To Be or Not To Be

A little kingdom I possess,
Where thoughts and feelings dwell;
And very hard the task I find
Of governing it well.
-- Louisa May Alcott.
...........hmmm....that more or less describes my situation !!

~A Wise Man Said~

It is the mark of an educated mind to be able to entertain a thought without accepting it.
-- Aristotle

Sunday, February 04, 2007

I have entered the Market. Not the shopping market—that I had entered when I was two, and have been a major force in keeping it up and running ever since. I mean THE Market.

I have always been a savings-oriented person; even though I love splurging on clothes and other things of taste, somewhere at the back of my mind, a small niggling voice always cautions me to ‘save’. It is probably an innate result of being brought up in a middle-class family.

The funny thing is that though I have been conscious about saving, I have thought very little about what are the best ways to save in. I have more-or-less stuck to conventional routes that my father, and probably his father before him, stuck to. The money would either lie in the savings account or the fixed deposit account (when it became a decent enough sum to put there). I guess I thought of the bank as a place to accumulate my savings as opposed to them lying around in the house. I don’t remember ever thinking much about ‘interest rates’ or ‘returns’ or such like.

When I started working, or I should say when I first had to deal with the monster called Taxes, I was faced with a unique problem in that I was told I would have to save a certain sum (put it aside in certain things) not because I wanted to save, but because I would rather not give it away. It made sense to me at that time. Put Rs. 200 in an NSC as opposed to give Rs. 100 to the Government made perfect sense (please ignore the math). NSC, PPF, etc. were all new terms to me then (for someone who hadn’t traveled beyond the local bank), but they have become extremely familiar now, after many years of working, and many years of playing hop-scotch with my money in March. Should I go for PPF or should I put in NSC or wait! should I buy a house?

One day an Insurance Agency set up a workshop in my office; they were aggressively selling the idea of Insurance + Investment + Tax Saving. Insurance being another one of those conventional things that I knew we all must have (for the life of me I couldn’t have told why!), I went in for the session. I couldn’t understand the figures (that may be no big surprise), but what appeared to me was if I took the insurance policy, I would be getting insurance, plus getting tax benefits every year, and if that wasn’t all, my premiums would be invested to give me a something extra at the end of the term (if not me, my family—it was easy to forget the point of insurance!). Seemed like a win-win deal at the time.

This was my situation till about a few months ago: I was saving my money in banks. I was buying insurance to save tax and to invest. I trusted the agents to make decisions for me; I bought whatever they sold if they told me it was good enough—after all, they would know!

Thankfully, that is not the situation anymore.

An article at Rediff Money where a person gave their profile and asked some investment-related questions hooked me. The article was well-written, and explained concepts in a very easy-to-relate manner, avoiding all sorts of jargon. I was interested enough to read more articles, more financial literature, and the more I read, the more I learnt, the more I understood, and the more interested I got.

I discovered that I had committed many bloopers without even knowing so, and never explored opportunities worth exploring, because nobody ever told me so.

Let me list some of my discoveries—:

* I had never thought of ‘investing’ as seriously as I had thought about ‘saving’; I realized that all the hard work one does saving amounts to nothing if one does not invest the saved money well. You can make your money ‘work hard for you’, instead of letting it idle in the bank!

* I realized that having clearly defined objectives or goals for investment enables one to plan better. It seemed that investing ad hoc for the sake of investing, or worse still, investing for the sake of avoiding tax, leads one to make not-so-good decisions. Unfortunately, most of my investments were an offshoot of tax planning!

* Investing and Tax Saving should be viewed as two separate things. Tax saving should happen as a result of good investment planning and not vice versa.

* One keeps hearing that March is not a good time to start looking at your investments; I find it is true. The thing is, one naturally looks at tax saving modes of investment at this time in an unthought, unplanned manner. I myself was sold something last February with a ‘tax advantage’ tag, and only now I figure it was a dud investment!

* Insurance is not the best investment vehicle, though agents and advertisements fool us in thinking so. We almost forget the purpose of Insurance, we’re so drugged by what we see and hear. Buy insurance only to insure your family against what might happen to you in future. The best way to do this, I found, is to go for a Term Plan, which is a basic insurance policy that gives you highest possible life cover at lowest possible price. The other insurance schemes that also promise to invest your money, offer very inadequate covers at very expensive rates, because of the investment component. Not just that, they do not even generate as much returns as other investment choices. A lose-lose deal actually.

* I found that Equity is the best choice of investment for earning superior returns in the long term, albeit one appreciates the risk involved. One could either invest directly in equity in THE Market or indirectly through Mutual Funds (MFs).

* I was introduced to MFs in a big way; they allowed you to be a part of THE Market—invest into equity—and also diluted some of the risk. I learnt that there are many types and varieties and brands of MFs too, with differing degrees of risk, and one would do well to understand them before jumping onto the bandwagon. If going in for one, the Systematic Investment Plan (SIP) route appears to have a lot of favour, by which one can put aside a fixed sum of money every month towards the chosen MF, instead of paying a lump sum.

* Not all of us have the time or knowledge to pursue investment options in detail for our own good; however, instead of relying on agents who sell insurance or investment schemes for commission and other personal gain, it makes sense to go for an Investment Advisor who will charge a fixed fee, and in return will manage your portfolio. Any which case, it is good to be in a position to at least be able to assimilate what advice you’re getting—I realize that now the hard way!

Enough of gyaan, I guess. Coming to my initial announcement again…I have entered THE Market. One of my New Year resolutions was to become more conscious about saving (avoid getting tempted by sales!), and more well-versed with how best to invest the money that I save.

I have only just opened a Demat account (don’t they say, better late than never?), and also made my very first investment based on my own research—I have opted for HDFC Equity Mutual Fund through SIP (check out this place for more information on good funds to go for). I hope to read more, learn more, exercise my decisions more…and not be a good bait for those insurance/investment agents anymore!