🏠💰 Should You Prepay Your Home Loan or Invest?

🔍 The Big Question

If you’ve taken a home loan, you’ve probably wondered —

“Should I repay it early to become debt-free?”
Or “Should I continue the EMIs and invest the extra money for better returns?”

This is one of the most common financial dilemmas for today’s middle-class professionals.
Both options seem smart — one gives peace of mind, the other builds wealth.

So, what’s the right move? Let’s break it down simply.

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🧮 Understanding the Two Paths

Option 1: Prepay Your Home Loan

You pay off your loan faster by putting extra money toward your principal.

• ✅ Pros:

  • You become debt-free earlier.

  • You save big on total interest cost.

  • Your credit score improves.

  • Emotional peace — no loan pressure.

• ❌ Cons:

  • You lose liquidity (cash in hand).

  • Once you prepay, that money is locked into your house — it doesn’t earn you anything.

  • You might miss higher returns from long-term investments.

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Option 2: Keep the Loan & Invest Instead

You continue paying EMIs as usual and invest your surplus in assets like mutual funds, stocks, or bonds.

• ✅ Pros:

  • Your money stays liquid and working for you.

  • You can potentially earn higher returns than your loan interest rate.

  • You build parallel wealth.

• ❌ Cons:

  • You stay in debt longer.

  • Market returns are not guaranteed.

  • Requires discipline and emotional control — you must actually invest, not spend.

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📊 Let’s Simplify With a Case Study

Meet Rahul, a 35-year-old working professional.

• Home loan amount: ₹40 lakhs

• Loan tenure: 20 years

• Interest rate: 8% per year

• Monthly EMI: ₹33,458

• Extra money available yearly: ₹3 lakhs (bonus or savings)

Now, Rahul has two choices.

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🏠 Case A: Prepay the Home Loan

Rahul uses his ₹3 lakh every year to prepay the principal.
Result:

• His loan ends in ~10 years instead of 20.

• He saves around ₹19–20 lakhs in total interest.

• He becomes completely debt-free by age 45.

👉 Peace of mind, no EMIs, complete ownership of his home.

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📈 Case B: Invest Instead

Rahul invests ₹3 lakh every year in a balanced mutual fund earning an average return of 10% per year.
Result after 10 years:

• Investment value grows to about ₹52 lakhs.

• His home loan continues normally — after 10 years, he has paid roughly ₹25–26 lakhs in EMIs and still owes around ₹24 lakhs principal.

At this stage, Rahul can part-prepay the remaining ₹24 lakhs using his investments and still have money left over.

👉 He ends up with both — a paid-off home and extra wealth.

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⚖️ The Key Insight

Parameter	Prepay Loan	Invest Instead
Debt-Free Timeline	Faster	Slower
Total Interest Paid	Lower	Higher
Liquidity	Low	High
Potential Wealth	Moderate	Higher
Risk	Low	Medium
Peace of Mind	High	Depends on discipline

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💬 What Financial Experts Suggest

The smarter choice depends on your interest rate vs. expected investment return.

• If your loan rate > 9%, consider prepaying — it’s like earning a risk-free return of 9%.

• If your loan rate < 7% and you can earn 9–12% in mutual funds or stocks, invest instead.

• Always keep an emergency fund and insurance before either option.

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🧘‍♂️ A Balanced Strategy (Best of Both Worlds)

You don’t have to choose just one.
Here’s a practical 50-50 approach many smart investors use:

• Use half your surplus to prepay the loan (reduce interest burden).

• Invest the other half in long-term assets (build parallel wealth).

Over 10 years, you’ll enjoy:

• Lower debt,

• Steady investments,

• Flexibility for future goals.

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💡 Simple Example

Let’s say you earn ₹10 lakhs per year.
You save ₹2 lakhs after expenses.

Option A → You prepay = peace of mind
Option B → You invest = wealth growth
Option C → You split = peace + wealth ✅

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🧭 Final Thoughts

There’s no one-size-fits-all answer.
But here’s the golden rule:

If being debt-free helps you sleep better, prepay.
If you’re comfortable with moderate risk and disciplined investing, invest.

