What are the most common investment myths?
The most common myth is that we can get 20 per cent returns every year with no downturn. People still believe that investments come with no risks —whether it is gold, real estate, equity.
The second big myth is that insurance is the best investment. Insurance is a good investment but the primary purpose of it is protection and we have to understand the level of protection we are looking for, the term of that protection and the portfolio effect. That means there should be a right combination of term and investment in our portfolio.
Also, in the absence of any advice, most people believe that their neighbours and friends actually know what they are doing. It’s astonishing how many people rely on that.
The fourth myth, according to our research, is that though India has become more affluent and materialistic in the short term, values and families still come first for Indians and so the bulk of their assets are geared towards the protection of their family.
The last myth is that it people believe it is all right to invest in a product without really understanding it. What surprises us is that in conversations with new clients, many don’t understand the concept of risk profile. They are willing to risk in order to not make returns but they are not willing to lose the capital. So in terms of investment, it is almost an oxymoron.
What is your take on the debate on investing in equities?
It is a portfolio effect, first and foremost. You shouldn’t put all your money in a single asset class, it has to be diversified. Also equities come with risk, probably higher risks than most other product classes.
So becoming a direct investor in the equity market, when you’ve never traded a stock before, is not the right thing to do. It has to be done gradually. Start at a fund, then move to a specialised fund, then to equities if you want a more direct exposure. Also, understand the risk profile and time horizon before investing in equities.
What is your advice on investing in gold — is it a hedge against inflation or a dead asset?
It has to be a portfolio effect again on whether an investor needs an inflation hedge. But in India, gold is a cultural asset as well. We buy gold for other reasons and think of it as an investment. If you are buying it as an investment, then it has to be the right component of your portfolio and an investor has to decide whether it is a hedge or for speculative reasons. Both have different risk profiles.
What is a good age to start with retirement planning?
Everybody should think about retirement when they have their first regular job. And that means envisioning your life at retirement. That picture changes constantly—what you think at 20 years, would be different to what you want at age 40 and it would be different what you get at 60. But if you start envisioning it, you will start making plans for it. The sooner you start, the better you can plan for it.