Most of the people have a concept that if they invest in some good product, that product will give a good return, and then he can achieve his entire financial goal. Let’s discuss a bit about this topic. It’s true that without a product there will be no investment. A product is therefore necessary. If illness cannot be cured without medicine, the destination cannot be reached without a vehicle, and the financial success is also impossible without product. But which product is suitable for you, which need to be understood.
The product is like a vehicle. First, you need to decide where to go, then comes the vehicle which is suitable to go to that particular destination. For instance, suppose you want to go Dharmatala from your house, or someone who wants to go to Durgapur, or to Delhi. Not all vehicles will be the same of course. Now if someone wants to go to Durgapur and gets into the vehicle which is scheduled to go for Delhi, what will happen? Whose fault is it- the vehicles or the person who chooses that vehicle?
This is the matter to think. Now there are also some people who cannot even see their destination or purpose. They, however, choose a vehicle according to its performance. Now it happens the obvious. Therefore raises the question, why most of the people cannot see their destination or purpose? Even without going deep into the matter, according to my experience, in most of the cases, it happens to 35 and above aged people. These people cannot see or explain their financial goal. Every time they think of deciding, they remember their previous bitter experiences, previous compromises, without planning for finance in their life etc. Means, logic and passed experiences blocks their dream to achieve the goal. There might be another reason of doing work without pre-planning or without vision in life.
These people decide their vehicle or financial product keeping one thing in mind, and that is to get a good return and another factor, which is safe according to their concept. From my experience, these people can never stay long term in any product, and even if they do so, the reason for which they had chosen the product cannot get. Don’t get me wrong. I have seen this. You may not agree with me. Then comes the question, why cannot you? See, to specify this aim of return or purpose I have seen that was also not very clear. Means, how much percent in return target? Or how much amount target? For how long you want? None of this they learn in specific. The concept they have about safety, they cannot clearly explain. Return and risk are two sides of the same coin that they don’t know about.
So many people have mailed me to ask about some particular product that can give good return. Just imagine, if a patient goes to a doctor and ask for some good medicine to cure his diabetes, how that will be? Generally, I don’t give the answer to this; I don’t give the answer because I don’t have one.
The point is, someone goes to a medical store and buys medicine. Will this happen? Just like no medicine is bad, similarly, no product is bad as well to match your objective with you, a product is very important. For instance, there is numerous asset class, like gold, real – estate, bank- FD, Post office Deposit, company FD, bond, Debenture, Insurance, PPF, Mutual Fund, Share etc. now in these asset class there are also other products. Which product is suitable for your purpose, for that you need professional advice.
First asset class: each and every product gives an extreme return. Then who runs making purpose in return, he will always run to that asset class that gives more product return, one must understand the basic concept that returns results. Which result? The result of performance management. Keep in mind, performance always rotates. If you remember, even FD or assured return product had given 13% return and interest. Gold gave more than 20% return. Real – estate also gave more return. This same goes for Equity.
Just like a long term’s product or asset plus gives a return that has highest return point, lowest return point, similarly average return point is also there. Just when a product rises to its peak return, it starts descending to its average return. Sometimes it descends even more than its average return. I have tried to explain it in the easiest way without technical jargon.
Which Product has the Lowest Point or have touched the Peak, if one has the expertise then he will be the richest man; there will be no question to this. At least I don’t know any such person. When the FD Interest rate was 13%, if anyone had known that the Interest Rate would increase or decrease, then he would be the rarest person among all. Had anyone ever guessed how much the Gold rate would go up before descending down? If it goes up, then how much it will?
Below the diagram will give an idea.
The truth is he whose purpose is good Return or Result; they generally invest when that Asset Class reaches its peak or gets trapped when the price goes down. From 2000 to 2004, the Debt has given Highest Return, from 2005 to 2007 Equity has given Highest Return, 2008-2012 was the golden age for Gold, again 2013-2014 Equity had held the 1st Position. Who is next has anyone have the idea? Or we will go astray?
There’s no scarcity of people in Mutual Fund who select a product. They invest in various Website, paper etc in terms of which Product gives the Highest Return, otherwise invest in the product which has Highest Rating. People those who do this, without understanding the concept, I can tell quite firmly that they have wasted their time, which is very essential in Personal Finance. You can do one thing: today the fund you see in the Top Performer Ranking, will you see where they have been two or three years back? Remember performance rotates. Alright, I will show you not two, but five years of Horizon.
During the 10 years period, only three Funds have kept the Star Rating intact. Again you will see, from 2000 to 2007 the Funds those were Brigadier, in 2008 those were turned into a gatekeeper.
The best fund is the Result. After being the Best Fund are you sure you aren’t missing anything in the race? Are you sure you aren’t chasing the golden deer? To look a simple topic in a simple way is the best option. I am telling this from my own experience, many people have brought Speed Boat instead of Submarine due to sheer misunderstanding all for acquiring that speed. If the Media, Website, Fund house can bring any Fund in the front to serve their purpose, your purpose won’t be served. They will give you advice free of cost and you will earn money, is this sounds logical? There are many processes in a short time to Generate Return. Those are, however, not Investment Process.
Look the diagram below and think for Long term Investment among High Return Fund A and Consistent Fund B, what will you choose?
Now here comes the question, if you don’t have a very good concept in this Fund Selection Strategy then ask for Help from Professional Financial Advisor. Every Professional Advisor judge several factors like Technical Factor, Risk Factor, and Objective before Fund Selection. I don’t think without proper monitoring one can serve good Product and Purpose Serve, because Economy is always in a state of flux.
For example, suppose two people, both age 30, income 30,000 P.M., Expenses 25,000, the first person’s only dependent is his wife; they live in their own house. Work as a Government Employee. And the second person’s dependents are his wife, one daughter, and his aged parents. He works in a Private Company. Will both the person’s Products be the same?
Two person aged 35, both wants to invest 5,000 Rupees per month, but the person wants to invest for his son’s Higher Educational Purpose, and the second person wants to invest for his Retirement. If both the person’s Higher Performing Fund is received today, imagine what will happen? Means isn’t the matter be like this- one has gastric problem, and the other one has a stone in his gallbladder, both get into the Medical Shop and buys Antacid. Why, because they have not visited the Doctor for Problem Solving, isn’t it? Maybe the Doctor’s fees were saved, but the problem still remains.
The reason for discussing this matter is because many people are there who don’t know me or I don’t know them. They had asked me about this in various emails. I hope I have succeeded in shedding some light into the matter. I think instead of focusing on Product, one should focus on Purpose/ Planning. I am waiting for your response.
(This article was published yearlier in this blog in the Bengali language)