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!

Anand

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.

Is there a Special Benefit in Being Invested For a Long Time in a Debt Fund?

A very important and useful question, indeed.

In the case of investment in a debt fund is concerned there is no special advantage in being invested for a very long time because in debt fund the interest is paid out and there is no reinvestment and no scope for capital appreciation. One will get the interest as long as one holds the investment. The quantum of returns depend on the prevailing interest rates in the market.

On the contrary, in the case of an ‘Equity Fund’, the prices of the shares that are constituents of the fund will increase many folds in the long run on the back of two important factors as follows:

1. Natural growth of revenues and profits of the companies in an environment of general prosperity.
2. Operation of the law of ‘Miracle of Compounding’ propounded by Albert Einstein, in favour of the investor and consequent wealth creation in the long term.

To conclude, there is no special benefit in remaining invested in a debt fund for a long time. However, long time is the most essential ingredient of wealth creation in the case of an equity fund.

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 Is The Difference Between Dividend and Growth Fund. Which Is Better?

A very useful question. Before going to the question of which of the two is better, let us first understand both briefly.

Dividend Funds:

They pay regular dividends to subscribers. Dividend is the reward paid by a company to its shareholders for investing with the company. Mutual funds borrowed this concept and have started paying the unit holders dividends at regular intervals. The dividends are supposed to be paid out of profits, however in the absence of adequate profits, many of the mutual funds follow the undesirable and obnoxious practice of paying dividends out of capital invested, thereby diminishing the actual money invested.

Growth Funds:

Growth funds on the other hand do not pay any dividends. They plow back the profits for purchasing more shares and thereby increase the price or market value of the units. Since the market value of the units are supposed to grow more. Because of reinvesting the profits instead of paying them as dividends, such funds are called growth funds.

Coming back to your question which kind of SIP is better, I will recommend the Growth SIP Fund for two reasons, as follows:

1. In long term investing, all incomes earned must necessarily be reinvested. Though the investor has the choice of reinvesting the dividends received herself, she may be tempted to spend the income, instead. It is better for the fund itself to reinvest the profits on behalf of retail investors.
2. In the light of the highly undesirable practice of paying dividends out of capital, it is advisable to invest in the growth fund where the question of paying dividends does not arise at all.

I hope I have answered your question adequately, Happy Investing!

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 and therefore posted here.

Is SIP Safe To Invest?

SIP of course is safe to invest in, unless the world is destroyed by a nuclear conflict or climate change, which I do not foresee happening anytime soon.

Besides external factor like wars and global warming, we ourselves destroy the inherent safety of investments, including the SIP, by constantly worrying about the performance of the investment, market conditions, etc. The media also is doing a lot of disservice to the investors through their relentless noise.

What is the Solution? Once you have started a SIP, just keep it alive, by monthly subscription, for a very, very long time, like 20 to 50 years. Simply turn a deaf year to what the newspapers may say or your family or friends may advise. 

By following this simple formula you not only ensure the continuation of the already built-in safety of the SIP, but also let the 'Miracle of Compounding' to work in your favour and most likely by the end of the said long period you will end up a very rich and character wise a very strong and disciplined person.

Which One is Better: Recurring Deposit in Bank or SIP in Mutual Funds?

Savings and Investment are two separate concepts. Savings are generally short term in nature and may be intended for a specific purpose like education of child, marriage of a girl child, including savings for investment. Investment on the other hand is long term in nature, say for 20 to 30 years and should not be broken or sold or withdrawn before that period.

A recurring deposit (RD) with a bank for savings purpose is alright. If one is talking about investing and multiplying the sum many times then systematic investment plan (SIP) is the only answer and there is no comparison with RD.

Even though you have not touched this aspect, I have repeatedly mention every time, everywhere that starting a SIP and discontinuing it after a short time, citing reasons of market conditions, is quite useless. A SIP can yield benefits only if it is kept alive irrespective of any reasons for 20 to thirty or even 50 years. During that long, long period the ‘Miracle of Compounding’, propounded by Albert Einstein, will work in favour of the investor. Also the companies constituting the mutual fund grow naturally in size and profits, again benefiting the investor.

Believe me, following the simple principle described herein can not only multiply the investment many times but make the investor really Rich.

If you want to learn ‘Value Investing’ for FREE, please visit ‘Wealth Vidya’.

Anand

Note: This is a reproduction of the question I had answered on the website ‘Quora’.