How should you invest - Goals and Risk profiles

How should you invest - Goals and Risk profiles
by Prasanth Menon 05/11/2017

Investing is a complex process. You need to define your goals before you invest.

From the above cycle, we can deduce that any investing decision fundamentally revolves around how aligned the investment goals are with your goals and how risky it is. Let’s further explore the effects of these two fundamentals on your investment decisions.


As explained earlier, it’s a thumb rule that you set your goals before you plan your investment. This is because you need to understand your requirement: What are you investing for? You could be investing for to pay the amount for the down payment of your house or your car. You could also be investing for your retirement or for your child’s marriage or education.

Based on your goal, you may set a timeline for your investments. If it’s a short-term investment like arranging for a down payment, you would want to invest in short-term debt instruments. For a long-term investment like retirement or your child’s education or marriage, you would want to invest in equities as they have the potential to earn in the long run. The next factor determining your investment is your tolerance for risks. If you are in your youth, you can afford to take more risks. If you are married and have a family, you would want to play it safe. If you are nearing your retirement, you would want your investment to be risk-free and stable.


We have heard so many times that "Investments are subject to market risks; please read the offer documents carefully before investing". What are those risks and how do they affect your investments?

The recent economic breakdown of Greece and Zimbabwe and other economic depressions like the one caused by Lehmann brothers have had hyperinflation as a major factor. Thus, inflation has the potential to break down an entire country’s economy. Imagine what it can do to your savings. Inflation has the potential to eat into your savings. Inflation is one of the risk factors you need to consider while devising your investment strategy.

There are some other global or national or business decisions that can heavily impact your savings and investments. For example, the recent demonetization move had a drastic impact on world economy. Your savings could or couldn’t have been directly affected by the demonetization. However, there are other decisions that could directly impact your investments like the decision to not issue H1B visas. This caused many IT companies to lose their market share. Thus, many big IT companies had to take drastic decisions like offer VRS to the top management team or fire 300-400 of their employees. Thus, if you were invested in IT companies, it would have definitely affected your investments.

To sum it up

Your investments are usually vulnerable to all economic turmoil and while you can protect yourself against many of them, you cannot protect the outcome of many financial decisions. Thus, it is advisable to diversify your investments for damage control in case of an economic turmoil. It is advisable that you do not keep all your eggs in the same basket.

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How do I set up a goal and invest?

How do I set up a goal and invest?
by Priyanka Sharma 05/11/2017

Shoot for the moon. Even if you miss, you'll land among stars! While this is true for many cases, this is not what you would want to do when you are planning your finances. There is a chance that you might not land among the stars; improper planning could land you back to square one or worse in a ruined financial state.

Before you start investing, you need to define your goal for which you are saving for. This is because to save for the future, you are cutting back on your spending now. This sacrifice must not be in vain; you need to get an appropriate reward for this sacrifice. Goal-based investing is just what would help you.

Type of goals

No matter how different and unique your goals are, you are bound to find the correct financial instrument. However, the first step of successful planning is to set the goal. What are the common goals that many of you could relate to?

  • Build sufficient amount for retirement

  • Buy a vacation home/Save a down payment for a home

  • Create an income stream after retirement

  • Start a new business

  • Pay for your wedding

  • Save for your children’s education/marriage

  • Take a special vacation

  • All of the above

Timeline to achieve the goal

Setting a goal is important as they help you define the timeline in which you need to achieve the goals. For example, paying for your vacation, creating a constant income stream post-retirement, or your wedding could be a short-term goal while planning for your retirement could be a long-term goal.

Risk Tolerance

Your goals will also help you determine your risk tolerance. Your age will also play a factor in determining your risk tolerance. If you are in early stages of your career, you can afford to take more risks as you might not have been married. However, if you are a businessman and have a family dependent on you, you might not want to be too adventurous.

Liquidity Requirements

Your investment goals will also determine your liquidity requirements. If you are investing post having an emergency fund, you might want to invest in an investment option that would not provide you instant liquidity such as real estate. However, if you do not have an emergency fund, you might want to invest in mutual funds to gain while having the option of quick liquidity.

4 Tips to set your goals

Setting appropriate goals can be difficult. Consider the following tips before setting up your goals.

1. Know why you are investing.

  • You can set the right goals if you can point to a specific reason for investing.

  • This will also provide you with a way to stay motivated.

2. Be realistic:

  • Do not grandly proclaim that you can invest Rs.5000 while you aren’t even sure of the groceries.

  • Consider your financial situation and set achievable goals.

3. Break it down:

  • Chip down your investment goals into easy milestones.

  • Start out small and increase gradually.

4. Start simple:

  • If you are unsure whether you can really stick to the plan, start with a simple plan.

  • Also, begin with simple SIPs and do not assume that you know everything about equities.

