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Liquid Funds: The Art of Managing Idle Cash Better Than FDs or Savings Accounts

Sachin Jain — Mon, 24 Feb 2025 12:13:20 +0000

Many of us keep a significant amount of money in our savings accounts or fixed deposits (FDs) for emergencies, upcoming expenses, or short-term goals. But is that the best way to manage cash? Enter Liquid Funds—a smart investment option that offers better returns than savings accounts, more flexibility than FDs, and a tax advantage by deferring taxes until withdrawal. At Wealthsane, we help individuals and businesses make better investment choices so their money works efficiently without unnecessary risks.

What Are Liquid Funds?

Liquid funds are a type of mutual fund that invests in short-term, low-risk financial instruments like treasury bills, commercial papers, and certificates of deposit. They provide stability, easy access to money, and better returns than a regular savings account.

The Ideal Use Cases for Liquid Funds

Emergency Fund Parking

Instead of keeping all emergency funds in a savings account earning ~3-4% interest, liquid funds offer returns of ~6-7% while ensuring easy access to money.
Withdrawals are processed within 24 hours, making it a great alternative to traditional emergency funds.

Short-Term Goals (0-12 months)

Planning to buy a car in 6 months? Or pay your insurance premium next quarter? Instead of letting money sit idle in a bank account, invest it in a liquid fund to earn better returns.
Unlike FDs, there are no penalties for early withdrawals.

Managing Business Cash Flow

Business owners often have extra cash from sales and invoices. Instead of keeping it in a current account (which earns zero interest), they can invest in liquid funds and withdraw as needed.
A simple way to keep working capital available while earning returns.

Tax Deferral Advantage Over FDs

Interest from FDs is taxed every year as per income slab, while liquid fund gains are taxed only at the time of withdrawal, helping defer tax liability.
This tax deferral can help high-income earners get better post-tax returns than FDs.

Salary Parking for Professionals & Freelancers

Freelancers or consultants with irregular income can use liquid funds to park their earnings and withdraw when needed.
Helps maintain liquidity while earning better returns than a savings account.

Parking Funds Before Big Investments

Planning to invest in equity mutual funds or real estate but waiting for the right opportunity? Instead of keeping money idle, park it in a liquid fund.
This ensures your capital is not only safe but also earning returns while you wait.

How Liquid Funds Helped Ravi

Ravi, a 35-year-old IT professional, received a bonus of ₹5 lakh. He planned to use this money for a home down payment in six months. Instead of keeping it in a savings account, which would earn him only ~3% interest, he parked it in a liquid fund. In six months, his investment grew by approximately ₹15,000, giving him extra money for other expenses while maintaining full liquidity. Had he chosen an FD, he would have faced penalties for early withdrawal. Ravi was able to withdraw his money seamlessly within 24 hours when he finalized his home deal.

At Wealthsane, we guide clients like Ravi in making smart investment choices, ensuring their idle cash earns better returns while remaining easily accessible.

Advantages of Liquid Funds Over Savings Accounts & FDs

When Should You Not Use Liquid Funds?

If your money is needed within 1-2 days, a savings account might be better for immediate access.
If you are looking for guaranteed returns, FDs provide fixed interest rates, whereas liquid fund returns can change slightly.
For long-term goals beyond 3 years, equity mutual funds provide better growth potential.

Conclusion

Liquid funds offer the perfect balance between safety, liquidity, and returns. Whether you are a salaried professional, freelancer, business owner, or investor, managing idle cash smartly with liquid funds can help you grow your wealth effortlessly.

At Wealthsane, we specialize in helping our clients make strategic investment choices, ensuring they optimize their cash while minimizing tax liabilities. Instead of letting your money sit idle in a savings account or locking it up in an FD, consider liquid funds as a smarter way to manage short-term cash!

We are AMFI Registered Mutual Funds Distributors & Top Tax Consultants based out of Thane

The Power of Goal-Based Investing

Sachin Jain — Thu, 21 Nov 2024 12:07:03 +0000

Meet Ravi and Neha, a young couple who love making memories together. Whether it’s planning a dream vacation, saving for their first home, or ensuring their newborn’s future, they’re starting to realize that their dreams need more than just wishful thinking—they need a financial plan. The idea of goal-based investing entered their lives when Ravi’s friend suggested it at a weekend gathering. He explained that instead of saving randomly and hoping for the best, Ravi and Neha could create investments for specific goals. With this approach, each dream could have its own plan, making it far more achievable. Intrigued, they decided to look into it further. Financial planning isn’t just about managing your income; it’s about making sure that your hard-earned money is working for you and helping you reach your life goals.