At the end of the day, your financial decision should align with your personality, risk tolerance, and goals — not just numbers on paper.

Because true wealth is not just about having money —
It’s about having control, choice, and peace of mind.

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✍️ Author’s Note

If you liked this article, visit www.wealthymantra.blogspot.com for more practical guides on personal finance, wealth building, and smart money habits.

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9 Signs You Are Smart with Money

Being financially smart isn’t just about earning a high income. It’s about how effectively you manage, save, and grow your money. This article highlights key habits and behaviors that demonstrate financial intelligence and responsibility. 

Let’s take a closer look at each of these indicators and what they mean for your financial well-being.

1. Emergency Fund of 3–6 Month

A solid emergency fund is a cornerstone of financial security. It provides a safety net for unexpected expenses like medical bills, car repairs, or job loss. By setting aside three to six months of living expenses, you protect yourself from falling into debt when life throws surprises your way. An emergency fund acts as your financial safety cushion when life throws surprises your way — like a sudden job loss, medical emergency, or urgent car repair.

💡 Example:
If your monthly expenses are $2,500, you should aim to save between $7,500 and $15,000 in an easily accessible account.

Why it matters: This fund prevents you from relying on high-interest credit cards or loans during tough times. It gives you peace of mind knowing you’re financially prepared for the unexpected.

2. Maintain a Good Credit Score (700+)

A strong credit score reflects responsible borrowing and repayment behavior. It opens doors to better loan terms, lower interest rates, and even job opportunities. Smart money managers pay their bills on time, keep credit utilization low, and monitor their credit reports regularly. A high credit score shows lenders that you’re reliable with money. It helps you qualify for better interest rates on loans, mortgages, and even car insurance.

💡 Example:
Someone with a credit score of 760 might get a mortgage rate of 5.0%, while another person with a 650 score could pay 6.5%. Over 30 years, that difference can add up to tens of thousands of dollars in savings.

Pro Tip: Always pay bills on time, keep your credit card utilization below 30%, and review your credit report annually.

3. Invest Regularly

Investing consistently, whether in stocks, bonds, real estate, or retirement accounts, is a sign of financial foresight. Regular investing allows you to take advantage of compound interest and market growth, helping your wealth grow over time. Smart money managers don’t let their money sit idle — they make it grow through regular investments. Whether it’s mutual funds, ETFs, or retirement accounts, consistency beats timing.

💡 Example:
If you invest $200 a month at a 7% annual return, you’ll have over $240,000 after 35 years — all from steady contributions and compound growth.

Start small: Even $25–$50 a month can build serious wealth over time.

4. Budget System

Budgeting is the foundation of financial control. Having a system to track income, expenses, and savings goals helps you make informed decisions, avoid overspending, and stay on track toward your financial objectives. Budgeting doesn’t mean restriction, it’s about control and clarity. A good budget helps you understand where your money goes and how to align it with your goals.

💡 Example:
Try the 50/30/20 rule:

• 50% on needs (rent, food, bills)
• 30% on wants (dining out, entertainment)
• 20% on savings or debt repayment

Bonus Tip: Use apps like YNAB, Mint, or EveryDollar to automate tracking and stay accountable.

5. Diverse Set of Assets

Financially savvy individuals don’t put all their eggs in one basket. Diversification, spreading investments across various asset types, reduces risk and ensures that poor performance in one area doesn’t derail your entire portfolio. Financially smart people don’t put all their eggs in one basket. They build a mix of assets — stocks, real estate, bonds, and even side businesses — to protect against risk.

💡 Example:
If the stock market dips, your real estate investment or savings bonds might still perform well. That balance helps you stay stable no matter what the economy does.

Goal: Aim for a portfolio that reflects your age, goals, and risk tolerance — for example, 70% stocks and 30% bonds for a long-term investor.

6. Minimal to No Debt

Being smart with money often means managing debt wisely or avoiding it altogether. Paying off high-interest loans and using credit strategically frees up income for savings and investments, rather than interest payments. Being debt-free — or managing debt wisely — is a huge sign of financial intelligence. Not all debt is bad, but understanding how to use it strategically is key.

