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Recipe:
● Take the money that you have and invest in Equity Mutual Funds for the long term. Such funds are known for delivering high returns in the long run.
● Once you have invested your money, sit back and relax. Markets may fl uctuate, but for a perfectly made additional source of income, you must be patient. Think of it as a cake, you can and must check the oven at regular intervals but touching it too often might spoil it.
● For that extra fl avour of wealth, keep adding money to your investment. This can be done by increasing
your Systematic Investment Plan (SIP) amount at regular intervals.
● To get that perfect cup of tea, you let it boil longer. Likewise, for a perfect additional source of income, let your money remain invested for a long period.
● There! Your additional source of income is ready.
THE SECRET SAUCE TO CREATING A BONUS OR INCREMENTIt is said, if you expect nothing, everything is a bonus. To the contrary, you expect an annual bonus or increment for working hard all through the year but get disappointed when the appraisals don’t go as expected. Spare yourself this uncertainty and create your own source of additional income with this super-easy recipe.
Here’s some interesting math for you:
Getting returns on investment
Getting a bonus
Getting an increment
Say, annual salary `4,80,000 `4,80,000 `4,80,000
Amount invested in Equity Mutual Funds 5 years ago
`1,500 per month Nil Nil
% of additional income 17.73%* 10%** 9.5%***
Total additional income `55,359 `48,000 `45,600
Pro tip: Just how you add spices as per your taste, put your money in Mutual Funds as per your requirement. For example, for saving Tax, you can invest in Equity Linked Savings Schemes; for short-term goals like buying a phone, you can invest in Debt Mutual Funds; for medium-term goals like taking an international trip, you can invest in Hybrid Mutual Funds.
Clearly, you don’t have to depend on your bonus or increment if you start investing your money early.
* CRISIL AMFI Equity Fund Performance Index, Returns as on March 28, 2018. **Assumed average bonus rate in India. ***Average salary hike in 2018 according to the Aon survey
How to prepare the best additional source of incomeIngredients:● Some money (Even as little as `500 would suffi ce if you start early)
● Mutual Fund investmentsPreparation time: 5-10 years (Longer for best results)
SIP can help you create your own bonus and increment.
It is never too late to have an additional source of income;
start today!
Steps to download and scan a QR code: 1) Download QR code app on your phone. 2) Run app and scan the QR code. 3) Your smartphone reads the code & navigates to the destination.
Scan this QR code to calculate the amount you need to invest to achieve all the milestones you have set for yourself.
Scan this QR code to take a look at those 10 things that you must keep in mind before investing in MFs.
Ever thought of how much money you should have when you retire? Scan this QR code to fi nd out.
WHAT NEXT? While you can be your own boss and reward yourself monetarily, don’t forget about the actual rewards that you get as an employee. Let’s look at how you can best spend them.
In the next edition: Be it creating an additional source of income or managing it, you need someone to advise you. In the next edition, we will look at how Independent Financial Advisors (IFA) can help you better your finances.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
To know more about the role of IFAs in shaping your financial future, tune in to UTI Swatantra Facebook Live on 30th May at 5 pm and catch the show on ‘Financial Advisor: Your personal finance coach’.
For more details, follow us on Twitter @utimutualfund; Email queries or suggestions: [email protected] Please mention ‘Swatantra in TT’ in subject line. For more such fi nancial advice, head to our website: http://www.utiswatantra.com
“Interest on Debts grows without rain”– Pay off your Debt First things fi rst. Foreclose your Loan and reduce your Debt. Doing so may attract some charges. However, if you do some math, it is still wiser than paying interest on your loan reviews, portfolio rebalancing, etc.Tip: Classify your Debt into 'high-interest'
and 'low-interest'. Pay off high-interest Debt fi rst.
“The only thing better than investing is investing more” – Top-up your SIP
A top-up SIP allows you to increase your ongoing Systematic Investment Plan or
SIP by a fi xed amount and at fi xed intervals. The higher the SIP amount,
the faster you can reach your goals. Tip: If you expect an increment of 10%
every year, top-up your SIP by 8-10% every year.
