How To Grow Your Money: 4 Simple Hacks Every Investor Should Know

Returns are important. One cannot be satisfied with mediocre returns, but chasing the highest possible return via specific products is not prudent.

Instead of chasing returns, focus on increasing your investment amount.

Source : Freepik

By Madhu Lunawat

Retail investors are always searching for the next best investment option. They get influenced by ongoing themes and tend to invest in them when they are highly valued. The last two year's frenzy and subsequent crash in midcap and smallcap stocks is a pertinent example. Returns are important. One cannot be satisfied with mediocre returns, but chasing the highest possible return via specific products is not prudent. There are smarter ways to do it that do not require much effort. All you need is discipline and patience.

Making The Most Of Market Correction

The stock market has been in a downturn for quite some time. The Nifty Smallcap 250 index fell 23 per cent so far this year while Nifty Midcap 150 index is down 15 per cent during the same period. By comparison, both indices gained 25 per cent and 23 per cent, respectively, in 2024. Those who invested in midcap and smallcap mutual funds in the last two years must be facing a hard time. But smart investors must have protected themselves. They would have taken exposure in riskier asset classes such as midcap and smallcap MFs or stocks via systematic investment plan (SIP), not lumpsum. SIP protects your downside. It gives you confidence to invest more when broader markets are falling. This helps in incurring extra returns.

Here is what a smart investor would do. Continue her monthly SIP on an auto mode, but making sure to execute some additional purchase on days when these indices crash by 2-3 per cent. Adding units at a lower level will help her gain better returns when the market direction changes. Take, for example, if someone is investing in the Nifty 150 Index Fund on a monthly basis and also taking extra exposure on days when it falls, her portfolio return (compounded annual growth rate) will be higher than what Nifty 150 Index will have gained in the same period. So, if the Nifty 150 Index tends to record a CAGR of 15 per cent, your returns via your SIPs tracking this index could potentially be above 20 per cent in a given period.

That said, this is not the time to sell off your investments. If you have surplus, invest some of it in mutual funds to get better returns when markets recover. 

Choosing SIP Dates

Why SIPs have an advantage over lumpsum is it gives you exposure in the market at different levels. This is the reason why the fall in your SIP mutual funds is lesser than the crash in the broader market. You need to apply the same principle on choosing your SIP dates. People tend to fix their SIP days in the first week of each month, that is, after the salary gets credited. You shouldn't put all your SIPs on the same date or a week. If you are investing in 4 mutual funds, better to have four or at least two different dates for SIP deductions spread across a month. This will help you avoid concentration risk and manage your cash-flows better. While in the long run, SIP dates don't matter much in returns but it does help in balancing your portfolio returns when the market crashes.

A Small Increase Goes A Long Way

Instead of chasing returns, focus on increasing your investment amount. If you invest Rs 5,000 for 20 years at a CAGR of 15 per cent, you will accumulate Rs 66 lakh. If you increase your investment only by Rs 1,000 to Rs 6,000, your accumulated corpus will reach Rs 80 lakh during the same period. You will not be able to increase your investment every month but you should target doing so every year as your income will increase too. Mutual fund companies give you an option to opt for step-up SIP. This feature helps you increase your SIP amount every year by a certain amount or a percentage that you can fix yourself. You may dodge increasing your SIP every year by yourself, but if you enable the 'step-up' feature, it will happen automatically. Suppose you start your SIP journey with Rs 5,000 per month but you increase it by 10 per cent every year. If you continue doing it for 20 years, you will accumulate a whopping Rs 1.24 crore at a CAGR of 15 per cent.

Going Direct In MFs

Not many people tell you that there are two modes of investment for each mutual fund scheme - direct and the regular mode. Direct means you directly buy it from the mutual fund company and regular means you buy it from a mutual fund distributor (MFD). The expense ratio of direct mode of an MF scheme is much lesser than that for the regular mode because a mutual fund company has to pay some commission to the MFD to sell its regular mode. It adds to the mutual fund company's cost. If you can choose MF schemes yourself, you should buy directly from the mutual fund companies' website or from an investment platform that offers direct plans such as Kuvera and Groww. Alternatively, you may reach out to a Sebi-registered investment advisor to get a full-fledged financial advisory. They guide you about your investments and make you invest in the direct mode of MF schemes. Paying a lesser expense ratio on your MF schemes will help you gain better returns.

(The author is the Managing Director of Wealth Company Asset Management Private Limited)

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