Financial Cocktail Samosas: Bitesized Money Morsels For You, 08/06/2023

Do’s Are OK but Don’t Lose Out on Don’ts!!

A diabetic patient complained to his doctor about his deteriorating condition despite taking all the prescribed medicines. The Doctor was surprised and enquired further about the patient’s eating habits. It came out that the patient was very fond of ‘Motichoor ka laddoo’ and it was a part of his daily meal…!!

In Mutual Fund investments too, there are various ‘laddoos’ that need to be avoided to be a successful investor:

1️⃣ Timing the market: Investors’ urge to look for investing only when the market will go down and sell only when it’s high, often results in them postponing investments forever and thus losing out on the tremendous power of compounding. Be very clear that ‘No Financial Doctor aka Financial Advisor, can ever help you with that. You must approach an astrologer for that..!!’.

2️⃣ Underestimating the power of SIP: Small steps help you climb mountains. Just ask about the importance of a 2-3 Kg dumbbell from a weightlifter/bodybuilder who is now lifting 100 kg comfortably. Stay assured that disciplined regular contributions will indeed accumulate great wealth for you.

3️⃣ It’s a Mutual Fund, not a Magic Fund: You must have gone through this statement of Master Blaster – ‘Sachin Tendulkar’. If not please go through it now:

It’s a part of an investor awareness campaign rather than any marketing campaign. Most investors often end up burning their fingers, if not complete hands, because they overestimate their capabilities and underestimate the role of a financial planner. You can’t be an expert in everything. Approach a capable financial advisor for your good financial health.

4️⃣ Goal-less Investing is direction-less investing:  Just imagine a football match without a goal post! It will be just full of chaos and nothing else. This is what happens with investments too. Always invest in accordance with your goals to be able to have your money work for you to fulfil your dreams.

5️⃣ Hiding your diagnosis reports from your financial doctors: Cashflow reports, asset-liabilities report, income-expenditure statement etc must be disclosed to a financial advisor so that he/she selects the right investment product for you. If not done so, your financial advisor will forever do a mix-and-match while groping in the dark.

(Contributed by Jatin Uppal, Deputy Manager, Hum Fauji Initiatives)

Relying on Investments Recommended by Finfluencers?

In the era of social media and digital influencers, the financial advisory world has expanded to include ‘finfluencers’ who have gained popularity by apparently simplifying financial concepts and engaging with audiences through social media platforms. These individuals share investment recommendations, promising high returns and financial success or claiming to possess insider knowledge. But the bigger question is: Can you rely on them to give you advice which is good for you?

Here are some factors to consider as an investor when it comes to ‘Finfluencers’:-

🟢 Red Flags: Nowadays anyone with access to the internet may become a Finfluencer and begin advising about money management as there is no entry barrier. Looking around more carefully, you may easily avoid clickbait information and unreliable advice from social media influencers. Watch out for the red flags like Dubious Advice (Hacks), Free Offers, Booklets and Training Courses, Zero-to-Hero, etc.

🟢 Consider the Source: To provide investment advice, Registered Investment Advisers (RIAs) licensed by the Securities and Exchange Board of India (SEBI) must have a minimum academic qualification and experience (MBA, 5 years experience and passed the tough X-A & X-B certifications of NISM). You will rarely find any of the thousands of finfluencers having even two of these. Consider – do they have a solid understanding of the investment market or have they successfully managed their own investments? Most of these finfluencers are essentially marketing guys masquerading as financial experts now.

🟢 Beware of bias: Finfluencers often have affiliations or partnerships with financial companies or certain investment products – the fancier sounding they are, the more they are brandished about. While this doesn’t discredit their advice, being aware of potential conflicts of interest is essential.

🟢 The self-proclaimed market experts or Finfluencers give generic financial advice that may or may not be suitable for everyone. Remember – One size does not fit all. You should not follow such advice blindly because everyone’s financial condition, approach to money, risk tolerance, investment horizon and goals, etc. are different.

