How Equity Can Help You Retire Rich?

How Equity Can Help You Retire Rich?

When you talk of equities, you normally hear the stories of how stocks like Wipro or Havells have created wealth over the years. For example, an investment of Rs. 1,000 in Wipro in 1980 would be worth nearly Rs.60 crore today. Similarly, and investment of Rs.1 lakh in Havells in 1997 would be worth Rs.32 crore today. There are scores of other similar stocks like Eicher Motors, Escorts, TVS Motors, TTK Prestige, Symphony etc which have multiplied anywhere between 50 times to 200 times over time. But, let us first shift to the core idea of why we are discussing all these stocks when we talk about retirement.

The 3 considerations in retirement

Irrespective of when you plan to retire, it is always better to start planning early. That is what retirement planning is all about. Here are the 3 key considerations.

  • You need to take a long term approach towards planning your retirement because that is when the power of compounding works in your favour. The longer you hold on to quality investments, the more the returns compound and increase wealth.

  • Retirement is all about making small money work hard. That is only possible through equities. For example, an equity fund can give returns of around 13-15% on an annualized basis. You can’t plan your retirement with a 6% liquid fund.

  • For planning your retirement, risk is as important as returns. You can argue that equity is high risk but if you look at quality portfolios of equities, they tend to almost negate downside risk if equities are held for a period of more than 7-10 years.

But, how can equities help us compound retirement corpus?

It is hard to fathom the power of compounding but we can grasp that better with a hypothetical illustration. Let us look at how yields and time make a huge difference to your retirement corpus creation. Since lump sum investments are not practical for most people, let us assume that the investor does a monthly SIP of Rs. 5,000 under different options.


SIP Period

Annual Yield

Total Outlay

Final Value

Wealth Ratio

Liquid Fund – 1

10 years


Rs.6 lakh

Rs.8.24 lakh

1.37 times

Liquid Fund – 2

20 years


Rs.12 lakhs

Rs.23.22 lakh

1.94 times

Equity Fund - 1

10 years


Rs.6 lakh

Rs.13.11 lakh

2.19 times

Equity Fund - 2

20 years


Rs.12 lakhs

Rs.65.82 lakh

5.49 times

Two things are evident from the above table. Firstly, the liquid fund with similar monthly contribution over 20 year has a lower wealth ratio compared to equity funds over 10 years. That means higher yield matters and that is only available in equities. Secondly, the equity fund creates a higher wealth ratio over 20 years than over 10 years and that underscores the importance of long term holding. Therefore, retirement plan must focus on a diversified equity portfolio held over the long term.

Equity versus equity funds; why not both?

Quite often investors get confused whether they should opt for equity funds or direct equities for their retirement plan. Equities can give you multi baggers but selecting multi baggers is not a cakewalk. That is where equity mutual funds can offer a trade-off. But the best way is to combine the power of direct equities and equity funds. Here is how!

  • Equity funds should be used for retirement hygiene factors; that means you need to run your home and your regular expenses post retirement and it has to be predictable. Here equity funds can play a much bigger and meaningful role.

  • How about the add-ons post retirement. For example, you may plan a vacation or may want to pursue other aspirations or may want to extensively travel. These are add-ons which you can plan with direct equity investments. Do your research and stick to quality stocks for the long term.

The fact is that retirement planning must be a lot more nuanced. Either ways, being a long term goal, your focus must be on the power of equities. Nothing gels with long term retirement goals better than equity investments.

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How to Choose the Best Demat Account?

How to Choose the Best Demat Account?

You may actually wonder, what is there to choose between demat accounts? After all, it looks like a plain vanilla account where you can hold your shares. But you must do your homework before opting for your demat account. Here are some factors to consider before opening your demat account.

Ideally keep your trading account and demat account at the same place

This is no statutory requirement as you are free to have your trading account and demat account with different brokers. It is more about your own convenience. Normally, brokers open trading-cum-demat account together; so this should not be a real issue. The only issue is if your broker does not have a DP license? Then you need to ensure that once you sell shares you submit debit instruction slip (DIS) to your broker on time. If the DIS gets delayed, it can result in short delivery and lead to auction losses for you. When your broker and DP are the same, this entire process becomes simple and seamless.

Know: Difference between Demat Account and Trading Account

Today, demat is about technology so check the tech specs

When you open a demat account it is normally a 2-in-1 account and the entire process should be seamless. It should not only be cost effective and simple, but also ensure a smooth process. Most brokers offer you access to your trading account and demat account through a single platform. The funding of bank account, credit to demat, debits to demat and credits to bank account - all happen seamlessly. The DP must have a robust technology platform that ensures the same. Focus on a DP that is able to deliver a tech-smart solution.

