Financial Cocktail Samosas: Bitesized Money Morsels For You, 14/12/2022

Common Mistakes to Avoid While Doing SIPs 

Undoubtedly, SIPs of mutual funds are one of the best investment avenues to create wealth with a long-term vision as it provides financial discipline to your investments. But, while investing through SIPs, we often do some mistakes.

Here are the common mistakes that one should avoid while doing SIPs:

  • Waiting for the right time to start – We try to time the market and often tend to postpone our SIPs waiting for the right time. With SIPs it is not required at all since they themselves even out and average investments over time.
  • Lack of investment discipline – The best thing you can do with your SIPs is to be consistent with them. Investors often get diverted due to market movements and end up stopping their SIPs thus negating the very reason SIPs are done – to ride out market volatility.
  • Not Investing for the long term – One should start equity SIPs with a long-term vision. It is not a good idea to do SIPs for a short period of 2-3 years as it will not help you create wealth. The real benefits of equity SIPs can only be enjoyed over a longer tenure as equity-oriented funds take their time to stabilise. Of course, for short term goals, debt or hybrid fund SIPs too are a very good avenue.
  • SIPs without goals – Investment without goals is like moving on a road without a destination. Your SIPs should be linked to your financial goals such as retirement, child’s education, child’s wedding, vacations, wealth creation etc for them to be meaningful to you.
  • Timing the SIPs – The SIPs are meant for the long term, therefore timing the SIPs probably would be the biggest mistake one could do. When one has a longer investing horizon, one should stick to his financial goals and invest accordingly.
  • SIP Top-Ups – As our income grows over a period, we should also increase our SIPs contribution by 5-10% yearly as it provides tremendous boost to your corpus and lets you achieve your financial goals in a faster and more convenient way.
(Contributed by Yogesh Gola, Financial Planner, Team Vikrant, Hum Fauji Initiatives)

A New Journey for Our Nation

Digital currency has the potential to completely change how society thinks about money. The emergence of thousands of cryptocurrencies that exist only in electronic form has pushed global central banks to experiment how national digital currencies might function. Our central bank, the Reserve Bank of India, too has taken a similar initiative and announced the launch of its long-awaited Central Bank Digital Currency (CBDC). Initially used to settle purchase and sale of government securities, it is being gradually opened for retail transactions now.

So, how will the digital Rupee work? Customers will be able to make payments in e-Rupee through QR codes displayed at their local kirana stores and through a digital wallet offered by the eligible banks. The transaction in digital Rupee can happen between Person to Person (P2P) and Person to Merchant (P2M). The e-Rupee would have physical cash characteristics such as trust, safety, and settlement finality. Like cash, it will not earn interest and can be converted to other forms of money, such as bank deposits.

Benefits of Digital Currency:

  • Faster payments – Using digital money, you may finish payments considerably faster than traditional methods, such as ACH or wire transfers, which can take days to process.
  • Less expensive international transfers – International currency transactions are extremely costly. Digital assets have the potential to disrupt this market by making it faster and affordable.
  • Availability around the clock – Existing money transfers sometimes take a long time on weekends and outside of normal business hours since banks are closed and cannot verify transactions. Transactions using digital currency occur at the same speed 24 hours a day, seven days a week.
  • More efficient government payments – With this CBDC, the government would be able to transmit payments like tax refunds, child benefits, and food stamps to people instantaneously, rather than having to wait for them to arrive.

Digital Currency is the beginning of something great and has the potential to affect out lives more than we can imagine right now.

(Contributed by Priya Goel, Financial Planner, Team Sukhoi, Hum Fauji Initiatives)

How to Remain Focused and Value Your Investment

Investments are similar to small plants; they need time to grow and flourish. Most investors make the common mistake of not giving enough time to their investments to grow and take good shape.

When one initially invests, one invests with a stated aim of investing for the long term. But if the investment, especially in equity products, does not move up quickly or as per one’s expectations, then the natural tendency of most investors is to think that a wrong choice has been made. The investment is taken out and invested in some ‘seemingly better’ fund. And this buying and selling process goes on! Such an investor never gives a fund enough time to grow and, in the end, no stated objectives of the investment are achieved even after a long time due to this constant churning!

Some Tips to remain long term invested –

  • Don’t Sweat the Small Stuff – Rather than panic over an investment’s short-term movements, it’s better to track its big-picture trajectory. Have confidence in an investment’s larger story, and don’t be swayed by short-term volatility.
  • Pick a Strategy and Stick to It – Consider how prominent investors stuck to their value-oriented strategy and avoided short-term losses when the markets became volatile.
  • Focus on the Future and Keep a Long-Term Perspective – Investing requires making informed decisions based on things that are yet to happen. Past data can indicate things to come, but it’s never guaranteed.

The markets will always remain volatile and never match our expectations. The only way to increase wealth is to have a long-term perspective on our investments and remain focused on them. Selling a fund just because it is in profit is not a wise decision. You can make some profit out of it, but wealth is created by letting your profits run and run for a long enough time.

(Contributed by Sweta Kumari, Associate Financial Planner, Team Vikrant, Hum Fauji Initiatives)

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