YOUR ROAD TO WEALTH CREATION

When you know the rules of the game, you have a higher chance of winning or at least playing
even.
So you want to know the rules of wealth building? Remember the road to wealth cant be traveled only on
the back of wishful thinking. A traveler on that road must possess discipline and courage two attributes
that
great
wealth-builders
have
in
copious
quantities.
As an individual, you are entirely different from everyone else around you, and hence you must set your
own wealth-creation plan, keeping in mind relevant factors like your age, objectives and risk appetite.
Determine your Life Stage
A keen understanding of your life-stage is a pre-requisite of sorts. It will clearly define where do you stand
in terms of obligations, responsibilities and duties both in relation to yourself and to others in your family?
Appropriate life-stage planning, indeed, can make all the difference to a wealth creation exercise. Risktaking
abilities
keep
on
altering
in
line
with
changes
in
life-stage.

Here are a few broad life-stage classifications:

Early life: Typically single, a student or entry-stage professional in business or service. You have a

relatively low income but have limited responsibilities to match.

Change in marital status: Higher responsibilities; need to fortify income from employment or

business; change in life style; increase in expenses; risk-taking ability is on the high side
Mid life: Typically with child/children; increase in work pressure; high level of obligations, often

towards dependent parents; lower risk taking ability

Pre-retirement: Need to round off plans; exercise options; perhaps with lower responsibilities

towards children; personal health issues are likely to crop up

Retirement: Lower income; possibility of taking

up

post-retirement

assignment;

higher

dependence on earlier savings; higher dependence on children

Personal Financial Statement
Once you determine your life-stage the next is to ascertaining the current financial status. A personal
financial statement serves, reflecting ones assets and liabilities, as the very foundation of the strategy. Such
a statement can capture the very essence of an individuals status, needs and expectations.
The risky part
A successful creator of wealth knows his risks just as he knows that it is critical to start early and invest
regularly. Risks come across as a probable loss, damage or threat. These are often spawned by events,
decisions, economic factors.
In this context, the following points are worth considering:

It is impossible to correctly predict market conditions

Adverse economic conditions and corporate sentiments, may impact your wealth creation exercise

Medical emergencies and revision of legislations may also have its effect

How to minimize risk?

Two rules stand out.

Remember to begin your investment early in life.

It is important to invest regularly.

Investors need to remember that your requirement changes constantly with time. In order to take
advantage of time, an early start has no substitute.
Asset Allocation
The right asset allocation is a major requisite. An investor who has a modest appetite for risk can not afford
to
invest
in
assets
that
generally
qualify
as
high-risk.
Typically, a young investor (say, a 25-year old) with limited obligations can invest in equity, which is
generally considered as a risky asset. He has plenty of investment years ahead of him and he can,
therefore, have the patience to ride the ups and downs of the equity market.
Diversification of assets
At the same time, it is vital to diversify any portfolio. Diversification that is spreading ones investment
over a range of asset classes would enable an investor to reduce dependence on one (or just a few) of
them. Diversification, incidentally, can be done well through mutual funds which necessarily invest in a pool
of
assets.

Here are a few quick dos for an aspiring wealth-creator:

The investor must make an attempt to correctly identify his needs.

While risks cant be entirely avoided, their impact can be minimized if the right measures are
adopted.

Follow a strict regime of discipline. A systematic investment plan makes way for automatic
payments.

Change strategy when circumstances warrant such a change.

Major roadblocks in wealth creation
Normally,

the

two

greatest

enemies

of

diligent

wealth-creator

are

inflation

and

taxes.

Inflation stems from rising prices, a matter that is far, far beyond the reach of an individual control. However
an investor can successfully hedge inflation by investing in asset classes like equity, which will help you over
long

term.

Taxes too can have a deadly effect, especially if an individual doesnt follow tax-efficient strategies.
Investment
in
mutual
fund
will
give
you
various
tax
benefits,
as
applicable.
Remember in this context that liabilities have a silent way of increasing. For example, loans and interests on
such loans can have a negative effect on wealth. Personal loans, above all else, usually come at a steep
cost. Home loans, auto loans and consumption-related loans too can often prove quite expensive for the
average

person.

A certain individuals net worth can be depleted on several counts. A decrease in income, depreciation in the
value of assets, a step-up in debt obligations or an increase in the cost of living can lead to a decline in net
worth.

A wealth-builder will do well to remember that some assets may well lose sheen over a period of time. For
instance, shares of companies that are owned by you can decline heavily. Fixed assets may significantly
depreciate in value. And hence revision of assets is must in technical term this is called asset allocation
review.
Final Tips for You
The following set of tips may prove handy:

Regular review of portfolio so as to check the latest scenario.

Re-balancing portfolio in line with changes in investment objectives.

Systematic and regular investment so as to build wealth over a period of time

Listen to sane advice it is important to contact a financial planner who can guide an investor
through the vagaries of the market.
Disclaimer:
Risk Factors: Mutual Funds and Securities Investments are subject to market risks and there is
no assurance or guarantee that the objective of scheme(s)/plan(s) will be achieved. As with any
other investment in securities, the NAV of the Magnums/Units issued under the
scheme(s)/plan(s) can go up or down depending on the factors and forces affecting the
securities market. Past performance of the Sponsor/AMC/Mutual Fund/Scheme(s)/Plan(s) and their
affiliates do not indicate the future performance of the scheme(s) of the Mutual Fund. Statutory Details:
SBI Mutual Fund has been set up as a Trust under The Indian Trusts Act, 1882. State Bank of India (SBI),
the sponsor is not responsible or liable for any loss resulting from the operation of the schemes beyond the
initial contribution made by it of an amount of Rs. 5 lacs towards setting up of the Mutual Fund. Asset
Management Company: SBI Funds Management Private Limited (A joint venture with SBI and
AMUNDI). Trustee Company: SBI Mutual Fund Trustee Company Private Limited. Please read the
Scheme Information Document carefully before investing. Prospective investors are requested to read
the scheme information document before making any decision of investment. Investors are also strictly
advised to consult their legal, tax and financial consultants before making any decision of investment. The
AMC takes no responsibility of updating any details/ information in the material. The AMC/ Mutual Fund shall
not be responsible for any loss, damage or any nature arising from the use of this material.
This information is given for general purposes only. These views alone are not sufficient and should not be
used for the development or implementation of an investment strategy. It should not be construed as
investment advice to any party. All recipients / readers of this material should before dealing and or taking
any decision of investment are advised to carefully review the Scheme Information Document and consult
their legal, tax and financial advisors before making an investment decision. All opinions and
estimates included here constitute our view as of this date and are subject to change without notice.