5 steps to take before you start your financial journey

Most investors face a constant dilemma when they think about investing in equities. One of the primary questions in their minds is – How do I start my financial journey? Am I ready to start investing?

A straightforward answer to this question is that start your financial journey today since there is no ideal time to start investing. As Warren Buffett says, “Investing is about TIME in the market and not TIMING the market.”. But one thing that people can do before starting their investment journey is to prepare well. In this article, we will go over 5 steps one can take before they start investing to make the process much easier.

Draw a personal financial journey roadmap

Before you make any investments of any sort, sit down and take an honest look at your entire financial situation — especially if you’ve never made a financial plan before.

The first step to successful investing and capital gains is figuring out your goals, either on your own or with the help of your family. Once this goal is set, investment plans can be designed to specifically meet these goals as soon as possible. There is no guarantee that you’ll make money from your investments. But if you understand how investing works and follow through with a well-designed plan made by either you or your financial advisor, you should be able to gain financial security over the years and enjoy the benefits of good investing.

Understand your comfort zone

Any form of investment carries risks. In fact, investment risks somewhat tend to be directly proportional to their potential returns. Hence, higher risks imply higher potential returns and vice versa. While every investor desires to earn high returns, taking high risks might not be suitable for all of them. If you invest in an instrument that has a higher risk than what you are comfortable with, then you might make rash decisions and suffer losses.

On the other hand, if you invest in instruments with much lower risks than your tolerance levels, then you might not be satisfied with the return and might not be able to meet your financial goals. Therefore, it is important to understand your risk tolerance levels and tie them with your return expectations to create an investment strategy to meet your financial goals at a suitable time.

Learn, Learn and Learn

The most important thing one needs to do before making an investment of any sort is to learn how it works and gain a deep understanding of it. You must spend some time understanding investments, markets, factors that affect prices, things that you need to know to analyze a company, etc. Insufficient knowledge of investment opportunities can cause a person to make uninformed decisions that can cause huge losses. By learning how investments work, one can make better decisions and stay informed of how their portfolio is doing. You will make mistakes but learn from them and don’t make the same mistake twice.

Staying in touch with the news, reading financial books and understanding yourself and the reason why want to invest are a few ways that can help you make informed decisions.

Understand your time horizon

A very important aspect that you need to identify is the time in which you intend to stay invested. This will depend upon 2 factors: your financial goal and your risk appetite. For example, If you are investing to build a retirement corpus for yourself, then your investment period would be longer than investing in buying a house. This is essential since different types of investments can have different investment period requirements and growth rates. One should ideally stay invested, till their goals are met.

Investments are generally broken down into two main categories: Risky and less risky. The longer the time horizon, the more aggressive, or riskier, a portfolio an investor can build. The shorter the time horizon, the more conservative, or less risky, the portfolio the investor may want to adopt. This is because equity markets are generally volatile in the short term and there is a possibility that you can get caught in a bear market thereby causing interim losses to your portfolio.

Create a well-diversified investment plan

By including asset categories with investment returns that can either move up or down pertaining to different market conditions within a portfolio, an investor can help protect against significant losses.  Historically speaking, the returns of the three major asset categories – stocks, bonds, and cash – have not moved up and down at the same time at any given point.  Market conditions that can cause one asset category to do well often cause another asset category to have average or poor returns.

By investing in more than one asset category, you’ll reduce the risk of losing your money and your portfolio’s overall investment returns will have a smoother and gradual rise.  If one asset category’s investment return falls, you’ll be in a position to counteract your losses in that asset category with better investment returns in another asset category which can help you stay in the green. For e.g. It is often seen that international markets like the U.S., and Europe are lowly correlated with the Indian equity markets and hence a small allocation to overseas investments can greatly help in diversification.

In addition, asset allocation is important because it plays a major role in whether you will meet your financial goal.  If you don’t include enough risk in your portfolio, your investments may not earn a large enough return to meet your financial goal.  For example, if you are saving for a long-term goal, such as retirement, most financial experts agree that you will likely need to include at least some stock or stock mutual funds in your portfolio for a good return on investment.

Bear Markets and investing – 4 things to do to protect your money!

We all worry about our money. It is quite easy to understand why one would be worried about having little or no money. But, we also worry when we do have money. This is especially true if our money is invested in equities and the stock market is in the middle of a bear market. Therefore it is important to follow some basic steps to stay financially fit.

In this article, we will go over 4 steps one can take to not only safeguard their money from a bear market but also grow their money simultaneously.

Don’t panic sell

During market corrections, selling off your investments and timing the market might seem like a good idea. Negative news such as the Covid-19 pandemic, an asset bubble that’s about to burst, financial scams being revealed, etc., can easily influence any investor.

However, past data shows that the best and worst-performing days of the stock market are often very close to each other. This is the key reason why the strategy of timing the market does not work well for a lot of long-term investors. The key thing to remember is that fear leads to panic, especially among novice investors. This panic often makes investor sell their positions at low prices during a bear market.

