12

BEST PRACTICES
FOR WEALTH
CREATION

This ebook is created for Jagoinvestor

clients to share some best practices to
enjoy the journey of wealth creation

Visit www.jagoinvestor.com for more details

Dear Client

We have created this short PDF document to make sure

you understand some of the best practices to adopt as a
mutual fund investorsand how to think about your wealth
creation process.

Over last few years, we saw many of our clients behave

irrationally and in a wrong way which was not aligned to
their interest which prompted us to create this pdf and
share with you all

We want to make sure that all our clients are on the path
to financial freedom and have a wonderful and stress
free journey to wealth creation.

Please go through all the points mentioned in this pdf

and incase you need more clarity on any point, please
reach back to us or call your relationship manager for
clarity.

Thanks

Jagoinvestor Team
MARKETS ARE
VOLATILE, NOT RISKY
1
Its highly critical to understand that mutual funds or
stock markets are VOLATILE, not Risky.

If you understand this point, your journey with

mutual funds will be smooth and worry free

Volatility refers to the ups and down in the value

over time due to dozens of factors.

There have been several crashes and downturn

movements in stock markets, but every time you see
the charts and how the prices have moved, you will
eventually see a up trend always (see the 15 yrs
NIFTY chart below)
GOALS AREMORE
IMPORTANT THAN 2
FUNDS PERFORMANCE

What really matters to you as investors is that your

child gets great education and not if your mutual
fund returns were 15% or 14% ?

In the same way, your focus has to be on reaching a

comfortable retirement rather than having top 5
mutual funds in your portfolio.

All we are trying to say is that over time, you need to

keep looking and focusing on your financial goals
and how they are doing and you should not
get paranoid about why your fund has given 15%
and not 18% or why your fund is 4 star or 3 star?

While good funds are important and high returns are

the cornerstone of good planning, most of the
investors destroy the wealth creation process by
over focusing on small small things which truly
speaking does not impact their financial goals
health.
DONT JUDGE YOUR
FUNDS BASED ON 3
SHORT TERM RETURNS

If the 1st rank holder of a class scores 3rd rank in a

small unit test in the class, do it mean their
performance should be judged suddenly?

No !

You need to understand that mutual funds are long

term products and what really matters is how your
funds have performed over long term compared to
their benchmarks.

Just because a fund has done bad on a 1

month returns parameter, does not mean much. Its
just sheer luck or the volatility of the markets.

You need to take your eyes off the short term

movements and focus on returns like 3 yrs or 5 yrs.
Anything less than that is not the right measure to
judge mutual funds (especially equity mutual funds).
DONT REDEEM YOUR
MONEY FOR SMALL 4
SMALL THINGS

One of the biggest reasons people do not get rich is

because they focus too much on short term needs
and never give importance to long term wealth
creation.

You should not keep pulling out your money from

your wealth for small small things every now and
then (other than real emergencies).

Either plan for your short term goals separately or

try to avoid it.

A lot of investors start their SIP for retirement and

keep redeeming money for short term needs from
that and eventually they do not reach their goals
properly.

So once you plan your long term goals, and start the
investments, always try to avoid redemption from
that else your goals health will be impacted and you
will regret it later when your goal comes near.
DONT CHANGE YOUR
FINANCIAL GOALS 5
REGULARLY

How many long term goals you have?

Probably 3-4 ?

Once you set your goals (after careful thought and

thinking), now your main task is to fuel that goal with
your investments and track them over time to know
if you are on right path or not.

Instead of this, we have seen that most of the

investors keep shifting their goals from A to B and
eventually they loose the focus.

First they want to retire at 55, then after 3 yrs, they

want to retire at 45 and the whole game changes.

If someone has planned for a 2 BHK house in year

2020, suddenly after a year it gets changed to a 3
BHK in 2022.

All this creates confusion and deviates the

investors. Try to avoid it. Set your goals once after
careful thought.
DONT CHECK YOUR
PORTFOLIO DAILY OR 6
WEEKLY

Do you check your baby everyday if it has grown a

bit or not? Do you check the plant for the growth
every hour?

WHY? Because it does not make any sense.

Then why do investors check their portfolio every

day or even a week? How does it help? Any gain or
loss in a short term is mostly because of the market
fluctuations or the volatility factor and its not
meaningful at all from long term wealth creation
perspective.

Infact, the more you look at the portfolio, the more

stress and excitement you will have about the ups
and downs and you will be tempted to "do
something"and this is a BIG issue!

You should stay calm, let the funds do what they are
designed for and keep an eye on your funds and its
performance every 6 month or an year. Just keep
looking at why your funds have gone down by 0.3%
is a recipe for disaster and disturbing the wealth
creation process.
LESS IS MORE - WHY
TO NOT HAVE TOO 7
MANY FUNDS

As a good practice, you should have a concentrated

portfolio with limited number of funds which you can
manage properly.

Also it should be divided into more than 2-3 AMC's.

If for any reason you have more than 10 funds in
your portfolio it should be reviewed and changed.

More funds does not mean more diversification,

because at the end most of the funds of same
category have some overlap & by buying same kind
of funds you do not achieve enough diversification.

