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Stand out from the crowd while following the herd

If you were standing at the crossroads, in a new city, unsure of which direction to take and you observe 9 out of 10 people moving towards the left, isn’t it likely you will follow the more numerous group? This is an illustration of the herd mentality that we are all prone to, especially in unfamiliar situations. “When in doubt, play safe”, is the philosophy that drives this behavior. Ever wondered why this happens?

1) Social Acceptance

It is natural for us to crave acceptance in a group and wish not to be perceived as someone who goes against the crowd. This social pressure often compels us to choose options we would otherwise not have considered.

2) The Ad Populum Fallacy

We are ensnared by this fallacy when we happen to be unclear about the choices to opt for. Believing that we lack some information that others have access to, we choose to endorse the choices of those others, even if the preference may appear irrational at first. We convince ourselves that it is unlikely that so many people can be wrong simultaneously.

If many believe in a particular outcome, the chances of them being correct are high, isn’t it?

This may or may not be true. ‘Argumentum ad Verecundiam’ or ‘Argument from Authority’ is also sometimes termed ‘Appeal to False Authority’ or ‘Appeal to Unqualified Authority’. Argument from authority illustrates a statement that is authenticated by expert opinion. The latter two terms refer to positions that are adopted on the basis of hearsay. We often encounter hearsay in stock markets. Millions of people trade in equity stocks based on “tips” they receive from friends or relatives and many end up burning their fingers.

The inclination of investors, to follow the herd instinct is rooted in the quest for the latest trends in the financial markets. Which mutual fund scheme is fetching the greatest returns or which scheme is a part of some top investor’s portfolio? Did equity outperform bonds in the financial year or not? Based on the answers to such questions, investors switch back and forth rapidly, without realizing that the cost involved in such a process is going to eat into their profits, if at all they make any.

How do we avoid such behavior?

Should investors stop looking at trends and suggestions? It will be wrong to eliminate networking altogether. Research and meticulously acquired expertise are the two pillars, which serve to neutralize the risk of following the crowd.

This adverse impact of herd behavior is most visibly apparent in the realm of financial markets. An investor needs to overcome the fear of isolation and drive innovative investment strategy. Towards this end, he must either gain the expertise to manage his investments with acumen or take the help of a reliable advisor, who can guide him.

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Everything that you wanted to know about an SIP

SIP or Systematic Investment Plan – A term which has off late been doing the rounds in the world of investing. Every financial advisor you meet will recommend a few SIPs to you. Do you often feel bogged down by the what(s), why(s) and how(s) of these SIPs? Read on to find out everything you need to know about SIPs before you move on to start one.

  1. Mode of investment and not a fund: SIPs are a mode of investment and not the fund or the instrument where you invest. Therefore SIPs don’t represent any asset class. They are a way of investing in any of the asset classes. In other words, they are more of an approach to investing.
  2. Defined periodic instalments: As the term indicates, SIPs are defined instalments which get invested on a pre decided date every month or quarter. For example, you can decide that Rs. 10,000 should get invested on the 10th of every month.
  3. ECS / Deducted directly from bank: Every SIP application is accompanied by a NACH mandate also known as an ECS mandate. By signing the mandate you authorize your bank to debit the pre decided amount on the specified date. This means that you do not need to put a separate transaction every month to make your investment. For example, when you sign the mandate, your bank automatically debits Rs. 10,000 on the 10th of every month and this gets invested without any action on your part. At CAGRfunds, we have introduced the concept of 1 mandate, which means you do not need to sign separate mandates for separate SIPs. One mandate for any number of SIPs across any number of mutual funds.
  1. Pre decided funds: When you make an application for registering a SIP, you also decide the funds where the investment shall happen every month or quarter. O every month, Rs. 10,000 gets automatically deducted from your bank account and gets invested in the fund you had selected.
  2. Start date and end date: You can choose the start date and end date of your SIP. Most funds have a criteria for minimum number of instalments (wither 6 or 12). However, having a perpetual SIP is beneficial for those who want to create wealth in the long run and want to follow a disciplined approach for the same.
  3. Any number of SIPs: You can have any number of SIPs. Each SIP is for a particular fund that you decide and hence you can have as many SIPs as the number of funds you decide to invest in.
  4. ELSS SIP: Taxation is a necessary evil and none of us should leave an opportunity to save our taxes. Section 80c of the IT Act gives us a benefit of Rs. 1,50,000 which we can deduct from our taxable income. Some of us who are more aware and believe in the potential of wealth creation through equity investment, choose to invest in ELSS funds (Tax saving mutual funds). However, very few of us choose the SIP route. ELSS investments if made through SIPs, helps reduce the risk arising out of market volatility to some extent. For example, you need to invest Rs. 60,000 to cover your 80C investments and you choose to invest in ELSS funds. You should invest Rs. 5,000 every month over a period of 12 months rather than invest Rs. 60,000 as a lump sum investment at one go.

