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How to
Build Wealth
Congratulations!

By registering with Value Research Online, you have given yourself the key
to build wealth. In the following pages you will learn how to build wealth
and use our website to monitor and track your investments and stay a step
ahead.

Our website has several features and tools, which will enable you to
understand about mutual funds and investing. To get started, you need to
setup your existing investments in the 'My Portfolio' feature, which is an
investment tracker that allows you to track your investments in stocks,
mutual funds and fixed income investments. This free to use tracker pro-
vides you with detailed analysis of each of your investment's performance
and its contribution to your returns.

You can view the character of the portfolio, which includes asset alloca-
tion and the top stocks and sectors holdings. If you are a Systematic
Investment Plan (SIP) investor, 'My Portfolio' has the facility to take into
account the SIP inflows to provide you up to date status of your invest-
ments. You can view the transaction history of your investments, the loss
or gains made besides performance comparison with appropriate bench-
marks.

There are other facets to the 'My Portfolio' too that make it India's most-
advanced investment portfolio tracker. You can explore further as you get
started. It is also our endeavour to make this facility safe, interactive and
valuable to every investor looking for a one-stop point to assess their
finances.

I look forward to hearing from you about Value Research Online, and
especially on how we can improve it.

Regards

Dhirendra Kumar
Chief Executive
Value Research
How to Build Wealth
Everyone wants to get rich with crores of rupees and build a wealth to last a lifetime, if
not longer. Although it is simple to build wealth, where most often one goes wrong is in
assuming that someone else will help them build it. It is very simple to build wealth by
following easy investment strategies to reach the magical figure of a crore and more.
There are several ways of becoming a crorepati; you can save money in the bank, you can
invest in fixed return instruments, you can invest in mutual funds or equity. All these
instruments come with degrees of risk and returns. What you need to know is that invest-
ing in equity is the way to wealth creation in the long run and building a crore with mutu-
al fund investments is very much desirable and possible.

Why invest in equity?

Fixed return investments cannot fight
inflation, which is a big risk in the long
run. For instance, if you retire at the
age of 60 and put away all your
money into a 'safe' debt-based invest-
ment that underperforms inflation by
just two per cent a year, your money
will be worth almost 47 per cent less
by the time you are 90! 'Safe' invest-
ment is actually the most dangerous
thing you could do with your hard-
earned retirement fund. Historically, it
has been proven time and again that returns on equity generally outstrip inflation, and
outstrip returns on bank deposits over the medium to long term. To achieve returns in
excess of inflation over a period of ten or more years, equity investment is the way.

Become a crorepati with mutual fund investments

The way the stock markets are behaving right now, it isn't easy to figure out what's like-
ly to happen in the short- or medium-term. So what should you do? How must you find
a solution to this market dilemma? Is it possible to have an investment strategy that will
make money in the long-term regardless of what happens in the short-term? If the past
is anything to go by, then there certainly is. Investing directly in the stock markets is risky
because of the unpredictable fluctuations. It is for this reason that investing in mutual
funds scores over direct equity investments.
The fact is that all of this nerve-rattling action of the rise and fall of the Sensex, the direc-
tion in which stock prices move should not bother the retail investor. We studied the SIP
returns of the diversified equity funds over the last 10 years. How much can an investor
earn by this straightforward technique of doing something simple and sensible and going
at it for a long time? You'll be surprised. If you had invested `10,000 a month in the last
ten years in any one of the better mutual funds, your `12 lakh would be worth way over
`1 crore, with some of the best performing funds touching close to `2 crore. To check
the veracity of the benefits of long-term investing we looked at investing similarly over
both 15- and 20-year time frames; the results remain the same.

Crorepati Funds
Fund Return (%)
Scheme Category Rating 3- year 5- year
HDFC Taxsaver Tax Planning 8.89 6.52
HDFC Equity Multi Cap 9.53 9.16
Franklin India Prima Plus Large & Mid Cap 9.36 7.45
HDFC Top 200 Large & Mid Cap 7.49 10.03
Franklin India Bluechip Large Cap 8.98 8.02
DSPBR Equity Multi Cap 8.06 8.81
Few funds with over 15-year history that have built `1 crore through monthly SIP investment of `1,000

The last ten years were not exactly a trouble-free period on the bourses. And, the past
two decades have witnessed a fair amount of crises in the stock market. But even in this
period filled with regular crashes and scams, slow and steady really does get you to your
crore. But make no mistake, the journey wouldn't have been as smooth as you would
have liked it to be. There would have been times when even after five or more years of
regular investing, your portfolio would have come under a serious threat of going into
red. After 2008, many investors would probably be facing a similar dilemma. At this junc-
ture, many would have simply exited the market to save their capital, but the more
patient ones would be the ones who would go on to become crorepatis.