But historically, markets have always recovered from these bearish trends and instead of selling in a panic, you should just remain calm and stay invested. If you manage to continue investing irrespective of market conditions, you will reap the rewards when the markets recover at a later date.

Don’t panic buy

Panic buying can be described as a state of mind that pushes you to make investments without much deliberation or research, which can become an obstacle to reaching your current investment goals.

After all, when markets are down, it often seems to be a great time to invest at reasonable valuations. In such cases, investors often part their money in Bluechip stocks or purchase Index Funds. However, many investors forget one key aspect of Equity/stock investing in such cases – their own risk appetite. The buying frenzy when markets tank can lead investors to invest in Equities which are not aligned with their actual risk appetite.

So instead of panic buying, you should plan for these investments well before the bear market actually starts. But to do this, you need to know how high or low your personal risk tolerance is. Only then will you be able to accurately decide how much of your existing portfolio needs to be rebalanced to meet your goals

Periodically rebalance your portfolio

Portfolio rebalancing is a strategy that helps in aligning your risk appetite to your investment portfolio so as to provide better risk-adjusted returns on your investments. This strategy involves buying and selling equities and investments periodically so that the weight of each asset class is maintained as per your targeted allocation.

Some key questions that one needs to ask themselves when assessing their current investments and deciding if their portfolio needs rebalancing :

  • What am I invested in – Mutual Funds, Stocks, Bonds, Gold, etc?
  • What is the value of my investments?
  • What are my financial goals?
  • What do I focus on when building my investment portfolio – consistent returns, growth of capital, etc?

If done right, rebalancing your portfolio will not only help you stay on course to reach your financial goals but also help you manage overall portfolio risk and safeguard your money when markets are highly volatile. That said, it might not be a good idea to rebalance your portfolio in the middle of a bear market. You should instead consider letting markets settle down a bit before rebalancing your investment portfolio.

Choose your equities carefully

An ongoing bear market provides you with the perfect opportunity to increase your Equity allocation at a very reasonable cost and allows you to switch to a more aggressively approached asset allocation portfolio from a comparatively conservative allocation. This is because Equity investments, especially when purchased at low valuations, have an unmatched ability to boost your investment returns, which can help you meet long-term goals such as retirement.

So, if you plan to make Equity investments during a market correction, make sure you do adequate research on the equities you look to invest in. But, if you do not know how to correctly value stocks or don’t have the time to conduct a deep dive into possible investment options, it might be a better idea to invest in professionally managed diversified Equity Mutual Funds as compared to investing in individual stocks on your own.

Bottom Line

An ongoing bear market offers investors a unique opportunity to grow their wealth. But to take advantage of this crash, you must have a contingency plan in place before the crash actually happens. The 4 strategies discussed above are designed to help you not only weather a market crash better but also make sure that you can grow your wealth significantly when markets recover at a later date.

7 timeless lessons for novice investors

Understanding where to invest and earning considerable profits can be daunting and also requires a learning curve. In this article, we go over 7 lessons that will help novice investors to not only invest better and maximize profits, but also help you minimize your losses.

Lesson 1 : Diversification is key

One major mistake that novice investors make when they start their journey is that they concentrate their assets in a single form of investment. Diversification not only means investing in different stocks or investing in a single industry but also the allocation of assets in different asset classes such as, equities, mutual funds, bonds, real estate, etc. But it is also important to understand that too much diversification is also a problem because investing in multiple assets with a limited asset pool will not allow you too reap significant rewards.

Diversification for novice investors

Lesson 2 : Keep your emotions in check

Investing your hard earned money is a rather stressful process for not only novice investors but all investors which can lead to you trusting your emotions rather than your mind and emotionally invest. Emotional investing is an investing strategy where you make decisions based on markets’ daily gyrations and what you think of them rather than fundamentals. It constitutes of letting fear, greed, anxiety, and optimism get the better of you. This type of investment is based on an investor’s behavioural and emotional impulses and is influenced by market trends. It is more of a cycle where investors react to market volatility and swings.

Lesson 3 : Consult a financial advisor

Engage with a financial advisor to better understand your situation and help you invest better. Expert advice can do wonders to a novice investor’s portfolio and help them see the big pictures. Financial advisors, who have years of experience, can help you navigate choppy waters and bullish markets with ease and ensure you do not indulge in impulsive trading or overestimate your risk tolerance.

It gives you the chance to re-evaluate your investment approach and better assess your risk appetite. It helps you be logical and make rational investment decisions to help your money grow.

Lesson 4 : Educate yourself financially

Financial literacy is a crucial life skill to possess, because it boosts your financial capability. Savings, budgeting, and financial planning should be taught to people at a young age. Without financial literacy, one’s actions and decisions about savings and investments would be quite weak and unsupported. One can manage their finances effectively by learning basic financial principles. Additionally, it facilitates good financial decision-making, financial management, and stability.

