The HIndu 510 x 330 mm · The fund portfolio will have the same Stocks and in the same proportion...
1
COMPOUND INTEREST - THE EIGHTH WONDER OF THE WORLD January has jumped, February will fly and March will march away. In the next edition: Wealth creation is easy, provided you save and invest in a disciplined manner. In the next edition, we will look at how a personal finance budget can make your task easier. Mutual Fund investments are subject to market risks, read all scheme related documents carefully. Disclaimer: To know about the KYC documentary requirements and procedure for change of address, phone number, Bank details, etc. please visit https://www.utimf.com/servicerequest/kyc. Please deal with only registered Mutual Funds, details of which can be verified on the SEBI website under “Intermediaries/Market Infrastructure Institutions”. All complaints regarding UTI Mutual Fund can be directed towards [email protected] and/or visit www.scores.gov.in (SEBI SCORES portal). This material is part of Investor Education and Awareness Initiative of UTI Mutual Fund. For more details, follow us on Twitter @utimutualfund; Email queries or suggestions: [email protected] Please mention ‘Swatantra in The Hindu’ in subject line. For more such financial advice, head to our website: http://www.utiswatantra.com “Compound interest is the 8 th wonder of the world. He who understands it, earns it; he who doesn’t, pays it.” I started investing in Mutual Funds last year. My portfolio consists of a mix of Equity and Debt Funds. Over the year, the Debt Fund gave a return of 8% but the Equity Fund gave only 3% returns. Should I sell the Fund? If your Mutual Fund is yielding a lower return than you anticipated, you may be tempted to cash in your Fund units and invest your money elsewhere. The rate of return of other Funds may look enticing, but be careful; there are both pros and cons to the redemption of your Mutual Fund shares. When you invest in an Equity Fund, it is important to have a long-term vision. So, if the Fund has given just 3% returns, you may want to wait for long before you sell it. Also, compare the returns against the Fund’s peers and benchmark. If it is possible that the entire market has performed poorly if similar Funds have also given low returns. If all the other Funds have performed well, it may be a good idea to sell off the Fund and choose a better alternative. GURUSPEAK Rahul Agarwal Financial Advisor Atri Ganguly Financial Expert Being a first-time investor you have to start by setting up your investment goals and a risk tolerance strategy, either on your own or with the help of a financial experts. From this, you can get an idea of the various schemes and the risks associated with it. As a new investor, I would suggest you start investments in smaller amounts. Once you are confident of the schemes you have invested into, then start increasing the contribution amount. By picking the right Mutual Fund Schemes with a long term horizon, you would be able to eliminate the risks associated with volatile Stock Markets. Also, you can take the financial expert’s consultation to get detailed knowledge and idea of investing. HERE’S WHAT THE EXPERT SAID EXPERTSPEAK A reader asked us: I have completed my M.Sc. in physics and am now pursuing a PhD so I have no knowledge about savings or investments. How can a person like me start investing? This content was created exclusively for UTI Swatantra. Visit http://www.utiswatantra.com for more information This content was created exclusively for UTI Swatantra. Visit http://www.utiswatantra.com for more information The magic of compound interest has a 200-year-old history While we talk about compounding in 2020, its magical powers were well established two centuries ago with an interesting experiment. Where it all started ● Benjamin Franklin authored ‘Poor Richard’s Almanack’ which was in circulation from 1732 to 1758. ● A few decades later, a French Mathematician mocked the spirit of American optimism in his book, ‘Fortunate Richard’, which was a parody of Franklin’s work. ● The book had a piece wherein the protagonist leaves a small sum in his will on a condition that it should be used only after the sum collects interest for 500 years. ● Instead of getting offended, Benjamin Franklin thanked the mathematician for such a brilliant idea and did something similar. The experiment ● Franklin passed away in 1790, and since Boston and Philadelphia were two of his favourite cities, he left each of them 1000 pounds (which roughly translated to $4500 at that time) with a condition. ● He said that the money should be invested