The Real Money Plant

I should start with a disclaimer. I do not have any academic qualification in finance or investment subjects. My knowledge is totally street acquired. It has benefited me tremendously hence would like to share it with anyone who would like to listen. It is the most easy thing to make, one should only know how to do it. Yes I am talking MONEY.

Never work for money, always think and plan how money can work for you. Earning from someone else's money is called the POWER OF OVER DRAFT. Without a business/employment one cannot reach within striking distance of money-hence put everything in to get something started. I am saying this so that your priorities are clear and no rash steps are taken.

From whatever you earn, save what you can. Amount saved depends on individual circumstances but the key word is constant conscious effort to save money. Initially do not bother about investments, simply convert your savings in bank fixed deposits. Again how much depends on individual circumstances-any figure between 5 lacs to 10 lacs would be a good beginning. Ask your bank to give you OD facility on your FD. This varies from 70 to 90% of the FD original amount(HDFC and most public sector banks have this facilities as far as I know). Now you are ready to make money work for you.

'Fools buy houses and intelligent people stay in them'- still holds true. Property is a great investment but not as a starting point. Property accretions are locked in till the same is sold. Therefore think of buying only when your investment income can cover the EMI (your salary/business income should not be locked in property). The best investment is in mutual funds. You can try shares if you have the feel for it, I don't have it. It is a wrong time to talk of equity, but for me the India growth story is intact for the next 20 years at least. The present crash is only a short term regularly recurring phenomenon. My experience shows that 30 lacs invested in mutual funds gave 30,000 per month dividend income(apart from capital appreciation) before the January 2008 crash. This figure should help in planning. This is the big picture. One follows this path at his own comfortable pace to reach the desired destination.

At this stage the power of over draft will act as a booster. The 5 lac overdraft limit which you have will earn for you in the following ways:

• The OD facility should be attached to salary account. Withdraw 1 lac and invest in mutual fund. Salary gets credited thereby reducing the loan on which interest has to be paid to bank. For monthly expenses draw when needed. Payments by credit cards come up at the end of month. Bank charges interest for days of actual OD availed. Interest saved is money earned. Earnings on 1 lac invested extra.
• We always keep some cash balance in our bank accounts for emergencies and needs in immediate future. This amount is sleeping as it would seldom be eligible for any interest earning. Once the account is overdrawn, money is available when required, but you pay for actual withdrawal. Any payments received in between start earning bank leading rate, from the moment of deposit the same principle applies- interest saved is money earned.
• Timing the share market is next to impossible. Whenever the market undergoes a major correction, you can use the OD limit to make investment and repay the loan from receivables. In the longer run you will earn a respectable amount from this source.
• For greater flexibility keep increasing your fixed deposits (with OD limits) as this will also help in balancing the portfolio through investments in debt.

By now it should be apparent that investments in mutual funds is like having an orchid of wonderful fruit trees. The more care you take of it, better the returns. Replace old trees from time to time. Money requirement will keep changing, but the returns from mutual funds will keep flowing in. This would ensure a comfortable old age. Mutual funds are the real money plants in our life.