Category: Mutual Funds

FD vs. Mutual Fund/Stocks Returns – Here’s What You Need To Know

FD vs. Mutual Fund/Stocks Returns – Here's What You Need To Know

You may have come across a lot of articles and videos that says mutual funds are now better than FDs. Or rather mutual funds (or stocks) offer better returns than FDs.

Like:


Thanks to dropping interest rates. One-year bank FD rates are currently in the range of 5.25%-7.00%, but if you’re placed in highest tax bracket (of 30%), a paltry sum is earned. This further gets eroded when inflation is also accounted.

Since the net return is less than inflation, you will end up saving less than what your needs are i.e.: prices will always grow faster than your savings. So, the effective real rate of return (also known also as inflation-adjusted return) has clearly become unimpressive. That’s why everyone is pushing equity because it’s an inflation beater.

I created this post seeing the way Mutual Funds are now selling their funds. Perhaps that explains the reason why wealth in stocks is nearing FDs for the first time in India. Its reason is obvious too. Gold and FD rates are coming down. In FY 17, Indians invested 8 lac crores in stocks compared to 3.4 lac crores in FDs. Total wealth in equities are at 37.6 lac crores compared to 40.2 lac crores in FDs.

But what you need to know is. ZERO IS GREATER THAN MINUS. You will never lose your capital investing in FD.

FD: PROS

* Fixed rate of interest / Assured rate of return
* Risk-free
* Save taxes when you invest for 5 years — but returns are taxable
* Liquidity
* No costs invovled / Zero charges

CONS

* Taxable
* Low returns
* Inflation
* Lock-in

Stocks: PROS

* High returns high risk
* Liquidity
* Tax free dividend
* Inflation beater

Stocks: CONS

* High risk
* Monitor stocks and funds
* Entry/exit fees / Brokerages

Video / Malayalam

https://www.youtube.com/watch?v=CeOu_KrADL8

I hope you have learned a thing or two from my new video. If so, do share my video with your friends and family on your social media channels!

Happy Investing/Trading! 🙂

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Mutual Funds SIP: Why Start Early

Mutual Funds SIP — Why Start Early

The best time to start a Mutual Fund SIP was yesterday. If you missed it then the next best time is today. Today I will show you a Mutual Fund SIP example that really shows the magic of compounding.

The idea is to show why you should start investing at an early age. Let’s say you started investing Rs. 12,000 per year in a Mutual Fund SIP plan at the age 20 and stopped it when you turned 30. So you invested Rs. 12,000 per year for 10 years and your total investment is Rs. 120,000.

When you stopped your SIP, one of your friends started a SIP. Since he started at the age 30, he continued his SIP investment until age 60 (or for 30 years). So he invested Rs. 12,000 per year for 30 years and his total investment is Rs. 360,000 (or he invested 3 times more money than you did).

So who is going to have more money at age 60? You or your friend? The answer may surprise you because YOU will have 3x more money than your friend. In fact, if your friend wants to beat your corpus then he should increase his SIP by almost 3 times.

Here’s the math:

In the above example, I applied a CAGR of 14% as Nifty 50/Sensex long term average return is around 14-16%. But there’s a very little chance of our market growing at the same pace as it did in the past 30 years.

However, individual stocks and portfolios could perform better than that. Anyhow, if you are thinking about starting a Mutual Fund SIP (or a Nifty ETF SIP) then now is the best time. But there’s a Onevestor thing. Your time horizon should be at least 15 years (Stay tuned to Onevestor to know why!).

Video / Malayalam

I hope you have learned a thing or two from my new video. If so, do share my video with your friends and family on your social media channels!

Happy Investing/Trading! 🙂

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What is Long Term in Stock Market? Hint: It’s NOT 5 or 10 years!

What is Long Term in Stock Market?

You hear that often from your friends and TV and web that stock market is for the long term. Right? But how long is long term? 1 year, 5 years, or 10 years?

If you think 5 years is long term then here’s the spoiler. If you make 30% CAGR for 4 years and then suffered a 50% loss in the 5th year then your 5-year CAGR is just 7.4%. That is, less than FD returns.

And if you think 10 years is long term then here’s another spoiler. 10 year CAGR of SBI, Bharti Airtel, ONGC, Tata Steel, NTPC, BHEL, Reliance, Wipro, are either ZERO or less than FD returns. Remember, all of them are or were once blue chip stocks.

That’s not all! Today’s star performers are Hindustan Unilever and Infosys. But if you invested in those stocks at its peak in 2000 then your 10-year CAGR would be ZERO or less than FD returns. Likewise, if you invested in Reliance (today’s another top performer) in its 2008 peak then your 10-year CAGR is actually ZERO or less than 4%.

Remember these are the stocks that are recommended at all times by experts. Out of the above stocks, Hindustan Unilever is really interesting. Hindustan Unilever’s 10-year CAGR from its 2000 peak is actually ZERO. But its 17-year CAGR is around 8% and its 18-year CAGR is around 10% and again its 18-year CAGR + Year To Date return is around 12% which is clearly impressive.

So this video is for retail investors who are entering the stock market hoping for huge returns. Thanks to ‘Mutual Funds Sahi Hai’ ads which is clearly encouraging an equity culture in India. And Mutual Fund sellers are advertising their plans as if it’s safe as FDs in the long term.

It’s true that SIP is risk-free but not for 5 or 10 years but when your investment horizon is 15 years or more. Because for one-time investments, the stock marketing timing (or the entry price) does matter. A lot.

Experts always say: BUY. They will recommend a SELL only when the stock is going down and not when it’s going up. So your entry/exit time matters a lot.

Video / Malayalam

I hope you have learned a thing or two from my new video. If so, do share my video with your friends and family on your social media channels!

Happy Investing/Trading! 🙂

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