Lesson 5 : Avoid trying to time the market

The time you spend in the market is much more important than timing the market. Moreover, it is important for novice investors not to develop a trader or speculator’s mentality right of the bat. After all, this entire practice of timing the market based on news, opinions, tweets, interest rates, liquidity, and so on often does a lot more harm than simple rules based investments focusing fundamentals.

If you have not reached your long-term financial goal then canceling your SIPs and liquidating your assets is certainly not going to help you reach there any faster. Stay invested for the long game, as stock markets and individual stocks have reliable businesses behind them that are continually earning more and more profits over the long run.

Lesson 6 : Have a goal in mind

Goal based investing involves keeping a specific personal goal in mind while choosing the method to invest. Goals help investors stay on the course and keep investors disciplined as they can monitor and track their progress at regular intervals. A set of clear goals helps strategize and dramatically improve budgeting. As a result, investors deal with poor market movements better. Focusing on long-term goals, allows us to be less distracted by short-term volatility and noise.

This is a crucial advantage because not only do novice investors sometimes lose hope, but emotions can also drive them towards poor decisions. It will help us refrain from selling down our positions or changing our investment strategy to one that reduces our chances of reaching our financial goals, and instead focus on sticking to our designed investment plans.

Lesson 7 : Invest in companies with good fundamentals

Fundamentals of a company are usually its indexes, which are used to determine its financials and whether the investment price is able to justify itself through earnings and profit. Investments that are able to justify their price are called value investments.

Value investing involves a process through which investors unearth possible investment opportunities that are available at a lower price of what they’re actually worth. These investments are known as undervalued investments and they generally tend to possess a significantly high growth potential in the future. Value investments have very little downsides to them, a good example to explain this is stocks. With value stocks, the downside, if any, also tends to be lower since they’re already trading at a lower price point than their actual worth.

Side-pocketing and segregation

In recent times, the Mutual Fund industry has witnessed a series of downgrades and defaults. Starting from the IL&FS, Essel, DHFL to Franklin, Birla and nippon. These downgrades or defaults can cause huge losses for investors who have parked their life-savings into these funds. Thus to protect investors from these defaults, SEBI announced the launch of the side-pocketing or segregation framework.

Many beginner to intermediate investors are unfamiliar of the concept of side-pocketing and how it can affect them, which makes it even more important for them to understand this very concept.

What is Side-Pocketing in Mutual Funds or Segregation of the Portfolio?

Simply put, side-pocketing is a framework that grants mutual funds the power to segregate the bad assets in a separate portfolio within their debt schemes. The Securities and Exchange Board of India (SEBI) introduced this very framework in December 2018 — primarily triggered by the IL&FS fiasco. The side pocketing framework was launched by SEBI so that the existing investor in the scheme may get the benefit whenever the money recovers. This is also to discourage the new investors from entering the scheme after the event, so as to not take undue advantages of the situation.

When does side-pocketing occur?

As per SEBI regulations, side-pocketing in mutual funds can be done only when there is an actual default of either the interest or principal amount of investment or if a debt instrument is downgraded to below investment grade or BBB rating by credit rating agencies, then the fund house has the option to create a side pocket and segregate their funds.

When side pocketing in mutual funds is done, the fund house is not sure whether the security would be realizing something later or not, but the net asset value of the fund is reduced with immediate effect.


So, in this scenario, the existing investors of the fund are allotted an equal number of shares in the segregated portfolio as held in the main portfolio and no redemption or purchase is allowed in the segregated portfolio. These shares are then listed on the stock market within 10 days and investors can sell them within a 30 day window, without any exit load/fee.

How does side-pocketing benefit the retail investor?

Once the shares of the segregated fund are listed on to the stock market and are ready to be sold, it gives full autonomy to the investor and lets them do whatever seems fit to them. Effectively, this process makes the price discovery of the bad assets a transparent procedure with investors having the freedom of either selling it at prevailing price or holding it if they expect the value to recover in future.

Can side-pocketing be misused?

When side pocketing was introduced, a good chunk of market participants felt that it could be misused by fund houses to hide their bad investment decisions. SEBI, however, has put in place checks and balances to minimize any such malpractice by the fund houses. The regulator has said that trustees or higher echelon of all fund houses will have to put in place a framework that would negatively impact the performance incentives of fund managers or chief investment officers (CIOs) or any stakeholders involved in the investment process of securities under the segregated portfolio.

So, fund managers know that any creation of such side pocket in the future would also affect their own appraisals and incentives. Further, SEBI has also said that side pocket should not be looked upon as a sign of encouraging unwanted credit risks as any misuse of this option would be considered serious and stringent action can be taken.

In Conclusion

Side-pocketing in mutual funds or Segregation of the Portfolio is a quite beneficial approach for the retail investors who lose their hard-earned money due to unwanted defaults in the debt funds. And it is quite logical that those who actually lose should only get the benefit of recovery too, and no other person should be allowed to make use of the situation as it used to happen earlier.

Credit Risk Funds – Higher risk associated with higher rewards!