To sum it up

Having an aim in life is important. However, having a goal while financial planning is furthermore important. If you follow the above-mentioned tips, you could better align your goals with your needs.

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5 Types of Mutual Funds

5 Types of Mutual Funds
by Nutan Gupta 05/11/2017

To put it simply, a pool of money by people with similar risk tolerance, managed by a manager and being invested in a pre-defined financial instrument is known as mutual fund. They do not all necessarily invest in stock market. For example, some mutual funds also invest in gold. One of their advantages is the quick liquidity that they provide. There are various other types of mutual funds. Let us have a glimpse through the various types of mutual funds:

Money Market Funds: Mutual funds that invest in short-term fixed-income securities such as government bonds, treasury bills, bankers’ acceptances, commercial paper and certificates of deposit are known as money market funds. These funds are generally safe; however, their rate of returns is generally lower than those of other funds. These funds are usually open-ended. They are widely considered as safe as bank deposits yet providing a higher yield. Thus, their typical returns are slightly more than what you get with a savings account.

Equity Funds: Equity Funds are funds that invest in stocks. These funds usually grow faster than money market funds. However, the risk involved with these funds is slightly higher as they may be affected by market volatility. It is advisable to invest for long duration in equities. The case is same for equity funds. It is advisable to invest for a long-term even with equity funds. There are various sub-types of equity funds like sector funds, which invest in a particular sector of equities, index funds, which aim to mirror the performance of a particular index, and so on.

Balanced Funds: These funds are basically a hybrid of the above-mentioned two funds. They get you the best of both money market and equity funds. They can be open-ended or interval funds. They tend to negate the effects of the volatile market by investing in fixed-income debt market instruments. Asset allocation fund is a similar type of fund. These funds do not hold a specified percentage of any asset class.

Commodity funds: These are mutual funds that invest neither in money market nor in equities; they invest in commodities. The most common type of commodity fund is Gold Funds. Any commodity fund can be further classified as commodity ETF and commodity sector fund. These funds are usually short-term funds. Commodity funds are essentially a sub-part of specialty fund. The other types of specialty funds are real estate funds, socially responsible investing funds and so on.

Fund of Funds: Funds that invest in other well-performing funds, expecting to mirror their performance, are called fund of funds. They pre-specify the mutual funds that they will buy or the kind of schemes they intend to invest. These are usually open-ended funds.

In a nutshell

Mutual funds, while subject to market risks are very good options when it comes to investing. You get to choose from an array of funds. They have the potential to generate great returns in the long-term.

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How do I modify my existing SIP?

How do I modify my existing SIP?
by Nutan Gupta 05/11/2017

Investing in a Systematic Investment Plan (SIP) is considered to be most favorable as you can invest as low as Rs. 500 in it. This makes it affordable for almost everyone, even those who have recently started working. But is this enough? Inflation rises every year and hence, it is only fair that you increase the amount you invest.

Instead of having your money just lying idle in your savings bank account, you can invest it in Systematic Investment Plan (SIP). This would facilitate the habit of regular saving and also earn you interest.

Doing a SIP top-up

When you get a hike in your work or you have surplus money flowing in, it’s best to invest it. Channelizing your money in mutual fund can be a good option to invest and earn some good profits on it. However, the risk with investing lump-sum is that you might have to time the market. Hence, it is advised to invest in SIPs instead. SIPs offer steady monthly investments and you don’t have to time the market for it. You can increase the amount you invest in SIPs and get better returns on it.

Can top-up be done in an existing SIP?

Ideally, this may not be possible. You fill an Electronic Clearing System (ECS) mandate form when you apply for a new SIP. According to this mandate, you tell your bank to transfer a fixed amount on a fixed day towards your SIP investment every month. Since you have already submitted this mandate to the bank, you may not be able to change it now. Most fund houses also do not allow this change yet.

Is there a way out?

Yes, definitely. You can apply for a top-up at the time of applying for an SIP. While taking a new SIP, you can opt for a periodic top-up of your investment amount. Mutual fund houses allow you to increase your investment amount either every six months or on a yearly basis if you wish to. This, however, should be specified at the start.

How does the periodic top-up work? (IG content)

  • You start investing with Rs. 500 per month.

  • And ask for a yearly top-up of Rs. 500 in your investment amount.

  • After the first year, your SIP amount will go up to Rs. 1,000 per month.

  • After the second year, it would increase to Rs. 1,500 per month.

  • This keeps increasing till the tenure of your SIP.

  • You can stop this by canceling your SIP and starting a new one.

To sum it up

You can top-up your SIP if you specify in the mandate in the start of your investment. You need to choose the amount and frequency of your top-up. Mutual Fund houses prefer the top-up of minimum Rs. 500 onwards. You can check with your SIP distributor if there is any option to modify your existing scheme. Or, you can stop this and start a new one with the mandate to top-up your investment at regular intervals.

