Invest generously to reap bountiful returns!

Investing is so often compared to growing plants or crops. Some of us invest in a fund just once every while and go back looking for the fruit, maybe years later. This is like planting seeds for a tree. Others make investing a part of life, they invest regularly through SIP. This is more like sowing seeds to raise crops.

Whatever approach you may have adopted, a universal truth about cultivation is that the measure one harvests is proportional to the measure one sows.

However this is observed to be the very drawback many investors get trapped in. After getting all motivated about the virtues of investing, starting SIPs (or lumpsum for some funds perhaps), they get stuck where they started and do not invest regularly, even after years.

Now there is one major factor that decreases the value of money as years pass - and it is none other than Inflation, as we all know it. While planning for goals, and achieving them through investments, it is important to raise the investment amounts, as and when you can, and how much ever you can, to account for inflation. Nevertheless, many investors face an issue that prevents them from raising their investment outgo voluntarily. This is highlighted in the story below -

Nikhil is a hardworking, middle - class professional in his mid-30’s. He has a family of four, including himself. After all his expenses he'd manage to save Rs 6,000 every month of which he'd invest Rs 5,000 in a mutual fund SIP. However since the day he happened to attend the personal finance session organized at his workplace, he began to feel insecure about his preparedness to meet his future goals. So he decided to consult a financial advisor, hoping to get his financial life sorted.

Nikhil was lucky enough to find an advisor who brought on him some realizations, obvious ones but he had overlooked them. One of them was something that seemed common with a lot of his other clients - that Nihkil’s investments were haphazard; not linked to specific goals. Although he had great ambitions and dreams for his family, the choice of investments and the amounts allocated indicated he hadn't really given much thought about how to achieve them. The second one was equally alarming -

•	He had not increased his investment allocation since over 5 years The annual salary increments had come in as usual but somehow new expenses seemed to crop up every time that he hadn't stepped up his savings & investments. He was investing today just the same amount he was investing 5 years ago.

The good advisor worked up a plan that would streamline Nikhil's investments with his future goals. He worked out a calculation to motivate Nikhil to shrink expenses, so that he wouldn’t have to compromise on his goals for the future. This is what it summed up to: by increasing his monthly investments by another Rs 3,000, Nikhil would build a corpus big enough to meet an important goal coming up 10 years from now, and have some leftover to compound for the next goal coming few years after that.

The 10-year returns of Crisil – AMFI Diversified Equity Fund Performance Index is 17.66%* in the quarter ended June 2015. So assuming a conservative annual return of 15% his monthly investment of Rs 5,000 would yield Rs 14 lakhs, whereas after increasing it to Rs 8,000 it would yield Rs 22.3 lakhs after 10 years, a little over the amount required for his goal.


Disclaimer: The above table is for illustration purpose only and is not a recommendation for investments.
*Past performance may or may not sustain in future.
All good so far. But Nikhil still had a problem to tackle, a major problem. How was he supposed to save the additional Rs 3,000 every month? It seemed almost impossible.

But the advisor again had some useful suggestions to make. After analyzing his expense patterns, he identified some corners that could be cut. Suggested being more prudent with some of the discretionary monthly spending; avoiding the urge for family extravaganzas at every festive offer. But most importantly, the asset allocation plan he charted out would free up some cash presently going to non-mutual fund investment products that had high costs built in. This he could invest prudently in better, more suitable products now.

Nikhil left the advisor’s office a confident man. Now the execution of the plan was left to him, of course. But he was after all in a position to achieve his future goals without compromise.

Perhaps if you identify with Nikhil's story, if your investment outgo has not been raised since a long time, you can consider raising it now. Because ultimately, in the measure that one sows, he will reap. So, sow more to reap more; invest generously now, and reap bountifully in the future!

---