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Salil Dhawan explains why you must invest early in life.
Illustration: Uttam Ghosh/Rediff.com
1. Go for consistency of fund over a long duration rather than short term performance
Invest in funds that have displayed consistency in performance across all market cycles. There will be funds which will display short term out performance: especially sectoral funds but keep going with excellent diversified funds in SIP mode.
Avoid NFOs!
Don't try to take an unnecessary risk when wealth can be created by straightforward means.
Don't panic in case fund manager exits or fund starts to underperform the peers, but put the fund on the watch list for the next few quarters and monitor its performance closely against its peers.
Keep increasing your SIP in existing funds as your inflow increases.
Monitor your portfolio performance every 6-8 months.
In case the fund underperforms consistently for few quarters, don't hesitate to switch to a better fund.
Time lost in underperforming funds for years is also an opportunity lost. In case you need a professional advice, do take one. Don't hesitate and procrastinate.
2. Choose equity linked savings scheme (ELSS) funds as a tax saving instrument under Section 80C
Many young investors are unaware of tax saving instruments under Section 80C. They primarily invest money in tax saving FDs or insurance policies to save tax.
Young investors can look at ELSS as an option, not just to save tax but also as an instrument to create wealth over a long term.
An ELSS fund such as HDFC Tax Saver has given phenomenal returns over 20-year period.
ELSS funds have a lock-in of three years but this should not dither investors as investing in equities is for long term goals. Some investors take money out of ELSS funds after lock-in is complete.
Avoid redeeming and keep investing via SIP.
Initiate equity investing through equity mutual funds rather than direct equities. Investors who don't have any prior experience of investing in equities can take the mutual fund route.
Investing via direct equities can wait till you get a hang of investing in markets, incurs much-required discipline to stay invested in equity markets even during volatile times and keep investing regularly across market cycles.
Volatility is investor's best friend in the long run. Occasions such as demonetization or Brexit when market volatility is at its peak can teach investors valuable lessons as to how to keep their feet on the ground and don't panic unnecessarily.
Investments made at worst times when market sentiments are at an all time low yield best results in the long term.
Even if you are a beginner, you will be better off investing in steady, long term proven and compounding stories rather than speculative stocks.
3. Keep your feet on the ground and don't get carried away
If you, in fact, decide to start investing early, you will see benefits of investing systematically over the period of time.
Keep your focus intact and don't allow this discipline to translate into over confidence.
Keep increasing your SIPs every year and navigate into direct equities only if you understand the business of company you are looking to invest well.
Remember markets don't move up in a linear line -- there can be years of underperformance followed by a bull market.
Keep investing through all these market cycles to get attain maximum benefit.
4. Stay away from impulsive buying
Just because your friend has bought a new iPhone doesn't mean you have to buy the same.
With money stacked up in your bank account, it's easy to get carried away and splurge on expensive things, some thing which you can do without it.
Think twice if you really need it.
As an individual, one can enjoy and save and invest at the same time by taking some logical financial decisions.
5. Invest in your career growth
More salary inflow means more savings which in turn means more money available for you to invest.
For a strong financial life, you need to have a good hold in the field you work in.
If that means pursuing a short term professional course or a professional certification to enhance your career prospects, don't hesitate just because it has a cost associated with it.
Keep learning and keep enhancing your skill-set.
Kind Courtesy: investment-mantra.co.in