How do we help?

At CAGRfunds, we help you with all your financial queries. Whether it is about a SIP or otherwise, we promise to give an answer to each one of them. For any query, post a comment to this article. Or whatsapp us on +91 9769356440

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As they hit the final IPL shot, let us take home a few key learnings!

India loves nothing more than its cricket. And cricket is best epitomized in the all exciting and our very own Indian Premier League. However, if we spare a thought, IPL is not just a game. The learnings that we can derive from IPL are applicable in multiple facets of life.

Let us see how you can takeaway 5 things that will help us manage your money better.

1. Balance your portfolio

T20 as a sport demonstrates how a team cannot harness dependency on a single player. A winning team is a combination of the right mix of bowlers, batsmen and all-rounders.

Likewise, a portfolio which is diversified across various asset classes is always preferable over one which focuses on a single asset class. Imagine you invest all your savings in that house you had always dreamt of. While you now own the place you stay in, you don’t know how to fund the medical emergency that has suddenly cropped up in the family. Hence, it is essential that you map your investments to various goals and create a balanced portfolio.

2. Start planning early

IPL teams start wracking their brains right from the day they have to pick their players: which players should be retained, what would be the best combination in the given budget, is the value of a player worth his cost?

Similarly, an early planning for investing is always worthwhile. Not only does it give us better control over our finances but also gives us substantial time to plan for our goals. It is therefore important to understand every step in financial planning before you actually start investing.

3. What’s hyped isn’t always the best

IPL-1 is a great reflection of the famous catchphrase ‘all that glitters is not gold’. With their multi-million dollar wallets, pundits betted on teams like Mumbai Indians and Delhi Daredevils. The season, however, ended with the shoestring-budgeted Rajasthan Royals taking the trophy home. People thought that a bigger budget meant winning the trophy. But if only it was that simple!

Hype can often be misleading. We often tend to fall prey to herd mentality. However, it is of utmost criticality that you decipher facts yourself and look at all the important statistics with the help of an expert.

4. Keep your calm: Don’t quit on a winning strategy

IPL-2015 – a case in point. Mumbai Indians lost the first four matches of the season and were at the bottom of the table. But they knew they had a winning mix. They chose to stick to their guns and treaded with caution and patience. Result – They brought the trophy back home.

So, if you know that you have a winning portfolio or a winning strategy, don’t quit! Don’t be bogged down by short term fluctuations and focus on the long term.

5. Some advice along the way always pays off

We have often seen the cricketing maestros contributing their bit in mentoring and guiding the players off the field.

Financial planning which is a highly knowledge driven domain, is better done when planned along with a financial advisor. While your current knowledge may seem to be sufficient and adequate, you might not be as aware of the latest developments or specific implications of different instruments and investment avenues. It therefore always pays off to consult an advisor before you take that big leap with your hard earned money.