Novice investors or those with a lower risk appetite look for more risk-free and stable options like a diversified mutual fund. However, seasoned and experienced investors usually look to increase their risk appetite to earn a little more returns. There are numerous investment instruments that are capable of giving higher returns than others but demand a higher risk appetite. One such high-risk, high reward investment instrument is the credit risk fund.

Understanding Credit Risk Funds

When you invest in mutual funds, your invested capital is divided into equity funds, which includes investing in the stock market, while debt funds, which is a fixed-income security that deals mainly with bonds. Bonds are given ratings based on the credit quality, the issuing company’s financial strength, and the company’s ability to pay interest and repay the principal amount of money. These ratings are denoted as AAA, which is the highest, then AA, A, BBB, BB, B and so forth.

Credit Risk Funds are debt funds that mainly invest in bonds that are rated either AA or lower. To be more specific, These invest about 65% of the funds available to them in lower than AA-rated bonds. Since these bonds do not have the financial strength of higher-rated bonds, their interest payments and principal repayment are not stable. Hence the name Credit Risk Funds.

Credit Risk Funds vs Corporate Bond Funds

Most debt funds are not the same in terms of their risks and returns. Let us compare Credit Risk Funds with Corporate Bond Funds for you to get a better understanding :

Credit Risk FundsCorporate Bond Funds
A debt scheme that has to invest a minimum of 65% of its available funds in bonds rate AA or lower.A debt scheme that has to invest a minimum of 80% of its available funds in bonds rate AAA
For high risk appetite investorsFor low risk appetite investors
Higher ReturnsLower Returns

How do Credit Risk Funds Generate Returns?

Credit Risk Funds reward their investors for the extra risk they are ready to take by investing in lower-rated bonds (AA and lower). Because these invest in lower-rated bonds, the bond issuer pays more interest to the Mutual Fund, who pay a higher interest rate to their investors. Secondly, if and when these bonds become better rated, the capital gains achieved can be high, and the investor gets higher than normal returns for their investment.

Are Credit Risk Funds safe and who should invest in them?

Investors with a higher risk appetite are the ones who should be investing in these funds. Despite being a kind of debt fund, Credit Risk Funds have high associated risks. It is entirely possible that instead of the bond ratings improving, they may even go further down. This volatility is part of these funds, and only those investors with a high appetite for risk should invest in credit risk funds. Investors looking for low-risk and stable investments should avoid these funds.

SEBI Measures

In recent times, SEBI has taken multiple measures for the safeguarding of retail investors. SEBI has mandated credit risk fund issuers to invest 10% of their total assets in liquid assets such as Government securities, bonds, cash, etc. The move will help enhance the liquidity of credit risk funds which will help them face pressures if any. This move by SEBI has resulted in 2 outcomes :

  1. A rise in the liquid holding of Credit Risk Funds : The table below can demonstrates that the Credit Risk Funds have increased their liquid holding much higher than the 10% threshold mandated by SEBI.Rise in liquid holdings of Credit Risk Funds
  2. Reduction in Credit Risk Fund issuers : Many credit funds have reduced their issuer concentration. So, now the percentage of net assets held by the top three and top five issuers has gone down. It has made the credit risk portfolios more diversified, thus reducing the risk for investors.Drop in Credit Risk Fund issuer concentration

These measures have resulted in the Credit Risk Funds being much more diversified, making them suitable for even more investor classes.

Understanding Taxation

Since credit risk funds are a type of debt funds, they are taxed as short term capital gains for up to three years and as long term capital gains for periods of more than three years. The short term gains tax is dependent to the income tax slab of the investor. The long-term gains tax for debt funds is fixed at 20%.

To Conclude Things

In conclusion, credit risk funds can be an easy way to earn higher than normal returns by investing in lower-rated bonds. But, as is the case with almost all forms of investments, if the potential for profits is high, the associated risks are high as well. If you are willing to take those risks to get excellent returns, then these credit risk funds might just be your cup of tea. However, it is advised that you do extensive research about the issuing company and the available bond options before investing in Credit Risk Funds.


Sukanya Samriddhi Yojana – An easy way to secure your daughter’s future by the age of 21

Sukanya Samriddhi Yojana is a saving scheme launched by the Government of India aimed at the betterment of girl child in the country. Sukanya Samriddhi Yojana is launched to provide a bright future for the girl child and enables parents to build a fund for the future education and marriage expenses of their girl child from a young age.

What is Sukanya Samriddhi Yojana?

Sukanya Samriddhi Yojana was developed under the government’s ‘Beti Bachao, Beti Padhao’ initiative, it is a welfare scheme designed for the girl child. Investing in this child insurance plan allows their parents or legal guardians to ensure financial security for a girl child aged ten years or below. Under this scheme, an account in the name of the girl can be opened across any private and public sector banks for 21 years. The tenure of investment under the SSY scheme is 21 years, starting from the account’s opening date.

