Today mutual fund SIPs have become very popular. With growing financial awareness, more and more persons are today investing in equity markets through the mutual fund SIP route. To those who do not know, SIP stands for Systematic Investment Plan which helps you to invest a fixed amount at periodic intervals (daily, monthly, quarterly) over a period of time in your chosen mutual fund scheme/fund.

However, it has been found that while investors open to starting SIPs, it becomes slightly difficult when it comes to increasing the SIP amount by cutting down on your expenses. That is something people are not really doing today. Another challenge after starting the SIP is to repeatedly increase the SIP amount. People tend to not increase this amount for many years altogether. We have to realise that due to inflation, the real value of money decreasing. This effectively means that you are saving less tomorrow than today with a stagnant SIP value where it should be increasing with your income levels. By not reviewing and increasing your SIP from time to time and investing below potential, you are loosing heavily on the wealth creation opportunity. We will see this lost opportunity later in the article.

As a solution to the problem of stagnant SIP amount is Top-up SIP. SIP Top-up is a facility wherein an investor who has enrolled for SIP, has an option to increase the amount of the SIP Instalment by a fixed amount at pre-defined intervals. Thus, this facility enhances the flexibility of the investor to invest higher amounts during the tenure of the SIP. The Top-Up SIP can be registered at the time of starting a SIP itself. Thus, you may choose to increase the SIP periodically, say half-yearly or yearly frequency, by any amount. This will automatically increase your SIP amount at the set frequency without you having to do anything further. The Top-up is like your commitment today for increased savings tomorrow which we as investors would be more comfortable promising today.

Let us now look at an example for the difference that SIP Top-Up makes in the wealth creation journey of an investor. Please note that this example is for illustration purpose only.

Scenario [A]

In this scenario, a normal SIP is taken with any Top-up facility. As we can see, the projected wealth is 3.08 Crores.

Scenario [B]

In this scenario, the investor increases his SIP amount by 10% every year over the previous year amount. We can see, the total amount saved is nearly Rs.8 crores, which is higher than original SIP corpus by over Rs.4.9 crores. The incremental benefit due to Top-up is in fact higher than the base SIP investment itself.

Why Top-up?

The reasons for having a SIP Top-up facility on your base SIP should be now very clear to everyone. Here are the key pointers to summarise the same.....

• Increase your savings along with increase in the income levels
• Sustain/increase your 'real value' savings due to inflation
• Reduce unnecessary spendings due to income raise due to committed increase in savings
• Achieve challenging /big financial goals and/or reach financial goals faster
• Operationally easy and simple

Conclusion:

We would highly recommend that you choose the SIP Top-up facility while starting any new SIP. If you already have an existing SIP, you are not too late and you can speak with your financial advisor to guide you in availing this facility.

Indian investors are typically well diversified when it comes to asset classes. A normal person can be found willing to invest in gold or fixed income or small saving instruments for his/her financial needs. He/she can now also be found trying his luck investing in direct equities. So can we say that the investor is doing the right thing here by investing directly into such different asset classes?

The answer is No. Traditional investment avenues are sub-optimal choices plagued by many drawbacks and challenges. Let us explore these traditional ways to hold assets more closely:

Gold: The traditional method is holding it in form of physical gold. The physical gold is typically in form of jewellery. Another way of holding it is through Gold bonds although it is still not a popular way to hold gold. Here are the drawbacks of holding gold in traditional /sub-optimal ways…

• The first drawback of holding gold is first of purity. We are really not sure if we are getting the right quality of gold we are buying and often have to rely on the brand and/or the certification given/quoted by the seller.
• Next drawback is the cost of making or making charges charged on jewellery. This cost is like a sunk cost and would not be realised when gold is resold back.
• Physical gold has the drawback of liquidity, both at the time of buying and selling. High initial purchase cost makes it difficult for everyone to buy gold. Selling also is not easy, especially with Gold bonds where there is a five year lock-in period.
• The last and the most important drawback is of security with the risk of theft, loss always looming over you.

