Building a fortune-Rs.100 crores!

Building a fortune-Rs.100 crores!

You all have goals and you’re investing towards the same.

Other than your goals like retirement, child’s higher education etc.; have a goal of creating huge wealth in next 20 years.

We’ve seen through various examples how many funds have multiplied wealth by 40 times to 100 times during last 20 years.

We believe that equity funds would be able to provide 18% returns over next 2 decades; this means your wealth can multiply by 27 times in next 20 years.

At 18% annualised returns, every Rs.10,000 you invest per month, would be worth more than Rs.2 crores after 20 years.

Those of you who are investing for 5 years or more, regularly through SIPs, have already started experiencing the power of compounding and equity.

Those of you who have accumulated Rs.1 crore so far and doing a SIP of Rs.1 lakh per month (through equity funds), can expect to be worth around Rs.60 crores in next 20 years. That is USD 10 million in 20 years. You would be in top 1% of not only India’s population but the world population itself.

If you’ve Rs.50 lakhs invested in equity MF so far and is doing a SIP of Rs.50,000 per month, the value after 20 years would be Rs. 30 crores. With USD 5 million, you would also be in the cream of world population, top 1%.

The above numbers are arrived with the assumption of 18% annualised returns.

Someone who has Rs.2 crores in equity funds asked me how much he needs to save every month to achieve Rs.100 crore in 20 years; assuming 18% annualised returns. Roughly the amount works out to Rs.1.23 lakhs per month.

He asked how much that Rs.100 crore is worth today? Assuming a long term inflation rate of 6%, it is worth Rs.31 crores today. This means what you can buy with Rs.31 crores today; you can buy the same with Rs.100 crores 20 years down the line.

He was stunned by the power of equity, power of time and power of compounding. He has started investing Rs.1.5 lakhs every month.

As India moves from a low income per capita to a middle income per capita country, as we move from a $2 trillion to $20 trillion economy, over next 2 decades, with nominal GDP (real GDP + inflation) growth rate of around 15%, 18% annualized returns from stock market (equity funds) look very much possible.

As you are aware, stock market growth happens in spurts with a high degree of volatility. In bear markets, even a diversified equity fund falling by 40% or so is not uncommon.

You’re reaping rewards now for sitting tight in one bear market. Even in a secular growth country like India, we’ll go through couple of bull and bear cycles in next 2 decades. If you can sustain the temperament and the patience you’ve developed in last few years for next 2 decades, huge fortune is all yours.

The most difficult part of investing is staying the course for long run without worrying what is happening in the markets. If you can develop the right temperament to stay the course for long; you can build a great fortune from the markets- be it Rs.30 crores or Rs.60 crores or even Rs.100 crores.

Our family has achieved financial independence by following what we are repeatedly sharing with you. By teaching you, I learn and my conviction becomes stronger. I’m absolutely convinced that if one can master his behaviour, huge fortune can be made through markets over long run. Time and discipline is the key.

Our key focus and main job is to ensure that you invest regularly over long run and stay the course without break. Everything else is secondary. The daily sms, blogs or tweets are all aimed towards this purpose. As Munger says, repetition is the heart of instruction and we would repeat tirelessly for both your and our benefit.

Have a big goal, invest towards it regularly, give long time for compounding, stay the course and build a big fortune.

Best ELSS Funds 2017 | Top Tax Saving Mutual Funds

We know that ELSS or tax saving mutual fund is one of the best tax saving option. It has the potential to give best profit. Also, It has the shortest lock in period. So, we want to find out the best ELSS fund as there are more than hundred tax saving mutual funds. A list of chosen top elss funds would be very helpful to the investor who don’t have time to research.

I have personal interest in the best ELSS mutual fund as I also invest into these funds every year. It is my preferred tax saving investment. I like ELSS as it has the potential to give a far better return. However, Investment in tax saving mutual fund is risky and I assume that you understand the risk of mutual funds.

Before every new year, I assess mutual funds to select the best ELSS scheme. The thorough research ensures that I get desired profit from these ELSS funds. I have fixed some parameters and tools to screen the mutual funds. After going through these parameters, I reach to the top ELSS mutual funds.

This year also, I have also selected the best ELSS funds. You can directly access to the list of top mutual funds. 

This website does not compile data of mutual funds thus I have used the data of Morningstar and Valueresearch.

What is a best scheme? 

