Thursday, August 25, 2016

What is the Minimum SIP Subscription Amount and Best SIP?

Which are the best SIP to invest in India?

I am looking for currently the best SIP plans in India. Also what will be the least amount I can invest in a SIP?

All ‘Systematic Investment Plans (SIPs)’ are equally good or equally bad. Do not be confused by claims of performance or returns. Evaluating the returns based on the ‘Net Asset Value’ or ‘NAV’ is totally absurd, because the evaluating method is purely based on the market price of the underlying shares on a particular date. This system of calculating returns purely based on market price is against the principles of ‘ValueInvesting’. Please read the article “How Do You Calculate Return On SIPs Factoring in All the Operational Costs?”.
So how to choose the right mutual fund that is offering the SIP?
  1. Size of Sponsor: In Real investing we are talking about timeframes of not three to five years but 50 years! So the sponsor of the SIP must be a large and reputed organisation that can be expected to be around, without going bankrupt, for the next 50 years. UTI, SBI, HDFC are a few examples of such sponsoring organisations.
  2. Diversified Index Funds: Please do not get carried away by fancy sectoral funds like ‘Pharma’, ‘Auto’ etcetera, and go for a scheme proposing to invest the funds in a diversified, index fund, for example BSE S&P 500 index fund.
  3. Fund Management Charges: Kindly pay attention to the charges levied for fund management. There are charges like ‘Entry Load’, ‘Exit Load’ and ‘Annual Fund Management Fee’. These usually range from 1–3%.which are exorbitant, considering that after about 30 years your investment would have grown to a few crore (10 million is 1 crore) rupees. They should be minimum. So among the short listed funds based on above two criteria, choose the scheme that charges lowest fees.
Own SIP of ETFs:
Let me give you an exciting alternative to a SIP offering by a mutual fund in the form of ‘Your Own SIP of ETFs’. An ‘Exchange Traded Fund’ or ‘ETF’ is kind of mutual fund, which reflects a popular index like ‘BSE Sensex’, 'NIFTY 50′ and ‘NIFTY Junior’. An ETF has following two great advantages:
  1. Units are traded on stock exchanges like BSE and NSE.
  2. Are listed alongside individual scrips and can be purchased similarly on online trading platforms of stock brokers.
  3. Most importantly the annual fund management charges are usually very low and stand below 0.50% per annum. This is going to help in maximising your wealth in a big way when we are talking of 50 years and crores of rupees of your wealth at the last decades, generated out of your humble SIP investments.
  4. When you create a SIP of ETF voluntarily from your own side there is no sword hanging on your head. You can vary subscription amount as you wish. But in order to choose this path you must be a highly disciplined person. Many a times freedom leads to laziness and noncompliance.
Finally coming to your question what is the minimum amount, I hear that it can be as low as Rs.50 a month (UTI Retirement Benefit Pension Fund}. I believe ICICI Prudential also offers a SIP of Rs.50. But for your own wealth creation benefit it has to be a meaningful sum. I would recommend a bare minimum of Rs.500 per month and ideally a minimum of Rs.3000 to 5000 a month.
Finally, the last and crucial golden rule of SIP, which no one emphasises is that a SIP shall be kept alive uninterrupted for very, very long time periods like 50 years. Only then the ‘Miracle of Compounding’ will have an opportunity for work for you and make you a rich and wealthy individual irrespective of which financial class you presently fall in.
Every person, including the one from the most humble background and means, can become a ‘Crorepati’ or a ‘Millionaire’ through long term systematic investment plan. I am committed to make this dream come true globally.

What is an Equity Boom?

Share markets are dynamic. They can also become quite volatile, and swing like the ‘Pendulum’ from extreme optimism to unjustified pessimism.
Market Is A Pendulum

When the market is in the midst of an enthusiastic advance, it is called an ‘Bull Run’ or ‘Equity Boom’. During such a phase the share prices soar and the ‘Price to Earnings Multiples’ are unjustifiably high. The market will witness a whole lot of Initial Public Offerings (IPOs) from a few good companies and also from a large number of worthless corporations. Many lay investors enter the market at very high valuations and get trapped.
In short, an equity boom is a bubble about to burst. It will eventually bust.
The intelligent value investor who not only knows knows which stocks are good but also their intrinsic values, may sell a portion of shares bought and accumulated over time at low and throw away prices at a handsome profit.
The ‘Intelligent Investor’ thus is happy both during an ‘Equity Boom’ as well as ‘Bust’ and invariably takes advantage of the juicy opportunities thrown up by the market at regular intervals.