Below if an excerpt from my book on this topic

A person who has invested in just 2 mutual funds is already exposed to

74 different stocks, out of which 49 stocks are of big companies (large
cap) comprising 85% of the investment and remaining 25 companies are
mid size companies, which account for rest of his investment. Now thats
a decent enough exposure already. But still some more funds can be
added to the portfolio, if one really thinks he should add more.

By adding 3 more funds(a total of 5) the exposure goes to 111 stocks, out
of which 59 are lae companies comprising 81% of the money invested
and the remaining goe sinto mid-sized companies. Now beyond this point,
it does not make much sense to include more funds of the same category
because it only adds to the clutter and does not add value.
EXPECT REALISTIC
RETURNS FROM YOUR
8
INVESTMENTS

One of the biggest reasons for disappointments

among investors is that they expect very unrealisitc
returns from their investments in mutual funds.

Note that Equity is an asset class gives better

returns than debt asset class (FD and PPF etc), as it
out performs them by 3-4% over long term.

If FD and PPF are giving you 7-8% return, then you

should expect a return of around 11-12% from equity
(mutual funds).

In some years, you will get 20% or 40% return also

from your stocks or equity mutual funds, then in
some years it might be -10% or 0% too. But if you
look at the average return you will get is in range of
11-12% and that should be the right expectation and
this much return is enough to reach your financial
goals .

So next time when you get 25% return in a year, be

clear that some part of this return is going to get
compensated with bad returns in other years.
ARE STOCK MARKET
CRASH GOOD OR BAD?
9
You will be surprised to hear that a "market crash" is
a good news for all long term investors.

Why? Because markets are volatile and the nature

of market is to go UP after it goes DOWN.

Which means that a crash is nothing but an

opportunity for you to collect some more mutual
funds units at a cheaper NAV and benefits from the
upmove later.

In the analysis below you can see how after every

crash, investors got great returns in next 1-3 yrs
CHECK IF YOUR FUND
HAS OUTPERFORMED
10
ITS BENCHMARK
Can you compare how your wealth is growing
compared to BILL GATES?

No, because its not the correct Benchmark to

compare with. You should ideally compare yourself
with someone who is similar to you and take similar
risk like you do.

In the same way, each mutual fund has some style

of investment as per certain guidelines and it has a
specific Benchmark with which it has to compare
itself to like NIFTY, SENSES or NIFTY 100

For Example, a mutual fund which invests in large

companies with various sectors compares itself to
NIFTY 50 returns (Its BENCHMARK). It it has
outperformed that, it has "done well" , else not.

So next time your fund returns 12%, see how much

its benchmark has returned and compare with
that. It does not make sense to compare your 12%
return with another midcap fund with return of 19% ,
because that fund has taken much more risk than
yours and has a different benchmark.
RETURN VS RISK IN
THE FUND
11
Are you attracted towards a mutual funds which has
given 43% return last year?

And you are wondering why you should not shift

from your existing fund which gave just 25% to this
awesome fund?

Well, its because the other fund has taken much

more risk to generate the returns and because the
markets went up, that fund has given more return.

However you should also know that if the market

were to crash, the other fund would have given -40%
return compared to just -20% your fund would have
delivered.

So its all about return vs risk.

While you should look at the positive side, Its

important to also see the other side. While you want
to maximize your return, you should also control
your risk and generate overall good return over long
term.
FUNDS SELECTION AS
PER RISK AND TENURE
12
OF GOAL
The first step in investment is to identify the
financial goal and its tenure.

Then, based on tenure you should select the

suitable mutual fund.

For goals like retirement, children education and

anything else which is long term goal, the funds to
be selected are equity funds which have more
exposure in stocks rather than debt. These funds
will be volatile and can move up and down with huge
margins.

However for short term goals like vacation or short

term requirement, one should choose a conservative
fund like a liquid fund for a short term debt fund
because the focus is on safety of money and not
returns.

Do not choose high risk fund for goals with tenure of

1-2 yrs because your money might go down by a big
margin in short term due to high volatility.
KEEP ALL YOUR BONUS
INVESTMENTS
AUTOMATED
Have you ever realised that depending on yourself
all the time for making investments manually is not
the best thing for your financial life?

Are far as possible, you should let your investments

happen automatically. Be is a SIP or a Recurring
Deposit, some mechanism shuld be in place which
debits your bank account automatically on a fixed
date and do your investments.

If you think that you will manually do the

investments on a given date, there is a great chance
that you will do one of following things

FORGET
CHANGE DECISION
REDUCE INVESTMENTS
POSTPONE IT
CANCEL IT

Automation is a corner stone of a great financial life.

 BENEFITS OF JAGOINVESTOR
PRO MEMBERSHIP
(Annualrenewal Fees Applicable)

1
To Check Financial Health
We take your financial data and screen on 15

parameters to check if your financial life is

going in right direction or not?

2
Financial Goals Review
We discuss your financial goals once again and

make sure that they are on the right direction

or not. We calculate if you need to add any

more investments or SIP for that or not.

3rd Eye View

3
Its always helps to discuss your finances with a

third party to make sure that you get a new

perspective on your financial life. At times we

are not able to see many things because we

are either biased towards our situation.

If you are not a PRO member, contact your relationship manager to upgrade
 CONTACT US

Incase of any issues, please

get in touch with us at
support@jagoinvestor.com

OR

Call your relationship

Manager on phone