and be touched or withdrawn in two parts for the municipal improvements of the two respective cities. The first withdrawals were to be made after 100 years and the next after 200 years. The cities were allowed to spend three quarters of the first withdrawal for their development and were instructed to keep the remaining amount invested for the next 100 years. ● After the first 100 years, the investment value, thanks to compound interest, was almost $400,000 for Boston and roughly $100,000 for Philadelphia. After the next 100 years, the remaining amount had grown to $4.5 million for Boston and $2 million for Philadelphia. ● The difference in the final value was because of the difference in the handling of investments for the two cities. Nevertheless, both Boston and Philadelphia benefited. There! You see the tried and tested results of the power of compounding. Understanding compound interest Compound interest means you not only earn returns on the principal money that you invest but also get to enjoy returns on the interest income that keeps adding to your principal. This process continues until you withdraw your money. In simple terms, with compound interest, you can grow your wealth by just staying put in your investments. INVEST REGULARLY: You must make regular investments to accelerate your wealth creation process. Mutual Fund Systematic Investment Plans can help you make periodic investments. BE PATIENT: You can’t expect immediate growth. To savour the benefits of compounding, you must think long term and stay calm during market volatility. START EARLY: The power of compounding needs time to work its magic on your money. You must, thus, start investing as early as you can. SAVE MORE: To start investing, you first need to develop the habit of saving. This, in turn, calls for monitoring your expenses. What you need to do to benefit from the power of compounding? March 14 marks the birth anniversary of renowned physicist Albert Einstein. While the legend is celebrated for his contribution to science, believe it or not, he also has a connection to the wonderland of investment. The seven wonders of the world are known globally today. But decades ago, Einstein regarded compound interest as the eighth wonder of the world. After earning and losing money in the Stock Market, he also said, “He who understands it (compound interest), earns it, he who doesn’t, pays it.” Time is slipping through your hands. Make smart Tax saving investments today! Scan the QR code to know how: TAX CORNER The Total Value of Rohan's Investment is `2,59,374.25 Swatantra Kumar explains the magic of compounding The difference of ` 59,374.25 between their investment value for the same principal amount is the wonder that Albert Einstein referred to. How does compounding work? Let’s take an example of Rohan and Soham. With their own unique investment strategies, here’s how much they accumulated at the end of 10 years. SOHAM ROHAN Rate of Interest* Total Interest Earned 1,59,374.25 10% Total Value of Investment Earned Interest reinvested 2,59,374.25 Total Interest Earned Rate of Interest* 1,00,000 10% Total Value of Investment Earned Interest opted for Payout 2,00,000 Total Invested Amount Principal Amount 1,00,000 Total Invested Amount Principal Amount 1,00,000 SIP can help you gain from the power of compounding. It is never too late to build your wealth; start today. RESULT In the last edition, we asked - Do you check the rates on food delivery apps before deciding on the restaurant to treat your friends? EXPERT OPINION By choosing a frugal lifestyle, you are simply being intentional with your money by spending on the essentials which is a good start to a Debt-free life. The best way to pick a suitable restaurant to treat your friends would be by checking the menu online either through restaurant websites or food delivery apps. This could assure you don’t end up spending more than what you can afford, and your financial plans are not disrupted. READER ' S POLL Before ordering anything online, do you check the upcoming sale dates, available offers (deals) or applicable coupons? YES NO Share your answer via SMS. Type Poll<SPACE>YES or Poll<SPACE>NO to 5676756. In the next edition, you can find out how many people agree with you. Here's how you voted YES 77% NO 23% WHAT NEXT: Making wise investments is a must to gain maximum benefits from the power of compounding. Let’s look at how Index Funds can help here. This content was created exclusively for UTI Swatantra. Visit http://www.utiswatantra.com for more information Build your knowledge of personal finance and investments Reach a debt-free