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Will Debt Funds help you create wealth?

debt fund and wealth creation

Debt funds are good investment vehicles to protect your capital and still earn more than your bank interest, but they may not sufficient to help you generate enough wealth to achieve financial independence.

Let us understand this by an example.

Assumptions:

  1. A 30-year-old salaried employee has a current monthly income of INR 1.5 Lacs
  2. Annual Salary increment: 8%
  3. Annual Expenses: INR 1.15 lacs (Rent: 60K, Grocery: 20K, Child Education: 20K, Medical: 5K and Travel: 10K). The inflation rate for each is as follows: Grocery: 6% | Rental: 10% | Medical: 12% | Education: 10%
  4. The balance is saved in a combination of debt instruments which give the returns as follows: PPF: 7.6% | Bank Savings: 3.5% | Debt Funds: 7.0%
  5. The weighted average rate of return is around 6.7% annually
  6. Annual compounding of returns assumed
  7. Assumed no taxes on gains on investment

So let us see how your expenses increase for the next 30 years vis-à-vis your debt investments.

When will you run out of money?

As you can see, your expenses will outlive your income from Year 22 onwards and that is when you will start dipping into your debt savings which will start declining thereon. And this happens while you are still working. You can well imagine what should happen once your recurring income drops or becomes negligible post your retirement.

We often ignore the impact of inflation on our lives and hence, the above is a very common “kahaani ghar ghar ki”. Therefore, even in the best case scenario, debt funds will perhaps help us match inflation but not create additional wealth that can make us live through our retirement comfortably. And this is the reason the majority of retired or nearly retired Indians are working out of compulsion. A lot of such people would have ideally wanted to spend their time reading or travelling or just basking under the sun on a chilly winter morning. But even after 40 years of working, they are striving to make ends meet just because our normal income flow cannot live up to the increase in expenses.

We, therefore, need to invest our savings in instruments which can considerably beat inflation. This is where equity comes into play. You may not like it but you may still have to consider it for a comfortable future. However, equity is a challenging subject for most and we tend to have an increased the fear of loss because of our own lack of understanding of which funds to invest in. Therefore, for a person who is new to equity investing, choosing the SIP mode of investing through a trusted advisor is the best route to choose.

But then why do people still invest in Debt? And where exactly should you be investing? Read here to find more.

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Is trading in stock markets your answer to create wealth?

Trading stock markets

I grew up watching the black screen with constantly changing green and blue tickers. For a little while, I even used to handle my father’s clients who used to call every 15 minutes with a new “Buy” or “Sell” order to be placed. I was a kid just out of school then, with very little idea of what stock markets were. But, it was thrilling! I remember telling my father – I want to make money like this for myself one day.

But as I got deeper into the industry of financial planning and wealth creation, I realized a lot of things about trading in stock markets. And all of these are applicable to almost all of the traders.

  1. Most of the stocks are bought to be sold on the same day
  2. Most of the buyers have no idea of what business the company is in
  3. All of those who are buying a stock believe (or hope) that the stock price will go up and vice versa
  4. Sometimes, such buyers think that they know why the stock will go up
  5. The quantum of buying on any particular day is equal to the quantum of selling (which means that while the buyers are convinced about the price going up, the sellers are of a diametrically opposite view)
  6. Every day at 9 o clock, analysts tell us the stocks which will be doing well for reasons X,Y and Z
  7. Every day at 6 o clock, no one really asks those analysts if they really did well.
  8. In most cases, the probability of the recommendations doing well or not well is pretty much the same as a tarot card reader’s prediction

So you get the drift of what I mean.

Let us look at a simple scenario. Say for example Mr. A believes that the price of Stock X is likely to go up by 10% today and hence he buys at Rs. 100. X indeed rises to Rs. 110 and Mr. A sells it off to Mr. B who also buys it with a belief that the price will rise further. X further rises to Rs. 118 and Mr. B sells it off to Mr. C. Obviously, Mr. C also wants to make money and believes that the upward movement will continue. He therefore sells it off to Mr. D at Rs. 128. This continues till that moment when the cycle breaks. The last man standing ends up making a loss. In this cycle, there is a high probability that none of the players have any idea why the price is behaving the way it is. But what they do know is that there is a bigger fool who will pay a price in anticipation of the price rising further.

And that is trading for you, my friend. It of course is one of the most thrilling activity to indulge in. But so is poker. Therefore, one of the economists, Paul Samuelson once said –

“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.”

Long story cut short – Trading is a risky activity and is under no circumstances a medium of creating wealth. Yes, a lot of people have made money with trading. But will you be one amongst them is the question you need to ask yourself.

And for those who were thinking of taking that leap – Money is hard earned. Care for it the way you would care for your child.