Why Set Specific Financial Goals?

Think of goal-based investing as a GPS for your finances. When you input a destination on your GPS, it shows you the fastest, most efficient route to get there. Similarly, when you set a financial goal—whether it’s a new house, a comfortable retirement, or your child’s education—you get clarity on how much you need to save and the best way to do it.

For Ravi and Neha, setting specific goals helped them break down their big dreams into smaller, actionable steps. They now had three clear financial goals:

A Down Payment for Their Dream Home in the next five years.
Their Daughter’s Education Fund, to be ready in 18 years.
A Retirement Fund for when they both turn 60

The Power of Matching Investments to Goals

Once their goals were clear, the next step was choosing the right investments to match each one. Instead of treating all their savings the same, they divided their money based on each goal’s timeframe and purpose

Short-Term Goals (1-5 years): Buying a Home

Since they planned to buy a home within five years, Ravi and Neha needed a safe place to park their savings, but one that offered a little more growth than a regular savings account. They chose a balanced fund, which combines moderate growth potential with lower risk. This way, their home fund had the chance to grow steadily without much fluctuation.

2. Long-Term Goals (10+ years): Daughter’s Education and Retirement

For longer-term goals, like their daughter’s education and their own retirement, they could afford to take a bit more risk, as the money wouldn’t be needed for many years. They opted for equity mutual funds, which have shown good growth potential over the long run. This way, they’re likely to earn a higher return on their investments, allowing them to reach these larger goals more comfortably

A Story of Consistency and Patience

Once they set up these investments, Ravi and Neha’s lives didn’t change drastically. Every month, a portion of their salary went into each goal, just as if they were paying monthly bills. They didn’t have to worry about stock markets or interest rates—everything was automated.

The beauty of goal-based investing, they found, was in its simplicity. Each month, they knew they were steadily moving closer to their dreams. They could check in every once in a while to see how their goals were progressing, but mostly, they just let the plan do the work.

Avoiding Common Pitfalls

As the years passed, Ravi and Neha had moments of temptation. Sometimes, when the markets dipped, they thought about pulling money out of their long-term funds. Other times, when they saw friends splurging on big purchases, they considered dipping into their savings.

But having their investments linked to specific goals made it easier to stay disciplined. They weren’t just “saving money”; they were putting aside funds for a bigger purpose. This clarity kept them on track even when it would have been easy to stray.

The Results of Staying the Course

Years later, Ravi and Neha’s dedication began to pay off. When it came time to put a down payment on their home, they had the funds ready. As their daughter approached college, her education fund was growing just as they’d hoped. And as they looked toward retirement, their long-term investments gave them peace of mind, knowing they’d have a comfortable life in their golden years.

Goal-based investing transformed their approach to money. By matching each investment to a specific dream, they could enjoy their present while still building a secure future.

How Wealthsane Can Help You Achieve Your Financial Goals..

Setting financial goals is one thing, but understanding how to allocate your money for each goal? That can feel overwhelming. This is where Wealthsane steps in. Just as we learned from the experience of Ravi and Neha, our goal at Wealthsane is to help you identify, prioritize, and invest smartly for each life goal.

Here’s how we do it:

Personalized Goal Planning: We begin by understanding what matters to you, whether it’s a comfortable retirement, your children’s education, or something else entirely. With a tailored approach, we align your investments to fit your unique financial priorities and timelines.

Smart Investment Choices: With Wealthsane, you don’t have to navigate the financial world alone. We recommend funds and investment strategies that match each goal’s timeframe, risk level, and growth potential, helping you stay on track without needing constant monitoring..

Regular Check-Ins and Adjustments: Life is unpredictable, and financial goals may shift over time. Wealthsane provides ongoing support to help you adjust your investments as needed, ensuring that each goal stays aligned with your evolving life circumstances

A Partner in Financial Discipline: One of the hardest parts of goal-based investing is sticking to the plan. With Wealthsane, you have a partner to guide you and offer expert advice during market ups and downs, helping you stay consistent and confident.

Goal-based investing can be a game-changer for those wanting more from their savings than just an account balance. It’s about building a clear, secure, and meaningful path to the future you envision. At Wealthsane, we’re here to support you at every step—because we believe in making your dreams a reality, one goal at a time.