status Think long-term investments Invest right from your first salary Invest your increments Save more than you spend Get professional advice How to begin the journey to be a millionaire Can investing in Index Funds make you a millionaire? Index Funds: The secret sauce to becoming a millionaire Here’s how a monthly SIP in Nifty 50 based Index Fund could set you on the path to becoming a millionaire. Monthly Investment Amount ` 3,000 Investment Tenure 15 years Rate of return 12%* Investment value after 15 years `14,27,794 *The above table is for illustration purpose only. In this calculation, the annual return of 12% has been assumed based on the return potential of Nifty 50 over the past 15 years. Bottom Line Index Funds allow you to own a diversified portfolio and help you convert a few thousands into millions over time. Benefits of investing in an Index Fund tracking broad market indices: ● Index Funds are easy investments as they mimic the movements of the broad market index like Nifty 50 which is easy to check and track. ● They are generally available at low cost as compared to Active Funds. ● The components of Index Funds are selected based on predefined rules and without any individual’s biases. ● They do not demand time and resources to check the holding Stocks or other Fund intricacies. Index Funds are Mutual Funds that track the performance of a particular index like the Nifty 50. The fund portfolio will have the same Stocks and in the same proportion as the benchmark index. Let’s understand how this approach can benefit investors and help them become a millionaire. *In this calculation, the annual return of 10% for a one time investment of `1 lakh has been assumed for illustration purpose only. COMPOUND INTEREST - THE EIGHTH WONDER OF THE WORLD 1,00,000 1,33,100 2,35,794.77 1,77,156.1 10,000 ROHAN's Principal Amount `1,00,000 Earned Interest 10% - Reinvested 1 yr 2 yrs 4 yrs 6 yrs 8 yrs 10 yrs 3 yrs 5 yrs 7 yrs 9 yrs 13,310 23,579.48 17,715.61 1,00,000 1,00,000 10,000 10,000 The Total Value of Soham's Investment is `2,00,000 SOHAM's Principal Amount `1,00,000 Earned Interest 10% - Opted for Payout 1 yr 2 yrs 4 yrs 6 yrs 8 yrs 10 yrs 3 yrs 5 yrs 7 yrs 9 yrs 1,00,000 1,00,000 10,000 10,000 Investment Growth Over Time (`)
Transcript of The HIndu 510 x 330 mm · The fund portfolio will have the same Stocks and in the same proportion...
COMPOUND INTEREST - THE EIGHTH WONDER OF THE WORLD
January has jumped,February will fl y andMarch will march away.
In the next edition: Wealth creation is easy, provided you save and invest in a disciplined manner. In the next edition, we will look at how a personal finance budget can make your task easier.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.Disclaimer: To know about the KYC documentary requirements and procedure for change of address, phone number, Bank details, etc. please visit https://www.utimf.com/servicerequest/kyc.
Please deal with only registered Mutual Funds, details of which can be veri� ed on the SEBI website under “Intermediaries/Market Infrastructure Institutions”. All complaints regarding UTI Mutual Fund can be directed towards [email protected] and/or visit www.scores.gov.in (SEBI SCORES portal). This material is part of Investor Education and Awareness Initiative of UTI Mutual Fund.
For more details, follow us on Twitter @utimutualfund; Email queries or suggestions: [email protected] Please mention ‘Swatantra in The Hindu’ in subject line. For more such fi nancial advice, head to our website: http://www.utiswatantra.com
“Compound interest is the 8th wonder of the world. He who understands it,
earns it; he who doesn’t, pays it.”
I started investing in Mutual Funds last year. My portfolio consists of a mix of Equity and Debt Funds. Over the year, the Debt Fund gave a return of 8% but the Equity Fund gave only 3% returns. Should I sell the Fund?If your Mutual Fund is yielding a lower return than you anticipated, you may be tempted to cash in your Fund units and invest your money elsewhere. The rate of return of other Funds may look enticing, but be careful; there are both pros and cons to the redemption of your Mutual Fund shares. When you invest in an Equity Fund, it is important to have a long-term vision. So, if the Fund has given just 3% returns, you may want to wait for long before you sell it. Also, compare the returns against the Fund’s peers and benchmark. If it is possible that the entire market has performed poorly if similar Funds have also given low returns. If all the other Funds have performed well, it may be a good idea to sell off the Fund and choose a better alternative.