Advantages of Mutual fund investing

There are different types of mutual funds and the most important thing to understand
when investing in them is that there is a different time band that is suitable for each type
of mutual fund. Broadly, money that is needed within the next three to five years must
be in debt funds while money that is required after that can mostly be in equity funds.
Very long-term money; something that you are absolutely certain will not be needed for
more than ten years, should always be in equity funds. Over such long periods of time
the risk of investing in equities or at least that of investing in a good equity fund is mini-
mal and the rewards you can expect are high.
There are several unique advantages of investing in mutual funds which is unmatched by
most other investment avenues.
Affordability: The minimum amount to be invested in a mutual fund is low and you also
get access to a diversified portfolio even with a very small amount of money.
Expert Management: Mutual Funds are managed by qualified and experienced profes-
sionals, who have access to company research, analysis and market information which
forms a sound methodology to investment decisions. This process helps in maximising
investment returns.
Diversification: The importance of diversification cannot be overemphasised, its rele-
vance becomes all the more visible in turbulent times like these. By investing across sec-
tors and stocks, there is an assortment of instruments in which investments flow, which
also helps in reducing investment risk.
Low costs: Mutual Funds benefit from economies of scale in brokerage, custodial and
other fees translating into lower costs for investors. Moreover, investors in open-ended
mutual funds can buy and sell units at Net Asset Value (NAV) related prices which are
declared on a daily basis on all working days, providing you easy access to your money.
Transparency and Regulations: Mutual Fund portfolios are disclosed to investors on a
regular basis, which makes them a transparent investment vehicle, which is well-regulat-
ed to safeguard investor interests.
Tax benefits: Equity Linked Savings Schemes (ELSS) offer tax rebates to investors under
Section 80C of the Income Tax Act.

Build Wealth the SIP Way

An SIP is a planned investment program
under which you invest a small amount
of money at regular intervals. The mini-
mum amount can be as small as `500
and the frequency of investment can
vary from daily, monthly or quarterly.
Moreover, you can select the tenure of
your investments as it helps you set
aside a fixed amount every month for
investments, thus contributing towards
your financial goals.
The biggest advantage of SIP is the power of compounding benefit. Consider two investors:
A and B who set out on their journey to accumulate wealth. Investor A realised the poten-
tial of equities quite early and started investing `20,000 a month 10 years ago. Investor B,
on the other hand, procrastinated for five years before finally buying into the equity story.
He started to invest double the amount each month to catch up with his friend, only to
realise that his efforts to earn the same amount of money have been in vain.
Despite investing an equal amount of `24 lakh, investor A would be almost twice as
wealthy as B. Not only that, even though B has been investing twice as much as A in the
last five years, the gap between the two would always be widening in favour of A. Clearly,
the power of compounding would have given an unassailable head-start to investor A.
There are several other advantages of SIP such as:
Discipline: SIP's most important characteristic is that it does away with the need or effort
to time the market. Through an SIP, investments are periodic and regular, irrespective of
the market direction. SIPs help you set aside a fixed amount every month for invest-
ments, thus contributing towards your financial goals.
Affordable: SIPs have the advantage of small sums of money being invested at regular
intervals, which does not impact your purse at one go.
Easy to Invest: You have the convenience of direct debit of your SIP instalments through
Electronic Clearing Service (ECS) facility. Your SIP amount automatically gets debited
from your bank account on the predetermined date.

Still scared to invest in Mutual Funds?

There is no better way to wealth creation than
investing in mutual funds. If you are still scared
and unsure, start investing with a balanced
fund. The investment risk is reduced signifi-
cantly when investing in these funds.
Investments in these funds will not insulate
you from the losses, but will definitely restrict
them. See the nervous phase of the coming
months off and later you can divert that
money to pure equity funds. It will also give
you the taste of investing in mutual funds
through SIPs and understand how these investments work, which is a good start to
investing.

Monitoring a Portfolio
Having set-up your portfolio, you need to get into the next most important actmoni-
toring your investments, because even a great portfolio must be monitored and must
evolve to suit changing conditions. One major reason is that formerly good funds could
start consistently underperforming. Of course you must not jump the gun and fire a fund
for short periods of underperformance.
But, if a fund is performing considerably
worse than others funds of the same
type for more than a year, you should
think of switching to a better performing
fund.
For a start, the Value Research rating is
handy to invest in good funds. The 5-
and 4-star rated funds form the universe
of the best performing funds in a catego-
ry which can be selected from the Fund
Select feature on our website. Funds with lower rating are best avoidable. This filter will
help you build a portfolio of good funds, which will aid wealth creation.
The other reason for changing a portfolio is when you approach the time when you need
the money. A portfolio that started out as a five-year, medium-term investment will be a
short-term portfolio four years later. The solution is clear: portfolios must be reworked as
the time to liquidate them gets closer, otherwise, your hard-earned equity returns could
get wiped out in a bear market just when you need the money. As the time approaches
closer, you must start moving the money into debt funds gradually, perhaps a year or two
in advance, which is crucial to protect your returns.

Peace of Mind
In a nutshell, building wealth is not rocket science. All it requires is a great deal of care-
fully thought-out systematic actions. Besides great returns with the right amount of risk,
the most important payoff from managing your investments in the 'My Portfolio' tool
methodically is peace of mind. You will know what you are doing and why you are doing
so and, you will sleep peacefully in the night without worrying about the fate of your
investments.
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Value Research

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Value Research

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