We are AMFI Registered Mutual Funds Distributors & Top Tax Consultants based out of Thane

Financial Planning for Doctors

Sachin Jain — Thu, 24 Oct 2024 12:07:33 +0000

As a doctor, your main focus is always your patients—helping them live healthier, happier lives. But while you spend so much time caring for others, it’s important to remember to take care of your own financial health too. After all, building a secure financial future doesn’t happen on its own—it takes planning. Financial planning isn’t just about managing your income; it’s about making sure that your hard-earned money is working for you and helping you reach your life goals.

Why Financial Planning Matters for Doctors

Irregular Income
Many doctors, especially those with their own practice or who work as consultants, deal with income that goes up and down. There might be months when your practice is booming and others when things slow down. This unpredictability can make it tough to manage day-to-day expenses, pay off loans, or save for the future.
For example, Dr. Neha, a cardiologist, experienced inconsistent income during her first few years of practice. To make things easier, she created an emergency fund, so she wasn’t worried about paying bills when things slowed down. Having this safety net gave her peace of mind, while her long-term financial plans focused on growing her wealth steadily.
Limited Time, Quick Decisions
With such busy schedules, many doctors don’t have the time to actively manage their finances. Often, the default choices are real estate or low-interest savings accounts, because they seem safe and familiar. But these options aren’t always the best fit for growing your wealth in the long run.
The key is to make your investments work smarter, not harder. That means looking for ways to balance your portfolio so that it fits both your financial goals and your lifestyle. At the same time, it’s a good idea to make sure your investments are tax-efficient. This way, you’re not only growing your money but also keeping more of it when tax season comes around.
Planning for Retirement
While doctors often work longer than most professionals, it doesn’t mean you shouldn’t plan for your retirement early on. Medical practice can be physically and emotionally demanding, and eventually, you’ll want to slow down or retire altogether.
Building a retirement fund that grows over time will give you the freedom to decide when you’re ready to step back. Whether it’s through mutual funds or other long-term investments, the goal is to ensure that when you’re ready to retire, your money is still working for you.
Leaving a Legacy
Many doctors dream of leaving a legacy, whether it’s supporting charitable causes, setting up a clinic, or simply securing their family’s future. Without a proper plan, these goals can be hard to achieve.
Thoughtful financial planning helps ensure that your wealth is distributed according to your wishes. It also helps minimize taxes on your estate, so you can leave behind something meaningful for your loved ones or the causes you care about.

Why Wealthsane?

At Wealthsane, we understand the unique challenges that doctors face when it comes to managing their finances. Our goal is to help you grow your wealth while keeping things simple and efficient. We’ll guide you through creating a plan that fits your life, whether it’s managing irregular income, planning for retirement, or achieving your other financial goals.

With our expertise, you’ll be able to focus on what you do best—taking care of your patients—while knowing your financial future is in safe hands.

We are AMFI Registered Mutual Funds Distributors & Top Tax Consultants based out of Thane

Systematic Withdrawal Plans (SWP)

Sachin Jain — Mon, 14 Oct 2024 12:00:28 +0000

After dedicating years—whether it’s 10, 15, or even 20—to diligently accumulating a substantial Mutual Funds corpus, the time has come to reap the rewards. You’ve worked hard to build that nest egg, and now you want to enjoy the fruits of your labor without depleting your savings all at once. Enter the Systematic Withdrawal Plan (SWP). This powerful tool allows you to withdraw money systematically while ensuring that your investments continue to grow.

How Does SWP Work?

Let’s say you have accumulated ₹3 crore through your mutual fund investments via regular SIP & Lumpsum investments and want to withdraw money for your usage, you can use SWP to do that. Here’s how it works:

Choose Your Amount: Decide how much you want to withdraw each month. For instance, let’s say you want to withdraw ₹1 lakh every month.

Pick Your Frequency: You can choose how often you want the money—monthly, quarterly, or annually. We’ll go with monthly.

Automatic Withdrawals: Every month, ₹1 lakh will be withdrawn from your mutual fund investment & hit your bank account at your desired date.

Keep Growing: The remaining money will stay invested, giving you the potential for further growth, even while you’re taking money out

Why is SWP a Great Choice?

SWPs come with several benefits that make them a valuable tool in your financial plan. Let’s break down some of these advantages:

1.Consistent Income

Imagine being retired and enjoying your golden years without worrying about monthly expenses. With an SWP, you can ensure that you receive a reliable income. If you’ve accumulated ₹3 crore and withdraw ₹1 lakh each month, that amounts to ₹12 lakh annually—providing a comfortable lifestyle while still having money invested.