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Look beyond the obvious

A few days back, I met an old school friend Rajeev on my flight from Mumbai to New Delhi. We started reminiscing about our old school days and the time just flew by. Rajeev has done well in his career and is working as a Management Consultant with a reputed consulting firm.

Somehow, the discussion shifted to financial planning and Rajeev told me, that he is quite happy seeing his investment grow at 8%. This got me interested, so I further enquired and discovered that he has invested his savings in long tenor bank fixed deposits.  I was surprised and explained to him that he is only looking at nominal returns and there is more to returns than what meets the eye.

This got me thinking, do we as investors really know the actual returns of our investment? No, it’s not because we don’t read the numbers, but because we don’t understand how to find the net returns of our investment. Most people only care about the raw returns on their investment and unfortunately this is not the return to actually care about.

The two most important factors which impact our investment are taxation and inflation. While, the impact of taxation is still comparatively easy to understand, as on paper it leads to reduction in earning, the impact of inflation is more insidious.

With regards to taxation, every investor should look at the “after tax” return of his investment, but we will discuss this at some other time. Today let’s try to delve into the impact of inflation on our investment return.

Let’s get back to Rajeev and his investment in bank FD earning 8% return. Is he actually earning 8%? No, he is not. This is his “before tax” and “nominal return”.  For the time being, let’s ignore the impact of taxation and discuss further on “nominal return”.

As investors, we have to factor in the bite of inflation and look at the “real return”. In the above case, if the current inflation is 7%, the real return for the investment this year is only 1%. Why is that? Inflation represents loss in purchasing power. Simply put, 10 years back you can buy much more with 100 rupees in your account, than you can buy today. Inflation can affect the risk/return profile of any asset, including cash.

Investments offering you miniscule or negative real returns will actually lead to loss in purchasing power and are actually making you poorer over time. For example, savings account seems to provide a sense of security and guarantees “nominal return” of 4%; it actually is making you poorer by 3% (considering inflation is 7%). Same is the case with bank fixed deposits; it mostly gives you either negative real return or at maximum gives miniscule real return.

Historically as per the chart above,  investment  in  equities  has  offered  higher  real  returns  compared  to  fixed  deposits.  Hence, it is seen as a good hedge against inflation. Investments done in fixed deposit have barely been able to beat the inflation over the years, while the investments in equity have given handsome returns over long period of times.

If you find it difficult to choose the right companies for investing, you could opt to invest through mutual fund schemes, preferably through the Systematic Investment Plan (SIP) route.

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Dear Mums, it is time you hold the reign!

“My mother had a great deal of trouble with me, but I think she enjoyed it.” – Mark Twain

Such is motherhood – an epitome of love, dedication and care. Historically, India has been a patriarchal society – where men earn and take care of all finances and women handle an equally challenging task of running the home and taking care of the kids. Driven by her innate maternal instinct, a mother often plays a more direct role in shaping the foundation of her children’s value system and setting the direction for their beliefs and aspirations.

In the last few years, there has been a noticeable and encouraging shift in this direction – with fathers playing an increasingly important role in the upbringing of the children and women sharing the onus to earn the livelihood for the family. Times are changing, and sooner than we think!

But as mothers broaden their ambit of responsibilities, there is a remarkable scope for them to contribute to the financial planning of the family, more so to that of her children. Financial planning still remains the husband’s task and we rarely come across women approaching us to create an “education fund” for example – be it because of limited knowledge or limited interest.

This Mother’s Day, as we celebrate motherhood, we salute all the astounding mothers out there. At the same time, we invite all mothers to take upon themselves, the responsibility to secure a bright future for their children, through diligent financial planning. While the husbands must be doing an excellent job at planning the finances of the family, this mother’s day “Gift an SIP” to your child – an expression of love, manifested uniquely and responsibly!

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Start small but start early

The other day, my mother asked me to teach her cycling. I went speechless for a few minutes, until she spoke up – “I taught you cycling when you were three. Why can you not spend time teaching me now?” I wish I could tell her, “Mom, I was three and you are Sixty – Two!!” But nonetheless, we took an attempt. And what happened next – Umm, another story, another day!

