Simplify your investments!

On 18th June 2015,we conducted a Financial Well being Camp for Business people and Professionals of Raigad Chambers of Commerce and Industry at K star hotel, CBD Belapur.The sessions were addressed by the undersigned and Mr Amit Trivedi,expert trainer.The participants have provided very good feedback on the programme and we would like to share the deliberations on Investment Planning.

Asset Classes

There are four major asset classes;Gold,Real Estate,Debt and Equity.Gold and Real Estate are physical assets whereas Debt and Equity are financial assets.

 

Gold: Investing in physical gold and ornaments depresses return due to making charges. It is advisable to invest in Gold ETF of the Mutual Funds.But in the current scenario,gold has provided negative return over the last year.Gold should not be more than 5% of your portfolio.

Real Estate: Real estate investment is indivisible and illiquid.It carries liquidity risk.It may take longer time to find a buyer for selling the property and hence one must invest in real estate only if one wants to remain invested for longer period.

Debt: Debt exposures can be taken through corporate bonds or Bank deposits.Corporate bonds offer higher return due to default risk.If the corporate makes losses,the interest payment becomes uncertain and even the refund of principal may be doubtful. But the return of principal and payment of periodic interest is certain in case of Bank deposits and so risk free.But the post tax return may be lower than inflation and will provide netagive return.It carries inflation risk. It is advisable  to invest in Debt for short term goals.

Equity: It carries volatility risk due to fluctuations of prices in share market.But the volatitily gets normalised over a longer period.Hence it is advisable to invest in equity for longer period and not to invest for short term goals. 

Asset allocation

The return on investment of each of the asset class may not move in same direction and hence it is advisable to remain diversified.If you face negative return in one asset class,it may get compensated by positive return in another asset class.The greatest investor Warren Buffet says:Do not put all your eggs in one basket”

Risk Profiling

The willingness of each individual to take risk varies.All most every one wants to gain in the market but many do not want to lose.The market is uncertain and  one can aim to gain only when one is willing to take risk.Further there are another dimension to risk .ie ability to take risk.Some one starting his career and without dependents can take higher risk but one who has retired and have limited corpus can not take risk since in the event of market going down,the hard earned money will be lost.

Need to take risk

The financial planners take the considered view on risk taking by judging whether there is a need to take risk. If the financial goals can be achieved without taking any risk,the planner may recommend higher debt allocation.But if the goals can be achieved only with higher return,the planners consider exposures to equity having consideration to goal horizon.

Analogy

If you want to walk 5 kms in the morning,go by foot or cycle;if you want to travel 100 kms,use car or bus;If you want to travel 500 kms,use train,if you want to travel 1000km;use aeroplane.Similarly for emergency,use liquid mutual fund;for one year,use debt,for 3-5 year use balanced fund and for more than 5 years use diversified equity fund.

Equity or Mutual Fund

How can one  travel from Mumbai to Pune?You can either go by car or by train.Travelling by car has higher risk of accidents than travel by train.Travelling by train is like investing through Mutual Funds where the Fund manager manages the risk.Travelling by car is like investing through equity in which you can reach faster by higher speed.But it has risk of accidents like loss or market crash in equity.

Depend on trusted advisers

Asset allocation and risk profiling are key to wealth creation which can best be executed  by an  experienced investment adviser. When we fall sick, we don’t go to the medicine shop directly to buy medicine but we visit the doctor for diagnosis first. Similarly for investments, you should visit a SEBI registered investment advisor. 

Last modified on Wednesday, 10 February 2016 06:29

Prakash Praharaj

Shri Prakash Praharaj has a passion for excellence. He has been awarded two gold medals for securing top positions both in Graduation and Post Graduation in Commerce. He is an MBA with specialization in Finance and marketing. He has been awarded Diploma in Treasury, Investment and Risk Management besides CAIIB from the Indian Institute of Bankers. He is a Certified Financial Planner from the Financial Planning standards Board, India (FPSB), affiliated to FPSB, Denver, USA and Certified Personal Financial Adviser from NISM. He is also a SEBI registered Investment Adviser vide Reg. no. INA 000000045 dated 2nd August 2013.His book "Your Every day guide to Personal Finance and Insurance" has been published by CNBC TV 18 in August 2015.

5 comments

  • sandhya

    posted by sandhya

    Wednesday, 10 February 2016 11:46

    Cool topic on this website. My coworker and I were just talking about this. Thank you for sharing

    Report
  • Reynaldo

    posted by Reynaldo

    Wednesday, 10 February 2016 11:45

    I got this web page from mmy friend who shaared with me regarding this website and at the moment this time I am browsing this web site and reading very informative articles here.

    Report
  • Sujata Aniruddha Sapkal

    posted by Sujata Aniruddha Sapkal

    Thursday, 02 July 2015 05:39

    Goal based investment is the key. Analogy ....set your goal and time frame ...choose the the right asset to invest depending upon your age and risk appetite......and that's where a FINANCIAL PLANNER steps in.

    Report
  • Shruti

    posted by Shruti

    Wednesday, 01 July 2015 06:38

    Really a great article

    Report
  • Durga

    posted by Durga

    Thursday, 25 June 2015 11:56

    It's really a great and helpful piece of information.

    Report

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