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Track Your Mutual Fund Investments Real Time

Till some time ago, every family had a relationship manager who would periodically come and meet our parents and discuss his mutual fund investments with him. And that was the only time our parents could get to know how their funds were doing. This is similar to those times when the only way to send money to someone was to visit a bank branch and deposit some cash/cheque.

With the onslaught of technology, everyone is seeking more convenience in everything that they do. So we don’t want to visit bank branches anymore and neither do we want to depend on our advisor to tell us how our money is doing. At CAGRfunds, we realized this urge for independence and therefore provided our clients with the convenience of tracking their investments on their own personal CAGR dashboard.

Once you register and start investing through the CAGR platform, you are assigned your own login details with which you get access to your own dashboard. Not only can you invest in mutual funds online but also track how your funds are performing.

But you do get a bunch of statements on your email, right? So what is there to track? Well, three reasons why our dashboard helps:

Comprehensive Data:

Some reports give you the value of how much your money has grown while others show you the list of transactions you have made. We give you everything relevant at one place. We show you how much you have invested, the current invested value, the absolute return and the annual return.Not only that, we show you the individual funds that you are invested in and what is the return you are making both at the fund and portfolio level. We also show you how your investments are split between asset classes and if it is in sync with your decided asset-allocation.

Simple Enough For Anyone To Get It:

The fine print and numbers overload on the statements you get on email makes it all the more complicated. Either you sift through all the information yourself or stay uninformed. We obviously don’t want that and hence our dashboard and reports are quite simple. Our clients told this to us! Don’t believe? Read here.

Any Time Visibility:

Reports generally come to you at the end of the month or when you transact. But with us, the next time you are discussing investments with your friend, just log in, check your current portfolio value and returns and have a more informed discussion!

We, therefore, ensure that you stay in complete control of your portfolio. So the next time you call us, it is only to discuss your portfolio, not to get data – because your dashboard gives you all the data you need!

If you have been facing trouble tracking your investments and want to switch to a truly delightful investing experience, do not hesitate to call / Whatsapp us on +91 97693 56440. You can also comment on this post or email us on contact@cagrfunds.com.

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How Rahul earned less than Manoj and still got richer?

Rahul earns Rs. 60,000 a month in a multi-national company, while his boss, Manoj earns Rs. 90,000 a month. After having worked for 15 years in the company, both of them wanted to buy a home for their family. Rahul bought a 3 BHK for his family, but Manoj is still figuring out ways to get money from somewhere to pay for the house. Bizarre? If Rahul was earning much less than Manoj, how did he end up getting richer? How could he afford a house with ease while Manoj finds himself at loggerheads managing the money?

To get an answer, let us dig deeper into their financial habits. Rahul’s elder brother is a financial advisor and hence Rahul always had the requisite guidance about how he should be making the best use of his money. Right from the first month of his job, Rahul started an SIP of Rs. 10,000 in three equity funds.

On the other hand, Manoj was a shopaholic. He loved to spend his Saturday afternoons in the mall, Saturday evenings on lavish dinners and his Sundays on online shopping websites. He had all the high end gadgets and he loved to upgrade them every time a new model was introduced. Luxury was his way of life. However, this lifestyle meant that by the end of the month, he had nothing left in his bank account. Neither did he take any advice from a financial expert about how to plan for his goals. As a result, he had little money left in his kitty to finance his house. But Rahul had a handsome sum of over Rs. 50 lakhs, more than sufficient to pay a sizeable portion of the cost of his house.

This is the power of investing your savings. Proper financial planning with a lesser in-hand salary beats a lavish lifestyle any day. The effect will not be immediately obvious, but trust us when we say, it will totally be worth the wait. The advantage of saving and investing from early on gives us the advantage of compounding. And with compounded returns, we are in a much better situation to meet our goals.

Both Rahul and Manoj are going to retire at some point in their lives. Who do you think will be more happy and satisfied? No brownie points for guessing the right name. It will be Rahul who will not only be happy but also satisfied as he has planned for his goals well in advance. A disciplined investing habit that he inculcated very early in life will enable him to take care of himself as well as his family.

Set apart the monetary benefits that investing gives us. When we start saving early on, it inculcates in us a sense of responsibility. We then have a tendency to keep a check on our expenditures and reduce any unnecessary expenses, if any. Rahul, in addition to being richer than Manoj, will also turn out to be more disciplined towards his responsibilities. A habit of investing early on, limiting expenditure and taking help of a financial advisor for goal based financial planning is the recipe for a comfortable and fulfilling life.

How do we help?

At CAGRfunds, we strive to become your partner throughout your financial planning journey. We not only help you plan the right investments for your goals but also be available to answer any query that you might have with respect to your money. We understand that managing money is complex and therefore we do everything we can to make it extremely simple and enjoyable for you.

Put your comments below if you want us to reach out to you!