Compare the costs of demat with competition

There are various costs to a demat account. Annual maintenance charge (AMC) is billed to you each year. This is normally based on the value of shares in custody and ranges between Rs.500 to Rs.800 per year. DPs cannot charge you for credit of shares but each time you sell shares and the shares get debited from your demat account, the DP pays a charge to NSDL or CDSL. This charge gets passed on to you. In addition, DPs also charge you for physical statement, duplicate statement or more frequent statement of holdings / transactions. If DIS gets rejected, DP charges you a penalty. There are also additional costs for dematerializing shares and also when the demat request form gets rejected due to technical errors. Add up all these costs for the complete picture. You must save on costs without compromising on quality of service.

Check the service standards of the DP in the market

A DP must be judged based on the quality of the regular and ancillary services provided. For example; how long does it take to get your physical shares dematerialized? Do corporate actions get credited to your demat account automatically? How efficiently does the DP deal with issues like pledge, lien, and customer complaints, among others? Check with other customers and with the market grapevine before zeroing in on your DP.

Finally, do a reality check on the DP image in the market

At the end of the day, choosing a DP is about the service standards and the customer orientation that they bring to the table. A DP that takes care of the small hygiene factors is worth going for. For instance, be careful of having a demat account with a DP which has a lot of service level complaints pending with SEBI. That is not a very good sign and shows lack of attention to quality. Ensure that there are no regulatory investigations or inquiries pending against the DP. Social media can be a two-edged sword but you must scan social media and discussion forums for negative feedback about their DP services. Quite often, social media tends to hype things up but like in most cases there is rarely smoke with fire. You may not act on it but it can be a useful input point.

The whole idea of these checks and balances is to ensure that you don’t end up with the wrong DP. You can at least make a smart choice to begin with!

Important Links:

1.  Types of Demat Account

2.  Documents Required to Open a Demat Account

3.  Benefits of Demat Account

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5 Simple Ways to Invest with Little Money

5 Simple Ways to Invest with Little Money

Quite often you hear the general excuse that one is not able to invest because they don’t have a large enough corpus. Actually, you don’t need a large corpus. You need to focus on maximizing savings and start regular investment immediately. Here are 5 things to do while investing with little money.

Start as early as possible

There is really no right age to start investing but the earlier you start the better it is. Over longer periods of time, even small contributions can grow to large sums of money. That is when the power of compounding really works in your favour. The longer you invest, the more your capital earns returns and the more your returns earn returns. Check this table below, where we have assumed a yield of 15%:

Monthly SIP

Invested in

Yield (%)



Final Value

Rs. 3,000

Equity Funds


30 years

Rs.10.80 lakhs

Rs.2.10 crore


Equity Funds


20 years

Rs.24.00 lakhs

Rs.1.51 crore


Equity Funds


10 years

Rs.24.00 lakhs

Rs.55.7 lakhs.

Interestingly, you create the maximum wealth with a monthly SIP of Rs3,000 just because you continue it for 30 years. In the other two cases, you end up with less wealth even through you contribute much more.

Adopt a SIP approach

Don’t try to time the market with lump sum investments. That is too much of strain on your finances. Instead opt for the comfort of a systematic investment plan. It synchronizes with your inflows and also gives you the added benefit of rupee cost averaging. As the table above captures, SIP instils the discipline and that matters more than the amount you invest.

Using diversified mutual funds

That brings us to the next question, if you have a small corpus to invest then where should you invest it. Obviously, if you put the money in a liquid fund earning 6% pre-tax or a debt fund giving 9% returns you cannot create meaningful wealth with a small investment. You need to take a long term view and stick to equities. Don’t fall for sectoral and thematic funds. They can be too risky and unproductive in down cycles. Rather stick to diversified equity funds and at best look at multi cap funds if you want to add the benefit of alpha from mid caps and small caps.

Buy quality stocks in small quantities

If you think that buying direct equities takes a lot of investment, just think again. When you buy shares in demat, you can even buy small quantity of a stock. A stock of Infosys costs you less than Rs.750 per or a share of SBI costs you around Rs.300. You can keep nibbling in small quantities. Remember this story from market folklore; an investment of Rs.10,000 in Wipro in 1980 would be worth Rs.600 crore today. Yes you did hear it right!

Keep a trading limit for options

Even with a small corpus you can always look to options. You can take a larger position in calls or puts where conviction is higher. Of course, keep the premium as your sunk cost and go ahead. Measure the risk you can afford, but this is a great way to play the market both ways.

