The word investing brings to our mind a crude process of extended meetings with the financial advisors, understanding the heavy jargons and praying that it yields the returns to meets your objective.
For some of them investing would only mean to dodge the tax net, like capital gains, or meeting the Investment declarations made to the HR. Seldom all understand the real purpose of Investing .The fundamental principal of investing is to set aside a sum from your cash inflows, so that it grows over and above the rate of inflation and meets your financial goals.
Most of us treat savings as the balance amount which is remaining after we have met our expenses. Instead, savings should be treated as a expenditure head, to put it simply, a specific amount should be set aside from the earnings as savings. However setting aside such sum of money will also not serve the purpose of meeting the future financial goals, it has to beat the increasing cost of money. Hence it is very essential to direct such savings to the channels which serve that purpose. The other thoughts supporting regular & appropriate investment are given by the insurance companies. They say , if you are a salaried person, there would be a end to your earning life, i.e. retirement, but if you want to be financially independent & maintain your current lifestyle you must allocate certain sum to a pension fund. Life is very uncertain, if you want that after your demise, your family shouldn’t face any financial turbulence, you should get a life cover of a sum assured of X times of the current salary. These justifications are more than sales gimmicks.
In today’s scenario the investment options available to grow your money are numerous. The products has varied characteristics and has different risk & return combination. The Thumb Rule is that, higher the returns of a investment product offered, higher is the risk. There may be a possibility of losing the principal sum invested. This inverse relationship of risk and returns makes it necessary that we choose the right investment. Investment should be according to the financial goals and risk bearing capacity of the investor. It’s always good to trust a professional for this activity, as it will ensure that the financial goals are met to most extent possible.
The financial markets have host of investment products. If we take example of the Mutual funds, there are more than 6000 schemes available. There are some hundred schemes of Insurance. Equities and debt markets are flooded with offerings. Until recently an investor was unable to get a exposure to the Crude Oil futures, agriculture commodities. We had very lately in Mutual funds, a fund based on foreign equities. The wealth managers are always busy exercising their brains developing unique structured products link to the Indices. With thousands of investment options available, the investor often fall prey to the aggressive and luring marketing stints opted by the companies selling the same. Investors are stuck up with highly illiquid, risky products and the ultimate purpose of the investment is defeated.
The right way to choose the products is to seek professional advice, say a Certified Financial Planner (CFP). As a professional, he is updated with the products available and the risk associated with it. The main advantage is that he would recommend the products which are capable of meeting your financial goals and risk appetite. It’s same as, when you are seeking a solution about your illness, you would rather prefer to seek an expert advice.
The regulators of the financial industry have show their far sightless in implementing the best practices in terms of procedure, operation and regulations to bring it to an international level. Recently SEBI announced scraping of the entry load applicable to the Equity Mutual funds. The objective of the SEBI was very clear so as to stop mis-selling, reduce the cost of units to the investors and promote professional advisory of the products. The IRDA, regulator for Insurance Industry, has also put a cap on the charges to be levied in case of the Unit linked Products. As from this month Mutual fund units are available for trading via the share brokers terminal, the concerns of the penetration of the MFs in Tier 3 and Tier 4 cities would be well taken care of. This initiative of SEBI will make MFs available to more than 2 lac share broker screens and 1500 cities across nation. This will put the investors in a win-win situation, as the investment making would be more convenient and cost effective.
In this internet age, there is an information overload. The investors have to be vigilant regarding the investment they choose. Happy investing!!
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