2. Tax Efficient

A key advantage of Systematic Withdrawal Plans (SWPs) is their tax efficiency. Withdrawals from equity mutual funds held for over a year are subject to long-term capital gains tax (LTCG) at 12.5% on gains exceeding ₹1 lakh annually.

Since each withdrawal consists of both capital gains and principal, only the gains portion is taxed. For example, if you withdraw ₹1 lakh monthly, only ₹30,000 may be taxed as a gain, with the remaining ₹70,000 being tax-free principal. This makes your overall tax burden significantly lower.

3. Flexibility

Life is unpredictable, and your financial needs can change. SWPs allow you to adjust your withdrawals based on your current needs. For instance, if you plan a vacation in December, you can temporarily increase your monthly withdrawal for that month and adjust it back down afterward. This flexibility can be a lifesaver when managing your finances.

4. Ongoing Growth

With SWP, your remaining investments continue to grow. If you’re withdrawing ₹1 lakh every month but your investment earns an annual return of 10%, your investment can keep growing, providing a cushion against inflation and ensuring that you have enough for the future.

SWP vs Traditional Withdrawals

You might wonder why you should choose an SWP over just redeeming units whenever you need cash. Here’s where the discipline comes in: HDFC Flexi Cap through the crashes of 2000, 2008, 2013, and 2020 saw their patience rewarded handsomely. The lesson here? Don’t let short-term market movements shake your long-term vision

Consistency: An SWP provides a structured approach to withdrawals. You don’t have to worry about market timing or whether it’s a good time to sell.
Tax Efficiency: By spreading your withdrawals over time, you can avoid triggering higher tax liabilities associated with large lump-sum withdrawals as explained above.

Who Should Consider SWP?

SWP can benefit a variety of investors. Here are some groups who might find it particularly useful:

Retirees: If you’re enjoying your retirement, an SWP can provide that regular income to maintain your lifestyle while your investments continue to grow.

Individuals Planning Major Expenses: Whether it’s a child’s education, a wedding, or a dream vacation, SWP can help you plan for significant expenses without liquidating your investments all at once.

People with Variable Income Needs: If your income fluctuates, an SWP can help you manage your cash flow. For example, freelancers or business owners can use SWPs to maintain a steady income during lean months.

Long-term Investors: If you believe in the power of compounding and want to keep your money invested for growth while enjoying some liquidity, SWP strikes a balance between accessing funds and allowing for investment growth.

Investors Looking for Financial Discipline: If you tend to overspend when you have lump sums of money, an SWP can help instill financial discipline by providing a steady income while limiting the temptation to spend too much at once.

Summarizing

A Systematic Withdrawal Plan (SWP) can be a powerful tool for managing your finances, offering the benefits of regular income, tax efficiency, flexibility, and ongoing growth. Whether you’re planning for retirement, looking to fund significant expenses, or simply want to manage your investment returns, SWP provides a structured approach that can help you achieve your financial goals without the stress of liquidating your entire portfolio.

So, whenever you accumulate some corpus in Mutual funds, don’t rush to take it out, unless you need all of them, rather use SWP to withdraw systematically & enjoy the fruits of your labor, Your future self will thank you!

At Wealthsane, we understand that each client has unique needs and goals. That’s why we specialize in managing SWPs tailored to various purposes—from ensuring a comfortable retirement to funding your child’s education and everything in between. Let us help you navigate your financial journey and make your investments work for you!

SIP Success: The Journey from ₹10,000 to ₹20 Crore Over Time

Sachin Jain — Wed, 18 Sep 2024 13:19:59 +0000

Get ready to be amazed! A monthly SIP of ₹10,000 in the HDFC Flexi Cap Fund, started in 1995, has now grown into a mind-blowing ₹20.42 crore. Yes, you read that right—₹20 crore! With a phenomenal 21% CAGR, this is the power of long-term investing at its finest. It’s not just about numbers—it’s a real-life example of how patience and discipline can create unimaginable wealth. Achieving 21% annual growth over nearly three decades is nothing short of extraordinary. This is the magic of compounding in action, and it’s a rare achievement in the investment world.

There are a 4 few powerful lessons to take from this:

1) Time is Your Best Friend:

This journey took about 29 years. The key takeaway? Start investing as early as you can and keep at it. The longer you stay invested, the more you allow your wealth to grow

2) SIP Brings Discipline:

Systematic Investment Plans (SIPs) are the best way to invest in mutual funds. They take the guesswork out of when to invest and instill the discipline needed to grow your wealth steadily. With SIPs, you’re consistently investing, regardless of market conditions, which can lead to better long-term outcomes.

