How to create wealth in Bahubali style – Part 2
Bahubali first part has been stupendous hit and it raised the question among all the audience on “Why did Katapa killed Bahubali?”. There is so much learning from this movie which is relevant to Personal finance that we have thought of having second part of the blog on “How to create wealth Bahubali style”. All this are based on the first part of the movie alone.
Equity returns stand tall:
When you compare the returns of all the products available in the market, equity has always beaten that with ease in the longer run. Only risk factor is that you will not be able to take your money out immediately at times. The most consistent returns are produced by Gold, Real estate and this equity & debt market.
Earlier there was no transparency and hence stock market or equity market is seen as Gambling market. Once the transparency was brought in, it was easy for everyone to understand on how the buy and sell order is taking place. Further for a country to grow, economy growth has to happen and which in turn brings a clear fact that all the companies needs to grow. Once the company grows it means that balance sheet is improving. If the earnings improves automatically share value of the company increases. India has become 2 trillion dollar economy from a meagre smaller closed economy. Due to liberalisation policy adopted in 1991, slowly it had came into the path of growth.
If you analyse the known companies which existed in the market for a long time such as Asian paints, Infosys, Dr.Reddys lab. Wipro etc all had started on a smaller level and had grown to become a big MNC’s in big time. All these brings us a fact that once you choose equity, you need to have defined time period during which you need to stay invested or keep investing when the market goes down.
On comparing it with this movie, there have been powerful villain who wants to emphasise his ruling by installing his statue which is very tall. There have been many soldiers and common people who have been trying to pull up his statue and erect int he centre of the city. Poojas has been performed while installing. There when one of the guy was not able to hold on to his rope, Junior Bahubali comes in and helps that person. Whole people starts chanting the name of Bahubali and the statue was erected. When the Villain Rana was thinking about that incident and his statue, he was able to think of Bahubali’s statue standing tall behind his statue. Though he is the King of the kingdom, people still chants Bahubali’s name who was the true hero and helped people during his time.
“Equity returns stand tall, invest and wait to reap the benefits”
One year can change the return perception:
It is always just one year which changes the perspective of returns in your SIP investments.The reason your financial advisor may ask you to invest continuously for 3 or 4 years is at times market will be flat and you amy not get quick returns beating the benchmark. Hence this continuous investment process.
Just look at this returns chart, after 2008 market crash many had fled the market in fear and for the next 4 years it was almost flat. Returns have been in single digit. Once the election was nearing, the euphoria shifted in favour of bull run. Those who had been investing continuously had tasted great returns in that one year. Those who had pulled their money out in 2008 was left bleeding on the sidelines.
Again you should be cautious to check the peer returns before investing continuously. Sometimes some of the funds in a category may not do well and you need to churn these products and invest in better return generating funds with good track record.
Now in this movie too, when the hero had saved the old lady unknowingly, Katapa had chased him down and there was a great fight sequence. Till this time hero’s face was not shown clearly as it was raining and his face was covered in mud. When he was about to behead and once the face was clear, he will throw himself down to the feet of the hero. one of the goosebumps scenes in the movie.
“One year can change the fortune of your investment if you had chosen right product”
Mutual fund is not only about Equity funds:
“Mutual fund is subject to Market risks”, this is the line which will creep in to the heads of everybody when they discuss about mutual funds.
“ Do you know that all mutual funds will not invest in stock market? “
Though who had invested in mutual fund knows that all mutual fund will not invest in equity, many doesn’t know.
In a broad level mutual funds can be categorised as
Debt mutual fund invests in Treasury bills, Commercial papers, Company deposits, Corporate bonds, Bonds issued by Public sector companies etc. All these are accredited based on risk of the companies. Corporate bonds, Government bonds are accredited by credit rating agencies. Based on the credit rating we can buy individual bonds or buy a debt mutual fund.
If you are conservative investor or a person who takes only moderate risk, it is better advised to invest in debt mutual funds. Even these debt mutual funds generates returns of around 10% in a period of 3-5 years. This return is better than fixed deposit returns. During 2016, most of the GILT funds or Government bonds has generated more than 15% and surpassed equity fund returns. One thing to remember is that when interest rate goes down automatically value of the bond value increases and when interest rate increases automatically bond value decreases.
Now on comparing it with Bahubali movie, till the second part of the movie, it was all about Prabhas as Bahubali and Rana as Balaladeva. Slowly Anushka as a prisoner emerged and everybody said her as the princess of the kingdom. By the scene it is clear that she is one of the important character
“Mutual fund is not only about stock market and it has debt which are safer as fixed deposit”
Forget the noises in the market:
There are many you would have met that “Market is at its peak and hence am postponing my investment”.
Market was around 27000 before 6 months or so, above line was heard. Market crossed 28000 and reached 29000, the above sentence was heard. Now it has crossed 30000 and again the same sentence is heard in the market.So the point to observe is hear that those who doesn’t understand or those who are trading will always be cautious in their approach.
