## 5 Thumb rules for Investing

Have you ever played any sport? There is one thing in common in each of them; each has its own rules and techniques. Following these methods, one is set to win, provided he applies his minds and keeps practicing on his shortcomings. Investing is much similar to this. It has its own set of rule and techniques. Today, we will talk about some of these thumb rules that make our investing easier.

1.Rule of 72, 114 and 144

Here, we have combined three rules for easier understanding. These rules tell you how fast your money can grow. If you want to see how fast your money will double, divide 72 by the expected rate of interest on the security. Similarly, if you wish to see how much time it will take to triple or quadruple your corpus, divide 114 and 144 by the expected rate of interest.

Example: If you invest INR 10 Lacs at a 7.2% annual rate of interest, the amount will double itself in 10 years (i.e.,72/7.2)

2.Rule of 70

This rule signifies the purpose of making an investment which is avoiding inflation. Rule of 70 requires one to divide the number 70 by the current rate of inflation. The resultant is the numbers of years, after which your wealth will be worth half of what it is today.

For example: If you have INR 40 Lakhs and the current rate of inflation is 5%. After 14 years (i.e.,70/5) the worth of your corpus will be just INR 20 Lakhs.

3.Emergency Fund Rule

In 2020, around 12.2 Crore people lost their jobs during the coronavirus lockdown. Situations like these are the reason why the creation of an emergency fund is necessary. Keeping aside a 6-to-12-month expense fund aside is said to be a good practice. Putting this idle money into liquid funds can be considered a wise decision. While calculating this fund; one should calculate all the expenses that he will need to pay for even in your worst times. The amount includes EMIs, electricity and water bills, food bills, rent, etc.

4.10 Percent for Retirement Rule

Many people consider saving for their future when they are in their 30’s or 40’s. While there is no better time to start saving than today, planning for investment in the 20’s is the best thing one can do. Thanks to the power of compounding, even a meagre amount can turn up to be a corpus. As a rule, one should invest at least 10% of his monthly income.

For example: If one earns INR 30000 per month and invests INR 3000 per month (10% of INR 40000) and steps it by 10% every year, after 35 years at an expected rate of interest of 10%, this amount shall become a gigantic corpus of INR 3.4 Crore.

This rule is concerned with the allocation of your funds. This rule says that considering that you live a 100 years lifespan, 100 minus your age should be the percentage that you should invest into equity & the rest in debt. This rule suggests asset allocation on your risk. When younger, one has a high risk-taking capacity which reduces, as one grows older.

For example: If you’re 25 years old, 75% (i.e., 100-25) should be invested into equity-oriented stocks, rest should be invested in the debt market.

Conclusion:

Rule of thumbs are an easy way approach to learning things. However, they should not be adhered to strictly rather used as a suggestive tactic of doing things and managing your investments.

## How to Beat Inflation with Investment?

Inflation, in simple terms, refers to the increase in the prices of commodities and services. It has a direct impact on the time value of your money. It means that your wealth might not have the same value after a few years. For example, if you are paying INR 20000 as rent for a 3BHK house might increase to INR 30000 in the next five years for the same flat.

There is one thumb rule to understand the effects of inflation. It is known as the ‘Rule of 70’. It says divide 70 by the rate of inflation and it will give you the number of years by when the value of your wealth by 50% of its today’s value. For example, if the current rate of inflation is 5% and you have INR 40 lakhs. After 14 years (i.e., 70/5), the value will be INR 20 lakhs.

Beat Inflation with a Portfolio of Mutual Funds

Mutual funds are a class of assets that has become one of the most popular investment options. The most looked after feature of mutual funds is the benefit of diversification. Mutual funds allow investors the advantage to invest in multiple companies across different industries. It provides a safeguard against the risk of uncertainties. Diversification helps to minimize the risks while at the same time also average outs the returns. So, any losses in any particular sectors are adjusted through high performing stock in the same portfolio.

There are also a large variety of investment options that are available in the market. Growth funds are said to be one of the best performing mutual funds in inflationary periods. Apart from this, other categories help you to reap good returns on your investments.  In the past years, equity mutual funds have shown the potential to deliver an annual return of 11% to 14% in the long term. Mutual funds give you 2 investment options. The first is to make a one-time lump sum payment, the other is in the form of SIP. You can make regular investments into best performing, starting with just INR 500 per month.

Conclusion: Making regular investments in mutual fund schemes could be considered one of the best ways to overcome the effect of inflation on your investment. It provides returns higher than the rate of inflation and minimizes associated risk by diversifications.