Plan your way to wealth

A human mind is always full of ideas and needs control to arrive at proper course of action to be followed. Rational / unbiased decisions can be taken with the help of proper planning. Serious thought process and its execution can lead to success. You must have seen people spending hours going from one shop to another looking for few shirts / trousers. You must have friends who spent days planning to buy a piece of furniture. Everybody understands the importance and its benefit but very few actually undertake the pains of doing it. Investment is one area which, for strange reasons is least on the list of planning.

Few years back investments were made primarily for saving taxes. The investment products were simpler and people were never required to venture beyond bank fixed deposit, postal & other government saving schemes and insurance. Times have changed, so have investment products. Control regime has given way to compliance mechanism. From being fixed return products to market linked, the investment scenario has taken a 360 degree turn. What it means for today’s investor is an indication, to get more involved in the process of investing.

In these changed circumstances even if one continues to ignore planning the result could have long term (most probably negative) implications. Still, after much awareness, the investment is done because;

(a) The investor has surplus funds to invest, and

(b) Either tax saving is required or somebody has recommended to invest in particular stock/mutual fund scheme.

All this leads to haphazard investments. Recently one of my client who works in railways asked me to suggest ‘best performing scheme’ and which has given ‘maximum return’ during last one year. He was clueless about the risk he was willing to take and the time period for which fund needs to be deployed. The objective part of the investment was something he never thought of. His attitude towards investment was ‘have money-will invest’. My probing made him a bit restless and he was still insisting on ‘best performing scheme’ and wanted to invest in those ‘star studded’ mutual fund schemes.

How is Vidarbha Express? He was surprised with this question and said it’s fast and convenient train to travel.

What if I want to go to New Delhi?

Then it’s not the train for you.

But you said Vidarbha Express is fast, reliable and convenient.

C’mon mate, don’t be silly. You know it runs between Nagpur and Mumbai.

OK then how about Sewagram Express? Shall I prefer Sewagram or Vidarbha?

Certainly Vidarbha is better.

But I want to go to Nashik.

Then take Sewagram. Its timing is perfect for Nashik.

As we kept discussing about Vidarbha Express, Sewagram Express, Nashik & Mumbai my friend suddenly realised that something which is good on a stand alone basis may not be the best if you involve few other parameters. So Even if Vidarbha Express is a better train it’s of no use for passengers going to New Delhi or is inconvenient for people going to Nashik.

Similarly, if XYZ equity fund has given 60% returns in last one year, it may not be suitable for a person who wishes to invest for marriage of his daughter after one year. Chances are that he will end up taking higher risk and may eventually lose money in the process.

There are hundreds of mutual fund schemes which have appreciated handsomely but, first a person needs to understand his own risk appetite, investment objective and time period of investment. Only when these things are clear, one can go ahead and select the schemes.

Planning and putting face to your investment though critical is not very difficult either. This may definitely require some extra efforts but its benefits will be enduring in nature. Every individual has some life goals like planning for children’s education, their marriage, buying a house, creating retirement corpus and any other financial goal. It is important that one identifies these goals and plan accordingly. The major benefit of putting objective is that it makes you focus on the goals and not deviate from it.

A Children Insurance Plan or Child Care Plan of Insurance company is good example. Most of the times it is either a money back plan or a simple endowment plan. It may not score highly on returns parameter but is still a popular plan because of the objective attached to it. At the time of buying a policy the parent is very much clear about what they want to achieve with the plan. The premium paying period is long and parents rarely discontinue these plans. Clear objective and discipline make these plans successful.

Now, think of a scenario where a parent buys a Bluechip stock or an index fund for his child. Chances are that if the stock moves up by 100% it will be sold and money will remain idle. Historically it has been observed that over a long term period, equities have delivered much better return than any other financial assets. Why can’t we plan to buy 10 shares of good company every month for building retirement corpus? Why can’t we invest in equity mutual funds every quarter for our children’s marriage that is 10 years down the line? The answer is lack of planning and lack of conviction in the plan.

Just as we plan the destination and choose the train keeping in mind the convenience of time, speed and reliability, it is equally important we figure out financial goals, assess it, plan for it and finally execute it. Chances are bright that you will reach the destination safe and in time.

To quote Benjamin Graham from ‘The Intelligent Investor’, Sound investment Principles produces generally sound investment results"

Happy Investing.