Even now the reason for saying this point is,
- There is no earnings from companies which supports the stock market returns
- Problems between North Korea and US which is about to escalate and may cause global turmoil.
- Chinese growth has almost stalled and US growth is showing signs of weakness
- Protectionist environment from major countries like US and UK may dampen the Global sentiment.
- Insufficient monsoon may stall the growth of companies based on rural market.
All the above reasons are due to global market and hence we may not know when it will revive. Lets revisit August 24, stock market crash reasons. Then also crash was due to global factors. Even in 2008, crash was due to US mortgage crisis, which derailed the economic stability. So these noises exists throughout the year but the market goes on as it does every time. Instead of trying to time the market, invest via SIP which will ease the investment process. Equity is always for the long term for a minimum term of 3-4 years, hence you don’t need to worry about short term noises and start investing towards your goal. Compounding returns comes into effect when you are investing for a long time and increases the corpus.
Yes, in the movie too though there existed some tough battles between 2 prince’s to get to the throne, but when the villain in the form of “Kalakeya” came in to capture their kingdom both the prince’s joined to win over them. Language of the Kalakeya was different and the battle plans was also different. Bahubali understood the plan and made quick decisions to win that tough battle. They were hard enough to win but the ultimate winner was Bahubali.
“Forget the noises in the market, your hero(SIP) will always win”
Insurance is not an Investment
The most common mistake which everyone does when they had joined an office or when they get promotion in their career is to buy insurance cum investment product for tax savings. If you think you had saved on tax just by investing in this insurance product means you are wrong.
Let us look at an example of my mistake when i don’t know the differentiation between investment and insurance. When i was 22 years old, i had bought an ULIP policy on assurance that in just 3 years your investment will be doubled. market was reaching around 20000 at that time and i was not sure of the global factors or other factors which may affect the returns, IN the next 6 months market nose dived and sensex had hit around 8000.
My yearly premium was 36500 and the premium paying term was 20 years with assured sum being 4 lakhs. Then slowly i started understanding about ULIP and other insurance products. If i had continued my invested amount may be around 7.2 lakhs and if the stock market does well my total returns may be around 15-18 lakhs. Again i need to wait for 20 long years.
Instead if i had taken term insurance for same number of years at a premium of 10,000 for 1 crore sum assured and does investment for minimum 24000 for the same 20 years my total returns may be around 26.5 lakhs. This is at a very conservative return of 15% and remember that most of the best performing funds have given returns in excess of 20% in the last 20 years. Also if anything happens to you in these 20 years your dependents will get 1 crore.
Thus Insurance and Investment needs to be taken separately to get the benefit of both the products. Insurance provides higher risk protection and investment provides higher returns and bigger corpus.
Now in this movie when everybody was engrossed in the climax and expecting how the movie will get down, director had shown Katapa killing Bahubali from the back side. Katapa was the uncle of Bahubali and he is the one who had thought about fighting skills and he has to guard him. The ultimate killing of Bahubali by Katapa has made it ring in the minds of everybody. It has been the talking point in social media for the next 2 years and even a tamil movie was made in the name of katapa.
So next time when you are about to buy an insurance product for tax saving just remember that
“Insurance is not an investment and it will kill your returns at times”
Are you risk protected?
Many think life insurance as an unwanted cost. Motor insurance is taken by default as it has been made mandatory by the government when you are purchasing your vehicle. Apart from this insurance remaining people take insurance for tax saving purpose or else they don’t take at all. in 19th century in England, first insurance company was started though the structure was completely different at that time.
Another history states that even before this Tamil traders had made equal contribution when they are about to sail and if anything happens to any one of them, money from the common corpus will be given to that person’s family.
The reason for risk protection is same as wearing helmet when you are driving. Helmet protects you from major accidents as skull is the most important part and if any damage happens during accident it kills you. Your Term insurance is similar to this, for a much lesser premium you are insured for 50 lakhs or 1 crore depending on the salary. You love for your family and you earn for your family with common goals. So you should also take care of their dreams & goals in your absence. Ensure to take a term insurance covering your existing loans if any and for your future income. Though emotional support cannot be compensated, your family can be compensated financially and their dreams can be achieved.
Now in this movie, our great hero Bahubali were the head mask similar to helmet. He also wears other risk protection coverings in other parts of the body just to ensure nothing big happens to him. This structure is followed by everybody in the battle zone. All the soldiers, villain Kalakeya and each one of them in the battle zone wears something.
“Even great heroes need guards, so get insured and invest properly”
Create wealth Bahubali Style – Is creating wealth easy?
Yes, if you follow the basics of investment and insurance wealth creation will become very much easier. Also, by avoiding the unwanted expenditure which may look peanuts now may be a big dampener in the future. We will follow up on the “ Bahubali – The conclusion ” in another 2 part article as it is more grandeur and had wider reach across the globe.