💡 Example:
Paying off a high-interest credit card (20% APR) is smarter than rushing to pay off a 3% student loan.

Strategy: Use the avalanche method (tackling highest interest rates first) or the snowball method (paying off smallest balances first for motivation).

7. Live Below Your Means

Living below your means is one of the simplest yet most powerful financial habits. It ensures that you’re not overspending and allows you to save and invest the difference. This discipline creates long-term financial stability and independence. Living below your means doesn’t mean deprivation — it means choosing financial freedom over instant gratification.

💡 Example:
Instead of buying a brand-new $40,000 car with a loan, buy a reliable used car for $15,000 and invest the difference. Over time, that investment could grow dramatically.

Smart money mindset: Focus on long-term satisfaction, not short-term splurges.

8. High Financial Literacy

Understanding how money works—taxes, investing, inflation, and budgeting—gives you control over your financial future. Financial literacy empowers you to make informed decisions and avoid costly mistakes. Financial literacy is your superpower in today’s world. Understanding how money, taxes, and investments work helps you make smarter decisions.

💡 Example:
Knowing the difference between a Roth IRA and a traditional IRA can save you thousands in taxes over your lifetime.

How to build it: Read books like The Millionaire Next Door or Rich Dad Poor Dad, listen to finance podcasts, and take free online courses on budgeting and investing.

9. Plan for the Future

Financially intelligent people think ahead. Whether it’s saving for retirement, children’s education, or long-term goals, planning ensures that future needs are met without financial strain. Financially smart people think long-term — not just about next month, but the next decade. They plan for retirement, future education expenses, and even estate planning.

💡 Example:
Someone contributing to a 401(k) with an employer match is essentially getting free money every paycheck. That’s strategic planning in action.

Pro Tip: Review your financial goals annually and adjust your savings or investment plan as your life evolves.

Final Thoughts

Financial intelligence isn’t about perfection—it’s about consistency, awareness, and smart decision-making. If you recognize yourself in many of these signs, you’re likely on a strong path toward lasting financial health. And if not, it’s never too late to start developing these habits—one smart money move at a time. Each small step moves you closer to financial independence. Remember, financial success doesn’t happen overnight. It’s built through habits — saving consistently, spending intentionally, and always learning.

So, take a moment today to check how many of these nine signs describe you. And if you’re not there yet — start with just one. Your future self will thank you. 💪

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Setting SMART Goals for 2025: A Path to Success and Growth

Setting SMART Goals for 2025: A Path to Success and Growth

Starting the new year with clear, meaningful goals is a great way to set yourself up for a year of personal growth and achievement. But how do you begin? The secret lies in setting SMART goals. Here’s how to use the SMART framework and make your goals truly yours in 2025.

Start with Your Core Values

Before diving into goal-setting, take a moment to understand what truly matters to you. Aligning your goals with your core values makes them more meaningful and gives you the motivation to stick with them. For example, if financial security is important to you, your goals might include paying off debt or building an emergency fund.

Understanding your “why” is key. Dig deeper into why a goal matters to you. Ask yourself “why” five times to uncover the true motivation behind it. This will provide the intrinsic drive you need when challenges arise.

The Power of SMART Goals

The SMART framework helps you create clear, achievable goals. The SMART framework stands for Specific, Measurable, Achievable, Realistic, and Time-bound. Each part helps clarify your goals and gives you a roadmap to success. 

• Specific: Define clearly what you want to achieve. Avoid vague statements and make sure it's focused. e.g. "I want to save $5,000 for an emergency fund" instead of "I want to save money."
• Measurable: Your goal should have clear criteria to track progress. Break down your goal into trackable steps, like saving $5,000 by saving $417 each month for the next 12 months to reach your target.
• Achievable: Set a goal that’s challenging yet within reach, considering your resources and constraints. If you set goals that are too big, you may get discouraged. e.g. "I will cut back on dining out to save $100 per month to reach my savings goal."
• Realistic: Stretch your limits but set goals that are still within reach. Ensure that the goal is realistic given your current situation and capabilities. e.g. "I’ll save $5,000 by reducing unnecessary spending and using a budgeting app."
• Time-bound: Set a clear deadline for your goal to create urgency and a sense of accountability. For example, "I will save $5,000 for an emergency fund within one year."