GURU SPEAKRahul Agarwal Financial Advisor
Atri Ganguly Financial Expert
Being a fi rst-time investor you have to start by setting up your investment goals and a risk tolerance strategy, either on your own or with
the help of a fi nancial experts. From this, you can get an idea of the various schemes and the risks associated with it. As a new investor, I would suggest you start investments in smaller amounts. Once you are confi dent of the schemes you have invested into, then start increasing the contribution amount. By picking the right Mutual Fund Schemes with a long term horizon, you would be able to eliminate the risks associated with volatile Stock Markets. Also, you can take the fi nancial expert’s consultation to get detailed knowledge and idea of investing.
HERE’S WHAT THE EXPERT SAID
EXPERT SPEAKA reader asked us: I have completed my M.Sc. in physics and am now pursuing a PhD so I have no knowledge about savings or investments. How can a person like me start investing?
This content was created exclusively for UTI Swatantra. Visit http://www.utiswatantra.com for more information
This content was created exclusively for UTI Swatantra. Visit http://www.utiswatantra.com for more information
The magic of compound interest has a 200-year-old historyWhile we talk about compounding in 2020, its magical powers were well established two centuries ago with an interesting experiment.
Where it all started ● Benjamin Franklin authored ‘Poor Richard’s
Almanack’ which was in circulation from 1732 to 1758.
● A few decades later, a French Mathematician mocked the spirit of American optimism in his book, ‘Fortunate Richard’, which was a parody of Franklin’s work.
● The book had a piece wherein the protagonist leaves a small sum in his will on a condition that it should be used only after the sum collects interest for 500 years.
● Instead of getting offended, Benjamin Franklin thanked the mathematician for such a brilliant idea and did something similar.
The experiment ● Franklin passed away in 1790, and since Boston and
Philadelphia were two of his favourite cities, he left each of them 1000 pounds (which roughly translated to $4500 at that time) with a condition.
● He said that the money should be invested and be touched or withdrawn in two parts for the municipal
improvements of the two respective cities. The fi rst withdrawals were to be made after 100 years and the next after 200 years. The cities were allowed to spend three quarters of the fi rst withdrawal for their development and were instructed to keep the remaining amount invested for the next 100 years. ● After the fi rst 100 years, the investment value, thanks to compound interest, was almost $400,000 for Boston and roughly $100,000
for Philadelphia. After the next 100 years, the remaining amount had grown to $4.5 million for
Boston and $2 million for Philadelphia.● The difference in the fi nal value was because of the difference in the handling of investments for the two cities. Nevertheless, both Boston and Philadelphia benefi ted.
There! You see the tried and tested results of the power of compounding.
Understanding compound interest Compound interest means you not only earn returns on the principal money that you invest but also get to enjoy returns on the interest income that keeps adding to your principal. This process continues until you withdraw your money. In simple terms, with compound interest, you can grow your wealth by just staying put in your investments.
INVEST REGULARLY: You must make regular investments to accelerate your wealth creation process. Mutual Fund Systematic Investment Plans can help you make periodic investments.
BE PATIENT: You can’t expect immediate growth. To savour the benefi ts of compounding, you must think long term and stay calm during market volatility.
START EARLY: The power of compounding needs time to work its magic on your money. You must, thus, start investing as early as you can.
SAVE MORE: To start investing, you fi rst need to develop the habit of saving. This, in turn, calls for monitoring your expenses.
What you need to do to benefi t from the power of compounding?
March 14 marks the birth anniversary of renowned physicist Albert Einstein. While the legend is celebrated for his contribution to science, believe it or not, he also has a connection to the wonderland of investment.
The seven wonders of the world are known globally today. But decades ago, Einstein regarded compound interest as the eighth wonder of the world. After earning and losing money in the Stock Market, he also said, “He who understands it
(compound interest), earns it, he who doesn’t, pays it.”
Time is slipping through your hands. Make smart Tax saving investments today! Scan the QR code to know how:
TAX CORNER
The Total Value of Rohan's Investment is`2,59,374.25
Swatantra Kumar explains the magic of compounding
The difference of ` 59,374.25 between their investment value for the same principal amount is the wonder that Albert Einstein referred to.How does
compounding work?Let’s take an example of Rohan and Soham. With their own unique investment strategies, here’s how much they accumulated at the end of 10 years.
