Dr. Sanjiv Agarwal
Last week saw a series of financial scams in the state of Rajasthan and Jaipur in particular. The reason for all such financial scams is obvious – greed of making the quick buck at both ends. Investors as well as the company floating such schemes.
So long as the cycle continues smoothly, it’s fine but the moment defaults start occur, the writing on the wall becomes clear. It is a universal fact that one should not expect abnormal returns as one can not earn returns which are exceptionally higher than what the market can deliver. If we are able to understand this, we will realize that no one on this earth can fetch you higher than market returns – not even God. Yes, it can happen only in a game of chance or winning a lottery.
|
INVESTORS BEWARE
DO’s General
– Beware of unexpected calls from unknown people introducing quick profit (like money double) schemes. – Doubt the abnormal promises or high returns in short time. – Reject investment proposals which require immediate investment. – Be known by the company you keep (credible promoters) – Seek written information from companies – Cheek past track record of consistent profits, return etc. – Read small print carefully – Get a professional opinion / expert advice before investment, even at cost – When in doubt, don’t commit – Invest only when you understand the product – Define your objectives – liquidity, returns, risk mitigation, tax planning
Stocks – Stay cool – Ask for prospectus, offer document – Check promoter’s track record. – Diversify portfolio to distribute risk – Understand your financial needs – Invest for reasonably long term – Average cost by making regular investments. – Review and churn your portfolio regularly. – Cross verify the company credentials by credit rating.
Private company investments – Invest in RBI registered NBFC’s only – Check scheme approvals – You can go by promoter credentials – Invest on return basis, not on incentives – Question your broker / consultant who is marketing any scheme – No government agency can insure your money if invested with fraudsters / crooks. – Seek company registration – Cross check with regulatory filings DON’Ts.
– Assume you are a good investor – Rely on immediately available investment proposals without studying – Rely blindly on proposals with slogans such as ‘tomorrow will be too late’ or ‘act now’ or ‘golden opportunity’ etc. – Rely on unresearched predictions – Accept hot tips or ramous – Play in grey market – Follow the herd but take your own call – Don’t choose investment based on incentive / commission make investment purely on tax benefit basis – Rush into investment. Investing is not easy. – Try to time the market – Get emotionally attached to investments – Put your all eggs in one basket – Believe the private rankings – Believe in target prices given by analysts – Loose heart in investing |
While investing in stocks is a risky affair as all equity investments are risk prone investments, though they may yield higher returns, one should not get tempted to invest in stocks as it requires study, patience and post investment watch. Many of us are not able to do so. Ignore it, and look for outperforming mutual fund scheme.
If you do not want to invest in equity, you may choose to invest in bank fixed deposits, corporate fixed deposits or bonds. However, they have fixed income in the form in interest which is less risky, being relatively safer. The principal remains intact and earns interest, known to the investors in advance. While the prevailing rates of interest range between 8.5% to 10% p.a, corporate deposits could fetch yet higher interest income from 10% to 12.5% (12.5% being maximum interest a company can pay).
If any company offers you more than 12.5% interest p.a or offers higher incentive or commission, you have reasons to doubt that company. However, in terms of yield, it could be 14-15 percent because of compounding. Corporate deposits can not be made for shorter period than six months or longer than three years. Normally companies do not accept cash but only accept bank instruments. Investors should invest with companies with proven track record, promoters with credible integrity and investment grade credit rating.
This year, as per recent announcement, one can also invest more in Public Provident fund as the limit has been hiked to Rs. one lakh and interest rate is also higher at 8.6% p.a. Moreover, interest earned is tax free income.
As a end note, my advice would be invest wisely. It’s your money, no body else will loose or gain but only you.
