FD, mutual funds, stocks or what? The dilemma of an investor
By Anupama Bhargava,
“I’m looking for a bride who is fair, slim and beautiful. She should be traditional but modern. She should work but should also take care of the family.
A typical marriage newspaper advertisement would look like this. In a country where people expect ultimate qualities from their spouses, it is no surprise that they expect the same from their investments. They want it to be safe, to give good returns in all market cycles, to fight inflation, to save taxes and much more if it is to be considered a good investment. . Choosing a good investment is like choosing a life partner; we want everything in one package!
Given the variety of investment options available, the task of an investor becomes even more difficult to choose the most suitable. Add to that the “tadka” of ignorance, the herd mentality (choose what your friend chooses) or the search for quick ways to get rich; and we have the perfect recipe for a disastrous investment.
We have the glamor of investing in the stock market on the one hand and boring fixed deposits on the other. Should we embark on the exciting but dangerous race that cryptocurrency promises or rather stick to safer havens than an investment in gold promises. Are mutual funds the “sahi” or more sober insurance plans that would help achieve their financial goals. The task of an investor is full of uncertainties and certainly not easy.
In the digital world, investing is easy. One can open demat accounts free of charge which open up immense possibilities for an investor with just the push of a button, practically at no cost. Just open an account, choose an instrument and click; and There you go ! The investment is made. As easy as it is to “invest” your money, it is easier to lose it on uninformed choices that people are forced to make in order to make a quick buck. If it were easy to make money on the stock market, everyone would be rich.
It’s not uncommon to hear that people lose their hard-earned savings on investments that didn’t suit them and weren’t understood by them. Recently when the ‘dogecoin’ fever was high, investors, especially millennials, wanted a piece of the stock offered by the cryptocurrency despite the immense risk that this investment presented. You could find Instagram influencers promoting these get-rich-quick schemes and uninformed investors following these “role models”. As a result, dogecoin lost 75% of its value in one month.
One wonders if investing is really about growing your savings through tips or following trends or is it more about understanding your risk quotient, personal financial goals and other factors that cannot be evaluated only by a more human approach. Is convenience, cost or return that should be the criteria for choosing an investment or should comfort and suitability for its unique needs be?
We turn to an architect to design our house, we need legal advice to settle our disputes; so, it is surprising that when it comes to investing, we do not hesitate to invest on hearsay or generalized options. Shouldn’t an investor instead be looking for quality personalized advice when considering how to grow their savings rather than relying on incomplete information gathered from a coffee shop chat or Instagram reel? Google could also have answered your architectural questions, but you need an architect to do it right! Good advice comes at a cost and an investor should be prepared to shell out the same amount.
Mutual funds offer an investor the convenience of investing online, the accessibility of professional management at low cost, the flexibility of the modes of investment by sip or lump sum, liquidity at the exit, the choice according to the needs and risk profile. Every mutual fund investor has access to these benefits, regardless of the size of the note. SEBI’s strict regulations governing mutual funds make them very transparent. Every mutual fund document even comes with the mandatory disclaimer “Investments in mutual funds are subject to market risk.” Please read the offering document carefully before investing.
One wonders why investing in direct stocks (stocks), futures and options or cryptocurrency does not have such advice! For the uninitiated but also for the more seasoned, shouldn’t these investments be accompanied by a warning, given their very volatile nature? Are these investments not “subject to market risk”?
It is a well established fact that investing and trading are two different processes and for the hobbyist investor long term investing makes more money than short term trading. Yet when markets are rising as they are now, it’s not uncommon for even newbies to jump into the riskier options, paying little attention to their risk appetite or financial goals. . Volatility is a function of the market and what goes up will surely come back down one day and when it does it is important to be prepared with the safety valves in place.
For an investment environment that is more mature, transparent and allows an investor to make an informed choice, changes are necessary. As an investor, one should carefully choose one’s investment options based on needs, risk profile and financial objectives. It is not a good idea to chase returns without taking risk into account. The regulator should also step up and educate investors on the different investment options, their inherent risks and behavior. Only then can we move towards a system that benefits everyone.
Only then can the investor’s dilemma be resolved!
(The author is a financial strategist and certified financial planner actively involved in investor education about personal finance. Opinions expressed are personal and do not reflect the official position or policy of Financial Express Online. Follow them on facebook. com / BeeKayAssociatesOfficial / and instagram.com/beekayassociates/)