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Information provided on this newsletter has been independently obtained from sources believed to be reliable. However, such information may include inaccuracies, errors or omissions. licsridhar.com and its affiliates, information providers or content providers, shall have no liability to you or third parties for the accuracy, completeness, timeliness or correct sequencing of information available on this newsletter, or for any decision made or action taken by you in reliance upon such information, or for the delay or interruption of such information. licsridhar.com, its affiliates, information providers and content providers shall have no liability for investment decisions or other actions taken or made by you based on the information provided on this newsletter.
Long term wealth creation? What is that? Do you hear the term for the first time or you are familiar with the term but avoid making life easier. In this article, we talk about creating long term wealth and how is that possible by following few golden rules of investment and with better understanding.

What is long term wealth creation?
Creating a corpus amount for our retired life is a mandatory financial planning one have to do. Most people are working in private firms and in future even Govt. will also not provide any pension. So one have to save enough amount for your retire life so that he/she can maintain the lifestyle as it is. But creation of corpus amount is not a joke. One need to plan for that properly and invest in such products where return can beat inflation after 20-30 years from now. Only investment knowledge and planning is not enough, long term wealth creation begins with immediate action and patience. Also you have to modify your lifestyle to reduce your unnecessary expenditure and save more.

Tips for long term wealth creation and become Rich

Let’s talk about the best ways to plan for long term wealth creation and make our retired life tension free.

1) Invest via Equity and Mutual Fund way
Over the period of time it has proved that stock market returns always beat the inflation. In fact for a longer period of 15+ years one can get 14-16% return. Where the traditional investment products like bank FDs, PPF, NSC, RDs hardly able to beat inflation. If you have tracked inflation data in past couple of years, you would have seen that it constantly increasing at rate of 6-8% / year. So best way is to invest in Mutual funds via SIP way. This is a must step for long term wealth creation. A monthly investment of Rs 5,000 via SIP for a period of 15 years can give you a return of around Rs. 33 lakh (considering 15% return on long term).

2) Invest for the longest time frame and forget about that money
To get a very good return on investment one has to invest the money for a longer period of time. If you are impatient and can’t think beyond 3-4 year then you have to start thinking on this. In any investment product if you invest regularly for more than 15+ years you will get very good return. And when we are talking about long term wealth creation this could be even more than 20-25 years. So plan your current financial life properly and start keeping money aside for your life after 25+ years. Don’t forget that there is no such scheme which has maturity period of 20 years. Periodically you have to re-invest the matured investments further till your target year.

3) Time to taste all flavors, diversification of portfolio is a must
Diversification of portfolio is a term mostly used by every financial planner. You should not put your entire investment in one direction. As per your knowledge and understanding distribute your money in various financial products (Shares, Mutual Funds, bonds, PPF, bank FDs etc). Choose best Large-cap, mid-cap and small-cap funds and invest in all. This will make sure in future if something some bad happen in any sector other can balance that.

4) Share your plan with your spouse and plan together for retirement
If you are a working couple or a single earner, you should know each other’s income. Not only that, plan about you future expenses together. In that case for a working couple the focus will be same and you can invest more money for the same target. If you don’t know each other’s plan and invest individually then you may unknowingly invest in same wrong product. In bad times you both have to suffer the pain. If the goal is same then the planning will be perfect and road for long term wealth creation will be much smoother.

5) Try to utilize 100% of your income tax bracket and keep that saving aside
Try to invest as much as possible to save income tax. After last year’s change in income tax rule one can save more money this year. If you are a working couple your eligible limit will be even more. Instead of buying ULIP or Endowment plans to save income tax simply put your money in PPF account or ELSS mutual funds. This way you can utilize your income tax exemption limit and at the same time invest money for long term wealth creation.

6) Buy a term insurance plan with enough life cover, even for your spouse
This may not be directly linked with long term wealth creation. But this is the first step one should take for financial planning. For working couple both should buy enough term insurance plans. In case of unexpected death your long term wealth creation plan will not impacted much.

7) Track your investments and Re-balance them periodically
Although I mentioned to forget about the money after investing for long term in point 2, but this doesn’t means that you will not track the performance of your investment. You should not consider that investment for any future expenditure. But a gradual tracking is must. If you found any scheme is not performing as expected then it is better quit before its too late. Invest that amount in a better performing investment product.

Don’t like lectures, then hire a financial planner right now
Still you think this is a herculean task to plan your investments and create a corpus for future? Then don’t waste much time and hire a professional financial planner. Click here to find a Certified financial planner in India. A financial planner can take your entire tension and as per your income provide the perfect investment plan for you. But if you have time to understand the myths of financial planning then better to follow some good personal finance blogs regularly.

