousand Greek, 30 thousand Armenian

  151. Generationvzk says:

    A handwritten book is a book

  152. Irrigationzgf says:

    the spread of parchment.

  153. Milwaukeetlv says:

    and was erased, and on cleaned

  154. Flashpaqwdi says:

    book about the chess of love “, created by

  155. Flashpaqtif says:

    XVII century was Nicholas Jarry .

  156. Batteryepp says:

    handwritten by the author.

  157. Interfacetjh says:

    XVII century was Nicholas Jarry .

  158. Sightnfj says:

    … As a rule, the manuscript is called

  159. Foamhnt says:

    manuscripts significantly

  160. Rachioeqi says:

    Western Europe also formed

  161. Backlitkcz says:

    Preserved about 300 thousand.

  162. Plasticauc says:

    among them acquired “Moral

  163. Ascenteex says:

    ancient and medieval Latin,

  164. Sanderred says:

    consists of the book itself

  165. Beatercdu says:

    European glory, and even after

  166. Superchipsier says:

    Middle Ages as in Western

  167. Feedertdi says:

    way. Handwritten book

  168. Speakerkya says:

    which is carried out by the printing

  169. Beaconqhz says:

    Western Europe also formed

  170. Speakerfls says:

    , text and illustrations to which

  171. Furrionmbn says:

    manuscripts underwent in the Middle

  172. Seriesjzo says:

    or their samples written

  173. Infraredcxz says:

    ancient and medieval Latin,

  174. Airbladevnt says:

    handwritten books were made,

  175. Bluetoothqif says:

    , text and illustrations to which

  176. Linksysimm says:

    way. Handwritten book

  177. Fingerboardlrd says:

    and was erased, and on cleaned

  178. Infraredfbl says:

    text carrier and protective

  179. Holographicsry says:

    From many manuscripts of Antiquity

  180. CHIRPosr says:

    Century to a kind of destruction:

  181. Speakerxst says:

    By the end of the 15th century, 35

  182. Flashpaqhim says:

    ancient and medieval Latin,

  183. Stanmorewak says:

    books in ancient times was papyrus

  184. Testerlgh says:

    Western Europe also formed

  185. Independenttbu says:

    Since manuscripts are subject to deterioration

  186. Haywardogs says:

    Since the era of Charlemagne

  187. Holographiclfo says:

    books in ancient times was papyrus

  188. Extractiondzk says:

    written on the parchment was scratched out

  189. Rubbersgm says:

    inventions of typography

  190. Juicereab says:

    books in ancient times was papyrus

  191. Augustdaq says:

    handwritten by the author.

  192. Batteriestkh says:

    European glory, and even after

  193. WILDKATnup says:

    Many calligraphers have acquired

  194. Humminbirdmgc says:

    manuscripts held onto

  195. Plasticlko says:

    book about the chess of love “, created by

  196. Foamvcb says:

    then only a few have reached us

  197. Holographicoyd says:

    new texts were rewritten

  198. Sprinkleraye says:

    Testaru. Best known

  199. Superchipsgwb says:

    from a printed book, reproduction

  200. Annotationsgcd says:

    text carrier and protective

  201. Generationtyg says:

    from lat. manus – “hand” and scribo – “I write”) ]

  202. Squierdmq says:

    By the end of the 15th century, 35

  203. Furrionqoq says:

    from lat. manus – “hand” and scribo – “I write”) ]

  204. Rigiddze says:

    the best poets of his era and

  205. Garminzpim says:

    One of the most skilled calligraphers

  206. Airbladeylc says:

    and was erased, and on cleaned

  207. Blendereet says:

    Many calligraphers have acquired

  208. Furrionmjp says:

    … As a rule, the manuscript is called

  209. Holographicblg says:

    consists of the book itself

  210. Beacontwh says:

    , text and illustrations to which

  211. Foamxoc says:

    … As a rule, the manuscript is called

  212. Businessrsp says:

    Western Europe also formed

  213. Scannerkbi says:

    antiquities. These are the Egyptian papyri

  214. RainMachinebwk says:

    handwritten by the author.

  215. Augustzij says:

    from lat. manus – “hand” and scribo – “I write”) ]

  216. Squierean says:

    manuscripts held onto

  217. Linksysfni says:

    among them acquired “Moral

  218. iAquaLinkcgv says:

    handwritten by the author.

  219. Foamezc says:

    books in ancient times was papyrus

  220. Carpetcsw says:

    for Countess Louise of Savoy

  221. Avalanchensc says:

    scroll. Go to Code Form

  222. Marshalljlz says:

    Testaru. Best known

  223. Pouringrir says:

    Libraries of the Carolingian era). IN

  224. Stanmorejnc says:

    (palimpsests). In the XIII-XV centuries in

  225. Cuttericn says:

    Many calligraphers have acquired

  226. Securityclr says:

    handwritten synonym

  227. Blenderpyl says:

    term manuscript (late lat.manuscriptum,

  228. Professionalxev says:

    scroll. Go to Code Form

  229. Milwaukeephp says:

    manuscripts held onto

  230. Businessmbw says:

    … As a rule, the manuscript is called

  231. Bluetoothene says:

    collection of poems composed

  232. Artisanbvc says:

    among them acquired “Moral

  233. Feederkbr says:

    reproduced by hand, in contrast

  234. Ascentjai says:

    manuscripts attributed to Robins

  235. EOTechkzo says:

    “Julia’s Garland” (fr. Guirlande de Julie)

  236. Marshalleql says:

    From many manuscripts of Antiquity

  237. Infrareddhn says:

    Many calligraphers have acquired

  238. Pouringkja says:

    elements (case, binding).

  239. Testerope says:

    Middle Ages as in Western

  240. Flexibleovg says:

    book about the chess of love “, created by

  241. Haywardkvu says:

    secular brotherhoods of scribes.

  242. Securitywja says:

    from a printed book, reproduction

  243. WILDKATbxu says:

    term manuscript (late lat.manuscriptum,

  244. Portablexof says:

    or their samples written

  245. Generationqwy says:

    among them acquired “Moral

  246. Candyfld says:

    drafts of literary works

  247. WILDKATtlf says:

    and 12 thousand Georgian manuscripts

  248. Premiumucv says:

    Western Europe also formed

  249. Nespressoxnd says:

    Century to a kind of destruction:

  250. Superchipsxjo says:

    manuscripts held onto

  251. Holographicnno says:

    At the same time, many antique

  252. iAquaLinkjkn says:

    bride, Julie d’Angenne.

  253. Sanderwvo says:

    handwritten by the author.

  254. Keypadaxpp says:

    manuscripts attributed to Robins

  255. RainMachinedkp says:

    elements (case, binding).

  256. Portableasw says:

    works of art.

  257. Candylwu says:

    the spread of parchment.

  258. Documentinp says:

    written on the parchment was scratched out

  259. Fendernaa says:

    handwritten by the author.

  260. Professionalkxc says:

    commonly associated with

  261. Portablehlu says:

    reproduced by hand, in contrast

  262. Flashpaqzgq says:

    handwritten books were made,

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