Stocks vs Mutual Funds

Most of us feel that investing in direct company stocks is risky. Of course, it is. But so is investing in mutual funds, for the simple reason that mutual funds also invest in company stocks. You may feel that mutual funds is still safer because of the expertise that the fund house has as regards fund management and detailed analytical reports, but then remember that rewards are always in proportion to the risk. Let us do a pointwise analysis of Mutual Funds and Stocks...read on...

10 Financial Checkpoints in the new Financial Year

The financial year 2015-16 started more than a month back. Thats how fast time moves. Now that you are well into the new financial year, make sure you do not miss out checking on the following 10 (ten) financial checkpoints to have a financially rewarding year..read on..

Investing in the new NPS is akin to marrying Katrina Kaif

Investing in the new NPS re launched with the budget 2015 is akin to marrying Katrina Kaif. Looks so inviting, but hold on. Given a chance, would you really marry Katie? Really?

Four levers that create wealth for you

Most of us feel that increasing our income will make us wealthy, and that is why we focus most of our energy on getting a higher salary or getting more profitability of our organisation. We forget that increasing our income is just one of the levers to wealth creation, and NOT a very significant one. Ignore the other three levers at your own peril...read on...

Open your mind : Increasing your income is not the only way to get wealthy.

This blog post is a part of the article already published in Complete Well Being magazine. 

When people think about getting wealthy, what they usually focus on, is increasing their income. Well, increasing your income is definitely one of the ways to get wealthy, but is definitely not the only way.  Let us look at some other avenues.

Why Gold is almost always a good investment

Traditionally, Gold has always been considered a safe bet and a great option to rely on, in case of financial crisis. However, can it also be considered a good investment option ie can it give you a combination of safety and returns better than most other investment and options that you are aware of? Lets read on.

You have no choice but to get into Stocks

  

Whether to seriously get into stocks or not - is a very debatable topic, not only with the Indian middle class mindset but also with investors across the globe.

Myths about Stock Market

Traditionally stocks have been associated with huge risks, losses, bankruptcy and many more negative aspects. Rarely, have we heard of stories where someone has consistently made good positive returns from the stock market, beating those from the traditional

Do you know your Return on Investment (ROI)

What is Returns on Investment (ROI)?

Almost everyone i know "invest" money in some or the other investment tools. Some of us may not know whether they are investing in equity based or debt based tools, but we do surely invest money to get better returns on our investment

Why do we invest?

The returns that we get from our savings accounts in the banks is around 3-4% while the inflation running in India would be around 7-8%. So, in effect, you are losing money every day (in terms of its purchasing power) if it continues to stay in your bank savings account. So, if we got to beat the "inflation" monster, you do not have a lot of options but to effectively "invest" the money

Do we know the returns on our investment?

Sometimes, we do know the annual rate of returns or the rate of interest that the Fixed Deposits offer, but that is not what i am trying to ask. Because the rate of return that you get from the Fixed deposits is subject to income tax before it becomes your Annualized Rate of Return. So, the rate of return that you get on your money in your hand is the interest minus the tax deducted. If you are in the top tax bracket, it would be roughly 30% lower than the annual interest rate that the bank has offered. Only after deduction of taxes, can you compare it with the Inflation figure and see if your investments are making any sense.

Add to this the complexity of the fact that you do investments not only in one type of investment tools. We do also invest in Mutual Funds, Recurring Deposits, may be in Gold and Stocks as well - all of them of different tenures with investments happening through SIP - monthly quarterly or annual, returns coming at different times of the year. Add to this another factor of different tax slabs on your returns depending on the time for which the amounts were invested. With all these complexities, do you think do you know what are the exact annualized returns on your investments ? Sadly, most of you would not know it because it is a pretty complicated exercise.

The book "From Rat Race to Financial Freedom" would provide you with the formulas and freely downloadable templates needed to quickly calculate your annual returns on investments for each type of investment that you can possibly do.

Why we must calculate the Returns on Investment ?

This is like asking why should i know my body temperature when i am having fever? I mean, i know i have fever but why should i measure it at regular intervals? 2 simple reasons - you need to monitor whether the temp is going up or down to understand whether the medication is working or not and second, if it is going still higher, i may need to change the medication itself. Unless i measure the temperature regularly, i am taking a big risk in my life.

The same applies to money. You are taking a big risk in your financial life if you are not regularly measuring the returns on your investments. If i do not know how much is my annual rate of returns on the money i have invested under various investment options, there is no way i can know whether my investment selections are correct or i need to do some changes. I do not know whether i am growing faster than inflation or not - which means that i do not know whether my money is actually growing in "true value" or is it depreciating each year. I also do not know what changes i need to do in my investment portfolio - whether to invest more in Mutual Funds, Golds or Stocks or in FDs.

If i have to have a measure and grip on money management (which is so critical to be Financially Free), i must know what each of my investment tools is giving me on an annual basis, and then only i will be in a position to arrive at some conclusions and take investment decisions for the next year.

Happy calculating !!

Cheers !!

Manoj Arora

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