Market Is A Pendulum

The stock market is dynamic and prices of shares fluctuate constantly. Thus is normal for any large and open market. It also constantly swings like pendulum between extreme optimism and pessimism.

Stock Market Is A Pendulum

Many lay investors, not groomed in value investing, and driven by uncontrolled emotions of greed and fear; enter the market when it is unjustifiably high. No wonder soon the market crashes. The same investors are now gripped with panic and sell the shares which they had bought at high valuations some time back sell at a steep loss, fearing further fall in prices.

 An intelligent investor on the other hand, knowing the true, intrinsic value of the shares is perfectly at peace during the market turbulences. He capitalizes on the opportunities thrown up by the market.  He purchases when the market is in extreme pessimism and sells when it is in extreme optimism.

The seller from whim the intelligent investor buys and the buyer to whom the wise value investor sells may be the same person, at two different points of time.

What Are the Legal Implications of Standing Guarantee For Others?

Actual Question:

My friend buying a car and telling me to be a guarantor of her finance loan. Does there any problem in future for me? He telling me there will no problem for me in future. I don’t know any thing about finance. He is my good friend.

You could have a problem if she defaults on her loan repayments. Then the lenders will approach you for recovering the dues. Standing as guarantor is accepting responsibility for the loan of others in case they are unable to repay.
Every bank normally insists on guarantees. Usually spouses, parents and natural relatives stand guarantee for loans.
You have to make a judgement whether your friend a reliable person, committed to and having the means to repay the loan even if her job is temporarily lost. Generally prudent persons, leading simple lifestyles and who Control the Urge to Splurge to Become Financially Free will have means to repay even in bad financial times.
You also have to consider that you also may stand in her position in life some times and may need someone to stand as surety for you.
So it is a situation calling for judgement and a balanced approach in life.

Please Note: This is a reproduction of the question I had answered on the website ‘Quora’, which I thought could be useful to the visitors to this blog site also.

What Investing Options Exist for a 42 Year Old with Investible Surplus of Rs.3000 Per Month?

Full and Actual Question:

As a 42 years old with a family of 4, earning ₹ 22k per month how to invest more with a debt of 5k,10k for house rent, and 4k other expenses?

Dear Mr.Daniel Paul!
You seem to have an investible surplus of Rs.3,000 per month which is decent. Your present age of 42 also decent enough with an active investing life of about 23 years and another 10-15 years even if you do not invest you keep live your past investments, although it would have been great if you had asked this question when you were 22 instead. So keep a target of of 75 to 80 years as investment life which is great.
Try to get rid of your debt repayment obligation of Rs.5000 per month as soon as possible and after that try to avoid borrowing money. Please destroy the credit card(s), if you have any, immediately.
Your present budget seems to be very tight. Your expenses are not high but your income is very limited. Can you try for a second job that may boost to your investible surplus by another Rs.5000 to 10000? This can be very helpful. If you manage to earn this extra income, please do not destroy it on luxuries like car, holidays and eating out. Use the extra money for investment only.
Open a SIP or invest in an Exchange Traded Fund (ETF) for the next 23 years. Do not stop this investment for any reason whatsoever.
If you follow this simple advice keep invested for the time frame suggested, when you look back at the age of 65 you would have accumulated a net wealth of Rs.40.46 lakhs, after an assumed annual inflation of 10%, which is very high and long term stock annual market returns of 15% which is very reasonable.
If you keep the investment alive, without disturbing for another 20 years, you would have become a really rich and wealthy person with a net wealth of Rs.5.04 Crores. Please see the calculations below:
Returns From Humble Investments

How such spectacular results are possible out of such humble investments of Rs.3000 per month? That is the power of SIP and Miracle of Compounding.
Happy Investing and Getting Rich!

Please Note: This is a reproduction of the question I had answered on the website ‘Quora’, which I thought could be useful to the visitors to this blog site also.