3) Patience is Everything:

It’s tempting to cash in when your portfolio looks good, but here’s the thing: no one knows when the market will dip or surge. Some investors redeem their funds, planning to reinvest when prices drop, but there’s no guarantee that you’ll get a better entry point. Those who stayed the course with HDFC Flexi Cap through the crashes of 2000, 2008, 2013, and 2020 saw their patience rewarded handsomely. The lesson here? Don’t let short-term market movements shake your long-term vision

4) Apply this to your own situation:

Not everyone has 29 years to invest, but that’s okay. The point is to invest for as long as you possibly can. The more time you give your investments to grow, the better your results will be.

We are sharing this with you because we have seen firsthand the power of sticking with your investments. It’s not always easy to ride out the ups and downs, but the rewards of staying invested can be truly life-changing. Let your money work for you—over time, it can grow beyond your expectations.

Ready to build your own success story? Start today.

If you’re interested in investing in mutual funds, our team is here to guide you.

How can STEP UP SIP help you reach your Financial Goals Faster?

Sachin Jain — Mon, 09 Sep 2024 07:21:35 +0000

Step-Up SIP is an enhanced version of the regular Systematic Investment Plan (SIP), where you gradually increase your investment amount over time. Typically, in a regular SIP, you invest a fixed amount every month. However, with a Step-Up SIP, you raise your SIP contribution by a certain percentage, say 10%, every year.

Why Consider a Step-Up SIP ?

Align Your Investments with Your Growing Income: As your income increases, your financial goals may become more ambitious. Whether it’s planning for a child’s education, a bigger home, or an early retirement, a Step-Up SIP ensures your investments grow along with your aspirations.
Stay Ahead of Inflation: You know how inflation can erode the value of money over time. By increasing your SIP contributions regularly, you’re not just keeping pace with inflation—you’re staying ahead of it, ensuring that your wealth continues to grow in real terms.
Maximize the Power of Compounding: The more you invest, the more you benefit from compounding. Even a small increase in your SIP amount can significantly boost your returns over the long term. It’s like giving your existing SIP a turbocharge!

The Impact of a 10% Step-Up SIP Over 15 Years

Let’s consider the following scenario:

Initial SIP Amount: ₹10,000 per month
Investment Duration: 15 years
Expected Rate of Return: 12%* per annum
Step-Up Percentage: 10% annually

Scenario 1: Constant SIP (No Step-Up)

Monthly SIP: ₹10,000 (constant)
Corpus After 15 Years: ₹50.6 Lakhs

Scenario 2: 10% Step-Up SIP

Starting Monthly SIP: ₹10,000
Year 2 SIP: ₹11,000
Year 3 SIP: ₹12,100
…and so on, with a 10% increase each year.
Corpus After 15 Years: ₹98.9 Lakhs

The Difference

By simply stepping up your SIP by 10% each year, your corpus at the end of 15 years nearly doubles compared to a constant SIP. Corpus Difference: ₹48.3 Lakhs, That’s an additional ₹48.3 lakhs.

SIP vs Step up SIP (by 10%) returns difference in just 15 years

Why This Matters?

Just by gradually increasing your SIP contributions! This extra amount could be the difference between reaching your financial goals sooner or settling for less than you hoped for.

By opting for a Step-Up SIP, you’re making a smart, disciplined choice that aligns with your growing financial capacity. It’s a simple change, but the impact over time can be significant.

Ready to Maximize Your Investments?

If you’re interested in setting up a Step-Up SIP, we are here to guide you through the process and make sure your investments are working as hard as you do.

7 Reasons to plan for your Child Education as early as possible

Sachin Jain — Fri, 21 Jun 2024 13:12:27 +0000

Darshana and Ganesh (name changed), our recently added income tax clients, took a ₹50 lakh education loan this year to send their daughter abroad for higher education. Mr. Ganesh, who is 56 and likely to retire in the next 2-3 years, regrets not planning earlier and investing towards her daughter’s higher education. This would have reduced the need to borrow such a large amount, especially when his priority now is saving for retirement.

Like Mr. Ganesh, many Indians aspire to send their children abroad for higher education. When that isn’t feasible, they strive to provide their kids with the best possible education here in India. While every parent wants to give the best opportunities to their children, planning for these opportunities often takes a backseat to life's other demands. It’s a sad reality that very few people actually plan and invest with such a vision.

Let's us today understand the potential benefits of early planning and investing for your child’s education

Inflation:

It’s a well-known fact that the cost of goods and services increases over time due to inflation. However, when it comes to education, the rise is significantly higher than the average inflation rate.

