Sunday, 4 March 2012

Investment Products To Avoid

gaur razvan
We all dream of building wealth. Everybody starts off but very few succeed. Does this mean we don’t save enough? In fact many Indians have the potential to save more than 40% of their Salary. Financial Guru’s Say if one can save 20% of what you earn; you can lead a peaceful life later. Meaning 20% of your monthly salary should go towards building retirement corpus.

Quite a lot of people end up saving 40% of their salary; this is double than what is recommended by Finance Punters. The truth is in spite of this; very few succeed leading a comfortable life after they retire.  Have you ever thought why this could be so?

We Indians are best examples when it comes to saving our money; however we are a very bad example, when it comes to investing our money. We end up investing our hard earned money into bad products.

Let me take you to US Trip
.  A young software engineer, who gets an onsite opportunity, will be able to save around 10 Lakh in One year. During his stay in US, all that he would be aiming is to save as much as he can. Every cent is spent cautiously.

The moment he lands in India, he royally blows up his money buying a sedan car.  10 Lakhs vanished in flash Fhewww……. Surprisingly few think, buying car is investment.

Take away is:
It takes quite a long time to accumulate money, its takes few minutes or hours to blow it away.

Let us look into some of the investment products that we should avoid.
  •  Investment Come Insurance:  Endowment/ULIP/etc should be strictly avoided. They are complex product and returns are less.
  • Child Insurance: Child insurance is Endowment Insurance in Disguise. Don’t get carried away by the word child. Click here to read Smart way of planning for your Kid.
  • Pension Plan: Ask the Gen X guys, if they have planned for their retirement. They proudly say YES. Dig in further, you will learn, Retirement plan is all about buying a Pension Plan. They think having a Pension Plan will solve all their Problems. It is more of TV influence and marketing style.Simple and disciplined investment can help you build your retirement corpus. Click here to read how you can build wealth for your retirement.
  •  New Fund Offer: People think NAV 10 is cheaper than 50. The agents get a bigger commission for marketing NFO. Investors have lots of Myth about NFO. Click here to read the Myth in details. Invest in fund that is at least 5 years old.
  • Fund of Funds : I don’t understand the logic of investing in FOF. FOF fund is fund that will invest in other mutual funds. Diversification is good, over diversification is not. FOF are expensive, the management fees is paid twice. There is good amount of chance that you will invest in the same stock through different scheme. The returns of equity diversified funds are better than Fund of Funds in long run.
  •  Sectoral or Thematic Funds: Investing in Thematic or Sectoral fund is very risky. Sector fund invest in particular sector or theme. Example IT Fund, banking fund. Performances of these funds are purely based on the sector. The fund manager will be forced to invest into a particular sector even if he is aware that the sector might not do well for few more years. Always invest in equity diversified fund. Let the fund manager do the rest.
  • Penny Stocks: Investors think, its only Penny stocks and Small Caps have potential to return multi Bagger returns. They end up investing into junk stocks with no Fundamental values. Tips and Brokers advice is all that they care for. Penny Stocks may give you MULTI BEGGER returns. Click here to read Myth of stock Market investing.
  • Fixed Deposits: Rate of interest offered by bank might sound appealing. Banks FD’s are safe to invest but returns are very low If you are in high tax bracket. FD Gains are fully taxable and hence the actual returns will be quite low. Invest in product that has potential to beat Inflation.
  •  Company Deposits: Investing money into NON Reputed companies can be very risky. Invest only in safe and sound companies. Unknown companies/Non reputed companies offering high interest rates should be strictly avoided. Make sure you review the ratings provided by rating companies before investing your money in company deposits.
 Did we miss out any other product that one should avoid?


Madbull-Ram said...

I would also add Chit Funds to the list :)

WealthUCreate said...

Oh Ram, you are right, Chit Funds, MLM company that promise Moon and Stars should be strictly be avoided.

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