Authored by: Malay Chitalia
Inspiration: Resp. Mr. R. Gopinath
Let me thank all my followers & subscribers on various social media who have liked my recent video on the topic “Why to invest into Mutual Funds?”. Thank you for the overwhelming response you all have given on YouTube, Facebook, LinkedIn & Instagram. Those who have missed my video, please find below the link to watch the same.
I am fond of writing articles on various topics, as I get here enough space to express my thoughts elaborately. I also get a sense of deeper satisfaction that I have given a justice to the subject.
During 18 years of my career, I have come across mainly two types of investors. There is a type of investors who are very aggressive & they keep investing into Mutual Funds or Equities blindly by taking undue & unnecessary risk in order to earn more & more returns. One or two favourable deals make them irrational and they keep repeating the same. This behaviour is highly irrational & unscientific. As my mentor rightly says,
“Investing blindly into Equities is just like a rash driving; you may escape from the consequences majority of the times, but that one fatal incidence is enough to punish you for lifetime !”
– R. Gopinath
There is other type of investors who are over-cautious, and don’t take any chance with their money. They just keep investing their money in low yielding debt instruments like Fixed Deposit, Postal Schemes, PPF etc. I have utmost sympathy with these investors who value their hard earned money & don’t want to lose them to the market volatility.
However, none of the above stand is scientific. The Debt instruments like Fixed Deposit, Postal Schemes, PPF, Life Insurance Saving Plans give us the returns approx. 5% to 6% p.a. The purpose of these instruments is to provide us a solid holding capacity to our portfolio which is absolutely necessary to handle the turbulent time in our life. These instruments also provide a complete security of capital. But the returns earned by these instruments cannot beat inflation which is 7% to 8% p.a. in our country. The deficit of 1% to 2% p.a. may prove very costly in long run, as there will always be a short fall when you actually need a big sum of money for your important financial goals. It really pinches when you have saved your hard earned money for the long years by sacrificing your small happiness like buying gadgets, holiday tour, or spending little more extravagantly in weekends.
So how to deal with this puzzle? There is a scientific approach to solve this problem. Rather than investing your 100% investible proportion just into Debt instruments, we must invest a part of money, say 30% to 40% to Mutual Funds (or Equities). These instruments carry an element of risk of diminishing capital or even losing capital completely. But at times, we must take this calculated risk. In our life also we take some calculated risk in order to grow or achieve something worthwhile. My mentor says,
“Not taking Risk at all, is the biggest Risk a man takes in his life !”
– R. Gopinath
These instruments perform in cycles and during upward cycles they give good returns. That’s how we can compensate low returns earned in Debt instruments and returns of our overall portfolio remains healthy. Long-term holding of such instruments minimises the risk. More importantly we are investing just a small part of our wealth into these assets, so again risk is minimum.
My clients always ask me; which is the best product to invest that gives complete security of the capital, good returns & liquidity. I mention my mentor Mr. R. Gopinath’s statement, “It’s always in the ProductMix, there is no such single product on this planet which offers all these 3 dimensions’ in one packet.”(Read my article on “3 Dimension of Assets” where I have tried to cover this subject more extensively. Link:https://malaychitalia.home.blog/2018/10/11/3-dimensions-of-an-investment/)
Happy Investing !
