Fact # 11
Financial planning, like religion, cannot be forced on anyone. It has to be understood and accepted with free will. It can never succeed if followed as a ritual - in fact it can cause tremendous damage.
Fact # 12
For investment in equity, I personally prefer Mutual Funds to investing directly into shares of a company. Gains are comparatively less no doubt but so are the chances of loss. This decision naturally has to be left to individual choice, as being one of the multiple paths for achieving the same goal.
Fact # 13
For those who decide to follow the Mutual funds [MF] route, I recommend only growth funds [MF which invest 80% or more in shares, with balance in debt instruments]. Anyone who wishes to be safe should stay with FD as they are a multi purpose debt instrument and would serve them better.
Fact # 14
Mutual funds offer two options: growth or dividend. The only factor in deciding which to opt for is the age factor of the investor. Senior citizens should opt for 80 to 100% in dividend option, whilst youngsters should opt for just the reverse ratio. Reason- senior citizens need money now whilst youngsters invest for old age.
Fact # 15
Within the dividend option again two options are provided:
• reinvest.This depends on individual cash flow requirement. I have payout option in 25% of the funds I have invested in, for the balance funds it is the reinvest option. Reason- dividends are normally announced in clusters like festive seasons or year end. My requirement is spread on monthly basis. By a combination of OD on FD and returns from MF, I can use my funds in the most optimum manner under this arrangement.
FACT # 16
Reinvested dividend can be redeemed when required, till then it continues to grow with changes in NAV like any normal investment. If for any reason the amount is not needed, the reinvested dividend is also entitled for dividend announced subsequently.
MONEY EARNING MORE MONEY.For Facts # 17 onwards wait for my next post.
For the complete picture, I recommend you start with the first blog in this series; click here
For previous blog in the series; click here