Short-term vs Long-term Goals

It’s helpful to separate your goals into short-term and long-term categories. Short-term goals help you build momentum toward bigger, long-term goals. If your long-term goal is to pay off $50,000 in debt, break it down into smaller chunks like paying off $1,000 in three months.

This method not only keeps you focused but allows you to celebrate small victories along the way.

Prioritizing Your Goals

Once you’ve outlined your goals, it’s time to prioritize. Focus on what will have the greatest impact on your life. Maybe paying off high-interest debt will give you immediate relief, or perhaps a quick win with a short-term goal will boost your confidence.

You can also prioritize by time frame—starting with quick, achievable goals can create momentum, while long-term goals may require consistent effort.

Align Your Goals with Your Budget

Your financial goals should be aligned with your budget. If you’re serious about building an emergency fund, allocate a specific amount to this goal each month. For instance, if you want to pay off $2,000 in credit card debt by June 2025, set aside $300 a month.

As you progress, revisit and adjust your budget as needed, especially if unexpected expenses come up. Staying proactive will help you stay on track and reach your goals.

Implementing Your Goals

Setting goals is only the first step; the next is taking action. One way to keep yourself motivated is to visualize your goals with a vision board. Keep your goals front and center to remind yourself why you started.

Accountability also plays a big role. Share your goals with a friend, family member, or even on social media. This can help you stay focused and encourage you to keep going.

Remember, be kind to yourself. Progress may be slow at times, but small, consistent steps will eventually lead to big results. If things don’t go as planned, don’t be afraid to adjust your goals. Flexibility is key.

Staying Focused and Motivated

Staying motivated throughout the year can be challenging, but connecting small milestones to your bigger goals can help keep you on track. Also, replacing negative thoughts with positive affirmations can shift your mindset and increase your motivation.

Lastly, remember that life is unpredictable. If setbacks occur, don’t view them as failures. Instead, use them as an opportunity to reassess and adjust your plans accordingly.

Conclusion: Ready to Achieve Your Goals?

By setting SMART goals and aligning them with your core values, you’ll create a clear path for success. Break your goals down into short-term and long-term categories, prioritize them, and keep them connected to your budget. Stay focused with visual reminders, accountability, and a positive mindset. With determination and flexibility, you can make 2025 your best year yet. Let’s make it happen!

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Are you suffering from overthinking?

Are you suffering from overthinking?

You overthink because you are not able to control your mind. If you can control your mind, you can control your life, too. Work on your mental models to become highly successful & happy individual.

1. Identify the indicators:

Begin by familiarizing when you're coming under patterns of overthinking. Keep in mind of repeated or uncontrollable ideas coupled with attempt to comprehend their hidden reasons.

2. Challenge your thoughts: 

When you notice yourself overthinking, challenge the thoughts that are causing it. Ask yourself if there is any evidence to support these thoughts, or if they are just assumptions or fears. Dig down and find the root cause of your overthinking.

3. Practice mindfulness:

Mindfulness can help you focus on the present moment and reduce the power of overthinking. Engage in tasks like yoga exercise or reflection that urge mindfulness coupled with existing in the minute. Growing this recognition can lessen the grasp of overthinking on your mind. Living in the present moment is the key to eliminating overthinking.

4. Take decisive action: 

Overthinking often leads to indecision and inaction. Break your goals into smaller, manageable steps and focus on completing them one at a time. Action speaks louder than words, so prioritize taking concrete steps towards your objectives. 

5. Set aside "worry time": 

Designate a certain time every day to resolve your concerns as well as overthinking. Throughout this duration take down your worries yet after that establish them apart till the list below day. This technique promotes self-awareness plus assists consist of overthinking propensities.

Remember, overcoming overthinking is a gradual process that requires persistence and patience. By consistently applying these strategies, you'll gradually diminish the hold that overthinking has on your life, leading to greater happiness and fulfillment.