Finfluencers can sometimes provide good financial education and insights, but it is essential to exercise caution and scepticism when considering their investment recommendations. Diversify your sources, verify information, and seek professional advice to make well-informed decisions that are aligned with your financial goals. It is your hard-earned money after all.

(Contributed by Manish Kumar, Relationship Manager, Team Vikrant 2, Hum Fauji Initiatives)

India has traditionally been a savings-oriented country. Women in India have always saved using traditional techniques such as a basic savings account, keeping cash, or using a periodic deposit at the most. As men are the primary source of revenue for financial services organizations, their marketing strategy is directed toward them. Because of these factors, women tend to take a second seat when it comes to active investing.

So, how do women get started with active investing?

 Educate yourself: One step is all it takes to go a thousand miles. Try to read and educate yourself as much as you can about the financial products and programs for active investing like in stock markets. Numerous free online and offline personal finance workshops, courses etc are accessible. The only strategy that will work is to become knowledgeable and to ask questions.

 Start early, start small and plan well: Various low-risk options, such as Public Provident Fund (PPF) and FDs are good to start early. The amount needed to invest starts as low as Rs 500 a year. More and more products can be tried finally leading to investing in active products like Mutual Funds.

 Ensure insurance: Ignoring insurance is one of the biggest mistakes that women frequently make. The meaning and significance of risk to life, health, house, car, etc have to be clearly understood including their essentiality for financial security.

 Grow your investments: While simpler instruments are ideal for getting started, it is necessary to evolve your portfolio as you continue to go. Terms like SIPs, mutual funds, and equities can sound scary, but it is all a question of information and education. Once you understand, things become simple, and your chances of converting your money to wealth steadily improve.

(Contributed by Aman Goyal, Financial Planner, Team Prithvi, Hum Fauji Initiatives)

What Did Our Clients Ask Us in the Past 7 Days?

Question: Should I redeem my mutual fund (or any other investment) portfolio, or go in for an education loan for my child’s higher studies?

Education inflation is a real challenge. Education is expensive, be it in India or overseas. The annual increase in the cost of education is about 10 percent, whereas headline inflation is around 6% percent on average. However, as a parent, one is always in a quandary whether to tap into own savings or avail of an education loan – the latter would obviate the need to disturb one’s own investment portfolio and help preserve own and family’s financial goals, including maybe retirement plans. Going for an education loan helps in-

  • Building financial prudence: Taking on an education loan is a great feeling for your child. It creates a sense of worthiness when they pay for their own education, without the need to depend on the family. Besides this, they also start building their credit history. A good credit profile will help them get cheaper loans in the future when required.
  • Income Tax Deductions: Loans help to fill the gap between the finances available and the finances required. Such loans generally provide flexibility in repayment and also tax benefits on interest paid. Interest on an education loan is eligible for tax rebate under Section 80E of the Income Tax Act 1961 without any limit.
  • Easy repayment terms: Certain banks offer very reasonable interest rates on education loans and even give preferential rates for top-ranked universities and institutes. Good research is required by the child and/or the parents to get the best bargain.

How the dilemma can be avoided?

Start saving early to counter education inflation: For the compounding of wealth to work its magic, it needs time. Starting the saving when the child is young gives us (the parents) the advantage of compounding which happens over time. Regular investment in a higher-yielding asset like equity for the long term provides the required returns to achieve such a goal.

But what if such a saving has not been done or is insufficient? Tough choices have to be made. Get your investments evaluated by a good financial advisor to see what is needed for your critical financial goals (‘requirements’) in future – the rest of the investments may be tapped into. Also, take a tough call on what should be paid for by you and what by your child – making your child pay back a part of the money from his/her future earnings could drive some valuable financial lessons on investing and ownership home…

(Contributed by Team Sukhoi, Hum Fauji Initiatives)

Also Read: Financial Cocktail Samosas: Bitesized Money Morsels For You, 31/05/2023

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