It is a scheme which fulfills our requirements.  That is why I have fixed some parameters for my best ELSS fund. For me, a best tax saving mutual fund should have following qualities. I hope that my requirement would match you. I have selected the best ELSS on the basis of these requirements.What Do I want in Best ELSS Fund

• The best ELSS should definitely give us more profit than any other tax saving investment.
• There should not be a shock, I dislike losing money.
• The ELSS should not increase my heart beat. The ups and down should not be sharp.

These objectives were the guiding principle of the fund selection process.

How I Selected the Top Tax Saving Mutual Funds

I wish, if I could foresee the performance of ELSS. But it is not possible. We can neither predict the market movement nor the performance of equity mutual funds. Therefore, we have to rely on the present and past performance of the tax saving mutual funds. On the basis of past performance we try to find out the best ELSS fund. Hence, let us assess the mutual funds. My best ELSS should have following qualities.

1. It should beat the average return of the share market and ELSS category. This parameter ensures that a ELSS is a consistent performer.
2. The ELSS should give good return in a longer period.
3. It should not behave erratically. The steady return would is preferred.
4. It should invest in good companies. the portfolio should be inclined towards growth stock.
5. The stock selection of ELSS should be based on proper research and fund should follow the value investing.

Assessed only Regular Growth ELSS

An ELSS fund has four version. The Regular growth, Regular Dividend, Direct Growth and Direct Dividend. Among these four, I have chosen Regular growth as this version is older and gives you the clearer picture.

Top 10 ELSS funds

As performance is key for a tax saving mutual fund, I have started my fund selection with the performance. I can find out the performance of funds during last 1, 3, 5 and 10  years. But, I have overlooked the one year performance as this can be a blip. Thus, I have gone for those funds which has given above category average return during last 3 and 5 years.

Name	3 Year Annualised %	5 Year Annualised %
Reliance Tax Saver (ELSS) Fund	26	22.06
DSP BlackRock Tax Saver Fund	22.54	20.87
Axis Long Term Equity	22.23	21.7
Birla Sun Life Tax Relief 96	21.55	19.54
L&T TaxSaver Fund	21.38	17.53
Invesco India Tax Plan	20.98	18.84
Birla Sun Life Tax Plan	20.61	18.99
Franklin India Taxshield Fund	20.55	18.21
ICICI Prudential Long Term Equity Fund (Tax Saving)	18.69	18.65

*MF Investments are subject to market risks. The list here is for the analysis purpose only.

Plan Your Taxes Now!

The year 2016 is ending in a day. It was a wonderful year, full of excitement, joy and surprises. When 2016 started, most of us made new year resolutions, we decided to be nice to others, quit smoking, start going for a morning walk, and bring in discipline into our lives. We also decided to bring in financial discipline and start saving, among others. Many people did follow their resolutions, did a proper financial and tax planning, while others forgot about it.

We declared our 80C investments under random heads in April, because we did not plan ahead, and then we relaxed, since those investments were being considered in salary calculations and TDS was not being deducted upto that extent.

Now is the time when the HR mails have started entering our mailboxes or will start soon, asking for tax proofs. Now we realize, we should have planned for taxes earlier. If we do not plan for taxes and invest now, the accumulated TDS will be deducted from our salaries, which will be a huge amount. Since the time is less, we take decisions in a haste, and tendency to take wrong decisions increase. We might invest in random tax saving instruments in which our friends are investing, not realizing that those instruments may be suitable for them but not for us. Some businessmen paid their advance taxes, while others did not, and will be investing in random instruments in the month of March, because there is no HR to remind them.

So, if you are the one who did not plan for taxes earlier, do not waste time and start planning now.

You must keep in mind a few factors before beginning investing:

1. Calculate: Assess how much you need to invest. Calculate your total annual income, including the expected income for the next three months. Also consider the expected bonus, if any. Now work out how much you need to invest in tax saving instruments to save maximum taxes.

2. EPF: You must remember that every month, an EPF deduction was being made from your salary, so you should minus the total EPF contribution from the total investment that you have come up to, in the first step and plan for the rest.

3. Insurance: Though you get tax deduction in some insurance policies, yet you must remember that insurance is meant to protect you and it is not an investment. You need insurance to protect you, your dear ones and your assets in case of emergencies. It is very important to have adequate insurance, but while you are tax planning, you must focus on products which will give you tax benefits as well as maximum returns. You shall also consider health insurance while planning for taxes as apart from giving you a medical coverage, it entitles you to claim Rs 25,000 under Section 80D for premiums paid for self, spouse and kids. You can also claim an additional Rs 25,000 for premiums paid for your parents (an extra Rs 5,000 if your parents are senior citizens). Health insurance deduction is over and above the Rs 150,000 deduction under Section 80C.