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9 Habits Help You in Achieving Your Goals

Here are nine habits that can help you become unstoppable in achieving your goals and fulfilling your potential:

1) Set clear goals: 

Have a clear vision of what you want to achieve and set specific, measurable goals that will help you get there.

2) Create a plan: 

Break down your goals into smaller, achievable tasks and create a plan of action to accomplish them.

3) Stay focused: 

Stay focused on your goals and avoid distractions that can derail your progress.

4) Take action: 

Take consistent action towards your goals, even when faced with challenges or setbacks.

5) Embrace failure: 

Use failure as a learning opportunity and a chance to grow, rather than a reason to give up.

6) Be adaptable: 

Be open to change and willing to adjust your approach as needed to achieve your goals.

7) Build strong relationships: 

Surround yourself with supportive and like-minded people who can help you achieve your goals.

8) Practice self-care: 

Take care of your physical and mental health through regular exercise, healthy eating, and stress-reducing activities like meditation or yoga.

9) Continuously learn and grow: 

Keep learning new skills and knowledge, and continuously seek opportunities for personal and professional growth.

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Intelligent Investment Learnings in Stock Market by Madhusudan Kela

About Madhusudan Kela:

Madhusudan Kela is an Indian businessman and investor from Kurud, Chhattisgarh. He was chief investment strategist at Reliance Capital until 2017. He is currently the promoter of MK Ventures and a member on Board of various companies. Madhusudan Kela frequently comments on Capital Markets

He graduated in 1991 from K. J. Somaiya Institute of Management Studies and Research (SIMSR), Mumbai with a Masters in Management Studies. Thereafter he did equity research at CIFCO and Sharekhan. In 1994, he joined Motilal Oswal to start its institutional desk before moving to UBS in 1996. In 2001, he joined Reliance Mutual Fund.

During this tenure, Reliance Mutual Fund`s assets grew from nearly Rs 200 Crore in 2002 to more than Rs 1 Lakh Crore in 2011. Under his leadership, Reliance Mutual Fund received many awards and was rated the most trusted Mutual Fund House for three consecutive years by The Economic Times. He is also one of the investors in the Healthcare startup Sukino Healthcare Solutions Pvt. Ltd.

Kela was awarded the Business Standard Equity Fund Manager of the Year (2004) by Manmohan Singh, the Prime Minister of India.

Intelligent Investment Learnings in Stock Market by Madhusudan Kela

A. Investment Learnings - Portfolio Allocation/Stock Selection:

1. There is always a bull market somewhere - One of the keys to successful investing is to understand the macro direction, and get your thematic calls right. There is always an investment opportunity to be found in every market condition. Why swim against the tide, when you can swim right with it.

2. Prudent capital allocation - Getting our Asset Allocation right drives majority of the total long-term return of an investment portfolio.

3. Choosing the right Horse - Look out for businesses or companies (horse) with scalability potential and capability to generate hard cash, maintain consistently good ROEs. However, in some cases, we also seek out investments where there can be frenzy in a particular sector e.g. IT, Pharma etc.

4. Selecting the right Jockey - Always look out for promoters with passion/hunger and integrity towards the business. Only a passionate jockey can drive the horse to the winning line!

5. If you have 3 aces, bet big! - The most important rule to creating significant wealth, is to get it big. We only need a few big ideas to work. Companies like Amazon, Google, Apple, are anyways not created everyday. Hence, when you have all the right ingredients for the investment and are confident on top of the business, bet sizing is what will differentiate your portfolio!

B. Investment Learning – Portfolio Monitoring 

1. Tracking of Portfolio - While longer term convection is very important, close monitoring is very important, so you are in sync in with reality. A lot of investors end up chasing the next multi bagger, when their earlier investment bets would have done the tricks! Being convicted with what you have and constantly evaluating that conviction is critical to successful investment monetization. 

2. Play for the Bull Run and not for the Bounce - Differentiate between tactical trades and investment. Cut your losses whenever you realize that a particular investment was a bad one.

3. Making Money vs Being Right - The market does not acknowledge being right. It only acknowledges making money. So, focus on the investments that will make you the money, rather than trying to be right on every investment. Concentrated bets are the key.

