Basic questions answered on personal investment in India

Yesterday I received a mail from one of my blog readers Mr Kamlesh which I am sharing with all of you as the same doubts exists in most of the investors mind and it might make some sense for all.

His question goes like this :

Hi, I am new to the investing field. I have few questions (might be unusual)
1. Why should I invest ?
2. Where to invest ?
3. How to invest ?
4. What to take care before investing ?
5. What should I avoid during investing


Any other basic knowledge that you can share with me will be very helpful. I
am bit confused with investment planning.


Dear Sir,

Thanks for the mail & let me tell you its a very genuine concern lot of clients have and no your question is not unusual.
I was reading in one of the newspapers today that in India out of the total salaried/self employed people hardly 3% invest into equity (direct + via mutual funds) and the rest goes into savings bank/ fixed deposit, ppf, post office etc. Amazing….

Don’t you think so?

Now why is it happening is because the rest 97% have the same doubt as yours.

Mr Kamlesh you have not provided me with lot of information about yourself like what do you do? How old are you? How is your cash flow? How much can you set aside monthly, do you have bulk money also to invest?, Do you have any goals dream, which needs money to be fulfilled, how many dependents you have? Have you anytime invested into equity? What is your risk profile? What is the time horizon for the money, which you wants to invest etc, etc ….There are lot of unanswered questions. I will try to genralize my answers. Hope it opens up a new way towards investment thinking.

Why should I invest?
Rather I should say why should not you invest. Every body dreams of something to be accomplished in life like marriage, house, Car, Foreign holiday, children’s education, peaceful retirement etc and to achieve these we need to invest now.

There is an old hindi saying, “Boond Boond se sagar banta hai” in the same way through proper investment you fulfill your dreams and achieve what you want in future. Future is very powerful, as we don’t know what will happen in future. Today we are alive and tomorrow we might not be but definitely we would like to make sure our family/close ones are safe and healthy and maintain at least the same standard of living or better. To achieve this we need to invest. Investment also help us to save tax.How much have you saved last year from tax? Definitely you would have invested to save it.Right!
Sir Benjamin Franklin once said “But in this world nothing can be said to be certain except death and taxes,” So lets plan & invest.

Where to invest ?
There are lot of options available in India to invest.
Fixed Deposit – present rate 9-10% post tax 6.5-8.5. Advantage – Its safe
Post office deposit – Post tax returns 7.5-8.5%. Advantage – Its safe
Bonds – 8% taxable and 6.5% tax free. Advantage – Its safe
ULIPs – 10 to12% post tax and charges. Advantage – Its safe if you are taking a guaranteed fund.
Mutual funds – Equity funds around 18% post tax though not so safe and Debt fund around 6% post tax (Post DDT) almost safe
Equity – 20% post tax but too risky preposition.
Gold – Kotak mahindra expects their gold ETF to give 20% in next 5 to 10 years. Not so safe.
Real Estate – There are some pockets which has given 300% in a year and some with – 50% and more. Not so safe but proper planning required especially now when interest rate has gone up.

Here I have taken the most prominent investment option among Indians. Each asset class above will have separate break ups.

How to invest?
The best way anytime will be to invest on your own but yeah investing through a bank or a broker or a wealth management agency or a qualified Investment planners like us might help.
The only thing you should take note is the person who is investing on your behalf should know what he is doing. He should not be a sales agent and pushing in products.

The best way to invest is not to buy a fund or a scrip just because they have done well in the past. The best way is to make an investment plan by specifying the need/goal which you have and understand how much time you need to reach those need goals. Also understand your risk profile. Remember if the goal is below 2 years then no equity products as equity should be for long term in the sense 3 years +. Cash flow statement should also be made giving details of the present and future savings.
I will suggest you make a plan by consulting a qualified investment planner and then stick to the plan.

You can also check out http://www.icicidirect.com/ , http://www.sharekhan.com/ , http://www.kotaksecurities.com/ or invest through us.

What to take care before investing ?

• Thoroughly understand your risk profile, which usually comes as a set of questionnaire, once you fill it you will understand the profile. (Its available at the sites mentioned above, check out )

• Choose a proper broker/agent/QIP as if you are new into investment, you can learn through him too. Check out my Blog where I have an article on how to choose an adviser.

• Apply for a PAN Card at the earliest.

• Remember to ask your adviser to send regular statements and make sure you take note and compare it to the earlier one.
  

• Do self study on investments.
  

What should I avoid during investing ?

• Not sticking to the plan and becoming sentimental/panicky seeing the investment under perform in the short term. Remember we invest for the long term /our future.

• Not being disciplined. If the plan says that we have to put Rs1000 every month for 2 years means we should do that whatever happens.

• Not keeping track of all the investments or if done though somebody then not tracking the statements and comparing.

• Not updating your knowledge on investments and markets.

For any other basic knowledge I would say keep reading my blog. :-)
So again keep Reading