Work Towards Your Financial Goals

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Work Towards Your Financial Goals
Work Towards Your Financial Goals
OLM Desk - 02 December 2021

Yhe November edition of the investor awareness webinar series by Aditya Birla Sun Life Mutual Fund and Outlook Money took the occasion of Diwali to discuss wealth creation through the theme ‘Path to Prosperity’. In conversation with Nidhi Sinha, Editor, Outlook Money, were three experts—K.S. Rao, head of Investor Education and Distribution Development at Aditya Birla Sun Life AMC; Amit Trivedi, an author, speaker, blogger, and trainer; and Suresh Sadagopan, a a Sebi-registered investment advisor, certified financial planner and founder, Ladder7 Financial Advisories.

Here are the edited highlights of the discussion:

Understand Wealth Creation

According to Rao, wealth creation is not just about generating money, but also about ensuring good health and family ties, and distributing it to the needy. He said that creating wealth is easier than sustaining it, so it’s not just important to protect wealth but also to invest it right so that it can work for you in the future.

Trivedi highlighted the importance of deciding the target before taking the path to wealth creation. While striking a balance between “Lakshmi” and “Lakshya” (goal), one must tide over uncertainties, for which adequate protection will be required, he said.
Sadagopan said the path of wealth creation is very simple. One needs to be financially well-grounded, disciplined and be able to control expenses. Along with this, proper finance planning will lead to wealth creation, he said.

Rao said since there can be many roadblocks in the road to wealth creation, such as the pandemic or market volatility, asset allocation is key.

Contain The Risks

Rao said an emergency fund could help tide over tough times like the pandemic period. It will help you protect your long-term goals as well, since you won’t have o dip into your savings for emergencies.

Trivedi spoke about the importance of taking insurance products for interim protection. “To get an idea of risk appetite, ask yourself three questions: Are you willing to invest? Do you need to take risk? Do you have the ability to take risk? Align your portfolio accordingly,” said Trivedi.

Sadagopan highlighted that the risk appetite also depends on the tenure of the goal. “If a goal is near, we have to look at non-risky assets. So, it is all contextual. Suppose you have a long tenure to retire, say 15-20 years, then potentially your risk capacity is high. Similarly, if both partners are working, risk capacity is high,” he said.

Use Mutual Funds

Rao said MFs are like “mutual friends”, as they are a trusted vehicle which can help reach any goal. Moreover MF SIPs (systematic investment plans) discipline investors and automate savings.

In comparison, investing in stocks directly, without proper understanding, can be a scary proposition, said Trivedi. Mutual funds charge some amount as total expense ratio, but in return, you get professional help, he said. For the majority, mutual funds are a far superior option than investing directly in stocks, he added.

Sadagopan agreed and said, mutual funds are the best way to invest for 99 per cent of retail investors. You can have a mix of short-, medium-, and long-term mutual fund instruments to optimize the returns, he added. Plus, they come with the benefit of liquidity.

Summing up the conversation, Rao said that SIPs should be adopted for wealth creation: they let you save wisely, invest rightly and plan smartly. Trivedi highlighted that it was important to clean up the portfolio to make it simpler to manage. Sadagopan said certain things can’t be under one’s control like the stock market or inflation, so it’s important to focus on what can be controlled like our expenses.

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