4. PPF, Bank FD, etc.: Before investing in PPF, you must consider the fact that you cannot withdraw your investment for the next 15 years. Secondly, in traditional investment options like FD, PPF, etc. the return that you will be getting is around 8% and there may be options which can offer a higher rate. So evaluate all investment options before moving ahead.

5. ELSS: Equity linked Saving Schemes (ELSS) in Mutual Funds lets you save tax under Section 80C of the Income Tax Act. You can invest upto Rs 150,000 in a year in ELSS and get tax deduction and the best part is it has the shortest lock in period of 3 years, as compared to other tax saving instruments. You shall contact your financial advisor and he will guide you in selecting the best schemes for you.

6. Other Sections: The Income Tax Department allows you save tax in a number of ways under a number of sections. You must evaluate if you can save some extra tax with those sections.

Remember, Tax Planning isn't rocket science, you just have to plan in advance, you may use the above tips and save taxes and do follow your resolutions from the next year.

Don’t chase performance

“Chasing fund performance is often the quickest way to hurt your mutual fund returns.”- Arthur Levitt

Many investors get bored with holding the same portfolio. That too if a fund underperform, they want to quickly change to a better performer. Once a portfolio is a chosen, we suggest changes only infrequently. This is because all funds and fund managers go through periods of underperformance. No fund is consistently on top every year. Last year’s top performer can be this year’s bottom performer. Last year’s poor performer can be this year’s best performer. Though we do have yardsticks in funds selection; it is more of what not to choose and what to avoid. By minimising errors, and giving a diversified portfolio of 5 funds from five different fund houses, we aim for a decent return over 10 year period or so.

Our biggest value addition is we interfere less in your wealth creation journey. We also ensure that you do not become a hindrance in your own wealth creation. Since you are only used to us, you don’t know how uncommon this is. Someone who is our client for last 10 years would hold most of the same funds we selected at the beginning. Holding a portfolio for 10 years is uncommon in the market. The average equity fund holding period is only around 18 months. By our approach, we ensure that the return you earn is equal to fund’s return over a 10 year period. What is the big deal in this? Very few investors earn what the fund earns. There is a huge gap between investor’s performance and investment’s performance as people redeem after bad years and invest after good years. We ensure that you don’t fall into this trap. For our clients, the investment returns and the investor returns are the same.  It would definitely sound boastful, but the fact is this  places you among a very small group of successful investors.  

Please read this article which talks about a study done by Vanguard.

I’ve given some excerpts below.

“The other study was authored by U.S. ETF giant Vanguard, which looked at the histories of more than 3,500 equity mutual funds in order to compare a basic buy and hold strategy to a frequent-trading strategy that simulated the effect of performance chasing.

The study looked at three-year rolling return performance between the years 2004 and 2014, across nine equity groupings (this is roughly in-line with the time the average fund investor holds an equity mutual fund). The simulation also tracked the Sharpe ratio of the average fund in the category, a measure of risk-adjusted return.

The “rules” of the buy and hold were relatively simple: the simulation invested in any fund, and held it to the end of the time period. If the fund was discontinued, the simulation simply reinvested its money into the median-performing fund within the grouping.

For the performance-chasing portfolio, the simulation invested in any fund with an above average three year annualized return. If that fund turned in a below average performance for the next three year rolling period, that fund was sold and the simulation reinvested the proceeds in equal amounts into in the top twenty funds in the asset grouping.

At the end of the day, the simulation produced a total of more than 40 million return paths–a pretty good yardstick for measuring whether performance-chasing or buy and hold is the more sensible strategy.

Category            Buy & Hold      Performance chasing

 Large Blend            6.8%                      4.5%

Large Growth          7.1%                      4.3%

Large Value             7.0%                     4.7%

Midcap Blend           8.9%                     4.9%

Midcap Growth         8.6%                     5.7%

Midcap Value           9.2%                     7.6%

Small Blend             8.9%                     6.3%

Small Growth           8.6%                     5.7%

Small Value              9.3%                     5.8%

The chart above illustrates that buy and hold was the clear winner, beating performance-chasing in all nine style boxes. Note the size of the performance gap between the two strategies.