Debt: Indian investors have a great love for holding debt or fixed income products in their portfolio. This is typically in the form of bank fixed deposits or bonds or the popular small saving schemes of the government. Here are the general drawbacks of holding such assets, the traditional way...

• The traditional debt products are not very liquid. Bank fixed deposits are locked away for at least few years of your choice. Small saving schemes of government, like PPF, KVP, NSC, etc, have high maturity years.
• The next drawback is of penalty levied when a pre-mature withdrawal or closure is made. This penalty frankly does not make any sense and is like punishing the investor for any sudden requirement which cropped up.
• The most important drawback is related to inefficient taxation, especially in the case of fixed deposits. Returns from bank fixed deposits are interest income and as such have to be added to your normal income every year and taxed at your income slab – which normally would be 30%. Banks also deduct TDS on interest income from fixed deposits.

Equity: With rising markets and growing awareness, investors are attracted towards investing in equities. Most investors typically are lured towards investing in direct equities through share brokers. Investing equities though is full of challenges and not an easy thing to do as a retail investor. Here are the drawbacks of directly investing in equities...

• Stock selection is not easy. It requires lots of expertise and knowledge about the company and the industry. To develop this expertise and knowledge, one may need to put in years of time and effort.
• Monitoring your stocks and other opportunities in the market requires a lot of time and effort. It requires dedicated effort on your part.
• Direct equity investing is highly risky as your portfolio would be concentrated in few stocks.
• The last drawback is in form of emotional challenge you would face on a daily basis while making the decision to hold, sell or buy with the increased volatility. This would add to your stress levels too.

As we clearly understand now, traditional ways of investing in some our popular asset classes is really not appealing and has a lot of drawbacks. The real question now is - what would is the ideal /right way to invest?

While there is no right way for everyone, surely there is one option that removes the drawbacks as discussed above. And the answer is Mutual Funds.

How can Mutual Funds remove the drawbacks?

Mutual funds can be understood as an investment vehicle which pools money from many investors and invests into asset classes of choice. A fund manager and his team then manage the assets professionally as per the fund /scheme objectives. It is important to note that a mutual fund is not an asset class in itself as the underlying can be any asset class or product like gold, debt or equity. As an investment vehicle, we can see mutual funds offering many advantages or benefits to its' investors. These are...

• Professional Management: There underlying investments of a mutual fund is managed by a qualified, experienced and skilled professional fund manager and team with lots of resources and information at their disposal.
• Diversification: The investments in a mutual fund is spread across different issuers (for debt) and stocks (for equity). This reduces risk as the relative weight of any bad investment is small.
• No buying limits: One can effectively start making investment in any asset class with as low as Rs.500. There are no upper limits though.
• High liquidity: Most schemes (open-ended) are available to buy or sell on a daily basis to its' investors. You can effectively sell anything and receive money in couple of days.
• No Lock-in: Mutual funds typically do not have any lock-in periods and you can invest for any duration and withdraw at any time.
• Choices: Mutual funds offer a huge choice of products and underlying asset classes. You can choose your scheme as per your risk appetite and investment horizon. A person can choose to invest in say liquid debt funds for a few days or equity funds for long term horizon.
• Tax efficient: Compared to fixed deposits, debt funds are much more tax efficient. First, there is no interest income but capital gains. If you hold the investment for least three years, you will benefit from long term capital gains of 20% with indexation benefit. There is no TDS as well.

Having known the advantages of mutual funds over traditional investment routes, you should at least explore mutual funds further. Please note that mutuals are not risk-free and are subject to market volatility. On the other hand, they also have the potential to add deliver higher returns. We would recommend that you consult a mutual fund distributor or advisor for proper guidance for your investments.

There is a famous saying on shopping by Bo Derek that "whoever said money can't buy happiness simply didn't know where to go shopping". This pretty much sums up the change in the shopping mindset in the last decade or so. Most of us have seen a dramatic change in the spending behaviour and today most of us are buying a lot on impulse and desire rather than a rational, planned shopping. Well, this article takes about smart shopping and better still, on how to control the urge to spend. We are sure that you would enjoy reading this article (though not as much as you love shopping) and try to adopt some of the ideas shared here the next time you shop...

