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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