The need for long term financial planning is one of the most piquant requirements of modern day living. While all of us spend hours, days, weeks, months and even years looking at the smaller things in life we invariably miss the broader picture. Amidst the hurly burly of business and jobs we remain involved with issues like paying off electricity and telephone bills, making salary payments, recovering money from our debtors, paying off our creditors, negotiating lower interest bank finance for car purchases and so on and so forth. Our financial planning never extends beyond 2 to 3 months .All along we remain in a situation of self-deceit that maybe tomorrow would be better then today.
Life carries along and while we manage to increase business turnover our net worth remains inconsistent and unpredictable. With rising inflation and increasing consumption expenditure our readiness to invest in the stock market is natural. Tips, news and khabar are the modus operandi. Everyone seems to be the first cousin of the operators and the final result of all such unsuccessful attempts to get into the stock market is too painful to be written. We all make money in stocks but just for brief moments of time. If we make 50% for two years in a row and lose 50% in the third year we perform poorly then money market/debt funds. The number of people who have consistently made money over a longer period of time is abysmally low.
As time passes by children's education, marriages, medical bills are common areas that require huge amounts of money
All through out life we keep working for money never thinking for once that money can also be made to work for us. While for people in jobs there is Provident fund, Gratuity and Pension the business class has really nothing to fall back upon. Also the amount of money one saves through general savings schemes do not give more then 7 to 8% annualized return. Our wealth is consistently eroded by an inflation of 5 to 6%. Where do we save then?
The benefits of starting early in the savings game is very important. The later you start the harder you would have to struggle.
One of the better ways to accumulate wealth over a period of time is through the mutual funds route. These funds are managed by expert fund managers having in-depth knowledge and experience about markets. All along we have tried investing directly and the results have been quite discouraging. As a result of this stock investing is looked upon gambling. Due to paucity of time we have really been part time investors. But investing is really a full time job (24x7x52). If you can go to a dentist for your teeth, cobbler for your shoes, barber for your hair then why can't you go to an expert for your wealth.
Mutual funds in India have shown a consistent annualized growth of above 20% for the past 5 to 10 years. Some schemes like Reliance Growth fund have grown in excess of 30% compounded every year over the last 10 years. (See chart below). This means that an investment of Rs 10 lacs had the potential to grow to about 1.60 crores in 10 years. I doubt if we as small part time retail investors have been able to make that kind of money.
|Returns of the three best performing equity funds over the past 5 years|
|Fund- Scheme||NAV (Date)||Compounded Annualized Returns||Present Value of an initial investment of Rs 10 lacs|
|Franklin India Prima||154.98
(02- Sept, 2005)
|47.14%||Rs 68.97 lacs|
(02- Sept, 2005
|46.48%||Rs 67.44 lacs|
|Reliance Vision||105.35 (02- Sept, 2005||40.37%||Rs 54.50 lacs|