But thank to almighty, she did not come up with a similar argument for money. Imagine my situation had she said “I started building your college fund even before you were born. Why can you not give me an equally hefty amount to retire peacefully?” Phew!

Not sure if I can give her a large enough fund for her retirement, but I surely don’t want to be saying that to my kids. Certainly, there are some things which are better started early in life!

I could not be more convinced when I did some math to understand the benefits of starting to invest early. Assume that today is your 25th birthday and you start investing Rs. 5,000 every month. I get inspired by your decision and start investing the same amount every month. And hey, Happy Birthday to us! I turn 35 today!

Years continue to pass and we continue to invest Rs. 5,000 every month. At the age of 60 I decide to retire and that is when I feel that it is time I make use of the wealth I have created for so long. So I login to my investment account and whoa… what do I see? At an average annual return of 14%, I created wealth amounting to Rs. 1.3 Cr. Satisfaction redefined.

But 10 years later, when you turned 60, that is when I realized what regret truly feels like. At the same average annual return of 14%, you had created a wealth pool of Rs. 5.6 Cr.!!

Perplexing! How was that even possible? 4 times the amount of wealth I created?

Yes my friend, that is the impact a difference of 10 years can make. While a simple mathematic calculation will present to you this fact, the logic behind this is in the “Power of Compounding”.

“Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it” – Albert Einstein

Wondering how it works? Assume that my investment of Rs. 5000 in the first month grows to Rs. 5,050 by the second month. So, in the second month, I am actually investing Rs. 10,050 (5,050 from previous month and a fresh 5,000 for the current month).

The above example presents some very critical learnings.

In the prime of our youth, we have a tendency to be a little generous as far as our spending habits are concerned. If we avoid reckless expenses and shift a defined amount towards monthly investments, the benefits will be visible once the invested amount matures.

Secondly, early on in life, it is relatively easy to park a part of our salary in good investment instruments every month. Such small investments, when accumulated over time, will give us the financial security we have always needed in our lives.

How do we help?

At CAGRfunds, we help you start investing through SIPs. No matter how small you want to start, we help you create wealth in the long run.

To know more whatsapp us on +91 97693 56440

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Oblivious of financial planning and all that jazz?

Rahul and Ajay are college friends who are currently working in reputed firms in the country. Both of them have now been working for 10 years. They happen to meet each other in their college reunion party and they were delighted to see each other after a long time. Rahul asked Ajay about his job and his experience to which Ajay replied, “The job is good. I earn a decent amount, if not much. Fortunately, I have been able to invest my savings and made good returns that covered the inflation well. The ongoing SIP’s will fetch enough in the long run and I am fairly satisfied with my financial planning.”

Rahul was awestruck and gazed at his friend with curious eyes. Little did he understand the complex jargon that Ajay used. He did not have the slightest idea of what investing is all about. He had always considered it very risky and something that was not his cup of tea. But seeing Ajay satisfied and happy with it, he began to wonder: Why is it that I can’t do it and he can? What made me think that investment is too risky to venture into it?

Ever wondered as to what the answer could be:

1) Lack of information/research

Rahul did not research enough about the various avenues where he can invest. His financial planning was restricted to conventional instruments like Fixed Deposits. Rahul was therefore a victim of inadequate information and consequently, misguided opinions.

2) Financial Planning is akin to stress

Many a times, we feel that investment could be stressful and time consuming. But, there will be only as much stress as we want to have. Some seasoned advice from professional experts will make you realize that not only is financial planning inevitable but it is also fairly simple.

3) Unfruitful experiences in the past

Once bitten, twice shy?? Investing is no different either. We tend to avoid investing if we have suffered heavy losses in the past. Not only do we force the choice of not investing upon us but also miss out on opportunities that arise from time to time.