This deposit scheme can help you save regularly for your little girl. By making small to large deposits on a regular bases, you can create a sufficient corpus as the year’s pass. This corpus can be used to meet your girl child’s goals such as education, buying a home or even marriage.

How does Sukanya Samriddhi Yojana Account Work?

As parents, you can invest a minimum amount of Rs 1,000 and up to Rs 1.5 lakhs every year into your daughter’s account under this scheme. These deposits can be made only for the first 15 years after opening the account, after which no deposits can be made and the funds in the account would grow from the accumulated compound interest.

Subsequently, the accumulated amount can be withdrawn till the age of 21 years and can help your daughter support her dreams of higher education, starting a business or marriage, once she is no longer a minor.

Eligibility Criteria for Sukanya Samriddhi Yojana

The Government of India has made Sukanya Samriddhi Yojana accessible for the entire population of India, and hence, you can open an account at any post office nearest to you. The directive of the Sukanya Samriddhi Yojana is as follows :

  • Only the parents or legitimate guardians of the girl child can open a Sukanya Samriddhi account.
  • The girl child has to be under 10 years at the time of account opening.
  • The account can be operational only till the girl child is 21 years old.
  • The opening investment can begin from ₹250 with an deposit cap of ₹1,50,000 yearly with ongoing deposits in the products of ₹100.
  • An individual girl child cannot have numerous Sukanya Samridhhi accounts.
  • Only two Sukanya Samriddhi Yojana accounts are permitted per family.

Performance of the Sukanya Samriddhi Yojana

The interest rate on this scheme is fixed by the government and is reviewed by them every quarter. The Sukanya Samriddhi Yojana interest rate over the past few quarters are given below :

Time PeriodSSY Interest Rate (% annually)
Jan to Mar 2023 (Q4 FY 2022-23)7.6
Oct to Dec 2022 (Q3 FY 2022-23)7.6
Jul to Sep 2022 (Q2 FY 2022-23)7.6
Apr to Jun 2022 (Q1 FY 2022-23)7.6
Jan to Mar 2022 (Q4 FY 2021-22)7.6
Oct to Dec 2021 (Q3 FY 2021-22)7.6

Benefits of Sukanya Samriddhi Yojana

  1. High Interest : A Sukanya Samriddhi Account provides a higher rate of interest than most other savings plan that offer financial security solely for the girl child. Each financial year, the government declares the new applicable interest rate for that year, which is compounded on a yearly basis. By maturity, the assets under your Sukanya Samriddhi Yojana account will increase manifold – thanks to the power of compounding. Here we have shown how an approximate corpus can be generated using the Sukanya Samriddhi Yojana calculator :

Sukanya Samriddhi Yojana Growth Pattern

  1. Significant Tax Savings : Your investment/savings towards the Sukanya Samriddhi Yojana and the betterment of your daughter’s future are eligible for tax deductions under Section 80C of the Income Tax Act 1961. Thus, you can claim tax reductions of up to Rs 1.5 lakh invested in the scheme. Moreover, the tax-saving benefits are also available on the interest amount earned and the amount received upon maturity or withdrawals. The Sukanya Samriddhi Yojana scheme is under the authority of the Department of Revenue and is one of the more popular investment schemes that come with the exempt-exempt-exempt status.
  2. Guaranteed Maturity Benefits : Upon maturity, your entire account balance under the Sukanya Samriddhi Yojana, including the accumulated interest, will be paid directly to the policyholder. Thus, the scheme essentially assists your daughter to become financially independent and empowered once she is mature enough to make life decisions all by herself. Another benefit of investing under this scheme is that your accumulated savings continue to accrue compounding interest even after maturity up until it is finally closed by the account holder.

To conclude things

Sukanya Samriddhi Yojana provides one of the best possible investment opportunities for you to build up a sufficient corpus for your daughter when she turns 18 years old and is mature. The Sukanya Samriddhi Yojana comes with a sovereign guarantee, while its EEE status provides several benefits to both the parent and their little girl.

Asset Allocation – diversification of assets for massive gains!

There is a famous saying – “Putting all their eggs in one basket”, in financial terms it often means putting all your assets into one resource or asset class but if the asset class dips, one loses all their money. Although it might be a high risk-high reward proposition, following this method is not ideal if one wants consistent returns. So in-order to diversify your assets into different resources, one uses the concept of asset allocation.

Understanding Asset Allocation

Asset allocation is an investment strategy that aims to balance risk and reward by apportioning a portfolio’s assets according to an individual’s goals, risk appetite, and the duration of their investment. The three main asset classes of investments, i.e equities, fixed-income, and cash and its equivalents—have different levels of risk and return, so each will behave differently over time and will suit the expectations of each individual differently.

Historically equities have usually been the major constituent in asset allocation schemes, closely followed by bonds and alternatives. This trend shows that people don’t mind a riskier outlook towards investments, if invested for a substantial period.