Moral of the story is not to be intimidated because you have a small corpus to invest. In the final analysis discipline and diligence matters a lot more.
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The Difference Between Regular and Direct Mutual Fund

The Difference Between Regular and Direct Mutual Fund

Browse through the NAVs of mutual funds either in the pink papers or the AMFI website and you will find that the same growth or dividend scheme of a mutual fund is subdivided into Regular plans and Direct Plans. Have you ever wondered what are these Direct Plans and Regular Plans? Let us check out a live NAV table first.

Date Source: AMFI

In the above table, you will find that the DSP Top 100 Equity Fund is subdivided into Direct Plan and Regular Plan. You will also find that the Direct Plan has a higher NAV compared to the Regular Plan. Before comparing Direct Plans and Regular Plans, let us briefly dwell on the brief history of Direct Plans.

A Brief History of Direct Plans

Prior to 2009, fund houses charged investors entry loads on mutual funds to cover selling and distribution costs. In August 2009, SEBI banned the collection of entry loads from mutual fund clients. However, the official model of Direct Plan came only from January 2013 when SEBI asked all fund schemes to classify into Direct Plans and Regular Plans.

Currently, funds are allowed to debit their annual expenses up to a ceiling of 2.25% of the AUM in case of equity funds to the fund NAV. This is called the Total Expense Ratio (TER). The fund does not bill the distribution and trail commission costs to Direct Plan investors. Hence, Direct Plans are subject to lower TERs and the NAV are higher. Here are three key points.

Direct Funds Have Lower Expense Ratio

The TER on Direct Plans is lower since the distribution and trail fees are not billed to them. However, there are other costs too in a mutual fund. Mutual funds have to incur operational costs, fund management fees, auditor fees, registrar charges, execution costs, statutory costs and brand expenses, among others. Even if you are holding a Direct Plan, these expenses will still be charged to you. It is only the distribution and trail commissions that are not billed to your NAV. In a typical equity fund the regular plans will have a TER of around 2.25% while the TER for a Direct Plan will be 60-70 bps lower. This cost saving each year enhances your return over the longer period of time.

Direct Plan Does Not Involve Any Intermediary

Direct Funds are simple in nature and the process of investing, especially through an online platform is easy as you do not deal with any intermediary. You can invest directly and make your own investment choice. Just ensure that the NAV in your statement actually reflects the Direct Plan NAV as available on the AMFI website.

Choose Direct Plans If You Can Make Financial Planning Decisions Independently

The common question is - who should opt for a Direct Plan. There are no hard and fast rules. If you are savvy enough to manage your financial planning and investments on your own, then you can consider Direct Plans. When you invest via Direct Plans you do not get the benefit of the advisory services of a broker or financial advisor. Hence, you need to make your choice of Direct Plan after due consideration. Ensure that you have the time and resources to make your financial planning decisions independently.

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How Can You Invest In Direct Mutual Funds?

How Can You Invest In Direct Mutual Funds?

Direct plans of mutual funds enable the investor to save on costs. Direct Plan investors are not charged the distributor and trail commissions. For an average equity fund, this reduces the Total Expense Ratio by 60-70 basis points. This makes a big difference over longer periods.

The KYC process remains the same, irrespective of whether you opt for the Direct Plan or the Regular Plan. Also you have to register with the AMC or the aggregator once. The investor can either do a lump sum investment or follow SIP route through the Direct Plan. Once your SIP is registered as a Direct Plan, then it continues that way. You can convert a Regular Plan into a Direct Plan by writing to your fund. How do you invest in Direct Mutual Funds?

Direct Plan Investing Through AMCs

Walk into the nearest office or Investor Service Centre of the AMC of your choice. If you are a first time investor, then you will have to complete your KYC and you will be allotted a ‘Folio Number’. Once folio number is allotted, subsequent investments can be done online. Ensure that you specifically check the Direct Plan box in your application. The only challenge in this approach is that you will have to obtain a distinct folio number for each AMC.

Direct Plan Investing Through Fund Registrars

Registrars are the record keepers and folio managers of all mutual fund accounts. There are two key players viz. Karvy and CAMS. You can register with either registrar online to invest in Direct Plans. Of course, when you approach a registrar, you can only invest in funds for which they are the registrars. In fact, when you submit an application to your AMC, it is processed by the registrar only. So, this is an extension of the first method.

