So let us take a look at the basics of various options, one at a time.

Shares: Investing in the equity market directly is exciting and sexy. You are in the thick of things and learn a lot in the process. Though the volatility and the information overload makes it a daunting task, investing in stocks is not rocket science. One should start with identifying a list of 10-15 companies out of 3-5 sectors which you know about and interests you. You can then keep a tab on their management team, financials, and future outlook and over a period of time, and will be able to take a call on them.

Real Estate: I feel that one has to be plain lucky to get into a good deal and be able to get the right buyer at the right price and time. I can’t think of any other factor other than luck. So if you feel you are blessed and have the right tip, go for it. Otherwise, it’s a no-no.

Mutual Funds: One should allocate their time to investment decisions in proportion to their income generation goals. Also, convenience and hassle free investing should be a major factor. Mutual Funds fit the bill where Fund Managers are into it full time. If you van identify fund managers who have consistently performed over last 3-5 years, nothing like it. The fund manager also has the muscle power of crores of Rupees and is able to take entry and exit decisions impartially. MFs continuously churn their portfolio. When MFs buy and sell stocks, they don’t have to pay capital gains as you would do when you churn. With Systematic Investment plans (SIP), you can start investing with as low as Rs 500 per month. But MFs have its own loading and administrative charges and the fund managers make merry on your hard earned money.

Exchange Traded Funds: This is one product, I really love. Time and again it has been reported that these passively managed funds perform as well (if not better) than the actively managed funds. Diversified equity funds usually have large expense ratios compared to index funds. For example, the expense ratio of Banking BeES, an index fund, is only 0.45, while it is anywhere between 2-2.50% for diversified equity schemes. That’s why I recommend ETFs.

ULIPs: Unit linked insurance policies combine two products, i.e. Insurance and Mutual Funds. In the initial few years, ULIPs are very expensive. But in case you don’t want any hassles of investing, and you have a tried and tested Insurance agent who is almost part of your family, then ULIPs are for you. But remember that you pay a very heavy cost for buying ULIPs.

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1) Growth,
2) Liquidity,
3) Security and
4) Expenses

Growth: You must see that your investment is having real growth and not just a nominal growth. For example, if you earn 9% from your Fixed deposits and the inflation rate is 10%, your money is actually decreasing, not growing. Better to spend it right now rather than invest.

Stocks, Mutual Funds and Exchange Traded Funds (ETFs) can give you the best returns over a period of time. Over a period of time, the Compounded Annual Growth Rate (CAGR) is generally above 15%.

But growth is not the only parameter. Let’s take a look at the others.

Liquidity: Your investments should not come in the way of your short term needs of money. And if you need some money and can’t take it out. then the money is useless.

Again, Stocks, MFs and ETFs score heavily while Bonds and ULIPs have a lock-in period or have substantial surrender charges. Real estate scores low here (You have to be lucky to get good buyers at the right time).

Security: Getting the best returns and having it on a tap is okay. But you need to be sure that your investments are secure too. Equity investments are subject to market risks. You may get into a bad stock or real estate which are unsecured. Otherwise also, stocks and real estate are very volatile and can affect your blood pressure too!

That’s why diversification and sticking to an asset allocation policy where you invest both in equity as well as debt products. More on it later.

Expenses: This is the most overlooked parameter. Basically it’s because your financial advisor will not like to tell you the amount of commission that he/she’s getting. The difference in commission rates can make a big difference in the final value of your investment.

Example: A CEO of a tech Startup invested Rs 50000/- in a ULIP when the Sensex was around 10000.

“Why is the value Rs 47000 now when the markets have gone up to 14000+?”, he asked me.

“Well, only 30-35000 would have been invested in the markets. Rest goes to the advisors and other costs. So your fund has performed well. Only you were not told about the costs”, I replied politely.

ETF is the least expensive with charges of around 0.5%. And it’s not sold by Advisors and is only available on the Stock Exchange. Compare it to 2% from Mutual Funds and much more in ULIPs (especially in the initial years). Stocks too, are the least expensive, provided you get into the right stocks at the right time.

What do you think about these parameters? We would be delighted to see your thoughts on this.

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And haven’t you heard W Somerset Maugham say, “Money is like a sixth sense without which you cannot make a complete use of the other five.”

Infact all of us do something with our money. But I am not sure whether we know that what we are doing is right or wrong. Mostly we take the advice of our parents, friends or the friendly financial advisor. But have you taken a moment to sit back and see whether their advice suits you or THEM?

Money Management is a purely personal thing. That’s why it’s called “personal finance”!! So what applies to your parents, friends may not really apply to you. For example, your risk appetite could be different. Let’s take a look at some of the other factors which influence your personal finance decisions:

• Saving Habits
• Spending Habits
• Investment Goals
• Risk Profile

We’ll discuss these as we go along. The idea here is to make personal finance “non threatening”.

Infact some of us have tried to run away from finance. Maybe because we were not able to understand the jargons and the maths. But I guess ignoring personal finance worsens the situation. And the only way to get maximum out of your personal finance is to look it into its eye and grapple with it. You will come out stronger.

And the internet is a powerful medium which can help you by providing real time information and applications. You’ll understand that handling your money is not rocket science as you read along.

At Paisa, we are about to redefine how money is managed in India. We are building the largest consumer finance portal in India and will provide a one stop solution for all your financial needs. Stay Tuned.

To start with, do subscribe to the RSS feed of this blog. Thank you.

• Start early on everything.
• Keep it Simple, don’t try to outsmart the market, don’t need to chase trends.
• Find a Saving Account with a Bank that gives you good interest.
• Always invest more in stocks.
• Check Fees of Mutual Funds. Fees higher than 1% is bad
• Manage Tax and see how much can be saved.
• Do not take loans above 50% of your income flow.
• Always check how much you can repay.