The importance of asset allocation

There is no simple formula that can determine the right asset allocation for every individual investor. However, the general consensus among most financial professionals is that asset allocation is one of the most important decisions that investors usually make. In other words, the selection of individual assets (for eg – which stock to buy?) is secondary to the way that assets are allocated in stocks, bonds and cash and equivalents, which will be the principal determinants of your investment results.

Another important factor of asset allocation is that it allows you to tweak your portfolio to exactly match your risk appetite. Doing this, makes the chances of you meeting your financial goals much easier.

Allocating assets also secures you from the emotional turmoil caused by any irregular movements in the market. An asset allocation based approach takes emotions out of the process of investing and keeps you disciplined. You should always invest according to your asset allocation irrespective of any market movements.

Types of asset allocation strategies

  1. Strategic asset allocation : In Strategic Asset Allocation strategy, the fund has static asset allocation mix and does not change no matter the movements in the market. Strategic asset allocation is similar to the buy and hold strategy in stocks and bonds. One of the major advantages of strategic asset allocation with a stable rebalancing strategy is that it enforces discipline in investments.
  2. Dynamic asset allocation : In this asset allocation strategy, one continuously adjusts their asset allocation mix depending on market conditions and trends. The most common dynamic asset allocation strategy used by mutual funds and asset managers is the counter-cyclical strategy. These funds increase their equity allocation (reduce debt allocation) when equity valuations decline (become cheaper) and reduce debt allocations.
  3. Tactical asset allocation : Tactical Asset Allocation is a variant or subset of Strategic Asset Allocation strategy where the investor can occasionally deviate from their long term Strategic Asset Allocation plans to take advantage of market opportunities. Tactical asset allocation calls for understanding market timing and requires considerable investment expertise.

Rebalancing and Asset Allocation

Rebalancing is what investors make use of to bring their portfolio back to its original asset allocation ratio. Rebalancing is needed because over time, some investments might grow faster than others. This may push your holdings out of alignment with your investment goals. By rebalancing, you will ensure that your portfolio does not overweight a particular asset category, and you’ll return your portfolio to a comfortable level of risk, suitable to your needs.

For example, you might start with 50% of your portfolio invested in stocks, but see that rise to 70% due to market gains. To reestablish your original asset allocation mix, you’ll either need to sell some of your stocks or invest in other asset categories by putting in more money. The below image shows how a portfolio comprising of 50% equities and 50% debt will change over a period of 10 years.

How to determine your asset allocation ratio?

Determining your ideal asset allocation ratio is very important in anyone’s financial journey and there are multiple factors at play to determine this ratio :

  • Your different financial goals – short term, medium term and long term
  • Your risk appetite – lower your risk appetite, higher the debt allocation. (Try taking our risk assessment test to determine your risk appetite.)
  • Your age – younger investors may have higher allocation to equities
  • Your assets and liabilities – if you have substantial liabilities, you should not take make exposure to equities
  • Your current investment portfolio and its asset allocation

To sum it all up

Asset allocation or the selection of individual assets is secondary and much less important to the way that assets are allocated in stocks, bonds and cash and equivalents, which will be the principal determinants of your investment results.

NPS – National Pension System

Retirement. A variety of ideas come to mind when you hear this word, including travel, daily expenses, doctor visits, and so forth. It would help if you had a steady investment in some pension scheme like PPF, EPF, or NPS to last until the end because, post-retirement, you are unemployed or without a reliable source of income.

In addition to helping to create a retirement corpus or offering pension services, several schemes provide investment options. In addition to Public Provident Funds (PPF), Employee Provident Funds (EPF), Fixed Deposits (FD), and others, there is one more program focusing on retirement plans called the National Pension System (NPS).

National Pension System (NPS)

The Government of India-backed and PFRDA (Pension Fund Regulatory & Development Authority) controlled NPS is a distinctive pension program that offers both assets and deficit accessing a single investment and ensures a monthly pension after retirement.

NPS Eligibility

  • All Indian citizens, whether they are residents or not, between the ages of 18 and 65, may participate. At 60, one can join the NPS and keep making payments until they are 70.
  • Individuals should have their Aadhar card linked with their PAN number.
  • Individuals should fulfill the KYC requirements as per the Subscriber Registration Form.

How NPS Works?

  • Individuals with NPS accounts can contribute a minimum of Rs. 1000 per annum.
  • PFRDA then pools the investments in a pension fund.
  • PFRDA-approved fund managers then invest the funds in diversified portfolios of government bonds, corporate debts, and shares.
  • The returns or interest rates offered by NPS vary according to market conditions.
  • Upon retirement, the individual can withdraw a tax-free matured amount equal to approximately 60% of the investment.
  • The remaining 40% must be invested in annuities, which generate monthly pensions through generated interest amounts.