Consider the following data:

Field of Professional Education	2009 (fees)	2024 (fees)
MBA	5.89	24.61
Engineering	2.05	8.55
Medical	16.97	70.88

According to this study, the cost of pursuing professional education courses such as MBA and Engineering in India has risen sharply over the last decade. The expenses for similar courses abroad are even higher.

Why Education Costs are Rising?

Indian educational institutions, driven by limited supply and high demand, possess significant pricing power. As a result, their fees are expected to continue increasing over the next 10-20 years. This trend should not come as a surprise.

By early planning & investing, you can ensure that your savings grow at a rate that outpaces inflation, preserving the purchasing power of your money over time.

2) The Uncertainty of Life

Life is unpredictable. What we earn today might not be the same tomorrow. Economic downturns, deteriorating health conditions, and unforeseen circumstances can put brakes on our earnings and, eventually, on our child’s aspirations. In such an uncertain world, having an investment plan can significantly mitigate these risks and secure your child’s future.

3) Reduced Stress and Anxiety

Financial planning for education in advance reduces the stress and anxiety associated with sudden large expenses. It allows you to manage your finances more effectively, without compromising on other financial goals such as retirement planning.

4) Better Loan Management

If loans are still necessary, early planning can reduce the loan amount and make repayment more manageable. Smaller loans mean less interest over time, and a more secure financial future for both you and your child.

5) Teaching Financial Responsibility

Involving your children in the planning process can teach them valuable lessons about money management, the importance of saving, and financial responsibility. This can set them up for a financially prudent future

6) Compounding:

By starting your investment early in instruments like Mutual Funds, you can take advantage of compounding interest, allowing your investments to grow significantly over time. This reduces the amount you need to save each month compared to starting later

7) Flexibility in Educational Choices:

With a well-funded education plan, your child has the freedom to choose the best educational institutions, whether in India or abroad, without financial constraints limiting their options.

Take Action Now

Investing in your child’s education is not just about securing their future but also about ensuring your own financial well-being. Start planning and investing early to maximize these benefits and provide the best opportunities for your child without compromising your financial stability.

Remember, the best time to start was yesterday. The second-best time is now. Take the first step towards a secure educational future for your child and a worry-free retirement for yourself.

Schedule a 30 minutes appointment with us to create a investment plan for your child education

PPF vs. ELSS Mutual Funds: Where to invest?

Sachin Jain — Thu, 25 Apr 2024 14:31:21 +0000

Last week a client of ours called to understand a few things on taxation, out of them one of the queries was on year-end tax saving declaration & investments. Continuing the old norms, he decided to invest a lump sum amount of 1,50,000 towards the PPF account to benefit of section 80c of the income tax act. We suggested ELSS Mutual Funds but he denied saying it is risky & difference in return won’t be much.We happened to share the calculation along with the note which we are sharing here.

Let us assume:

1)You invest 1,20,000 every year in PPF for tax-saving
2)The lock-in period in PPF is 15 years, however, 50% can be withdrawn after 5 years.
3)The returns from PPF now are 7.1- 7.7%
4) What about risk? PPF is ultra-safe, and being run by the government of India, there is a huge comfort.

Let us assume:

1) You invest the same amount Rs 1,20,000 in ELSS tax-saving Mutual Fund schemes
2) Lock in period is 3 years
3) Returns are market-linked, however, historical returns of mutual funds from the last 15 years are north of 13-17%, but being conservative let us assume it to be 12% pre-taxes.
4) When you redeem mutual funds ( at maturity) returns above 1 lac are taxable at the rate of 10%, any capital gains arising until the redemption are not taxable.

Finally, let us check what you will make:

PPF

Invested amount of 10,000 per month
Total investment after 15 years = 1800000
Returns CAGR% = 7.1%
Returns: 14,54, 567
Taxes will be zero
Final Maturity Amount = 1800000+ 1454567 = 3254567 (32.5 lacs)

ELSS Mutual Funds

Invested Amount 10,000 per month
Total Investment after 15 years= 1800000
Returns CAGR% = 12% (assumed)
Returns:34,45,760
Tax @ 10% = 3445760 – 100000 ( remember we said above 1 lac) = 3345760*10% =334576
Returns after paying taxes = 3445760 – 334576 = 31,11,184
Final Maturity Amount = 1800000+ 31111184 = 4911184 (49 lacs)

You see, the difference between the two is large.

What about Risk?

We would not call ELSS mutual funds as risky, rather would call them volatile as they invest money in equities and chances of equities producing negative return over the long term is less at least that’s what we have seen in past .