4. The Art of Selling - Selling is an art; most people do not appreciate it enough. Only if you know how to sell and when to sell, will your paper profits ever materialize into something concrete. 

5. Well defined investment process with clear exit strategies - Have high conviction in your process and adhere to it with discipline. Only this will allow you to hold on to your winners better, and let go of the bad investments. 

C. Investment Philosophy – Behavioral

1. Patience and Long-term mind set - In long term Wealth creation “Time” becomes the most determinant of returns. We prefer staying invested over longer periods on our conviction bets. Divi’s Lab, to quote an example. We have invested for over than 14 years, through thick and thin.

2. Perception Gaps - Sometimes, great business can remain under appreciated by markets for long. When this gap corrects, it leads to a huge opportunity for wealth creation. Indiabulls Group is an excellent example – one of the biggest wealth creators in India.

3. Digest the right information and ignore the noise – This is biggest Challenge in the present world. 

4. Keep it Simple - Stay focused and have a disciplined approach.

5. Investing can not be modelled for disruptions - Companies like Google, Amazon, Tesla, Facebook, Netflix etc. have to bought early, with a strong belief the underlying opportunity and a disregard for the near-term numbers. This, is also an art few understand.

6. Finally - Do it yourself only if you have the required understanding. Else there are lot of good people doing this for a nominal fee. Rarely on experts to do their jobs. Devote time, learn and look for opportunities.

Reference and Source:
https://en.wikipedia.org/wiki/Madhusudan_Kela
https://www.youtube.com/watch?v=aEHBzfzlDV8
Nation Next YouTube Channel

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“Rome cant be built in a day”

“Rome cant be built in a day”

Same thing applies to your wealth too. In this fast changing world, everyone expects everything to happen quickly and reacts quickly.

One thing which cannot change is “Slow and steady wins the race”.

In  your childhood, you would have heard the race between Tortoise and Rabbit.

Rabbit will move ahead and sleep as it covered large distance. Tortoise will slowly and steadily marches ahead and wins the race.

SIP in mutual fund is like Tortoise winning the race. You can start a SIP and just forget it. In the sense, don’t react to market movements very often. Monitor once every 3 months or 6 months to gauge the performance.

As some of your goals like kids education, kids marriage, retirement are all for long term, you need to wait till your goal of final planned amount is reached.

If investing and making money is easy, everybody would have jumped in this SIP mode and achieved the results. You need patience to create wealth and hence the challenge of less participation.

Do you have patience ?

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7 Tips to Improve your Financial Health during this Corona Lockdown

The world is reeling under the Corona Virus Pandemic. Many people are experiencing job losses as companies across globe shut production. Markets have also shown huge fluctuation wiping our crores of investor's wealth. Needless to say, people are concerned about their finances due to COVID-19 pandemic. With so much uncertainty around, it’s important now more than ever to focus on saving and reduce spending. During this Corona lockdown, follow some essential financial tips to improve your financial health.

1. Keep Emergency Fund

Emergency is unpredictable and difficult to manage. The old saying that holds always. Save as much as possible. Maintain a budget. Avoid expenses that you can. In short, keep an emergency fund.

2. Insurance Cover

Situation and instances like COVID-19 can happen anytime. Do check that you have proper health and term insurance cover. Check your health coverage benefits and know how much it will cost you during any critical illness. If needed, increase the premium amount by taking more coverage. This will benefit you during a health emergency. Take proper health coverage for your family. Do an honest assessment. 

3. Continue with SIPs

Keep your SIPs. Don't do panic withdrawal. You never know what is in store for you in future. To keep you financially strong, keep saving your money by continuing your SIPs and long-term investments. Don’t panic and redeem all your investments due to the huge volatility in the markets. Rather, if possible, continue your SIPs, it will help you in creating bigger corpus when the market’s rebound. Top up your existing investment in equity using asset allocation strategy.

4. Check your EMI/Instalments

If you have not opted for the banks EMI moratorium, and not paid your EMIs instalments yet, your credit score might get impacted. Either you opt for a moratorium or pay your dues on time. Good credit score will help you in the future loan if needed. Don’t ignore your CIBIL score. 