We are never too old to learn new things. When it comes to money, financial literacy is something that has the capacity to change our lives in the most dramatic ways possible. With the right information at our disposal, we can use it to our advantage and get a better grasp of the financial markets.

How do we help?

At CAGRfunds, we help you define your financial plan. We make the process extremely simple for you by asking you the right questions. We help you identify your needs and goals and make a plan accordingly. With our online portal (www.cagrfunds.com), executing transactions is simple like never before. With our customized portfolios, you can now invest in just 15 seconds!!

Whatsapp us @9769356440 to know more!

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How Rahul earned less than Manoj and still got richer?

Rahul earns Rs. 60,000 a month in a multi-national company, while his boss, Manoj earns Rs. 90,000 a month. After having worked for 15 years in the company, both of them wanted to buy a home for their family. Rahul bought a 3 BHK for his family, but Manoj is still figuring out ways to get money from somewhere to pay for the house. Bizarre? If Rahul was earning much less than Manoj, how did he end up getting richer? How could he afford a house with ease while Manoj finds himself at loggerheads managing the money?

To get an answer, let us dig deeper into their financial habits. Rahul’s elder brother is a financial advisor and hence Rahul always had the requisite guidance about how he should be making the best use of his money. Right from the first month of his job, Rahul started an SIP of Rs. 10,000 in three equity funds.

On the other hand, Manoj was a shopaholic. He loved to spend his Saturday afternoons in the mall, Saturday evenings on lavish dinners and his Sundays on online shopping websites. He had all the high end gadgets and he loved to upgrade them every time a new model was introduced. Luxury was his way of life. However, this lifestyle meant that by the end of the month, he had nothing left in his bank account. Neither did he take any advice from a financial expert about how to plan for his goals. As a result, he had little money left in his kitty to finance his house. But Rahul had a handsome sum of over Rs. 50 lakhs, more than sufficient to pay a sizeable portion of the cost of his house.

This is the power of investing your savings. Proper financial planning with a lesser in-hand salary beats a lavish lifestyle any day. The effect will not be immediately obvious, but trust us when we say, it will totally be worth the wait. The advantage of saving and investing from early on gives us the advantage of compounding. And with compounded returns, we are in a much better situation to meet our goals.

Both Rahul and Manoj are going to retire at some point in their lives. Who do you think will be more happy and satisfied? No brownie points for guessing the right name. It will be Rahul who will not only be happy but also satisfied as he has planned for his goals well in advance. A disciplined investing habit that he inculcated very early in life will enable him to take care of himself as well as his family.

Set apart the monetary benefits that investing gives us. When we start saving early on, it inculcates in us a sense of responsibility. We then have a tendency to keep a check on our expenditures and reduce any unnecessary expenses, if any. Rahul, in addition to being richer than Manoj, will also turn out to be more disciplined towards his responsibilities. A habit of investing early on, limiting expenditure and taking help of a financial advisor for goal based financial planning is the recipe for a comfortable and fulfilling life.

How do we help?

At CAGRfunds, we strive to become your partner throughout your financial planning journey. We not only help you plan the right investments for your goals but also be available to answer any query that you might have with respect to your money. We understand that managing money is complex and therefore we do everything we can to make it extremely simple and enjoyable for you.

Put your comments below if you want us to reach out to you!

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Starting a new job? 7 things you should know about your finances

We have all been through the stage when we feel too damn excited about our new job, haven’t we? Our joy knows no bounds especially when we receive our first pay-cheque. After having spent the required amount of money on our different necessities, one obvious thought looms large: What next? And this is where financial planning steps in – and like someone said “One does not become rich by what he earns but by what he saves”.

Don’t worry, we have you covered on how to plan your finances at this new juncture of your life.

Understand the Different Components of Your Salary
Ever encountered a case where your take home salary is much less than what you were expecting? There are different parts that constitute the salary such as the Basic Pay, House Rent Allowance, Dearness Allowance, Provident Fund, Gratuity, etc. An optimum plan can be developed once you have thoroughly understood each of the components.