How have our spending habits changed?
The young earning generation today would easily remember that shopping for clothes & accessories was limited and often carried only at times of festivals when they were children. The things we bought were also limited in variety as compared to what we are buying today. Add to this the growing number of branded retail shops and shopping malls lined up at every few kilometers. Armed with the Credit Cards in our hands, it is now really out of fashion to think about bank balances and pre-plan shopping in advance. Even those in their 40s and 50s have been shopping much more for themselves and their children than what their parents shopped. The mantra today is that if you feel it, get it ! There are also many of of us who believe that they will feel better if they shop! This is what we can call as impulse or emotional buying which forms a major part of our spending today. On the extreme side, this has given rise to a new type of addiction and disease called as "compulsive shopping" where people suffer from 'shopoholism'” and they literally shop till they drop or run out of Credit Card balances.

Techniques to control spendings:
Well, no rewards for guessing why we need to control our spendings. There is a popular saying that 'A money saved is a money earned'.

Many times we get excited looking at new products and offers and make instant buying decisions only to later find that the purchase was really useless. Controlling emotions may be tough but you can easily do it if you genuinely desire to control your spending. There are many techniques which can help curb emotional spendings by you. I am listing a few here...

• Avoid spending time, get-together, meetings or dining at shopping malls. Stay away & stay rich!
• Make it a rule to pay for all impulse buying using cash and by debit card, if you are buying online.
• Avoid going shopping with people who are wealthier than you. You might often end up buying more stuffs which are expensive and not needed by you as the tendency to compete / show off comes into picture.
• Be strict with kids and make planned list of items that you feel are important for them and also mention the purchase month /week & budget. Communicate this to your kids and make sure that your kids understand & agree to it.
• Prepare a list of items that you feel are required & desired and decide a budget for same. Avoid going beyond this list in any of your shopping trips.
• Before buying things that others (like relatives, neighbours, friends) have and you don't, think of all the things that they don't have and you currently have or will have once you save for future.
• Keep a limited monthly budget for impulse spending only as shopping can be a stress reliever. Decide the limits as a fraction, say 1/3rd, of the estimated impulse spendings done in last 6-12 months.

Steps for smart buying:

Step 1: Check need: Before buying anything, define what you looking for and amount you are willing to spend. In case of any unplanned spending, think or consult others, like relatives, friends, etc. if you really need the item before you make the purchase decision. In case you are sure, you may move to the next step.

Step 2: Delay a while: Don't buy on same day when you have finalised the items in any store. Postpone the action for at least couple of days or a week, depending on what you intend to buy. In case of sale offers, it is better to go shopping at least 2/3 days before the offer ends.

Step 3: Research online: Always do an online search for the desired item in case you have just finalised but not yet purchased the item. There are many sites today that offer information & reviews for products/offers from insurance policies to shoes to laptops and holiday packages. Look for additional information or negative feedbacks / reviews to really make up your final decision to purchase. You may also better check out similar products or offers and compare that best suits your needs.

Step 4: Best deals: Check for offers / discounts from retail stores or online shops before buying. Ask for upcoming sales offers from your local stores and wait for same, if possible. You may also check for any interest free payment options through instalments.

Step 5: Bills & Warranty: Always ensure that you have the proper bill and warranty card dated & stamped. Keep these documents safe as you are like to need it some day. Try to get extended warranties for items, if on offer.

Step 6: Return/Replace Policy: Try to always buy with shops offering return &/or replace policy, even if they are a bit costly. Do not remove / destroy the packaging/ labels, etc. after you bring the items home. That way if you do not like the product, you always have the chance to return same and request refund or replace the item.

Strictly Not for Impulse Buying:
There are some things that must 'never' be bought on impulse or emotions. Decisions in such cases must only be made after careful thought and study. Decisions on home, property, car, insurance or health policy, home renovations, etc. made on impulse can cost you dearly in long run.