“The question isn’t at what age you want to retire; it’s at what
income” – Start investingfor retirement
You get a salary now, and thus, an increment. But you will not have a regular
source of income once you retire. Thus, you must aim to save your current
income for your future expenses. Tip: Invest your additional
income in solution-oriented Retirement Funds
to save for your second innings in
a systematic manner.“A stitch in time saves nine” – Upgrade
your insurance plans You don’t realise the importance of insurance until you actually use it. Ensure you get additional coverage with your increased salary.Tip: Ensure that the sum assured under your life insurance policy is at least 8-10 times your annual income.
“Care shouldn’t start in the emergency room”– Strengthen your Emergency FundYou need extra savings to ensure that uncertainties don’t disrupt your fi nancial peace. Allocate some portion of your bonus to your Emergency Fund. Tip: A quick and a safe way of strengthening such a Fund is investing in Liquid Mutual Funds. “Death and Taxes are certain”
– Invest to save Tax While a bonus is an addition to your income,
Taxes imply reduction. It is only wise to use your bonus for reducing your Taxable income.
Tip: You can invest in Equity Linked Savings Scheme (ELSS) and save Tax on investments
up to `1.5 lakh annually.
*This content was created exclusively for UTI Swatantra. Visit http://www.utiswatantra.com for more information
SPEN
DING BONUS SPENDING INCREMENT
reduce your Debt. Doing so may attract some charges. However, if you do some math, it is still wiser than paying interest on your loan reviews,
“The only thing better than investing is investing more” – Top-up your SIP
A top-up SIP allows you to increase your ongoing Systematic Investment Plan or
SIP by a fi xed amount and at fi xed intervals. The higher the SIP amount,
'Tis the season to spend your
additional income wisely
Swatantra Kumar Explains: Time Value of Money
*This content was created exclusively for UTI Swatantra. Visit http://www.utiswatantra.com for more information
There is a difference between ‘investing your bonus’ and ‘investing only when you get a bonus’. While the former is advisable, the latter can cost you lakhs because of Time Value of Money (TVM).
What is TVM TVM talks about the present and the future value of money.
The money that you have today has more worth than the same amount in the future.
The value of the same amount, thus, changes with time.
Why is the value of money more today
If you invest the sum that you have today, you can earn returns on it.
The power of compounding adds value to your money.
For example:
Investing your bonus Saving your bonus You have `1,000 today and you invest it at 10% return You get `1,000 as a bonus every
year and you save it in your wallet
After 1 year, you will have `1,100 After 1 year, you will have `1,000
`1,000 has more value today than `1,000 in the future. Thus, you must not wait for a bonus or increment to start investing.
*This content was created exclusively for UTI Swatantra. Visit http://www.utiswatantra.com for more information
When you are in Debt, and especially when it comes at a high rate of interest - say, anything greater than 5% - then compound interest is your enemy. It slowly drains your fi nancial resources and
transfers them to someone else. But when you’re Debt free, and lending to others, you shift the compound interest dynamic in your favor. Paying off a Debt is like giving you a raise in pay. You will suddenly have more money - either to enjoy life more or to put into investments to earn more money. That will give you more control, to do what you want with your money, and use it to improve your life.
HERE’S WHAT THE EXPERT SAID
A reader asked us: When I get my bonus, should I fi rst invest it or clear Debt?
EXPERT SPEAK
Gopal Chokhani IFA
What is an SIP top-up?
An SIP is a method of investing a fi xed sum, on a regular basis, in a Mutual Fund Scheme. By contributing a fi xed amount every month, the plan helps you accumulate wealth over the long term. A SIP Top Up allows an investor to use Surplus Funds (bonus) to increase the
monthly investment amount periodically. The investor can increase the amount of SIP installment by a fi xed amount at pre-defi ned intervals. This enhances the fl exibility of the investor. The Top-up amount should be a minimum of `500/- and in multiples of `500 only. SIP Top-ups allow the investor to manage and reach their fi nancial goals faster. It is an effi cient way to use your bonus.
GURU SPEAK
Tathagata Mukherjee
IFA