With that note, We convinced him to add 30-40% of the corpus in ELSS to begin with, and the rest in PPF

Choose your investments wisely, weighing the facts & returns appropriately

Mutual funds investments are subject to markets risk, returns discussed here are not assured but a conservative assumption

Power of compounding in Mutual funds investing!

Sachin Jain — Sat, 03 Feb 2024 11:15:01 +0000

Answer this question.

Suppose you are being given an opportunity to travel to the moon and come back. To do this you have been allotted a Hi-tech Time travel machine whose initial speed is 10 km per week. Make a note, the speed of this machine will get double every week as you begin your journey towards the moon. Also, make a note the journey won’t be easy, there will be obstacles along the way.Now, My question to you is how much time would it take you to reach the surface of the moon and come back to earth?

Think about it, comon, this is just for fun. The distance between Earth & the Moon one way is approx. 3.6 lacs Km so the distance required to be covered back & forth is 7.2 lac km.

Here are your first 5 weeks’ distance-covered statistics

So now think about it. Keep an answer in your mind before we open the curtains.

Okay, here is the answer.

You will come back to Earth in less than 18 weeks, check out below.

Wow, isn't it amazing just less than 18 weeks?

Now here’s one more interesting thing. If you see it carefully in your distance covered chart. By the 10th week you had just covered 5000 odd kilometers, the bulk of your distance got covered in the last 8 weeks of your journey.

Why did that happen that way?

Remember we said the speed of machine will double every week, this doubling effect created a massive increase in the speed of your machine in the last leg of your travel,which made this impossible journey impossible in just 18 weeks.

What you saw above was an example of power of compounding or compound interest as commonly called.

Hypothetically speaking,Imagine had you stopped this journey in the 10th week, thinking of it as impossible task you would have missed a lifetime of an opportunity.

Wealth creation through mutual funds is yet another example of power of compounding, which many people keep missing. Let us see

Let’s assume you invest 35000 per month, and you do this for the next 20 years, your rate of returns we assume will keep coming at 12% CAGR* (Compounded annual growth rate) year on year

What do you think, how much will you make? Check it out

The first thing is you will make a lot of money, relatively better than any other investment tool.

The second thing to note, just like in the above example, your first 10 years of investment would generate a corpus of 82.5 lac rupees on your investment of 42 lacs (not bad at all) but in the next 10 years you will add a staggering 2.15 crores to your corpus on an additional investment of just 42 lacs , now this is again an exponential growth just like we saw in the case of our hypothetical time travel machine above.

Why do many mutual fund investors don’t take advantage of this power of compounding?

This takes time, wealth creation doesn’t happen in a couple of years as you saw in the table above. Mutual fund investments is a long term activity, the initial 5-7 years are not so great as the corpus is small, but as it get bigger the real power of compounding is witnessed.

Those who have patience can only make large wealth through it & we have seen in our experience many investors lack patience, they cannot stay invested for long periods of time. The one who does have seen the fruit in the past & will see in future as well.

Ending this, with a quote from world’s best investor, Warren buffet who made bulk of his wealth through investing, when he was asked about his success, this was his reply.

See, he mentions compounding

To Start Investing In Mutual Funds With Us, Call Us On The Given Number. We Are Wealthsane.Com, AMFI Registered Distributor Of Mutual Funds & Tax consultants

Why you should not invest in Dividend based (IDCW) Mutual Funds?

Sachin Jain — Wed, 10 Jan 2024 11:02:57 +0000

Why? Just why, people invest in dividend base funds, when instead they have the option to invest in growth?

To check whether you have a dividend-based fund in your portfolio, look at your monthly mutual funds statement. In that, alongside the name of the fund if it’s written IDCW it means you have opted for a dividend. We feel these 3 are the main reasons why people invest in them.

Either due to ignorance or lack of awareness.
Invested thinking they will get some fixed income.
Advised by someone.

So why are dividend based funds not recommended for? Here are the three main reasons.

Reason 1: These are not your actual dividend like you get in shares.

When you invest in shares of a company & not mutual funds, the company’s management decides whether they should pay you any dividend. In case the company decides to pay, here’s how the typical working will look like.

That’s great, you got Rs 10,000 as dividend, and at the end of the day, you are still holding 1000 shares which can appreciate in price, also, the money you got is a reward/bonus as this is over and above your investment and your principal investment in the shares of the company stays as it is which in this case is Rs 1 lac.

Bottomline – Dividends are great when you get them from your investment in stocks!