The Sharpe ratio was better (i.e., higher) for each of the buy and hold portfolios, meaning there was less volatility along with better returns. Talk about having your cake and eating it too! “

We will never chase performance and would not allow you to do the same as well. That’s why you’ve chosen us as your advisor. Our key objective is to ensure that as investors your earn 100% of investment returns without any slippages due to behaviour gap (i.e.) the misbehaviour of chasing performance based on past data.

Why ELSS is the best tax saving investment option...

With the financial year nearing its end, it is time when tax payers start evaluating various tax saving options available under Section 80C. 

Here are some of the best performing ELSS schemes our experts have handpicked for you.

Returns Generated (in %)
Scheme Name	3 Years	5 Years
Axis Long Term Equity	32.46	22.40
BNP Paribas	25.02	17.23
Franklin India	27.23	17.61
ICICI Prudential Long Term Equity Fund	27.96	17.05

While investment products like Unit Linked Insurance Plans (ULIPs), endowment policies, Public Provident Fund (PPF), National Savings Certificate (NSC) and tax-saving bank fixed deposits comes first to their mind; Equity Linked Savings Scheme (ELSS) is fast gaining popularity because of its higher benefits.

Here is why ELSS outscores other options available under Section 80C and few things to keep in mind while investing in ELSS mutual funds.

Highest returns: ELSS are tax saving mutual funds, which primarily invest in equities and equity-related instruments. Although equities can be very volatile in the short term, they easily beat all other asset classes (including fixed-income products like bank deposits) over the long term by a very wide margin. A long term investor in ELSS can easily expect over 12% annualised returns while almost none of the other Section 80C products presently deliver beyond 9% p.a. annualised returns. Although, equity-oriented ULIPs can theoretically deliver similar returns like ELSS, their higher fund management cost and other expenses do not allow them to outperform ELSS funds over the long term.

Shortest lock-in period: ELSS funds come with a lock-in period of just 3 years, the lowest among all Section 80C products. Among other popular Section 80C options, tax-saving fixed deposits have a lock-in period of 5 years, NSC have lock-in periods of 5 years while PPF has a lock-in period of 15 years. ULIPs, the nearest competitor of ELSS in terms of returns, have a lock-in period of 5 years. Your investments in National Pension Scheme will stay locked-in till your retirement.

Tax free dividend and maturity: In terms of taxation, ELSS comes under the EEE (exempt-exempt-exempt) category. It is not just their investment amount, even their dividend income and maturity proceeds are entirely tax free. PPF is the only other Section 80C product falling under EEE regime. While the interest earned on tax-saving bank and post office FDs and NSCs are taxed according to your tax slab, investment products like NPS and pension plans are taxed at the time of maturity. In the case of ULIPs, if the premium paid is more than 10% of the sum assured, the entire maturity proceeds is taxable according to your applicable tax slab.

Financial discipline: Just like other mutual fund schemes, ELSS allows you to invest regularly (monthly) through Systematic Investment Plan (SIP). The biggest advantage of SIP is that it allows you to invest small sum every month, thereby reducing the stress on your liquidity at the end of the financial year. This periodic and automatic investment schedule also forces you to save and invest regularly. By spreading your investment over the entire year, SIP also allows you to average your investment cost during market downturns.

Points to remember while investing in ELSS 

Now, once you are the convinced of the superiority of ELSS over other tax-saving schemes, your next job is to select the most appropriate ELSS fund for yourself from over 40 available schemes.

Analyse your risk appetite

As each ELSS fund has its own style of investing, the market risk to their portfolio may vary from one fund to another. If your risk appetite is low to moderate, opt for a scheme that is primarily invested in large cap companies. The present market volatility (caused by both domestic and global factors) and steep valuation of mid cap companies makes a strong case of investing in large-cap oriented ELSS funds. Invest in ELSS funds with mid- and small cap bias if you have a high risk appetite and long investment horizon.

Compare their past performance

Before investing in a particular ELSS fund, make sure to compare its past performance (over the past 3 year and 5 year periods) with its benchmark index and other ELSS funds. Although the past performance of ELSS funds is no guarantee of their future performance, this comparison will at least show you how they have fared during the rising and falling markets and by what degree they have outperformed each other.

To sum it up, ELSS mutual funds outscore every other Section 80C options in terms of returns, liquidity and tax benefits. In fact, their high tax-free returns make them the most suitable vehicle for long term wealth creation. Invest in ELSS for achieving for achieving long term goals like creating corpuses for your children's education and for your post-retirement life.