Not Spending = Savings = Greater Wealth:
You can easily save 5-15% of one's total monthly / yearly expenses if you stop spending on impulses and follow the tips given above. Thus, you can invest such savings for future. You will be surely guaranteed greater wealth & better financial health. A spending cut of just Rs.500 monthly when put in mutual fund SIP can potentially give you Rs.1.31 lacs in 10 years @ 15% returns. Savings made from foregone impulse purchases can also be directed to more fruitful / required spendings like better food habits, children study, quality holidays, etc.

Spending on impulse is very common in modern age, especially among the younger generation, including young parents. Controlling this urge to spend can help you save quality money which could be put to better use.

Spending on impulse is very common in modern age, especially among the younger generation, including young parents. Controlling this urge to spend can help you save quality money which could be put to better use.

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Investing for children's education, marriage, etc. occupy a prominent position in most people's list of life goals. You have been saving and investing for these goals in order to ensure that your kid is not compromising because of lack of money and is getting prepared to lead a good quality of life. At the same time, you are also concerned about how your child will manage his finances, spend and save wisely, plan & work towards his financial goals independently.

Our children have not yet had any financial responsibility like paying for insurance, or managing family expenses, or paying for their own education, etc. Some parents try to inculcate the habit of savings in their children from early childhood but this is mostly limited to saving a rupee from their pocket money so that they can splurge their savings on crackers during Diwali, or because they will get a treat from their parents after they meet a goal of accumulating a certain sum of money.

Making your kids familiar with savings is important but the tricky part is introducing your growing children to reality, explaining investments and instilling the interest in them to learn about financial planning. Before explaining the concept of investing to your kids, you must brush up your basics so that you are able to communicate vital information clearly.

Following are a few key points which can help you in teaching your child the basics of investing and the importance of financial independence.

Start at the right age: Don’t talk about investment jargons with your kid while he’s struggling with his nursery rhymes. Wait until he is able to think relatively and comprehend the implications of simple and compound interest, percentages, profit and loss, etc. Talking too early will result in nothing but overhead transmission and create confusion in the mind of your child. Generally, a child is able to attain the maturity of thinking mathematically when he enters adolescent stage, yet it varies from one child to another.

Introduce the basics: Start with explaining the basic concepts, viz assets and liabilities. You can narrate the meaning and importance with the help of real examples like the house you live in is your asset and the loan on the house for which you pay monthly EMIs is your liability. Tell the meaning and importance of investing and various types of investments like stocks, bonds, mutual funds, etc., and how these investments can help in building assets and can enable you lead a happy and comfortable life.

Involve your kids: Discuss your family finances with your kids. They should have an idea about your income, assets, the debt you owe to others, how you manage your monthly expenses, budget, etc. Live events can help him understand investing better, like how the car got financed, how a medical emergency was met with the insurance policy you have, or how the vacation you went for was met with the Mutual Fund SIP. He/she should understand that happiness can be achieved by investing. You can also gain your child's attention by playing money games like business, risk, etc., as well as through mobile apps. Once he gets excited & involved in the games, he'll be able to relate it better when it comes to reality.

Meeting with your financial advisor: When you meet your financial advisor, you can ask your kids to sit with you in the meeting. They would get to know about goals and portfolio allocation, financial planning, etc. Even if they do not understand the details, it would give them a fair idea about investing. Further, you are there to guide them and answer their queries.

Invest their savings: Another way to expose your kids to investing is investing their small savings. Invest their money in a good investment product, and help them track its growth over time. You can also build a mock portfolio for them and let them track the profits and losses. Let them gauge the losses that can occur due to quick decisions and the benefits of patience & long term investing. They may not be gaining or loosing big money, but the excitement of profits and losses will help them comprehend investing.

Remember, there should not be information overload at any given point of time. You must break the information into smaller and simpler parts. Try to explain with the help of examples and the impact that investments have on our lives. Try to inculcate the habit of saving in your kids from the very beginning. They should know about the gains that they can achieve through investing as well as the basic, “investing for the long term will help in achieving the gains”.

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