Wealth

How toBuild Wealth

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By registering with Value Research Online, you have given yourself the keyto build wealth. In the following pages you will learn how to build wealthand use our website to monitor and track your investments and stay a stepahead.

Our website has several features and tools, which will enable you tounderstand about mutual funds and investing. To get started, you need tosetup your existing investments in the 'My Portfolio' feature, which is aninvestment tracker that allows you to track your investments in stocks,mutual funds and fixed income investments. This free to use tracker pro-vides you with detailed analysis of each of your investment's performanceand its contribution to your returns.

You can view the character of the portfolio, which includes asset alloca-tion and the top stocks and sectors holdings. If you are a SystematicInvestment Plan (SIP) investor, 'My Portfolio' has the facility to take intoaccount the SIP inflows to provide you up to date status of your invest-ments. You can view the transaction history of your investments, the lossor gains made besides performance comparison with appropriate bench-marks.

There are other facets to the 'My Portfolio' too that make it India's most-advanced investment portfolio tracker. You can explore further as you getstarted. It is also our endeavour to make this facility safe, interactive andvaluable to every investor looking for a one-stop point to assess theirfinances.

I look forward to hearing from you about Value Research Online, andespecially on how we can improve it.

Regards

Dhirendra KumarChief ExecutiveValue Research

Everyone wants to get rich with crores of rupees and build a wealth to last a lifetime, ifnot longer. Although it is simple to build wealth, where most often one goes wrong is inassuming that someone else will help them build it. It is very simple to build wealth byfollowing easy investment strategies to reach the magical figure of a crore and more.There are several ways of becoming a crorepati; you can save money in the bank, you caninvest in fixed return instruments, you can invest in mutual funds or equity. All theseinstruments come with degrees of risk and returns. What you need to know is that invest-ing in equity is the way to wealth creation in the long run and building a crore with mutu-al fund investments is very much desirable and possible.

Why invest in equity?Fixed return investments cannot fightinflation, which is a big risk in the longrun. For instance, if you retire at theage of 60 and put away all yourmoney into a 'safe' debt-based invest-ment that underperforms inflation byjust two per cent a year, your moneywill be worth almost 47 per cent lessby the time you are 90! 'Safe' invest-ment is actually the most dangerousthing you could do with your hard-earned retirement fund. Historically, ithas been proven time and again that returns on equity generally outstrip inflation, andoutstrip returns on bank deposits over the medium to long term. To achieve returns inexcess of inflation over a period of ten or more years, equity investment is the way.

Become a crorepati with mutual fund investments The way the stock markets are behaving right now, it isn't easy to figure out what's like-ly to happen in the short- or medium-term. So what should you do? How must you finda solution to this market dilemma? Is it possible to have an investment strategy that willmake money in the long-term regardless of what happens in the short-term? If the pastis anything to go by, then there certainly is. Investing directly in the stock markets is riskybecause of the unpredictable fluctuations. It is for this reason that investing in mutualfunds scores over direct equity investments.

How to Build Wealth

The fact is that all of this nerve-rattling action of the rise and fall of the Sensex, the direc-tion in which stock prices move should not bother the retail investor. We studied the SIPreturns of the diversified equity funds over the last 10 years. How much can an investorearn by this straightforward technique of doing something simple and sensible and goingat it for a long time? You'll be surprised. If you had invested `10,000 a month in the lastten years in any one of the better mutual funds, your `12 lakh would be worth way over`1 crore, with some of the best performing funds touching close to `2 crore. To checkthe veracity of the benefits of long-term investing we looked at investing similarly overboth 15- and 20-year time frames; the results remain the same.

The last ten years were not exactly a trouble-free period on the bourses. And, the pasttwo decades have witnessed a fair amount of crises in the stock market. But even in thisperiod filled with regular crashes and scams, slow and steady really does get you to yourcrore. But make no mistake, the journey wouldn't have been as smooth as you wouldhave liked it to be. There would have been times when even after five or more years ofregular investing, your portfolio would have come under a serious threat of going intored. After 2008, many investors would probably be facing a similar dilemma. At this junc-ture, many would have simply exited the market to save their capital, but the morepatient ones would be the ones who would go on to become crorepatis.

Advantages of Mutual fund investing There are different types of mutual funds and the most important thing to understandwhen investing in them is that there is a different time band that is suitable for each typeof mutual fund. Broadly, money that is needed within the next three to five years mustbe in debt funds while money that is required after that can mostly be in equity funds.Very long-term money; something that you are absolutely certain will not be needed formore than ten years, should always be in equity funds. Over such long periods of timethe risk of investing in equities or at least that of investing in a good equity fund is mini-

Fund Return (%)Scheme Category Rating 3- year 5- year

HDFC Taxsaver Tax Planning 8.89 6.52HDFC Equity Multi Cap 9.53 9.16Franklin India Prima Plus Large & Mid Cap 9.36 7.45HDFC Top 200 Large & Mid Cap 7.49 10.03Franklin India Bluechip Large Cap 8.98 8.02DSPBR Equity Multi Cap 8.06 8.81Few funds with over 15-year history that have built `1 crore through monthly SIP investment of `1,000

Crorepati Funds

mal and the rewards you can expect are high.