The 50/30/20 Rule
Having received your pay, what should be the next course of action? It is recommended to spend 50% of your income on fixed costs, 30% on your lifestyle expenditure and the rest 20% should typically go into your savings. While it is not a strict rule to be followed, at least 15-20% of the income should be saved so that it can be put to a better use.

Reduce Taxable Income, Save More
We have all been victim to the necessary evil that comes in the form of taxes. A lesser known fact is that we can substantially reduce our taxable income through some expenses that are allowable as deduction under the income tax act. Examples include part of house rent, medical insurance premium, donations to charitable institutions and so on. After all, who doesn’t like to save more?

Invest Savings, Don’t stash them in a Bank
A common mistake is that we stash our savings in our bank accounts without realizing that with time, inflation will erode out savings gradually. At this juncture of our professional life, we have time on our side and that allows us greater aggression. But the aggression should be utilized with wisdom. Idle money in your bank accounts is money lost. So get up, talk to an advisor and start building a portfolio.

Learn And Invest, Not the other way round
We should not invest without having any prior knowledge about the financial markets. It is always nice to get some sound knowledge from a professional expert. Better to be safe than sorry.

Get Insured
An understated objective for working professionals is the importance of insurance. While a life / term insurance seems to be of little value at a young age, it becomes imperative if we have dependents. Also, by starting an insurance early, we save on the additional costs of a delayed start. For health insurance, while our organizations may be covering this aspect, it is always better to get a separate health insurance cover too.

Understand the Government initiatives to Reduce Taxable Income
The government offers several schemes which enable you to reduce the taxable income. For example: The amount of health insurance premium you pay in a year is deductible from taxable income up to Rs. 25000. You should be aware of these benefits as they contribute significantly to saving taxes.

How do we help?

At CAGRfunds, we seek to become your financial partners throughout the course of your investment journey. As you embark on a new journey of self sufficiency, we help you take better decisions related to your wealth. Want to manage your expense better or have a query related to your education loan – we have it all covered!

Shoot all your queries as comments to this post. Or just whatsapp us on +91 97693 56440.

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5 things you should do at the start of every financial year

Rebalance and diversify Your Portfolio

Do you park all your surplus funds in Fixed Deposits? Or are you someone who is an avid believer of investing in stocks? The risk associated with investing in a single instrument is fairly large. Diversification across asset classes is essential to ensure we do not suffer a major setback during years of softer performance. Roughly, 100 less our age should be our ideal equity exposure. And remember to count your PF as part of debt exposure.

 Salary increment? Increase SIP amounts

To keep pace with the rising expenditures, it is essential to invest more in our SIPs (Systematic Investment Plans). It will not only keep a check on our rising expenditures but also prove to be a reliable source of money in the long run. So top up your ongoing SIPs with a portion of your increment.

Start an SIP now, if you haven’t already

The concept of building a corpus bit by bit is something we all learn in our childhood – Flashback, the good old “Gullak” days! But as we grow up, we tend to get busy with other supposedly more important things. It is time we get to the basics and bring that habit back in practice. SIPs are a great way to build wealth over the long run. They not only inculcate discipline in our investment habits but also cater to a range of our medium to long term goals. So what are you waiting for? Start small but start now.

Open NPS Account

The National Pension Scheme (NPS) is a government initiative to reduce the taxable income of an individual. While we all look for ways to plan our tax, starting an NPS account will help us to reduce our tax by up to INR 15,000 annually (If you are in 30% tax bracket). Now that is some healthy saving!

Get Health Insurance

With an increasing workload on an individual, there is a tendency to avoid health issues. And if we haven’t got our health insured, things can get really complicated in case of emergencies. At the start of this financial year, let’s make health our priority and get a health insurance. It will not only cover any medical contingencies but also give us tax benefits under Section 80C of the Income Tax Act.