Source: http://www.mydailylifetips.com

Investing in any asset class needs to be simple. Simple to understand, interpret and execute.

Investing in any asset class needs to be simple. Simple to understand, interpret and execute. However, what comes across for a new entrant or for that matter even the not-so-new investor, is the complexity in the investment products across the investment horizon.

Plenty of schemes
Even for a simple mutual fund investment, there are multiple schemes. First, the schemes are classified as debt or equity or hybrid. Even within these, the debt schemes have various categories as in liquid, liquid plus, ultra-short term, gilt, accrual, duration, corporate bond. If these were not enough, in equity schemes there are large-cap, small-cap, mid-cap, multi-cap, equity-linked savings scheme, thematic funds. Hybrid is typically a mix of debt and equity, which again results in balanced fund and monthly income plans with multiple debt and equity mix. As an investor, when you have to choose from such a range offered by 42 mutual fund houses with over 2000 schemes, most of the time, the choice of investment becomes sub-optimal. And again, as an investor, we rush towards investing into the best performing one from the one-year stable, not understanding that the return has run up and there may not be much steam left in it. But then, that’s how the bias in investing is.

Schemes in a portfolio
Now having mentioned about the choice overload, how many schemes do you need in your investment portfolio? Not more than five to six. What happens typically is that you invest first and then do the legwork called ‘research’. Do the research first and then do the investment. Another observation is that as investors, we are more comfortable when our peers also invest in the same scheme, as if the markets would perform because of the sheer strength in investor numbers.

Keep it simple
Keeping it simple is the portfolio construction method. To meet your cash flow needs, you need liquidity and protection of capital. What it means is that when you for see a liquidity requirement, the redemption amount should not erode the original capital invested. It makes sense to invest in one liquid fund scheme as multiple schemes are not required. One should not invest for the sake of diversification. More we diversify, more the portfolio resembles the same, except for the names of the scheme which are the only thing which is diversified.

Long-term requirement
For you cash flow requirements, which are for over 10-15 years, choose an equity scheme with vintage, consistency in fund manager, lower turnover of portfolio with consistent performance over multiple time periods. Not more than two such schemes are required. Track the performance every quarter or once every six months with its peers and check where it stands for any re-balancing or revisiting the investment .

Medium-term requirement
For your requirement between 3-10 years, a combination of balanced and large-cap equity scheme should serve the purpose. Each of the fund houses have schemes in typically every category. Diversification does not mean investing in each of the schemes of every fund house. Doing the research and choosing one or two of the performing schemes across multiple periods should be the approach.

Based on your time horizon and liquidity needs and anticipated returns, a portfolio with 5-6 schemes can be built. It needs your acceptance that ‘less is more’. Monitoring the portfolio also becomes manageable. Having fewer schemes, does not mean that you do not do due diligence. It only means that you are on the path to achieve your investing goals with fewer investment schemes. Having a monitoring discipline coupled with your investment policy statement should be the approach.

The author is managing partner, BellWether Advisors LLP

Source: Financial Express

Keep an eye on unique ideas, track record of fund house and fund manager, and lower costs
For a long time__thanks to those ini tial public offers (IPOs) which, over the years, gave huge returns__mu tual fund investors too thought that investing in new fund offers could be highly rewarding. This idea got a further boost from investors' reluctance to invest in mutual fund schemes with high net asset values (NAVs).

However, the idea that investing in NFOs is always better than investing in existing MF schemes even if the NAV is high, is a myth. The absolute NAV of a MF scheme should not matter when it comes to whether it is a good fund or not. An NFO at Rs 10 per unit may not necessarily be cheap. The units are so priced because it is just starting out and has no investments to gain or lose from, financial planners say .

So What Are The Criteria For Selecting To Invest In An NFO?

The return potential from any given NFO should be the starting point for investing in an MF scheme.Although a fund's track record of returns and also the quality of its portfolio matter while deciding to invest in a fund, these factors, however, do not hold good for NFOs. The next factor to look at is the fund manager's track record and hisher ability in recent years to generate consistent returns, financial planners said. Another factor to look at is if the NFO is offering any new idea to invest in.Check with other existing funds in the market to distinguish the fund open for an NFO for that new idea that no other fund offers. Seen another way, an NFO could offer a unique edge to your overall portfolio that no other fund could possibly offer.