Features of NPS

  1. Low-cost scheme, requiring just a Rs. 1000 minimum yearly investment.
  2. Open program for all NRIs and citizens of India, ages 18 to 65, whether employed by any company or self-employed.
  3. Enables the choice of fund managers and investment strategies.
  4. The matured amount can be easily withdrawn after 60 years of age or withdrawn early after three years of investment.
  5. Enables fund diversification through asset classes, which are groups of assets based on the level of risk they involve.
  6. Using the dedicated NPS Portal, people can access their accounts from anywhere using a 12-digit Permanent Retirement Account Number (PRAN) card.
  7. Tax benefits of up to INR 2 lakhs for working individuals and a tax-free maturity amount upon retirement.


Tax Benefits of NPS

Section 80CCD (1)

The contribution made by a Government Sector Contributor (salaried) and a Non-Government Sector Contributor is described in Section 80CCD (1) of Section 80C. These contributions add up to 1.5 lakh INR. Salaried workers may deduct up to 10% of their salaries, while self-employed people may deduct up to 20% of their gross income.

Section 80CCD (1B)

Accompanying deduction of INR 50,000 for any additional self-contributions above Section 80CCD. Both salaried and self-employed individuals are subject to it and can avail of the benefit.

Section 80CCD (2)

Government and non-government employers’ contributions on behalf of their staff. A person may deduct the most is either the employer’s NPS contribution or 10% of their base salary plus Dearness Allowance (DA). Self-employed people are not eligible for this benefit.

Types of NPS account

  1. Tier I
  • Each person must open the fundamental, required account to participate in the NPS scheme.
  • The entire amount cannot be withdrawn before age 60, but under certain circumstances, you may withdraw up to 25% of the invested amount three times in a five-year period.
  • You must open the account with at least INR 500, and there is a fee of INR 1000 per year.
  • It is eligible for tax deductions of up to Rs. 1.5 lakh annually under Section 80C and an additional sum of up to Rs. 50,000 annually under Section 80CCD (1B).
  • Sixty years of age allows for the tax-free withdrawal of 60% of the corpus.
  • Annuities may be purchased with the remaining 40% of the maturity amount. It is possible to use the annuity’s interest as a pension, but it is taxed.
  1. Tier II
  • The account is for retirement savings.
  • Only those with active Tier I accounts are eligible to open it.
  • Anytime is a good time to withdraw the money.
  • After a three-year lock-in period, government workers are eligible to claim tax exemptions, but contributions are not tax deductible for the public.

Tier 2 vs Tier 1 NPS


It can be daunting to guesstimate the precise amount you’ll need to live comfortably during your retirement years. You can create the ideal retirement corpus that satisfies your financial needs by using NPS as a core retirement savings plan with some assets and supplementing it with other low-risk schemes that offer good returns and flexible liquidity.


1. How to open an NPS Account?

To open an NPS Account, you would need to:

  • Complete the NPS registration.
  • Submit the necessary paperwork along with the Verification paperwork.
  • Upon successful completion of your NPS login, the CRA will give you a PRAN (permanent retirement account number)
  • The minimal account opening charge and the fund management fee must also be paid.

What is compounding and how does it work?

Compounding is the process in which an asset’s profits, from either equity gains or interest, are reinvested to generate additional earnings over a given period time. This growth, calculated using an exponential function, occurs because the investment will generate earnings from both its initial amount and the accumulated earnings from preceding periods.

Understanding Compounding

Compounding usually refers to the increasing value of an asset due to the interest earned on both a principal and accumulated interest. Compounding is absolutely crucial in the world of finance, and the gains attributable to its effects are the backbone to many investing strategies.

For example, a very common practice is to reinvest cash dividends earned from equity investments to purchase additional shares of the same stock. Reinvesting in dividend paying stocks compounds the return on investment because the increased amount of shares will consistently increase future income from dividend payouts, assuming the stocks pays out steady dividends on a regular basis.

Investing in such dividend growth stocks on top of reinvesting dividends adds another layer of compounding to this strategy that many investors refer to as double compounding. In this case, not only are dividends being reinvested to buy more shares, but these dividend growth stocks are also increasing the per-share payouts.

Compounding and its effects

Power of Compounding

Compound interest includes interest accumulated during previous periods thus the investment grows at an ever increasing rate. Power of compounding enables your earnings to grow while your investments grow. Here’s how you can understand this better :

An interest is added on the initial investment amount, this interest is the compound interest. Since the amount would be added to your initial investment amount and the new interest is calculated on this new amount, the investment will continue to grow as this process would be consistent all throughout the period of investment.

The effects of compounding strengthens as the frequency of compounding increases. Assume a one-year time period. The more compounding takes place throughout this one year, the higher the future value of the investment will be, so naturally, three compounding periods per year are better than two, and four compounding periods per year are better than three. To illustrate this effect, lets take an example and calculate the compound interest for Rs.10,000 and see what happens to it over 10 years with varying compounding frequencies :

Compounding done every yearInvestment AmountCompounded Amount

Compounding – The boons and banes

Compound interest works on both investments and liabilities. While compounding can boost the value of an asset very rapidly, it can also increase the amount of money owed on a debt, as interest accumulates on the unpaid principal amount and previous interest charges. Even if you make loan payments, compounding interest may result in the amount of money you owe being greater in the future.