5. Relook Investment Portfolio

It is advisable to relook at your investment portfolio and just sell the equity or any holdings which are not giving you benefit since long. One can sell and buy some good stocks and invest in strong margins coupled with low debt companies for the long term. Invest for the long term.

6. Go Digital

As per Government health guidelines we need to keep social distancing to avoid COVID-19. So, it is better to use a digital wallet as much as you can. Completely avoid going to your Banks or ATMs for any financial need and use. Use online banking, cards, UPI or wallets for payments and managing investments. Avoid using cash, keep ATM visits minimum.

7. Refrain from Panic Buying

Don’t spend your money buying food items, groceries, medicines just to stock up things due to fear of lockdown. Essential supplies will continue. Only buy those items which are very much important apart from daily use items. Panic buying will put a strain on your finances.

Source: https://www.indiatvnews.com/business/news-coronavirus-crisis-tips-to-keep-financial-safety-during-covid-19-lockdown-605896

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10 Golden Rules of Investing

Investing does not have to be complicated and it should not be exciting either. Putting your hard-earned money to work in the financial markets is all about helping you get what you want from life while making sure you can sleep easily at night. It is not about riding roller-coasters.

To invest, you need to draw up a clear plan, do your own research, build in a margin of safety by always thinking about the valuation and, ultimately, be patient. By all means include some speculative picks if you wish, but ensure they are only a small part of your portfolio. Looking for an oil explorer whose shares double, treble and double again is exciting but such firms are very rare. There are a lot more which have a consistent record of paying out the dividends which really make the markets work for you, once they are reinvested.

The trick is how to select the picks which best suit your investment goal, target returns, appetite for risk and time horizon. These 10 golden rules summarise entire guide and they should help everyone spot profitable portfolio picks and also escape likely failures.

1. Have a plan

The financial plan of every investment is the tool that maximizes your potential profit and minimizes risk. Depending on how fast you need make a decision and how complex your investment is, you can elaborate a detailed and accurate plan or simple plan. Before you put any cash to work, you must know what you are investing for. This will condition your target return, time horizon and appetite for risk and therefore the asset classes best suited for your aims.

2. Never invest in something you do not understand

Peter Lynch of Fidelity was one of the most successful fund managers ever, and he said he never touched anything he could not describe on one sheet of paper with a crayon. You will be angry with yourself if you lose money on something and cannot explain why. Stick to what you know and always do your own research. You can’t manage or improve something that you don’t fully understand. So before you start, gain knowledge about the subject of your investment.

3. Diversify your portfolio

“Never put all your eggs in one basket”, if the basket falls, you have no eggs left for breakfast. Same applies to investments. Diversify between debt and equity and even further within those. Invest in Mutual Funds and some direct equity if you are inclined towards equity. For debt too, choose bank FDs, Debt Mutual Funds, balanced funds, FMPs etc. Diversify. Also you can look at Gold, Silver, Real Estate, if you have the funds. If one investment class doesn’t work, the other will support it.

4. Respect the market

Stunning rises and huge crashes show that markets are not efficient, but you must respect their views. When you buy or sell something you are saying the market is wrong, so you need to have a good reason why.

5. Start with something small

There is one great strategy to start with. Start with a simple investment. Treat it as a testing ground. See how your rules work. Draw conclusions. Make adjustments. Improve. And then prepare for bigger profits. The earlier you start, the faster you will be reaping the benefits.

6. Go against the herd

Punters go skint backing favourites on the horses, and although it may work in the short-term, purely following hyped, momentum names can be dangerous. To get the best long-term returns you will eventually need to sell what everyone is talking about and buy what is being ignored – providing the valuation is right and growth, risk and quality checks are met.

7. Cash is king

Profit is a matter of opinion; cash flow is a matter of fact. Some unscrupulous managers will try and dress up their profits but they cannot fiddle cash. Accidents happen when companies look profitable but generate little cash so focus your research here when looking at individual stocks.

