How to be rich: In today’s time, there is a plethora of tricks and ‘hot stock tips’ to get rich fast everywhere on social media. If these tips had worked, many people would have become millionaires, but it is not so. The method of creating wealth is very easy and simple, but people complicate it and deviate from their goal. Recently a chartered accountant has shared the mantra of becoming rich. Whether you earn Rs 1 lakh, or Rs 10 lakh… this mantra is effective for every person.
Chartered accountant Nitin Kaushik wrote on X that wealth is not created by high returns but by good habits. He told in a post that “There are two such money habits, which make you rich without making any noise, while the rest of the people just keep running after investment.” He believes that wealth goes to those who move forward with peace and continuity. Smart people make small investments every month, make a budget and rebalance their investments from time to time.
Nitin Kaushik says that most people do not have any system. Whether one earns 1 lakh or 10 lakh, if the money is not given the right direction, it gets exhausted just as fast. He wrote, “Becoming rich starts not with earning, but with intention.” That means, not your earnings, but your thinking and discipline decide your wealth.
First Habit: Compound Interest
The first habit he talked about is the power of compound interest. Kaushik calls it ‘a force of nature’. He says, “If you invest Rs 25,000 every month and get 12 percent annual return, then in 5 years you will have around Rs 20 lakh. But if you continue the same investment for 20 years, it will become Rs 2.4 crore.” He told that it is best to start early.
Second Habit: Portfolio Rebalancing
The second habit is portfolio rebalancing. This means changing your investments from time to time, so that the balance between equity and debt (shares and bonds) is maintained. He explained, “If you initially keep 70 percent equity and 30 percent debt, but as the market grows this ratio becomes 85:15, then by rebalancing you bring it back to the right level.” Kaushik explained this with a great example, “It’s like you prune a tree. Pruning is not done to harm it, but to make it stronger.”
Kaushik summarizes his thoughts in one line, “Compound interest creates wealth, rebalancing keeps it safe. One is the reward for your patience, the other is the security of your growth.” He said that instead of running after returns, people should focus on their behavior, investment ratio and discipline, because these things are under your control.
Why is it important to invest in debt funds?
Most people invest in equity funds or share market, but debt funds are often ignored even though it should be an essential part of every investment portfolio. Debt funds are actually mutual funds that invest in government bonds, corporate bonds, treasury bills or other fixed income securities. Meaning, these funds lend money on interest to a company or government and the investor earns from that interest. It has the following advantages-
1. Stable returns and low risk
The biggest feature of debt funds is that they have less risk. This is a safe option for investors who are afraid of the ups and downs of the stock market. The returns in these are not high, but remain stable and predictable. That means money keeps increasing, albeit slowly.
2. Diversification
If your portfolio is invested only in shares, you may suffer huge losses if the market falls. Debt funds create a balance in such times because when equities fall, these funds keep giving stable returns. Therefore, these investments maintain balance and stability in the portfolio.
3. Liquidity
In many debt funds you can withdraw money anytime, whereas in fixed deposits (FD) there is a lock-in period. With this, if there is a sudden need for money, easy and quick withdrawal can be made from debt funds.
4. Beneficial in terms of tax
If you invest in long term debt funds for more than 3 years, you get indexation benefit. This reduces the tax burden, which proves to be more tax-efficient than FD.
5. Protection and opportunity from interest rates
When interest rates fall, the prices of older high interest bonds rise. At this time, debt funds can give good returns to investors. That is, by understanding the interest rate cycle, these funds also give you opportunities.
6. Great for new investors
If you are new to the world of mutual funds and are afraid of stock market volatility, then debt funds can prove to be a great start. These help you develop the habit of investing while keeping the risks low.
(Disclaimer: Mutual fund investments are subject to market risks, read all scheme documents carefully. If you wish to invest in any fund, please consult a certified investment advisor first. StuffUnknownwill not be responsible for any profit or loss you may incur.)
