Friday, February 6, 2009


Financial planning and religions have many similarities. Both are good for mankind but a large number of people have decided to ignore them as a conscious decision. The ultimate goal is the same in both but multiple paths show how to achieve THE GOAL. We have believers, non-believers and fence sitters even though both are good for body and soul.

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:
• payout
• 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.


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


Vidooshak said...

Very salient points, once again! You are right that in most cases, we tend to treat investments as a 'ritual'. Very few have the patience or knowledge to really understand investments.

I guess one reason is the lack of practical financial education all through school and college. We know what yeat Babar was born but we have no clue what "overdraft" means till we reach the age of 25!

Simple financial tips like those on this blog can hopefully help some people enjoy a shorter learning curve...

Kay said...

Wow, you seem to well versed with this stuff. Have you really known what it feels like to answer the doorbell and see an old friend there ? Only; when you look carefully, its not your friend but someone else who just looks similar, and then you go back to your day that was.

Do you think this is the time to exit Indian stock markets?