There are several unique advantages of investing in mutual funds which is unmatched bymost other investment avenues.

Affordability: The minimum amount to be invested in a mutual fund is low and you alsoget access to a diversified portfolio even with a very small amount of money.

Expert Management: Mutual Funds are managed by qualified and experienced profes-sionals, who have access to company research, analysis and market information whichforms a sound methodology to investment decisions. This process helps in maximisinginvestment returns.

Diversification: The importance of diversification cannot be overemphasised, its rele-vance becomes all the more visible in turbulent times like these. By investing across sec-tors and stocks, there is an assortment of instruments in which investments flow, whichalso helps in reducing investment risk.

Low costs: Mutual Funds benefit from economies of scale in brokerage, custodial andother fees translating into lower costs for investors. Moreover, investors in open-endedmutual funds can buy and sell units at Net Asset Value (NAV) related prices which aredeclared on a daily basis on all working days, providing you easy access to your money.

Transparency and Regulations: Mutual Fund portfolios are disclosed to investors on aregular basis, which makes them a transparent investment vehicle, which is well-regulat-ed to safeguard investor interests.

Tax benefits: Equity Linked Savings Schemes (ELSS) offer tax rebates to investors underSection 80C of the Income Tax Act.

Build Wealth the SIP WayAn SIP is a planned investment programunder which you invest a small amountof money at regular intervals. The mini-mum amount can be as small as `500and the frequency of investment canvary from daily, monthly or quarterly.Moreover, you can select the tenure ofyour investments as it helps you setaside a fixed amount every month forinvestments, thus contributing towardsyour financial goals.

The biggest advantage of SIP is the power of compounding benefit. Consider two investors:A and B who set out on their journey to accumulate wealth. Investor A realised the poten-tial of equities quite early and started investing `20,000 a month 10 years ago. Investor B,

on the other hand, procrastinated for five years before finally buying into the equity story.He started to invest double the amount each month to catch up with his friend, only torealise that his efforts to earn the same amount of money have been in vain.

Despite investing an equal amount of `24 lakh, investor A would be almost twice aswealthy as B. Not only that, even though B has been investing twice as much as A in thelast five years, the gap between the two would always be widening in favour of A. Clearly,the power of compounding would have given an unassailable head-start to investor A.

There are several other advantages of SIP such as:

Discipline: SIP's most important characteristic is that it does away with the need or effortto time the market. Through an SIP, investments are periodic and regular, irrespective ofthe market direction. SIPs help you set aside a fixed amount every month for invest-ments, thus contributing towards your financial goals.

Affordable: SIPs have the advantage of small sums of money being invested at regularintervals, which does not impact your purse at one go.

Easy to Invest: You have the convenience of direct debit of your SIP instalments throughElectronic Clearing Service (ECS) facility. Your SIP amount automatically gets debitedfrom your bank account on the predetermined date.

Still scared to invest in Mutual Funds? There is no better way to wealth creation thaninvesting in mutual funds. If you are still scaredand unsure, start investing with a balancedfund. The investment risk is reduced signifi-cantly when investing in these funds.Investments in these funds will not insulateyou from the losses, but will definitely restrictthem. See the nervous phase of the comingmonths off and later you can divert thatmoney to pure equity funds. It will also giveyou the taste of investing in mutual fundsthrough SIPs and understand how these investments work, which is a good start toinvesting.

Monitoring a PortfolioHaving set-up your portfolio, you need to get into the next most important actmoni-toring your investments, because even a great portfolio must be monitored and mustevolve to suit changing conditions. One major reason is that formerly good funds couldstart consistently underperforming. Of course you must not jump the gun and fire a fund

for short periods of underperformance.But, if a fund is performing considerablyworse than others funds of the sametype for more than a year, you shouldthink of switching to a better performingfund.

For a start, the Value Research rating ishandy to invest in good funds. The 5-and 4-star rated funds form the universeof the best performing funds in a catego-ry which can be selected from the FundSelect feature on our website. Funds with lower rating are best avoidable. This filter willhelp you build a portfolio of good funds, which will aid wealth creation.

The other reason for changing a portfolio is when you approach the time when you needthe money. A portfolio that started out as a five-year, medium-term investment will be ashort-term portfolio four years later. The solution is clear: portfolios must be reworked asthe time to liquidate them gets closer, otherwise, your hard-earned equity returns couldget wiped out in a bear market just when you need the money. As the time approachescloser, you must start moving the money into debt funds gradually, perhaps a year or twoin advance, which is crucial to protect your returns.

Peace of MindIn a nutshell, building wealth is not rocket science. All it requires is a great deal of care-fully thought-out systematic actions. Besides great returns with the right amount of risk,the most important payoff from managing your investments in the 'My Portfolio' toolmethodically is peace of mind. You will know what you are doing and why you are doingso and, you will sleep peacefully in the night without worrying about the fate of yourinvestments.

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