SOHAM ROHANRate of Interest*
Total Interest Earned
1,59,374.25
10%
Total Value of
Investment
Earned Interest
reinvested
2,59,374.25
Total Interest Earned
Rate of Interest*
1,00,000
10%
Total Value of
Investment
Earned Interest
opted for Payout
2,00,000
Total Invested Amount
Principal Amount
1,00,000
Total Invested Amount
Principal Amount
1,00,000
SIP can help you gain from the power of compounding. It is never too late to build your wealth; start today.
RESULTIn the last edition, we asked - Do you check the rates on food delivery apps before deciding on the restaurant to treat your friends?
EXPERT OPINIONBy choosing a frugal lifestyle, you are simply being intentional with your money by spending on the essentials which is a good start to a Debt-free life. The best way to pick a suitable restaurant to treat your friends would be by checking the menu online either through restaurant websites or food delivery apps. This could assure you don’t end up spending more than what you can afford, and your fi nancial plans are not disrupted.
READER'S POLLBefore ordering anything online, do you check the upcoming sale dates, available offers (deals) or applicable coupons?
YES NOShare your answer via SMS. Type Poll<SPACE>YES or Poll<SPACE>NO to 5676756. In the next edition, you can fi nd out how many people agree with you.
Here's how you voted
YES 77%
NO23%
WHAT NEXT: Making wise investments is a must to gain maximum benefi ts from the power of compounding. Let’s look at how Index Funds can help here.
This content was created exclusively for UTI Swatantra. Visit http://www.utiswatantra.com for more information
Build your
knowledge of personal fi nance and investments
Reach a debt-free
status
Think long-term
investments
Invest right from your fi rst
salary
Invest your
increments
Save more than you
spendGet
professional advice
How to begin the
journey to be a millionaire
Can investing in Index Funds make you a millionaire?
Index Funds: The secret sauce to becoming a millionaireHere’s how a monthly SIP in Nifty 50 based Index Fund could set you on the path to becoming a millionaire.
Monthly Investment Amount
` 3,000
Investment Tenure
15 years
Rate of return 12%*Investment value after 15 years
`14,27,794
*The above table is for illustration purpose only. In this calculation, the annual return of 12% has been assumed based on the return potential of Nifty 50 over the past 15 years.Bottom LineIndex Funds allow you to own a diversifi ed portfolio and help you convert a few thousands into millions over time.
Benefi ts of investing in an Index Fund tracking broad market indices: ● Index Funds are easy investments as they mimic the movements of the broad market index
like Nifty 50 which is easy to check and track.
● They are generally available at low cost as compared to Active Funds.
● The components of Index Funds are selected based on predefi ned rules and without any individual’s biases.
● They do not demand time and resources to check the holding Stocks or other Fund intricacies.
Index Funds are Mutual Funds that track the performance of a particular index like the Nifty 50. The fund portfolio will have the same Stocks and in the same proportion as the benchmark index.
Let’s understand how this approach can benefi t investors and help them become a millionaire.
*In this calculation, the annual return of 10% for a one time investment of `1 lakh has been assumed for illustration purpose only.
COMPOUND INTEREST - THE EIGHTH WONDER OF THE WORLDCOMPOUND INTEREST - THE EIGHTH WONDER OF THE WORLD
1,00,0001,33,100
2,35,794.77
1,77,156.1
10,000
ROHAN's Principal Amount `1,00,000Earned Interest 10% - Reinvested
1 yr
2 yrs
4 yrs
6 yrs
8 yrs
10 yrs
3 yrs
5yrs
7 yrs
9 yrs
13,310
23,579.48
17,715.61
1,00,000 1,00,00010,000 10,000 The Total Value
of Soham's Investment is `2,00,000
SOHAM's Principal Amount `1,00,000Earned Interest 10% - Opted for Payout
1 yr
2 yrs
4 yrs
6 yrs
8 yrs
10 yrs
3 yrs
5yrs
7 yrs
9 yrs
1,00,0001,00,00010,00010,000
The Total Value of Rohan's Investment is2,59,374.25
Swatantra Kumar explains the magic of compounding
59,374.25 between their investment value for the same
The Total Value of Soham's Investment is 2,00,000
Investment Growth Over Time (`)