The concept of compounding is especially problematic for credit card debts. Not only is the interest rate on credit card debts very high, the interest charges may be added to the principal balance and incur an interest assessment on itself in the future. For this reason, the concept of compounding is not necessarily per say “good” or “bad”. The effects of compounding may work in favor of or against an investor depending on their specific financial situation and what they do with their money.

Compound interest and the effect of time

Many young individuals take the combination of time and compounding very lightly. For people in their 20s and 30s the future seems so far ahead, yet these are the years when compound interest can be a game-changer. Investing small amounts from a young age can be much more profitable than investing large amounts later in life.

Allowing your investments to mature while compounding at the same time can create huge profits and increase your money dramatically.

In Conclusion

The long-term effect of compound interest on your savings and investments is indeed miraculous in nature. Because it grows your money much faster than simple interest, it is a very central factor in increasing wealth. It also mitigates a rising cost of living caused by inflation, as it will almost certainly outpace it and grow your money dramatically.

For young people especially, compound interest is a godsend, as they have the most time ahead of them in which to save and invest.

6 fads influencing wealth management in India

The wealth management industry has experienced an exemplary change in the last few years spearheaded by changing demographics with a dramatic increase of millennials joining the investing wagon, and rapid digitalization. The past few years have been nothing less than a Midas Touch for investors. The equity market continued to soar to new highs, drawing a large number of first-time investors. Testimony to this fact is the number of Demat account openings hit a record of 14.2 million in FY 2021. These developments are creating new exciting opportunities and challenges for the wealth management industry

Shift in investor demographic

The younger generation are much more financially educated, have access to expert knowledge and financial tools and are actively investing in a structured manner, with specific goals to achieve. The new generation of millennials and Gen-Z individuals are digital first and always connected. They expect 24/7 access to portfolio data and new investment opportunities with rapid growth potential. Capturing this rather tricky market is vital for the wealth management industry.

Trends to be taken in note by wealth management firms

Digitalization of the wealth management infrastructure

Human connections and personally developed relationships have been the bedrock of the wealth management industry – and will continue to be so. New investors still want someone to guide them through their various financial endeavors. But the need for easy to use digitalized wealth management solutions has never been greater. Digital wealth management is not limited to offering digital channels for managing assets and performing transaction; it extends to using technology to offer a greater value, professional service and improving the customers’ investment experience. Advisors should also embrace these digital tools. Using big data and analytics will be vital for the future of the wealth management industry.

Emergence of new asset classes

More and more retail investors are moving beyond traditional asset classes like fixed deposits and equities because of sub-optimal returns and growth rates, thus urging them to look for alternate opportunities. The emergence of new asset classes such as, Crypto Currencies, NFTs, hedge funds and ESG investments have intrigued the masses. Owing to this, the wealth management offerings are thus going to change dramatically and will definitely move beyond the usual run of the mill sophisticated products.

Need for personalized portfolios

Wealth management solutions will no longer remain a one-product-fits-all strategy and will move towards hyper-customized advisory based on the risk appetite, goals and time horizon of the investors. Investors expect investment opportunities that align with their future goals like building a retirement corpus. The ability to a understand clients’ needs and personalize to those is a key value and differentiator for advisors, putting them leagues ahead of robo-advisors.

Increasing need for guidance

Financial markets have become much more complex due to a wide variety of investments options available in the market today. Investors are often left baffled regarding which products to invest in and how to determine the suitability of these choices based on their own risk taking capacity and the goal they wish to achieve. The need for an unbiased wealth manager, who can handhold and guide the investor through their financial journey, has, therefore, increased manifold. Investors value honest advice on how to achieve multiple yet conflicting goals through a range of investment and funding strategies.

While this means that there will be umpteen new opportunities for the wealth managers, excessive competition has also posed a new challenge to sustain, grow, and strive in this ever growing market. This is a rather challenging environment for investors and their advisors to find the right return-risk combination. Increasing regulatory burdens and the growing costs of risk pose new challenges to wealth management firms and their clients.

Financialization of assets is growing

Historically over 95% of personal wealth of the Indian population was stores in physical assets such as gold and real estate.

Trends to be taken in consideration by wealth management firms

But all that is changing very fast. The Indian population is increasingly preferring financial assets over physical assets, which has led to the ‘financialization’ of savings in our country. The intensity of the growing financialization of assets can be gauged by the fact that the Assets Under Management (AUM) of the Indian mutual fund industry has spiked dramatically, growing over four-fold in the last 10 years. The population now is much more aware that concentration of assets in non-financial assets can cause huge loses in the face of inflation. With a much more diversified portfolio-building approach, they can enjoy better returns, as well as better efficiency from a liquidity and contingency planning point of view

To wrap it up

In a nutshell, the wealth management industry is at the cusp of a major transformation and most of the upcoming trends are related to accessibility, technology, and customer-centricity. However, the time-tested fundamentals of investing still remain the same and should still be the main focus.