The problem is that the same rule doesn’t apply to Mutual Funds.

When you invest in a Mutual Fund with a dividend option instead of a growth option, The money given to you as a dividend is not a bonus or any actual dividend received from invested companies but by breaking a part of your own invested capital and the returns generated from it.

Once the dividend is paid, your investment capital is reduced by an equal amount paid to you as a dividend. Not clear?

Let’s see the typical working here

Let’s say you invest 1 lac rupees in Nippon mutual fund* with a dividend option.

Assume in consideration for the Rs 1 lac investment here, you will get units of mutual funds just like you get shares when you invest in a company, assume the number of units you get here is 10000.

100000/10 (price per unit) = 10,000 units

Since you have opted for a dividend, the fund decides to pay you a dividend at the rate of rupees 1 per unit.

So what we have now is

After the dividend payout, your investment capital would be reduced by an amount equal to the amount paid to you as dividend.

Your principal capital in Nippon would be Rs 90,000 (100,000-10,000)

Isn’t it misleading? When there is no dividend why are they called as dividend funds?

Yes, That’s the reason SEBI changed the nomenclature of these funds. Starting from 2021, these funds are labeled as IDCW (Income distribution cum capital withdrawal) instead of dividend option, just to bring transparency & avoid any misconception among the investors community who are investing in them thinking they are getting bonus money in the form of dividend.

This money is not a dividend but a mere distribution of your own appreciated capital.

How about you deciding to reinvest this dividend in the same fund without receiving the money as such options are also available, read ahead to know the answer

Reason 2: Dividends are Taxed

Dividends or dividends reinvested, are first taxed at your income tax slab, so whatever money you get/re-invest will be first taxed. If we take the above example, tax on a Rs 10,000 dividend, assuming you are at 30% slab will be Rs 3000, even if the money doesn’t come to your pocket & directly get re-invested.

Reason 3: Opportunity Cost

When you choose dividend option, you are also losing the potential opportunity to earn extra money had this money stayed invested instead of taken out. For example in the above case Rs 3000 taxed paid by you if stayed invested could possibly become 10,000* in next 8-10 years (assumed rate -12%)

Woah! When you combine the above three reasons and think about it, what you are trying to do is break out your own capital for the sake of a dividend, which is not a dividend, paying tax on it along with it also losing the potential opportunity to earn extra money which got paid as tax.

In short, you are doing this

Summarizing:

Dividend Based funds or IDCW as rightly labeled is a complete no-no for the reasons given above. You should always opt for a growth option while investing and if you think you need regular money from them, invest at least for 4-5 years first, let some capital build up & then take out regular money. We think its more logical, tax efficient and less harmful.

Wealthsane |

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Summarizing

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There are a 4 few powerful lessons to take from this:

1) Time is Your Best Friend:

2) SIP Brings Discipline:

3) Patience is Everything:

4) Apply this to your own situation:

Ready to build your own success story? Start today.

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Ready to Maximize Your Investments?

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Let's us today understand the potential benefits of early planning and investing for your child’s education

Inflation:

Consider the following data:

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2) The Uncertainty of Life

3) Reduced Stress and Anxiety

4) Better Loan Management

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6) Compounding:

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PPF vs. ELSS Mutual Funds: Where to invest?

Let us assume:

Let us assume:

Finally, let us check what you will make:

PPF

ELSS Mutual Funds

You see, the difference between the two is large.

Choose your investments wisely, weighing the facts & returns appropriately

Power of compounding in Mutual funds investing!

Answer this question.

You will come back to Earth in less than 18 weeks, check out below.

Wow, isn't it amazing just less than 18 weeks?

Why did that happen that way?

What you saw above was an example of power of compounding or compound interest as commonly called.

Wealth creation through mutual funds is yet another example of power of compounding, which many people keep missing. Let us see

What do you think, how much will you make? Check it out

Why do many mutual fund investors don’t take advantage of this power of compounding?

See, he mentions compounding

To Start Investing In Mutual Funds With Us, Call Us On The Given Number. We Are Wealthsane.Com, AMFI Registered Distributor Of Mutual Funds & Tax consultants

Why you should not invest in Dividend based (IDCW) Mutual Funds?

Why? Just why, people invest in dividend base funds, when instead they have the option to invest in growth?

So why are dividend based funds not recommended for? Here are the three main reasons.

Reason 1: These are not your actual dividend like you get in shares.

Reason 2: Dividends are Taxed

What Are Liquid Funds?

Why Set Specific Financial Goals?