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Goal-based investing: How does it work?

Goal-based investing: How does it work?
by Nutan Gupta 05/11/2017

Goal-based investing is just a new way of approaching wealth management. It focuses on investment from a more goal-oriented outlook. You have specific goals in mind that you want to achieve at the end of your investment tenure. And all your investment would channelize in a direction that leads you to that particular goal. There could be a variety of goals you would want to invest for. This could be saving for your child’s education, buying a new home, gifting your spouse on your silver jubilee or saving for retirement.

How does it work?

Traditional form of investing involved people who used to invest their hard-earned money for returns. But, they were not sure about the returns and their investment plan was designed to be risk-oriented. This means their investments had the potential to perform better than the market but wouldn’t be enough for meeting a goal.

Goal-based investing works towards compensating for this. It aims to outperform the market keeping in mind your threshold for risk. For example, you are 30 years old when you decide to start saving for your retirement. You intend to retire when you complete the age of 60 years. Let’s assume you are currently earning Rs. 65,000 and you are willing to invest Rs. 12,582 towards your retirement plan. Even if you calculate the expected inflation at 5% per annum and expected return on investment at 7% per annum, you would have saved a massive corpus. At the end of the tenure, you would have saved for yourself a sum of more than Rs. 1.6 crore.

In goal-based investing, all your individual asset pools are stitched together to focus on your specific goals. To explain this with an example:




Asset Allocation

10% equity, 90% fixed deposits

50% equity, 50% fixed deposits

As you can see, goal-based investing would provide you an asset allocation that supports your goals and helps you achieve them in real time. The risk here is viewed in terms of out-performing the market. It is instead viewed in proportion to how short you would fall in achieving your goal. It will help you get back on track to meet your goals in time.

A short-term goal must have investment in safer options like debt funds. Long term goals like retirement or college education of your new-born kid can have investments in high-risk-high-return type of investment assets. Once you are clear about your goals, a goal-based investment plan can be made. This could be customized according to your risk profile and time taken to achieve your goal. Since, this can be different for different goals, you need to plan this very meticulously.

How should you respond to this?

The best way to tackle this is to know exactly what you need. Be clear and define your goals. Do you know how much amount would you need to renovate your home? Do you know what would be the cost you would have to spend for your child’s marriage? Do you know how much savings you would need after retirement?

Think about all these questions and take into consideration all the factors affecting it. This could involve taking into account the economic condition as well as the inflation among other factors. A good goal-based financial planning would help you answer all of this. This would help you see tangible progress towards your goals. Avoid making impulsive decisions as per market conditions.

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The ‘right’ way to exit a losing trade

Exit a losing trade

Every trader has his share of bad trades in his portfolio and you do not need all your stocks to be multi-baggers to be successful in the share market. While gains from a stock have no upper limit, the loss from a stock is limited to the value invested in it. Exiting a losing stock is not only a financial loss for a trader, but also an emotional or psychological loss. It is human tendency not to accept losses readily. We have a few recommendations that will help you exit a declining trade.

Let’s take a look

Use stops to restrict your financial losses

Stops are calculated, pre-determined price levels at which the investor chooses to go short or sell his stocks to limit losses. When the stock price hits the stop loss price, a sell order is executed and the stock is automatically sold at that price. Stop loss orders work well as they define the losses beforehand and the loss amount is in the control of the investor. Have a personalized stop loss strategy and use it effectively to limit your losses while investing in stocks.

Keep a check on the stock even after exiting to find a re-entry point

Once you exit a position, keep an eye on it to identify any bullish indication of reversal, which can be a potential re-entry point. Using stops, you might sometimes exit your position because of price volatility. In no time, you may find the prices rising again. However, using proper stops is proven to be effective as it limits your losses in most cases. Analyze the charts, study the candlestick patterns, and re-enter, only, if it coincides with your research and not in hope or revenge. If there is no valid reason to re-enter the trade after the initial exit, walk away and search for new opportunities.

Do not emotionally connect with your stock picks

You should accept your wrong picks and move on rather than lingering onto the stock in the hope of a rebound. You need to monitor and notice the developments around your shares continuously, and if stocks are taking the wrong direction, you will sometimes need to book losses and accept your wrong stock picks. Don’t fall in love with your shares, sell them if the fundamentals do not appear correct and restrict your losses. Booking losses or hedging them at an early stage can help minimize losses.

Accept responsibility and analyze your mistakes and find out where your investment plan can be improved

This will help reduce the chances of the same happening again. Handling trading losses well is a leading characteristic of successful investors. Treat a failure as an opportunity to learn and improve it in your next move. Many opportunities are waiting out there in the market for you to find and grab hold of.