Usually mutual funds, especially which invest in stocks, are financial products for long term investing. So in an equity NFO, look for the long term propositions that the scheme has to offer. Also for investing in NFOs look at the track record of the fund house that is launching the NFO, in facilitating long term investing, financial planners said. Another distinguishing factor to in vest in an NFO could be lower cost to the investor. To compete with existing MF schemes with similar ideas or themes, an NFO from a fund house may decide to charge a lower fee to its incoming investors. And since a lower cost adds up to the eventual returns to investors, the returns could be higher, which could be a compelling reason to invest in the new fund.

What is an NFO?
Acronym for New Fund Offer, as the name suggests, an NFO is an offer for subscribing to a new scheme that is being launched by a mutual fund house. In most NFOs, the MF units are offered at Rs 10. NFOs could segregated depending upon the investment style and also the assets to be purchased in the portfolio, like equity, balanced, debt, openended, close-ended etc.

Source: Times Of India
Retirement is not an event but a stage of life that could last decades. Most make serious mistakes in managing post-retirement finances

Retirement is not an event but a long phase in your life that can last up to 35 years. During those decades, inflation will cut down the value of your savings ruthlessly. If your savings do not earn enough, then you are going to run out of them within your lifetime. Nothing can be worse than a long period of old age where you are gradually losing prosperity and then eventually entering poverty.And yet, all around you, you can see any number of senior citizens to whom this is happening.

If you have understood what inflation is all about, then the basic requirement is self-evident: you should spend only that part of your investment returns that exceed the inflation rate. This is another way of saying that you must preserve the value of your principal. However, the single most important thing to understand in this whole business is that you must reserve the real, inflation-adjusted value of your principal, and not just the nominal face value. So how do you do this? Let's take a simplified example. Suppose you retire today with say Rs.1 crore as your retirement savings. You place it in a bank fixed deposit. A year later, it is worth Rs.1.07 crore. So you have earned Rs.7 lakh, which you can spend, right? Not so fast. Assuming a realistic inflation rate of 5%, if you want to preserve the real value of your principal, you must leave Rs.1.05 crore in the bank.That leaves Rs.2 lakh that you can withdraw to spend over an year, which is Rs.16,666 a month. Is that enough? For a middle class person, surely not. It could be a little worse with some banks, and it could be a little better for something like the Post Office Monthly Income Scheme, but basically, this is it for any supposedly fixed income asset class.

The interesting thing is that this calculation does not change even when interest rates rise because inflation and interest track each other quite closely. It's actually a publicly declared goal of the RBI (from Raghuram Rajan's time) that a real (meaning inflation-adjusted) interest rate is 1.5 to 2%. However, the actual rate tends to be lower, especially when compared not to the official inflation rate but the real inflation that you face. This means that if you need Rs.50,000 a month, you need Rs.3 crore. Of course, at that level, income tax also kicks in and about Rs.30,000 a year will have to be paid. It's actually worse, there have been long periods of time when the fixed income interest rate has been below the inflation rate.Moreover, the tax has to be paid whether you realise the returns or not. There can be a situation (often is, in fact) when the interest rate barely exceeds the inflation rate and the income tax on the interest is effectively reducing the value of the money. The situation is very different in equity-backed mutual funds. Unlike deposits, they are highearning but volatile.In any given year, the returns could be high or low, but over five to to seven years or more, they comfortably exceed inflation by 6-7% or even more. For example, over the last five years, a majority of equity funds have returns of 12% per annum or more, some as high as 20%. The returns may have fluctuated in individual years, and that's something that the saver has to put up with, but the threat of old age poverty does not exist.

In such funds, one can comfortably withdraw 4% a year and still have a comfortable safety margin.On top of that, there is no income tax. As long as the period of investment is greater than one year, returns from equity funds are completely tax free.This means that to have a given monthly expenditure through equity funds, you need just half the investment that you would in deposits. So for a monthly income of Rs. 50,000 a month, Rs.1.5 crore will suffice instead of Rs.3 crore. And no matter how high your savings and expenditure, it's all tax free.

Source: Economic Times
Please do not reply back to this mail. This is sent from an unattended mail box. Please mark all your queries / responses to webmaster@licsridhar.com.
Information provided on this newsletter has been independently obtained from sources believed to be reliable. However, such information may include inaccuracies, errors or omissions. licsridhar.com and its affiliates, information providers or content providers, shall have no liability to you or third parties for the accuracy, completeness, timeliness or correct sequencing of information available on this newsletter, or for any decision made or action taken by you in reliance upon such information, or for the delay or interruption of such information. licsridhar.com, its affiliates, information providers and content providers shall have no liability for investment decisions or other actions taken or made by you based on the information provided on this newsletter.