Don’t have the time to handle your savings and investments? You can automate them and your money will remain in the right places to give you great returns. Automation will give you more bandwidth to focus on the things that are important to you.
Reports say that Mutual Funds saw record inflows in 2017. Assets Under Management (AUM) had already crossed Rs. 23 lakh crore in November 2017. It was at Rs. 16 lakh crore at the end of 2016. That’s an astonishing growth of 44%. Why are so many people choosing this investment avenue?
Return on investment is one. Another is the ease of investing. You can set up a Systematic Investment Plan (SIP) and your money will go into the Mutual Fund scheme that you want automatically. This is because when you set up a SIP, you give auto-debit instructions to your bank to debit the SIP amount every month. This automation makes it easy for you invest regularly without the hassles of having to remember investment dates or deciding on the amount you should invest. In fact, if you want the SIP to continue uninterruptedly, you will need to have funds in your account. So, you will not use those funds for any other purpose. Automating your investments is a good thing. You can do that systematically for all your savings and investments. How? It’s pretty simple. Here are the steps.
Additional Reading: Everyone’s Going The SIP Way!
One account
The first thing you should do is consolidate your funds into a single account. Having multiple accounts will mean difficulty in managing your income. If you transfer the funds to a single account, you will know exactly how much you have and what you can afford to do with the money. Ideally, choose an account that gives you the highest interest rate. There are banks that are still offering more than 4% for savings accounts.
Start with the bills
Got EMIs? Set up auto-debit instructions for all your loans. You can do that for your Credit Card bills too. If you have an account with the bank that issued your card, enquire about the auto-debit facility. You can set up auto-debit instructions to either debit the Credit Card’s minimum due or the total due amount every month. The bank will automatically debit your savings account and pay the Credit Card bill on the due date. If you want a good Credit Score, choose to pay your bills in full every month. Other bills such as your mobile bill and rent payments can also be automated.
Automate savings
You can choose to either save using a Recurring Deposit or a Fixed Deposit. If you are choosing a Fixed Deposit, you can go for an auto-sweep account. This will help you move idle funds in your savings account into a deposit account that earns you higher returns. You can withdraw from the deposit any time and the money will be credited to your savings account. This is usually best suited for those who require liquidity through the month. Others can go for a Recurring Deposit. This is one of the best investments if you are risk-averse.
Additional Reading: How International Mutual Funds Are Taxed
Automate investments
As I mentioned earlier, automating your Mutual Fund investments is very easy. You can even automate your stock investments. Brokers now offer trading platforms where you can choose to invest a specific amount in a stock every month. This is very similar to SIP – only, here you will be investing in a single stock and the risks will be much higher. Want to invest in gold? You can start a SIP in gold ETFs. These give you returns that are in line with that of gold in the bullion market. You can’t possibly automate investments in physical gold unless you choose to invest through a gold jewellery scheme. These schemes only allow you to buy gold jewellery and not coins and bars. So, you will actually lose out on the returns due to all those wastage charges, making charges and stone charges. That is why gold ETFs are better. At least 10%-20% of your take-home pay has to go into investments.
Once you know exactly where your money has to go, you will be able to direct your income so that your money is in the right places. Ideally, you should have separate investments for each of your goals. For example, your investments for retirement shouldn’t be the same as your investments for buying a house. This way you will not be tempted to dip into your savings. Keep a separate fund for emergencies. You can automate the process for creating an emergency fund too. You should invest in liquid Mutual Funds and Fixed Deposits to create this fund. Of course, you can use auto-debit for doing this.
Additional Reading: Mutual Funds Taxation Post Budget: All You Need To Know
Handling your finances can be very simple and rewarding when you automate the whole process. Try doing it and you can easily rein in those expenses and make great returns in the long run.
This article was originally published on LinkedIn.