Eat. Sleep. Earn. Repeat. But keep focus on creating passive Income
(Smart Investments like SIP in Mutual Funds helps you to build Corpus for Passive Income)
Eat. Sleep. Earn. Repeat. That’s the cycle most individuals follow when it comes to working for a corporate or running a business. We’ve got bills to pay, & dreams to achieve. We’ve also got to prepare for retirement. So, we save for them – using savings accounts, fixed deposits, recurring deposits, post office schemes, and many more. What we fail to see is how inflation eats away at our savings.
The key is to NOT save, but generate real wealth – and that comes with smart investments.
Equity, hands down, is the best asset class to help you create wealth. It beats inflation, and compounds at higher rates than your other products. In the last 20 years, the average return from equities has been ~13 per cent and inflation has been ~6 per cent.
Investments in equity come with risk, as it is a volatile asset class, but data shows if you stay invested for longer periods in equity, the probability that you make any negative returns diminishes. If you invest for a year (not recommended for equity), chances you’d make losses are 28 per cent. But if you expand your horizon to say 5 years, the probability reduces to risk is almost Nil.
Using SIP's (Systematic Investment Plans) you put your investments on auto-pilot, invest regularly, and can benefit from rupee cost averaging which allows you to buy more units for the same amount when markets are falling, and vice versa. Take advantage of market volatility with SIPs.
Moreover, long-term capital gains from mutual funds in excess of Rs 1, 00, 000 are taxed at just 10 per cent, while your gains from FDs are taxed at your tax-slab. Don’t the returns and tax-efficiency make mutual funds a better choice for wealth creation?
There’s a mutual fund for every goal. E.g (Child education planning, child marriage planning, Retirement planning and so on). For goals 3-5 years away, you could consider balanced, aggressive equity hybrid, or large cap funds. For goals further away, you can consider mid, small cap funds.Therefore with wealth creation as your goal, equity truly is your best bet. Allocate up your funds and build a portfolio in line with your risk profile.
Thnks
Rasmeet
Source: Personal Views, Magazines, Internet, Articles etc