Leveraging MFUs and Fund Aggregators

Mutual Fund Utilities (MFU) or aggregators are an agnostic platform to invest in mutual funds. You will have to take a one-time registration and obtain a Common Account Number (CAN). Once the CAN is obtained, you can map all your existing folios to that particular CAN and they would be treated as Direct Funds. The advantage is that you don’t have to interface with multiple AMCs and the MFU aggregates and gives you requisite analytics for better decision making. The challenge is that you can only deal in the funds where the AMCs have tied up with the MFU. This platform is convenient and centralized.

Direct Plan Investing Through Investment Advisors, Online Direct Investment Portals

The challenge in the above 3 methods is that you still have to be self-driven. As an investor you need to take all the decisions including screening, selecting and ensuring that funds are in sync with your long term goals. One alternative is to go through on online platform of Registered Investment Advisor or through a Robo Advisor. These platforms provide investment recommendations to investors on the basis of certain details keyed in by the investor. 

Direct Plans Of Mutual Funds – How To Make The Choice?

Investing through Direct Plans requires that you are comfortable with a self-driven approach to investing in mutual funds. While mutual funds offer diversification and professional management, they are also exposed to the vagaries of the markets and macros. You must be confident to handle these gyrations. Ideally, Direct Plans are for investors who have the time, wherewithal and resources to spend in making investment decisions. Otherwise, you are better off opting for a Regular Plan and letting your broker advice you appropriately.
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Sensex Breaks Below 38,000. Is This Time To Be Cautious?

Sensex Breaks Below 38,000. Is This Time To Be Cautious?

Between May 6 and May 8, 2019 the Sensex lost nearly 1,200 points in a vertical fall. It was triggered by an exasperated Donald Trump tweet on his intent to raise tariffs on Chinese imports from 10% to 25%. Global markets reacted in unison as nearly US$13 billion was wiped out for every word that Trump tweeted. India was not spared as the Sensex dipped below the psychological level of 38,000. What should investors really do?

Source: BSE (May 9, 2019)

The one-month chart of the Sensex is quite revealing. After crossing the 39,000 mark multiple times, the Sensex had faced tremendous pressure before it ascended further. Should traders and investors be cautious at this point?

A. There is a global angle to this correction

The big trigger for the correction was an escalation of the trade war. By now it is clear that this is not just a war over import duties, but a much bigger war of two of the largest economies trying to assert their economy supremacy. The US remains the market that every country looks up to and China is the only country that can absorb all the minerals and metals produced in the world. China is unwilling to commit anything on intellectual property rights and that is the bone of contention. A prolonged trade war will mean that there could be an impact on growth in US and Chinese GDP. That will surely rub off on global demand. Secondly, there is a limit to which China can retaliate because they run a trade surplus in the range of $400-500 billion with the US (as per US Census). The other option is to devalue the Yuan. That could have a weakening impact on currencies including the rupee. Hence the trade war will continue to be an overhang on the Sensex.

B. Domestic macros are a challenge too

There are a number of domestic challenges too. Despite two rounds of rate cuts, there has been little impact on lending rates. The rupee has been extremely volatile and the RBI has been using swaps to infuse domestic liquidity into markets. There is the more immediate challenge on top line growth in consumer sectors like FMCG and auto where the slowdown is obvious. Despite all the efforts of the government, farm incomes have not improved and weak rural demand is putting a limit on growth.

C. Banking holds the key for now

We have seen in the past that if the Sensex has to go up decisively, then banking stocks have to perform exceptionally well. That is hardly surprising considering that banking and financials account for 38% of the Nifty basket. Amidst this, PSU banks are struggling to recover from the NPA pile accumulated over the years. Then, there are the potential NPAs pertaining to IL&FS, ADAG group and sectors like power and telecom that are not yet accounted for. When you add these up, the question “where is the trigger for a market rise” continues to haunt.

D. You can sense the market risk in the VIX

The volatility index is also called the Fear Index as it is indicative of the caution in the markets. Historically, VIX and Sensex have had a negative correlation. This time around, the VIX has moved up from 14 levels to 26 levels over the last couple of months and shows no signs of abating. That is a clear indication of high levels of risk that markets are assigning at current levels. When the VIX is elevated at higher levels, each bounce is met with aggressive selling. VIX also reflects that the rupee is coming under pressure due to a consistently widening current account deficit.

What should investors really do at these levels?

While caution is warranted, the Sensex has shown a tendency to bounce each time the trade war has tampered. Once the rattling gets subdued, we could see the Sensex bouncing again. Other than the weakening consumer demand, all the other factors are temporary. Weak consumer demand appears to be the only structural issue and that may predicate on how the new government that assumes office deals with demand push. While traders can be choosy about timing, investors should stick to quality stocks and adopt a phased approach to investing. The more these things appear to change, the more they happen to remain the same!