8. Dividend reinvestment is vital

Patient portfolio builders should focus on firms with a strong competitive advantage and a good reason why clients want to pay for their goods or services. This confers the pricing power that enables companies to generate cash and pay the dividends that really get your savings to tot up over time. There are many funds dedicated to such firms, too.

9. Never invest money that you can’t afford to lose

This parameter of your investment protects your business against losses too big to handle. Your business should run smoothly and be managed evenly and rationally. Investment business is certainly not about gambling. It is about gradually multiplying your assets.

10. Focus on value, not price

Prices are temporary, but values are eternal. Prices usually depend on values. If you are able to recognize the real value of your investment, then you will never pay too much or too less. Prices are often a matter of speculation, while values are built on passion and dreams to make a difference. Most of the time it’s good to ignore facades, diligently prepared by PR agencies and know what goes on backstage. e.g. you would not enter a restaurant and buy a pizza regardless of whether it cost Rs. 50, Rs. 100, Rs. 200 or more. You would use your judgement to decide what is good value, and the same discipline must apply to financial investments. Several simple metrics, in the context of growth, risk and quality, will help you decide whether a valuation is cheap, expensive or about right.

Do you have any specific principle of investment that your follow? It will be interesting to share your views, leave your thoughts in the comments below.

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What should be your investment strategy when you are in debt?

While managing your personal finance, you may face a dilemma of giving appropriate weightage to either investment or debt since both are important aspects of your personal finance. If you ignore debt repayment, then compounding interest will quickly spiral out and you may easily get into financial distress. If you ignore investment, then you may fail to accomplish many of your financial objectives. So, it is important to maintain the right balance between debt and investment.

Now, when you are already in debt, should you still invest money or wait till your existing debt becomes zero?

To invest or avoid while in debt

Certain important factors like interest rate can help you decide on whether to invest or pay the debt first. If the existing and expected interest rate on debt is substantially lower as compared to the interest or return you expect to earn from an investment, then you should prefer to invest over prepaying. For example, prevailing interest rate on a home loan is around 8.5 percent p.a. and you have earned extra income through annual bonus. You have the option to prepay the loan or to invest the bonus in a balanced fund, which is expected to give a return of 12 percent p.a. (assumed) after tax. In this case you, should continue to pay home loan EMI and use the fund for investing in a balanced fund to earn a better return, considering a risk while investing money in a mutual fund. If the interest rate on loan is close to or higher than the expected return from investment, then use your extra income to first clear the outstanding debt and thereafter use the remaining fund, if any, for investment in appropriate instrument.

Assessment of existing liquidity

Another important factor that you must check before using the income to pay debt or invest is to assess your prevailing liquidity situation. If you find it difficult to manage your regular monthly expenses after paying the EMI, then using the surplus income for repaying such debt could help you to reduce the financial burden.

Repaying the debt on time is very crucial for maintaining a good credit score. If you have surplus fund and you invest it, then do assess whether you will be able to liquidate it at the time of emergency without any capital loss. If yes, then you can think of investing money over prepaying the loan amount. For example, if you face financial emergency, such as job loss or an accident, and you don’t have enough money to repay existing debt EMI, then you can use this investment for emergency cash flow. However, if you are not sure about retaining the value of investing funds and its liquidity factor, then it is better to avoid such investment.

Invest surplus in appropriate instrument

If you are planning to take a loan for other big ticket purchases, then instead of using the surplus income to repay your existing loan, you can use it to invest in appropriate instrument and later on use it to pay for your buying. For example, you are planning to buy a car after three months and you got a surplus income of Rs. 5 lakh. You have an existing home loan with Rs. 20 lakh outstanding and remaining tenure of 15 years, with an interest rate at 8.8 percent per year. Instead of using the surplus income to repay your home loan and taking a car loan to buy a new vehicle, you should invest it in a liquid fund for three months. The invested money can come handy later on for your car buying.

It's important to maintain a balance between risk and reward

To make a correct decision you should focus on maintaining a fine balance between risk and reward while selecting one of the options. You must analyze the impact of your decision on your retirement goal and your other financial objectives. Try to cut down the risk associated with your debt by utilizing the reward you expect to get by investing the fund.

Team WealthyMantra

Source: Moneycontrol

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