We, of course, need to invest from time to time. Some may ask why we should invest. We need to invest for our future. We earn money during our working life only. If we spend all the money during the service life what do we do after our retirement? ‘We would depend on pension’, some one replied. But every body does not get pension. Even, mostly, the rate of pension is 50% of the basic salary. This amount may not able to buy you the basic requirements of life, as you move forward. Inflation may affect your earnings. You need a second source to enable you to enjoy the life, after retirement. You may also love to contribute & give back to society which fostered you so long! You may not like to depend on your children too.
Warren Buffet is a man of frugal habits. He lives in an old house worth only Thirty thousand Dollars. He has a car, without a Driver. He drives himself. He earns 5000% per annum for his clients and shareholders. He has donated 30 billion dollar for charity to be managed by Melinda Gates. A portion of this money, perhaps, flows to North East India to help eradicate Aids! He is one of the most respected investor world over .According to Forbes he was the Richest Human of the world in 2007. Now the question is how do we invest?
We need to invest where our returns are optimum. Not for today but for tomorrow. If we save money in a pitcher or in an urn, as our forefather did, we loose the value of money. If we keep money only in bank returns are minimal subject to taxes& inflation.
So we need to look for avenues where returns are stable, higher, risk and tax free. PPF fits the bill, as there is no income tax and the tax rebate is also available. Similar is the case of GPF & EPF. All employees should maximize their contribution to Provident Fund i.e. 20% of the salary. But risk free saving does not provide for higher returns. So we need to look for Share market and mutual fund to make real money. I, however, don’t recommend initially the participation in share market. The best way to learn nuances of share market is to go through the route of Mutual fund. There are various mutual fund companies which launch funds from time to time. We can buy units from them directly or through their agents. If you buy directly no entry fee will be charged. Otherwise 2.25% entry fee is charged! While investing what should we consider?
According to legendry Warren Buffet the following things should be kept in mind before investing. (1).Don’t invest in any product you do not understand. Study and invest. (2) Focus on long term. Short term investment doesn’t provide benefit. (3) Pickup share when market is low. (4)Sell when market is rather high. (5) Avoid short term day trading. (6) Pick up share with future potential and not today’s Hero. Buffet’s recommendations are simple and full of wisdom. But many critics call these naïve! We however accept his views as fantastic. Buffet doesn’t preach alone but shows example by his deeds!
Since we are not recommending participation in share market, initially and advising to take the route of Mutual fund, investor should buy fund from recognized five star and four star fund houses only. Persons connected with internet should consult value research online.com and others should read investment magazine like Money. Younger people should invest first in Diversified fund and Senior citizen should invest in Balanced and Income fund. How much one should invest? There is no rule as such. After meeting the household expenses saving of 20% should be aimed at. If that is not possible whatever is possible should be set aside and saved. How much money should be invested in Mutual fund? The mutual fund is a risky instrument. So investor should invest as per the set formula: “100-Age = % of equity.” That means an investor of 25 years can invest 100-25=75% in equity where as 65 years old person can invest only 100-65=35% in equity. After 75 years there should be no investment in equity unless he is High net worth person. A word of caution, invest only if you can spare money for long term. Consult a certified financial advisor before investment. Invest in a good place like Bank, well known broker or directly at company offices.